6 August 2024
XP Power Limited
2024 Interim Results
Robust management action taken to address impact of market slowdown
Full year outlook unchanged and well-positioned for recovery
XP Power Limited ("XP Power" or "the Group"), one of the world's leading
developers and manufacturers of critical power control solutions for the
Semiconductor Manufacturing Equipment, Healthcare and Industrial Technology
sectors, today announces its interim results for the six months ended 30 June
2024 ("H1 2024" or "the period").
+----------------------------------+--------------------+-----+--------+-------
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|Six months ended 30 June |2024 |2023 |% change
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| | | |
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|(£m unless otherwise stated) | | |
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|At actual exchange rate |In constant currency|
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| | | | |
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+----------------------------------+--------------------+-----+--------+-------
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|Order intake |87.9 |115.6|(24)% |(22)%
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+----------------------------------+--------------------+-----+--------+-------
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|Revenue |127.1 |160.2|(21)% |(18)%
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|Book-to-bill |0.69x |0.72x|(0.03)x |
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+----------------------------------+--------------------+-----+--------+-------
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|Order book |149.5 |250.0| |
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|Adjusted results1: | | | |
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|Operating profit |13.5 |21.8 |(38)% |(36)%
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|Profit before tax |7.6 |15.8 |(52)% |(50)%
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+----------------------------------+--------------------+-----+--------+-------
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|Diluted earnings per share (pence)|24.4p |59.1p|(59)% |
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|Operating cash flow |34.9 |30.0 |16% |
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|Statutory results: | | | |
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|Gross margin |40.6%
|41.8%|(120)bps|(120)bps|
+----------------------------------+--------------------+-----+--------+-------
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|Operating profit |9.1 |17.3 |(47)% |
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+----------------------------------+--------------------+-----+--------+-------
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|Profit before tax |3.2 |10.9 |(71)% |
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+----------------------------------+--------------------+-----+--------+-------
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|Diluted earnings per share (pence)|8.8p |38.7p|(77)% |
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+----------------------------------+--------------------+-----+--------+-------
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|Net Debt1 |104.2 |148.4|(30)% |
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+----------------------------------+--------------------+-----+--------+-------
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|Net Debt : Adjusted LTM EBITDA1 |2.2x |2.3x | |
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1 Details of the adjustments made and reconciliations to the reported results
can be found in note 5 to the condensed consolidated financial statements.
Financial Highlights
· Order intake of £87.9m:
· Semiconductor Manufacturing Equipment orders higher than the market trough
in H1 2023, but awaiting a sustained recovery
· Channel destocking progressing but taking longer than expected,
particularly within the Industrial Technology sector
· Revenue of £127.1m:
· First half revenue in line with the Board's expectations
· Year-on-year reduction reflects channel destocking and a market-wide
downcycle impacting demand for Semiconductor Manufacturing Equipment
· Monthly revenue steady throughout the period
· Adjusted Operating Profit of £13.5m:
· Ahead of the Board's expectations set in March due to the proactive
actions taken to manage costs
· Adjusted Operating Expenses 16% lower than the comparative period, with
sources of long-term competitive advantage preserved
· Gross Margin of 40.6% similar to the second half of 2023 (41.2%)
· Adjusted Operating Cash Flow of £34.9m:
· Actions to improve balance sheet resilience are delivering ahead of
expectations
· Record operating cash conversion of 259% (H1 2023: 138%) from working
capital reduction
· Net Debt reduced by £8.5m in the period to £104.2m, equal to 2.2x Adjusted
LTM EBITDA
· Borrowing facilities proactively extended to December 2026 and covenant
headroom prudently increased to maximise balance sheet resilience and
accommodate any unexpected market developments
Operational Highlights
· Robust management action taken to address impact of market slowdown:
· Cost base rapidly right-sized to market conditions - with further action
taken in the period, building on initial measures commenced in late 2023
· Long-term competitiveness maintained
· Inventory management significantly improved, with inventory reduced by
£9.9m in the period
· Group has remained profitable and highly cash generative in challenging
"trough" conditions, highlighting underlying resilience and latent margin
potential when volumes recover
· Provides a solid base for future growth
· Well-positioned for recovery:
· Confident that end markets will resume trajectory of GDP++ long-term
growth
· Established customer relationships provide clear growth opportunities
· Healthy pipeline of new business wins and new products
· Well invested infrastructure with scalable capacity
· Strong market position with clear differentiators
Outlook
· Confident that our financial performance will improve and reflect underlying
operational improvements once channel stock levels reach equilibrium and as
demand recovers within the Semiconductor Manufacturing Equipment market
· It remains difficult to be precise about the timing of the recovery with
channel destocking now expected to continue until the end of the third quarter,
longer than previously expected. The profit impact of this is offset by decisive
cost actions already taken
· Adjusted Operating Profit expectations for 2024 are unchanged, more evenly
weighted between each half and generally less sensitive to demand conditions in
the second half
Gavin Griggs, Chief Executive Officer, commented:
"The proactive actions we have taken to reduce cost and working capital have
created a solid platform from which to trade profitably and cash generatively
whilst we wait for market conditions to recover. The relative consistency we
have seen in trading month-to-month during the first half suggests that market
conditions are in the process of stabilising, although it remains difficult to
be precise about the timing of the recovery and the duration of channel
destocking in particular.
