Xp Power Regulatory News (XPP)

1 Aug 2006 07:01

XP Power PLC01 August 2006 1 August 2006 XP Power plc ("XP" or "the Group") Interim Results for the six months ended 30 June 2006 XP, one of the world's leading providers of power supply solutions to theelectronics industry, today announces its interim results for the six-monthperiod ended 30 June 2006. Six months Six months ended ended 30 June 2006 30 June 2005 (Unaudited) (Unaudited)Income and Expenditure Revenue £38.8m £32.2mGross profit £13.9m £11.6mGross margin 35.8% 36.0%Profit before tax £3.5m £3.7mProfit before tax amortisation ofintangibles £0.1 million (2005:nil) and restructuring costs £0.7million (2005: nil) £4.3m £3.7mBasic earnings per share 14.0p 14.0pDiluted earnings per share 13.8p 13.7pDiluted earnings per shareadjusted for the amortisation ofintangibles and restructuringcosts (refer to note 5) 16.9p 13.7pInterim dividend per share (refer to note 4) 8.0p 7.0p • Good revenue growth driven by strong performances in North America and Singapore • Manufacturing Joint Venture now operational • XP product now represents 58% of Group revenues • Solid progress in cost efficiency • Diluted adjusted earnings per share increases 23% to 16.9p (2005: 13.7p) • Interim dividend raised to 8.0p (2005: 7.0p) per share underlining confidence in future prospects Larry Tracey, Executive Chairman, commented: "We continue to re-align our company as an Asia-centric designer andmanufacturer of power supplies servicing the major manufacturers of industrial,communications, medical and military hardware. 'This task is being undertaken whilst continuing to grow earnings anddividends." Enquiries: XP Power plc Larry Tracey, Executive Chairman 0118 984 5515James Peters, Deputy ChairmanDuncan Penny, Chief Executive Officer Weber Shandwick Square Mile 020 7067 0700 Nick Dibden Notes to editors: XP Power plc provides power supply solutions to the electronics industry. All electronic equipment needs a power supply. Power supplies convert theincoming AC supply into various levels of DC voltages to drive electroniccomponents and sub-assemblies within the end user's equipment. XP Power segmentsits business into Communications, Defence and Avionics, Industrial and Medical.By servicing these markets, XP Power provides investors with access totechnology and industrial sectors of the Worldwide electronics market. The market is highly fragmented and made up of a large number of OriginalEquipment Manufacturers who source standard and modified standard power suppliesfrom several hundred power supply companies. The Investor Presentation covering the XP Power plc 2006 Interim results will beavailable on the XP Power plc website at 0700 on 1 August 2006. For further information, please visit www.xppower.com 1 August 2006 XP Power plc ("XP" or "the Group") Interim Results for the six months ended 30 June 2006 CHAIRMAN'S STATEMENT I am pleased to report that XP has continued to grow diluted earnings per shareas a result of its strategy of developing its portfolio of own brand productsand focusing on our key accounts in our chosen markets. In the first half of2006, 58% of our revenue came from our own XP branded product compared to 56% inthe same period a year ago. Financial Performance Total revenue for the six months ended 30 June 2006 was £38.8 million comparedwith £32.2 million in the same period a year ago. Gross margins were 35.8% in the first half of 2006 compared with 36.0% in thesame period a year ago. Although we have made strong margin gains in NorthAmerica due to an improvement in product mix, the overall margin was lower inthe UK because of margins on third party business; however, action has beentaken to improve this performance. The overall result is that profit before tax, amortisation of intangibles of£0.1M (2005: nil) and restructuring costs of £0.7 million (2005: nil) was £4.3million compared with £3.7 million in the same period a year ago. Basic earningsper share remained at 14.0 pence. Diluted earnings per share were 13.8 pencecompared with 13.7 pence in the same period a year ago. Diluted earnings pershare adjusted for the amortisation of intangibles and restructuring costs were16.9 pence (2005: 13.7 pence). Dividend Improved diluted earnings per share adjusted for the amortisation of intangiblesand restructuring costs has allowed us to increase once again the dividendpayable to shareholders. The Group has declared an interim dividend of 8.0 penceper share for the six months ended 30 June 2006 (2005: 7.0 pence per share). Theinterim dividend will be paid on 5 October 2006 to shareholders on the registerat 1 September 2006. In accordance with International Accounting Standard 10, dividends are notrecognised in the financial reporting information until they are declared. Thedividend charged to reserves in the interim financial