Momentum has continued into the start of the second half of the year and the
Board's profit expectations for 2024 remain unchanged. Cost actions have made
our profit more evenly weighted between each half and generally less sensitive
to second half demand conditions.
Whilst our focus has been on closely managing short-term performance, we have
continued to execute our strategy and have used a period of slower activity
levels to make sure we have the foundations necessary to maximise our long-term
potential. The fundamentals underpinning demand in our sectors remain firmly in
place and we are well-positioned to benefit as an independent business as our
markets return to structural long-term growth."
Enquiries:
XP Power
Gavin Griggs, Chief Executive Officer+44 (0)118 976 5155
Matt Webb, Chief Financial Officer+44 (0)118 976 5155
Citigate Dewe Rogerson
Kevin Smith/ Lucy Gibbs+44 (0)20 7638 9571
A meeting for analysts will be held at 10:30am BST today, 6 August 2024 at the
offices of Investec, 30 Gresham Street, London EC2V 7QN. To register to attend
please email xppower@citigatedewerogerson.com. A live audio stream of the
meeting can be accessed via https://brrmedia.news/XPP_HY24.
XP Power designs and manufactures power controllers, the essential hardware
component in every piece of electrical equipment that converts power from the
electricity grid into the right form for equipment to function. Power
controllers are critical for optimal delivery in challenging environments but
are a small part of the overall customer product cost.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on Semiconductor Manufacturing Equipment
(circa 36% of sales in H1 2024), Healthcare (circa 24% sales in H1 2024) and
Industrial Technology (circa 40% of sales in H1 2024) sectors. Once designed
into a programme, XP Power has a revenue annuity over the life cycle of the
customer's product which is typically five to seven years depending on the
industry sector. XP Power has invested in research and development and its own
manufacturing facilities in China , North America , and Vietnam , to develop a
range of tailored products based on its own intellectual property that provide
its customers with significantly improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock
Exchange since 2000, XP Power is a constituent of the FTSE All Share Index. XP
Power serves a global blue-chip customer base from over 30 locations in Europe ,
North America , and Asia .
For further information, please visit www.xppowerplc.com
Forward-looking statements
This announcement contains forward-looking statements that are subject to risk
factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries, sectors and markets
in which the Group operates. It is believed that the expectations reflected in
these statements are reasonable, but they may be affected by a wide range of
variables which could cause actual results to differ materially from those
currently anticipated. No assurances can be given that the forward-looking
statements in this announcement will be realised.
The forward-looking statements reflect the knowledge and information available
to management at the date of preparation of this announcement. XP Power and its
Directors accept no responsibility to third parties and undertake no obligation
to update these forward-looking statements. Nothing in this announcement should
be construed as a profit forecast.
Chief Executive Officer's Review
H1 Overview
As expected, the Group faced unusually challenging market conditions in the
first half of 2024 but responded to them robustly.
One of the Group's main strengths is its attractive positions in three distinct
market sectors, namely Semiconductor Manufacturing Equipment, Healthcare and
Industrial Technology, which all have clear, distinguishable long-term growth
drivers. We have long-standing customer relationships in these sectors and
participate in long-term projects with a high proportion of annuity revenue.
This makes the simultaneous slowdown in all three sectors in 2024 very unusual.
I am proud of the way in which we responded to these developments by diligently
executing a plan of action to protect our performance whilst ensuring that we
remain well positioned to benefit as our markets return to growth.
Revenue was £127.1m (H1 2023: £160.2m), 20.7% lower than a strong comparative
period that benefited from backlog clearance. Revenue declined in all three
market sectors. The slowdown within the Semiconductor Manufacturing Equipment
sector was due to an industry-wide downcycle. The slowdown in the Healthcare and
Industrial Technology sectors was driven by channel destocking, with end market
demand remaining more resilient. Monthly revenue was stable throughout the
period and in line with our expectations. Recent ordering patterns suggest
channel destocking will continue until the end of Q3 2024, slightly longer than
we had previously expected.
Gross Margin of 40.6% (H1 2023: 41.8%) was similar to our performance in H2
2023. Lower manufacturing output inevitably brought less efficient utilisation
of factory overheads, but this was successfully offset by input cost savings and
better manufacturing process efficiency, as we had planned.
In response to the market downturn, the Group implemented a programme of cost
reduction measures. Adjusted Operating Expenses were reduced by 16% to £38.1m
(H1 2023: £45.2m) through various actions taken in late 2023 and throughout the
first half of 2024. Our approach to cost reduction has been broad, disciplined
and continuous, whilst preserving key sources of long-term competitive
advantage.
Adjusted Operating Profit of £13.5m (H1 2023: £21.8m) was £8.3m lower than a
buoyant H1 2023 and benefited significantly from cost reduction initiatives, as
a result of which first half profits were slightly ahead of the Board's
expectation.
Self-help actions also underpinned continued strong cash generation. We
delivered record Adjusted Operating Cash Conversion, primarily through inventory
reduction, which lowered our borrowings and improved our balance sheet. Tight
control of cost, working capital and operational execution has allowed the
business to generate healthy profits and cash during an unprecedented demand
trough. We are confident that continued discipline in this area, combined with
ongoing balance sheet deleveraging, will ensure that we emerge from this period
with renewed resilience.
Revenue by market
Revenue declined by 20.7% to £127.1m (H1 2023: £160.2m), including a constant
currency decline of (18.3)% and an adverse currency movement of 2.4%.
The breakdown of the revenue movement by sector was as follows:
% of Group Revenue
revenue growth /
(decline) %
Semiconductor Manufacturing Equipment 36% (14)%
Industrial Technology 40% (23)%
Healthcare 24% (16)%
Total - In constant currency 100% (18)%
Currency movement (3)%
Total (21)%
Semiconductor Manufacturing Equipment
Sales to the Semiconductor Manufacturing Equipment sector reduced by 14% in
constant currency, outperforming the wider Group due to strong sales of high
voltage, high power ("HVHP") products, which have proved more resilient and are
used at key stages in the wafer fabrication process. Investment in people and
processes over recent years allowed us to scale up manufacturing output of these
products to meet demand, reducing backlog and growing sales by more than 70%
year-on-year. We are targeting further growth by adding low-cost HVHP
manufacturing capacity to our existing facilities in Asia to complement our
existing operations in the USA .
Order intake of £36.1m (H1 2023: £28.1m) was 29% higher than the comparative
period and 17% higher sequentially, indicating that the sector is likely past
the market trough, albeit this has yet to convert into a sustained recovery. The
book-to-bill ratio was 0.79x.
Global sales of semiconductor devices returned to growth in late 2023, with
double digit growth expected for 2024 as a whole. Wafer fabrication capacity
utilisation rates are increasing and we are confident that this will lead to
increased sales of Semiconductor Manufacturing Equipment in due course.
The prospects for this sector are very attractive and we continue to expect long
-term market growth averaging 10% per annum, underpinned by the wafer
fabrication capacity expansion planned in an increasing number of countries to
keep pace with future demand for technologies such as AI, IoT and electrified
transportation. Given our customer exposure, we expect to grow ahead of the
market.
Industrial Technology
Industrial Technology is a large, diverse and growing market. Our business is
largely focused on meeting the power needs of customers in the analytical
instrumentation, test & measurement and process control & automation sub
-sectors. We also have opportunities to increase our presence in attractive
areas requiring high power and/or high voltage solutions, such as mass
spectrometry, scanning electron microscopy, CT-based security scanners and
renewable electricity applications.
Sales to the Industrial Technology sector declined by 23% in constant currency,
as expected, due to a combination of backlog clearance in the comparative period
and channel destocking in the current period. With delivery lead times now
largely normalised, customers continue to wind down their buffer inventory
before placing new orders. This is particularly evident within the High Service
Level Distribution ("HSLD") channel, consisting of specialist distributors of
electronic components, which account for approximately one quarter of sector
revenue. HSLD channel inventory levels have reduced but remain elevated relative
to network revenue, meaning we expect destocking to continue until the end of
the third quarter.
Order intake totalled £34.7m (H1 2023: £51.2m), representing a book-to-bill
ratio of 0.68x.
In 2023, we entered into a sales agreement with a leading, pan-European "design
in" distributor to increase our sales reach in the Region. The new sales
approach is delivering as planned, with our new distribution partner identifying
a significant number of small to medium-sized customer projects in the period,
freeing-up our in-house sales team to focus on larger accounts.