statements in the sixmonths to 30 June 2006 relates to the final dividend of 9.0p per share paid inrespect of the year ended 31 December 2005 (refer to note 4). Geographic Markets and Industry Segmentation Trading conditions have been reasonably positive in the first half of 2006particularly in North America where we have seen broad improvement in mostsectors. North American revenues for the period were $37.1 million (or £20.9million) compared with $32.6 million (or £17.4 million) in the same period ayear ago. As a result of acquisitions made in the second half of 2005, revenues in the UKbusiness were £11.5 million compared with £9.2 million in the same period a yearago. We took the decision to terminate a number of our third party lines duringthe period and review our minimum order values. These lines represent annualisedrevenues of approximately £4 million in Europe and $10 million in North Americabut the margins and resource required to support this business are notattractive. In concert with terminating these lines, we reduced our headcount inthe UK and North America and closed our Benelux office to maintain our futureprofitability. The total costs in the period associated with this restructuringwere £0.7 million. We consider that the actions we have taken will positivelycontribute to improving our gross margin in 2007. Our Continental European business grew revenues by 14% compared to the sameperiod a year ago as they continued to take market share reporting revenues forthe six months ended 30 June 2006 of £6.4 million compared to £5.6 million in2005. We continue to focus our resources on the higher value customers in our fourmarket sectors: Communications, Defence & Avionics, Industrial and Medical. Thisfocus will ensure that we devote our engineering resources to the rightcustomers and that our current and future product development is carefullytargeted and, above all, customer driven. For the six months ended 30 June 2006, 20% of our revenues came fromCommunications (2005: 26%), 51% from Industrial (2005: 46%), 21% from Medical(2005: 20%) and 8% from Defence & Avionics (2005: 8%). Manufacturing and the Supply Chain In February we announced that we had formed a manufacturing Joint Venture withFortron Source in 2005, located close to Shanghai in China. We are pleased toannounce that this facility had its formal opening during May. The facility isnow producing our ECM40, ECM60 and ECM100 product families. We expect thefacility to start producing a further two new product families during the fourthquarter of this year. We are pleased that the facility has opened on budget and on schedule and areexcited about the additional capabilities that this brings. This is a credit toour partner, Fortron Source, and our own manufacturing operations group. This isalso an important step which further enhances the relationship between FortronSource and XP. We have incurred approximately £0.2 million of start-up costs(0.5% gross margin points) in the period which have been charged to cost ofsales in the income and expenditure statement. Managing the supply chain has been testing over the last twelve months. We havecommitted significant resource to ensure that our product lines, whereapplicable, are compliant with the new directive on Reduction of HazardousSubstances (RoHS). This has involved sourcing new components and testing themwithin our designs and changing vast amounts of documentation required tosupport our products. Often components have not been available in productionvolumes as early as some suppliers indicated and this has inevitably led to anincrease in lead times which we are seeing throughout the industry. Alongsidethis we have seen rapidly increasing commodity prices which have started tofilter through the supply chain. For this reason, after a sustained period ofprice reductions in the market, probably primarily due to outsourcing ofmanufacture to Asia, the vectors are now pointing to price inflation in ourmarket. Asia In October 2005 we announced the opening of our Shanghai office. This office wasset up to support our customers who chose to manufacture their products in Asiaand our outsourced manufacturing operations. We see a continuing acceleration ofcompanies requiring us to support them in Asia. We now have quality assurance,component procurement, design verification testing, programme management andapplications engineering support in Asia. As well as the Shanghai office, our sales operation in Singapore is starting todo well and has made some significant design wins. It is clear that Asia is becoming increasingly important to us and we expect toincrease our operational activities in this region. People In April we announced the appointment of Paul Dolan as non-executive director ofthe Company. Paul (age 54) joined Deloitte & Touche LLP as a