Healthcare
Long-term growth in this sector is supported by an ageing population and the
incorporation of new technologies into medical devices to improve treatment
outcomes, drive efficiency or reduce procedural invasiveness. As an
illustration, we recently won a significant new project to provide a power
solution for an innovative device that uses high voltage electrical fields to
treat cardiac arrhythmia without the need for major surgery.
Sales to the Healthcare sector reduced by 16% in constant currency, as expected.
Healthcare was our fastest growing sector in 2023, in part supported by backlog
clearance leading to the restocking of the sales channel. Restocking in 2023 has
switched to destocking in 2024 as normalised global supply chain conditions post
-pandemic have allowed customers to lower their inventory cover. End market
demand has remained healthy throughout, with many of our major customers
reporting sales growth in 2024.
Order intake was £17.1m and the book-to-bill was 0.56x. Monthly intake was
relatively stable throughout the period.
Regional Performance
Sales to North America reduced by 19% in constant currency to £69.7m (H1 2023:
£88.8m). Sales to Semiconductor Manufacturing Equipment customers declined by
less than the Regional average, aided by capacity expansion within the HVHP
category as referenced above. Order intake from these customers improved
sequentially and year-on-year. Sales to customers in the Healthcare and
Industrial Technology sectors slowed by more than the Regional average due to
destocking.
Sales to Europe totalled £43.3m (H1 2023: £52.2m), down 15% in constant
currency. The decline was driven by customer destocking particularly within the
HSLD channel which is particularly significant to this Region. Regional
performance included further sales growth from FuG, a business acquired by the
Group in 2022. As highlighted at the time of acquisition, we are supporting the
future progress of this business by using our sales team to increase its global
reach.
Sales to Asia totalled £14.1m (H1 2023: £19.2m), down 25% in constant currency.
Order intake from customers in China reduced materially as the domestic
semiconductor industry adapted to new rules introduced by both the US and
Chinese governments controlling the export of wafer fabrication equipment.
Whilst most of our products are not directly impacted by the new rules, their
introduction is disrupting purchasing patterns across the industry.
Robust management action taken to address impact of market slowdown
At the end of 2023, it became clear that we would need to adapt to slower than
expected demand by lowering our costs and maximising our cash generation in a
targeted way. Our response since then has been diligent, proportionate and
proactive. Throughout the process, we have been careful to strike the right
balance between protecting our short-term performance and preserving our long
-term potential.
The initial round of cost reduction actions announced in October 2023, from
which £8-10m of annualised benefit was expected, have been delivered in full. A
second round of headcount reduction actions was taken toward the end of the
first quarter, supplemented by natural headcount attrition and continuous, tight
control over discretionary expenditure throughout the period. Further details
can be found in the Chief Financial Officer's Review.
The cumulative effect was a 16% year-on-year reduction in first half overheads
(Adjusted Operating Expenses), which we expect to be repeated for the full year.
We believe the current cost base is appropriate for the demand we expect, but we
remain vigilant. I would like to thank the entire XP team for their diligence
and forbearance during this difficult period, from which I believe we will
emerge stronger.
We also made good progress with working capital reduction, particularly
inventory, leading to record Adjusted Operating Cash Conversion of 259% (H1
2023: 138%). Capex (excluding product development) was limited to maintenance
levels save for residual amounts paid as planned in respect of major projects in
2023.
Through continuous and diligent action, we have supported our profits and
balance sheet position through an unprecedented trough in demand, whilst
creating a leaner and more efficient business that will deliver an enduring
benefit as our markets recover.
Well-positioned for recovery
Whilst managing the market slowdown has been a key priority, we have also used
this period of slower trading to ensure we are well positioned as conditions
improve. Our vision, culture and strategy are clear and unchanged. We have
improved our readiness by accelerating the delivery of our strategy whilst we
wait for market conditions to turn.
Our vision is to be the first-choice power solutions provider and deliver the
ultimate experience for our customers and our people. It is helpful to put this
vision into the context of the Group's recent history.
Our business originated as a distributor of low voltage power supplies. Over
time, we developed strategically to become vertically integrated, with in-house
design and manufacturing capability. We have invested proactively in the systems
and production capabilities necessary to operate a global, flexible, high
quality, low-cost supply chain.
Through both organic product development and M&A, we have expanded into more
complex categories, adding HVHP and radio frequency ("RF") products to our
portfolio. We are now one of only a few providers who can offer a complete
spectrum of power and voltage capabilities and package several power converters
into an overall solution customised to the customer's specific application. This
makes us an attractive partner to our key customers and is a key driver of our
market share gains.
Whilst our origins are in powering our customers' products, we are increasingly
involved in enabling our customers' power-driven processes. Examples include our
high voltage devices that allow semiconductor wafers to be clamped
electrostatically during wafer fabrication, or our RF products that precisely
energise gas plasmas used to etch chip architectures. Products that support
power-driven processes are often essential to the functionality of our
customers' own equipment and as such are typically high margin and defensible.
Serving this market plays to our strengths of close customer support, world
class technical knowledge, rapid product development, high quality standards and
a closely integrated supply chain.
Our strategy is as follows:
· Product development: Continually develop our market leading range of
competitive products, both organically and through selective acquisition;
· Customer development: Target customer accounts where we can add value
and increase our penetration of those target customers;
· Supply chain development: Continually improve our global, end-to-end,
supply chain, balancing high efficiency with market leading customer
responsiveness; and
· Environmental leadership: Lead our industry on environmental
responsibility
We have continued to make progress with our strategic priorities during the
period, as summarised below.
Product development
Our product development activities divide into two broad areas:
· Traditional development of base power supplies for general market
launch, and
· Development of customised solutions for specific customers that are
often derived from the base power supply (which we call Engineering Services).
Our traditional development activities this year are focused on:
· Rapid enhancement of our low voltage range, with support of third
-party design and manufacturing partners, to infill gaps in the power spectrum,
reduce the product form factor and add connectivity
· Completing the development of a new digitally configurable low
voltage, high power product family
· Extending our HVHP range to grow our share of ion implantation, mass
spectroscopy and scanning electron microscopy end markets.
Collectively, our pipeline of new product development activities is the
strongest it has been for several years.
We continued to launch our pipeline of new Engineering Services products. Our
long-term ambitions for this part of our business were underlined by the opening
of our new Innovation Centre in San Jose, USA which showcases our product
design, test, customisation and fulfilment capabilities in the heart of Silicon
Valley.
Customer development
We work with leading OEMs in each of the three market sectors we serve. These
relationships are deep and enduring and our customers recognise us for our
superior quality, reliability, responsiveness and flexibility.
To illustrate the progress we are making in this area, we grew the value of new
projects sampled and new projects won year-on-year despite the slowdown in
demand conditions. The size of our sales funnel also grew, indicating that the
value of new business won exceeded the value of projects reaching the end of
their life cycle.
Both outcomes support the conclusion that our competitive advantages remain
strong and we are well positioned to continue to outperform the market long
-term.
Supply chain development
Normalised global supply chain conditions have allowed us to continue to improve
our service levels. Average delivery lead times reduced and continue to do so.
Delivery of backlog allowed the order book to reduce by £42m in the period to
£150m.
Manufacturing capacity was flexed appropriately to meet demand. Within HVHP,
capacity was added to our facility in the US to meet demand through investment
in both people and equipment to improve production efficiency. In other product
categories, manufacturing capacity was scaled back proactively and efficiently
in response to lower demand. We have ample structural capacity within our
existing manufacturing sites in China and Vietnam and have therefore deferred
the recommencement of construction of our new facility in Malaysia until 2025.
We have clear plans in place to rapidly scale up manufacturing output as demand
improves.
Slower demand conditions allowed us to take steps to improve the efficiency and
resilience of our supply chain arrangements. Input costs are being progressively
lowered through the negotiation of better pricing and tighter sourcing
processes. Resilience is being enhanced through the negotiation of flexible
purchasing arrangements, the resetting of safety stock levels and via
improvements to our production planning systems.
Another key area of focus has been on ensuring we leverage fully the cost and
capacity advantages of our Asian supply chain across our product portfolio.
These efforts have focused on HVHP and RF products that are largely made in the
US today. I am confident that the efforts being put into this area in 2024 will
have a material beneficial impact on 2025 and beyond.
Sustainability
The Group is committed to significant reductions in Greenhouse Gas emissions by
2030 via the Science-Based Targets Initiative ("SBTi"). We achieved reductions
in Scope 1, 2 and 3 emissions in 2023, greater than the run rate required to
achieve our SBTi goals and expect to do so again in 2024.
We already submit the Carbon Disclosure Project's Climate Change questionnaire
annually, receiving an upgraded B rating in 2023, and plan to add the Water
Security questionnaire for the first time this year.
Outlook
The proactive actions we have taken to reduce cost and working capital have
created a solid platform from which to trade profitably and cash generatively
whilst we wait for market conditions to recover. The relative consistency we
have seen in trading month-to-month during the first half suggests that market
conditions are in the process of stabilising, although it remains difficult to
be precise about the timing of the recovery and the duration of channel
destocking in particular.
Momentum has continued into the start of the second half of the year and the
Board's profit expectations for 2024 remain unchanged. Cost actions have made
our profit more evenly weighted between each half and generally less sensitive
to second half demand conditions.