charteredaccountant in 1979 becoming a partner in 1980. He retired from the partnershipin 2004. Paul worked for over 20 years with listed and large private companies in thetechnology, distribution and manufacturing sectors. He was involved in advisingon stock exchange listings, acquisitions, disposals, reconstructions andcorporate governance matters. We are delighted to welcome Paul to the Board. Outlook The actions we have taken in the first half of 2006 to reduce some of our thirdparty lines will have a modest effect on our revenue in the second half.However, we expect that this will help us towards our 2007 target of 40% grossmargins. We have reduced our headcount in order to help mitigate any short-termloss in profitability from the termination of these third party lines. The global economic outlook appears uncertain with factors such as high oilprices, and inflation and interest rate concerns weighted to the downside. Weare also seeing component price inflation and cases of lengthening lead timescoming through from our suppliers. However, we have experienced robust bookingsin the first half of 2006 and go into the second half with a healthy backlog. Wehave also seen a strong performance in North America which is currently ourbiggest market, and remain cautiously optimistic about the future. We continue to re-align our company as an Asia-centric designer and manufacturerof power supplies servicing the major manufacturers of industrial,communications, medical and military hardware. This task is being undertaken whilst continuing to grow earnings and dividends. Larry TraceyExecutive Chairman1 August 2006 XP Power plcConsolidated Income and Expenditure StatementFor the six months ended 30 June 2006 £ Millions Note Six months Six months ended ended 30 June 2006 30 June 2005 (Unaudited) (Unaudited) Revenue 2 38.8 32.2Cost of sales (24.9) (20.6) ------------- ------------Gross profit 13.9 11.6 ------------- ------------ Operating expense:Restructuring costs (0.7) -Other operating expenses (9.1) (7.9) ------------- ------------Total operating expenses (9.8) (7.9)Share of associates' operatingprofit - 0.2Other operating income - 0.1 ------------- ------------Operating profit 4.1 4.0 Finance cost (0.6) (0.3) ------------- ------------Profit on ordinary activitiesbefore taxation 2 3.5 3.7 ------------- ------------ Tax on profit on ordinaryactivities 3 (0.9) (1.0) ------------- ------------Profit for the period 2.6 2.7 ------------- ------------ Basic earnings per share 5 14.0p 14.0pDiluted earnings per share 5 13.8p 13.7p Consolidated statement of recognised incomeand expenseExchange differences ontranslation of foreign operations (0.9) 0.5 ------------- ------------Net income recognised directly inequity (0.9) 0.5Profit for the period 2.6 2.7 ------------- ------------Total recognised income andexpense for the period 1.7 2.2 ------------- ------------ All activities derive from continuing operations. XP Power plcConsolidated Balance SheetAt 30 June 2006 £ Millions Note At 30 June At 31 December At 30 June 2006 2005 2005 (unaudited) (unaudited) Non-current assetsGoodwill 27.8 27.8 23.2Other intangible assets 6 2.6 2.2 0.5Property, plant andequipment 3.4 3.0 2.6Interests in associates 0.3 0.3 2.1Deferred tax asset 0.3 0.3 - ---------- ------------ ------------Total non-current assets 34.4 33.6 28.4 ---------- ------------ ------------ Current assetsInventories 8.7 8.1 9.1Trade and other receivables 18.6 17.2 14.0Cash 2.6 4.8 4.0 ---------- ------------ ------------Total current assets 29.9 30.1 27.1 ---------- ------------ ------------ Current liabilities (32.0) (32.0) (19.6) ---------- ------------ ------------ Net current (liabilities)assets (2.1) (1.9) 7.5 ---------- ------------ ------------Total assets less current liabilities 32.3 31.7 35.9 ---------- ------------ ------------ Non-current liabilities (4.7) (4.5) (8.3) ---------- ------------ ------------Net assets 27.6 27.2 27.6 ---------- ------------ ------------ Capital and reservesCalled up share capital 11 0.2 0.2 0.2Share premium account 11 27.0 27.0 27.0Merger reserve 11 0.2 0.2 0.2Retained earnings 11 5.7 5.0 3.2Translation reserve 11 0.6 1.5 0.3Own shares 9, 11 (6.1) (6.7) (3.3) ---------- ------------ ------------Total shareholders'funds 11 27.6 27.2 27.6 ---------- ------------ ------------ These financial statements were approved by the Board of Directors on 1 August2006. XP Power plcConsolidated Cash Flow StatementFor the six months ended 30 June 2006 £ Millions Note Six months Six months ended ended 30 June 2006 30 June 2005 (unaudited) (unaudited) Net cash inflow from operatingactivities 7 1.0 2.6 Investing activities Dividends received fromassociates - 0.3Dividends paid to minorityshareholders - (0.1)Capitalised expenditure onproduct development (0.5) (0.5)Purchases of property, plant andequipment (0.6) (0.3)Acquisition ofassociate/subsidiary 10 (0.8) (0.1)-------------------------- ------ ------------- -------------Net cash used in investingactivities (1.9) (0.7)-------------------------- ------ ------------- ------------- Financing activities Interest paid (0.6) (0.3)Dividends paid to XP Powershareholders (1.7) (1.5)Proceeds from sale of own shares 0.4 0.1Increase in bank loans - 0.2Increase in bank overdrafts 0.6 0.9-------------------------- ------ ------------- -------------Net cash used in financingactivities (1.3) (0.6)-------------------------- ------ ------------- ------------- Net (decrease)/increase in cash (2.2) (1.3)-------------------------- ------ ------------- -------------Cash at beginning of the period 4.8 2.7-------------------------- ------ ------------- --------------------------------------- ------ ------------- -------------Cash at the end of the period 2.6 4.0-------------------------- ------ ------------- ------------- XP Power plcNotes to the Interim Results for the six months ended 30 June 2006 1. Basis of preparation The interim condensed consolidated financial statements for the 6 months to 30June 2006 have been prepared on the basis of the accounting policies set out inthe group's latest annual financial statements for the year ended 31 December2005. These accounting policies are drawn up in accordance with InternationalAccounting Standards (IAS) and International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board with the exception of IAS 34 Interim Financial Reporting which has not been applied inthese interim condensed consolidated financial statements. The interim condensed consolidated financial statements do not include all theinformation and disclosures required in the annual financial statements andshould be read in conjunction with the group's annual financial statements as at31 December 2005. Significant accounting policies The accounting policies adopted in the preparation of the interim condensedconsolidated financial statements are consistent with those followed in thepreparation of the group's annual financial statements for the year ended 31 December 2005. The half year results are unaudited and were approved by the Board of Directorson 1 August 2006. The full year figures for 2005 included in this report do notconstitute statutory accounts for the purpose of section 240 of the CompaniesAct 1985. A copy of the statutory accounts for that year under IFRS has beendelivered to the Registrar of Companies on which an unqualified report has beenmade by the auditors under section 237 of the Companies Act 1985. 2. Segmental analysis The Group operates substantially in one class of business, the provision ofpower supply solutions to the electronics industry. Analysis of total Groupoperating profit, net assets, turnover and total Group profit before taxation bygeographical region is set out below. £ Millions Six months Six months ended ended 30 June 2006 30 June 2005 (unaudited) (unaudited) RevenueEurope 18.0 14.8USA 20.8 17.4 ------------- -------------Total revenue 38.8 32.2 ------------- ------------- Profit on ordinary activities before taxationEurope 2.7 2.4USA 2.2 2.2Interest, corporate operating costs, amortisation of goodwill and associates (1.4) (0.9) ------------- -------------Profit on ordinary activities before taxation 3.5 3.7 ------------- ------------- June 2006 June 2005 (unaudited) (unaudited)Operating net assets Europe USA Total Europe USA TotalGoodwill 8.5 19.3 27.8 3.7 19.5 23.2Other intangible assets 1.1 1.5 2.6 - 0.5 0.5Property plant and equipment 2.7 0.7 3.4 1.8 0.8 2.6Interests in associates 0.3 - 0.3 2.1 - 2.1Deferred tax 0.3 - 0.3Inventories 4.1 4.6 8.7 3.1 6.0 9.1Trade and other receivables 11.9 6.7 18.6 7.9 6.1 14.0Current liabilities (5.3) (6.2) (11.5) (7.3) (6.7) (14.0)Non-current liabilities (4.7) - (4.7) - - - ------- ------ ------ ------- ------ ------Total operating net assets 18.9 26.6 45.5 11.3 26.2 37.5 ------- ------ ------ ------- ------ ------ Operating net assets are defined as net assets adjusted for net borrowings. £ Millions At 30 June 2006 At 30 June 2005 (unaudited) (unaudited)Net assets 27.6 27.6Net debt 17.9 9.9 ------------- -------------Total operating net assets 45.5 37.5 ------------- ------------- 3. Taxation £ Millions Six months Six months ended ended 30 June 2006 30 June 2005 (unaudited) (unaudited) Europe 0.2 0.2USA 0.7 0.8 ------------- -------------Total taxation 0.9 1.0 ------------- ------------- 4. Dividends Amounts recognised as distributions to equity holders of the parent in theperiod: Six months ended Six months ended 30 June 2006 (unaudited) 30 June 2005 (unaudited)Earnings Pence per share £Millions Pence per share £MillionsPrior year finaldividend 9.0 1.7 8.0 1.5 Proposed interimdividend 8.0 1.5 7.0 1.3 The dividend payable recognised in the interim financial statements relates tothe 2005 year-end dividend. The interim dividend of 8p (2005: 7p) per share will be paid on 5 October 2006to shareholders on the register of members on 1 September 2006. 