Whilst our focus has been on closely managing short-term performance, we have
continued to execute our strategy and have used a period of slower activity
levels to make sure we have the foundations necessary to maximise our long-term
potential. The fundamentals underpinning demand in our sectors remain firmly in
place and we are well-positioned to benefit as an independent business as our
markets return to structural long-term growth.
Gavin Griggs
Chief Executive Officer
Chief Financial Officer's Review
Statutory Results
The statutory operating profit of £9.1m was £8.2m lower than the comparative
period due to the impact of lower revenue net of cost reductions.
Net finance expense was £5.9m (H1 2023: £6.4m), resulting in profit before tax
of £3.2m (H1 2023: £10.9m). The reduction in net finance costs reflects lower
average borrowing levels. The tax charge was £1.0m (H1 2023: £3.1m). The basic
earnings per share was 8.9p (H1 2023: 38.9p).
Adjusted Results
As in prior years, Adjusted and other alternative performance measures are used
in this announcement to describe the Group's results. These are not recognised
under International Financial Reporting Standards (IFRS) or other generally
accepted accounting principles (GAAP).
Adjustments are items included within our statutory results that are deemed by
the Board to be unusual by virtue of their size or incidence. Our Adjusted
measures are calculated by removing such Adjustments from our statutory results.
The Board believes Adjusted measures help the reader to understand XP Power's
underlying results and are used by the Board and management team to interpret
Group performance. Note 5 to the condensed consolidated financial statements
includes reconciliations of statutory metrics to their Adjusted equivalent and
provides a breakdown of the Adjustments made.
Order Intake
In the six months to 30 June 2024, our order intake of £87.9m was 24.0% lower
than the same period in the comparative period. The reduction in order intake
reflects both a natural slowdown after the particularly strong years of 2021 and
2022 and the current market dynamics. The Semiconductor Manufacturing Equipment
sector continues to be impacted by an industry-wide downcycle, although it is
performing better than the trough experienced in the comparative period. The
Healthcare and Industrial Technology sectors also saw lower order intake,
primarily due to ongoing customer destocking. Additionally, shorter delivery
lead times have temporarily reduced order intake, as customers have had the
flexibility to place orders later than in recent financial years.
Revenue
Revenue for the period of £127.1m remained in line with expectations and was
relatively stable from month-to-month. However, revenue for the period was 20.7%
lower than the elevated comparative period, which benefited from significant
amounts of backlog clearance. At constant currency the decrease was 18%, with a
2.4% impact from currency movements.
The Group's revenue by region and by sector for the first half of 2024 is set
out in the table below:
Six months to 30 June 2024 % change in
£m constant currency
North America
Semiconductor 37.4 (11.8%)
Manufacturing
Equipment
Industrial 16.1 (34.0%)
Technology
Healthcare 16.2 (16.5%)
Total 69.7 (19.2%)
Europe
Semiconductor 1.9 (16.7%)
Manufacturing
Equipment
Industrial 29.6 (14.2%)
Technology
Healthcare 11.8 (14.9%)
Total 43.3 (14.5%)
Asia
Semiconductor 6.4 (21.8%)
Manufacturing
Equipment
Industrial 5.2 (29.5%)
Technology
Healthcare 2.5 (22.5%)
Total 14.1 (25.0%)
Revenue from Semiconductor Manufacturing Equipment declined by 16%, reflecting
the ongoing downcycle. However, increased manufacturing output has driven
significant market share gain within our HVHP business, resulting in a 71%
increase in revenue for this product line, compared to the comparative period.
This aligns with our long-term strategy of gaining share in categories that
require greater power delivery and technical complexity.
The revenue generated from Industrial Technology experienced a 26% decline,
primarily driven by destocking activities, particularly by our Distribution
customers who account for a significant proportion of this sector.
In Healthcare, revenue decreased by 18% driven by continued channel destocking.
End market demand absent channel stock movements remained stronger, with our
major medical customers reporting continued revenue growth. The year-on-year
decline in Healthcare and Industrial Technology sectors was generally impacted
by customers switching from restocking in the first half of 2023 to destocking
in the first half of 2024 as supply chains began to normalise.
Turning to regional revenue performance (in constant currency) North America saw
a 19% decline, with the impact of underlying market dynamics somewhat mitigated
by strong shipments of HVHP products. This was achieved against the backdrop of
a successful transition to our new facility in Silicon Valley. In Europe ,
revenue declined by 15%, driven by destocking within the Industrial Technology
and Healthcare sectors, which represent the majority of our sales in the region.
However, we saw healthy growth from the FuG business (HVHP products) acquired in
2022 and feel optimistic about the significant opportunities for further cross
-selling of FuG products by our global sales teams. Our recent partnership with
a major, pan-European "design in" distributor will also enhance our market reach
moving forward. In Asia , revenue decreased by 25%. Demand from Semiconductor
Manufacturing Equipment customers in China was disrupted by the global market
downcycle and market-wide disruption from recent changes to export controls.
Order Book
Our order book reduced by c. £42m during the period, bringing it to £150m as at
30 June 2024. As expected, the backlog of overdue orders is now largely cleared.
We anticipate that delivery lead times will continue to shorten as we continue
to improve our fulfilment performance, which is likely to result in a further
natural reduction in the order book size in the second half. Consequently, we
expect the book-to-bill ratio to remain below 1.0x until delivery lead times
have reached optimised levels, which is expected to occur in the second half of
2024.
Our order book suggests revenue in Q3 2024 will be similar to Q2 2024.
Gross Margin
Our gross margin for the period was 40.6%, slightly lower than the comparative
period, but similar to that achieved in the second half of 2023 (41.2%). We have
seen a positive impact from our cost-saving actions, benefited from input cost
reductions and held our selling prices at 2023 levels, all of which helped
offset the impact of lower factory utilisation due to the slower demand
conditions explained above.
Cost-saving actions include a reduction in logistics costs from reduced use of
expensive air freight and contract negotiation. Events in the Red Sea have not
had a material impact on either logistics costs or product availability.
Our underlying manufacturing process efficiency also improved, particularly in
our two facilities on the US East Coast, which produce HVHP and RF products. We
have also rationalised our production overhead across all manufacturing
locations, whilst still leaving the business well positioned to scale up as
demand recovers.
We expect gross margins to benefit in the future from ongoing efforts to
transfer specific product lines from the US to Asia to take advantage of lower
costs of production. The transfer will also provide additional manufacturing
capacity needed to support future growth as our key sectors recover.
Our production facility in Malaysia remains part of our long-term manufacturing
plan, but slower demand conditions have allowed us to defer its completion. We
do not expect to recommence construction during 2024.
Operating Expenses
Statutory operating expenses reduced by £7.2m to £42.5m.
Adjusted Operating Expenses in the period are 16% lower than the comparative
period. This reduction reflects the impact of cost actions taken in late 2023
and throughout the first half of 2024 in response to the market slowdown
preserving our profitability and protecting our balance sheet position. The
reduction achieved is net of additional costs from relocating to improved
facilities in Silicon Valley.
Our focus on managing costs has been broad, disciplined and continuous, whilst
being careful to preserve our sources of competitive advantage. The actions set
in the original funding plan disclosed in our annual report for the year ended
31 December 2023 have all been delivered in full. In the first half of 2024 we
have removed a further 60 support and administrative roles from the business,
restricted annual salary increases to lower paid workers only and have
progressively reset all discretionary spending to appropriate levels.
We believe our cost base is now appropriate for expected activity levels. We
will retain the current rigour in cost control and therefore expect to see
strong operating leverage from growth as our markets recover. For the full-year
2024 we expect to be able to report a 17% overhead reduction compared to 2023.
Operating Profit
Statutory operating profit of £9.1m was £8.2m lower than the comparative period.
Our Adjusted Operating Profit for the period of £13.5m was £8.3m lower than the
comparative period. This performance reflects our extensive efforts to protect
profitability through cost reduction in softer demand conditions. Our proactive
cost management allowed us to enter the second half with first half profit
slightly ahead of the Board's expectations.
Adjusted Net Finance Expense
Adjusted Net Finance Expense of £5.9m reflects a £1.2m increase in IFRS16 lease
interest costs from our new Silicon Valley facility, offset by an equivalent
reduction in bank interest. The much-reduced average level of borrowings has led
to a lower bank interest charge despite an increase in base rates.
Tax and earnings per share
The effective tax rate applicable to Adjusted Profit Before Tax was 22.4%.
Our effective tax rate applicable to Adjusted Profit Before Tax for 2023 was
elevated at 36.8% due to difficulties in obtaining full benefit from available
tax losses and credits in our US business. These difficulties are gradually
being overcome, as the lower tax rate for H1 2024 reflects.
Adjusted Basic and Adjusted Diluted Earnings Per Share decreased by 59% to 24.5
pence and 24.4 pence respectively.