5. Earnings per share The calculation of the earnings per share is based on the following data: Six months Six months ended ended 30 June 2006 30 June 2005 (unaudited) (unaudited)Earnings £millions £millionsEarnings for the purposes of basic anddiluted earnings per share (profit for thefinancial period) 2.6 2.7Amortisation of intangibles 0.1 -Restructuring costs (after tax) 0.5 - ----------- -----------Earnings for adjusted earnings per share 3.2 2.7 ----------- ----------- Number of shares No. No.Weighted average number of shares (thousands)(basic) 18,590 19,247 Impact of share options (thousands) 298 435 Weighted average number of shares (thousands)(diluted) 18,888 19,682 Earnings per share from continuing Pence per share Pence per shareoperationsBasic 14.0p 14.0pDiluted 13.8p 13.7pDiluted adjusted for amortisation ofintangibles and restructuring costs 16.9p 13.7p The weighted average number of shares excludes 350,239 ESOP shares (2005:596,739) (employee share ownership plan) and 1,763,862 (2005: 860,799) treasuryshares. 6. Other intangible assets Other intangible fixed assets comprises development expenditure capitalised whenit meets the criteria laid out in IAS 38 (refer to Accounting Policies) and fromtrade marks and non-contractual customer relationships resulting fromacquisition which are being amortised over a five year period. 7. Reconciliation of operating profit to net cash inflow from operatingactivities £ Millions Six months Six months ended ended 30 June 2006 30 June 2005 (unaudited) (unaudited) Operating profit (excluding associates) 4.1 3.8Adjustments for:Amortisation of intangibles 0.1 -Depreciation 0.3 0.3Foreign currency differences (0.3) (0.3) ------------- -------------Operating cash flows before movements inworking capital 4.2 3.8Increase in inventories (0.6) (1.5)Increase in receivables (1.4) (0.7)(Decrease)/increase in payables (0.2) 1.3 ------------- -------------Cash generated by operations 2.0 2.9 Tax paid (1.0) (0.3) ------------- -------------Net cash inflow from operating activities 1.0 2.6 ------------- ------------- 8. Borrowings On 14 December 2004 the Group renewed its muIti-currency working capital creditfacility with Bank of Scotland. This facility is unchanged at £10 million, aninterest rate of 1.5% above LIBOR and is repayable on demand. In addition tothis, the Group has a multi-currency revolving credit facility of £15 million,which is provided for the purpose of financing acquisitions and is due forrenewal in September 2006. Both facilities are secured on the assets of theGroup. 9. Own shares Own shares includes 384,331 (December 2005: 318,851; June 2005: 471,851) sharesin the Group's employee share ownership plan (ESOP). These shares are carried atthe lower of cost and market value. Own shares also includes 1,691,375 treasury shares (2005: 846,375). 10 Acquisitions During the period the Group paid £0.7million being the outstanding amount due onthe acquisition of MPI-XP Power and £0.1 million to increase its shareholding inMieltec to 80% 11 Share capital and reserves £ Millions Share capital Share premium Merger reserve Own shares Translation Retained Total reserve earnings---------------- ------- -------- ------- ------- -------- ------- -------At 1 January2006 (audited) 0.2 27.0 0.2 (6.7) 1.5 5.0 27.2 Sale of own shares - - - 0.6 - - 0.6Loss on disposal ofshares (0.2) (0.2)Exchange differences ontranslation ofoverseas operations - - - - (0.9) - (0.9)Profit for the period to 30 June 2006 - - - - - 2.6 2.6Dividends (note 4) (1.7) (1.7)---------------- ------- -------- ------- ------- -------- ------- -------At 30 June 2006(unaudited) 0.2 27.0 0.2 (6.1) 0.6 5.7 27.6---------------- ------- -------- ------- ------- -------- ------- ------- INDEPENDENT REVIEW REPORT TO XP POWER PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprise the consolidated income andexpenditure statement, the consolidated statement of total recognised income andexpenses, the consolidated balance sheet, the consolidated cash flow statementand the related notes 1 to 11. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual financial statements exceptwhere any changes, and the reasons for them, are disclosed. Accordingly, the interim report has been prepared in accordance with therecognition and measurement criteria of IFRS and the disclosure requirements ofthe Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly,we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Deloitte & Touche LLPChartered AccountantsCardiff, United Kingdom1 August 2006 This information is provided by RNS The company news service from the London Stock Exchange