Adjustments
The Group incurred costs of £4.4m (H1 2023: costs of £4.9m) which we consider to
be Adjustments (as explained in Note 5 to the condensed consolidated financial
statements) and have therefore excluded them when calculating Adjusted Profit
Before Tax. These are summarised below:
Income / (cost) 2024 2023
impact by
Income Statement
line
Six months ended
30 June
£m
Operating profit Net Profit Operating Net Profit
finance before profit finance before
expense tax expense tax
Restructuring (1.1) - (1.1) (1.5) - (1.5)
costs
Site double - - - - (1.0) (1.0)
running costs
Supply chain (0.9) - (0.9) - - -
transformation
Comet legal case (0.6) - (0.6) (1.4) - (1.4)
Amortisation of (1.6) - (1.6) (1.6) - (1.6)
acquired
intangibles
ERP implementation - - - (0.2) - (0.2)
Bid defence costs (0.2) - (0.2) - - -
Other - - - 0.2 0.6 0.8
Total (4.4) - (4.4) (4.5) (0.4) (4.9)
Severance paid in respect of headcount reduction in the period resulted in
restructuring costs of £1.1m.
£0.2m was spent on bid defence activities following a recent unsolicited and
unsuccessful takeover approach for the Group.
In respect of the Comet legal case, we continue to await the original trial
judge's ruling in respect of plaintiff's claim for associated legal fees and
interest. Once this ruling is received, our Appeal will be heard against the
original damages award. We believe our Appeal is well-founded.
Cash Flow and Financial Position
During the period the Group generated Adjusted Operating Cash Flow of £34.9m,
representing a record Adjusted Operating Cash Conversion of 259%.
This was achieved through self-help actions to reduce inventory and tightly
control cash collection. We delivered an inventory reduction of £9.9m despite
relatively slow demand conditions, through proactive management of forward
purchasing and production output, and the removal of surplus inventory buffer as
supply chain conditions normalised. A full review of safety stock was conducted
during the period to ensure the business is well positioned to respond as demand
improves.
Six months ended 30 June 2024 2023
Adjusted £m
Operating profit 13.5 21.8
Depreciation and amortisation 7.8 6.9
EBITDA 21.3 28.7
Change in working capital 14.1 1.1
Other items (0.5) 0.2
Operating cash flow 34.9 30.0
Net capital expenditure - Product development costs (5.5) (4.6)
Net capital expenditure - Other assets (7.8) (9.2)
Net interest paid (6.0) (6.8)
Tax paid (3.1) (1.3)
Other items (0.7) (0.3)
Free cash flow 11.8 7.8
Our capital expenditure for the period was £13.3m, including £5.5m invested in
product development, £6.0m on major projects and £1.8m on maintaining our
existing assets. Major projects comprised the relocation of our facilities on
the US West Coast and construction of the Malaysia facility, prior to pausing
this project whilst capacity remains ample. The facility moves in the US went
smoothly with no disruption, and our new Silicon Valley facility is a world
-class full-service site, demonstrating the breadth of our offering in the heart
of the US semiconductor industry. The final payment of £3m for the construction
of this facility is due early in the second half of 2024.
We successfully reduced our Net Debt by £8.5m to £104.2m, which has resulted in
a better-than-expected funding position. At 30 June 2024, leverage stood at 2.2x
Adjusted LTM EBITDA compared to a covenant limit of 3.5x and Interest Cover at
4.2x compared to a covenant floor of 3.0x. We expect Interest Cover to reduce
modestly in H2 as our finance expense reflects the full annualised cost of IFRS
16 lease interest costs associated with the new Silicon Valley facility. We
remain confident in our previous guidance that Net Debt will be at or below 2.5x
Adjusted LTM EBITDA by the end of 2024 and that the Group will remain in full
compliance with all banking covenants.
Dividends continue to be an important part of the Group's long-term capital
allocation strategy, but our focus must remain on debt reduction. No dividends
are declared in respect of the period (H1 2023: 18.0p).
Notwithstanding our expectations of continued covenant compliance, the Directors
believe it is in the interests of shareholders that all available proactive
steps are taken to ensure the Group's balance sheet is fully resilient to all
possible future market developments, whether expected or not. In particular, the
Directors have sought to ensure the Group can comfortably accommodate an
unexpectedly large amount of channel destocking, recognising that customers'
stocking decisions are beyond its control and could impact short-term
performance. It has therefore implemented the following package of prudent
changes to its funding arrangements at relatively modest cost and with the full
support of its lenders:
· A temporary reduction in the Interest Cover covenant for quarterly tests
until Q1 2026, as set out in note 2 to the Condensed Consolidated Financial
Statements. No changes have been made or are deemed necessary to leverage
covenant levels.
· An extension of the maturity of its main RCF facility to December 2026
As part of these changes we have reduced the total borrowing facility size from
$255m to $210m . . Had this reduction been made at 30 June 2024, headroom in
committed banking facilities would have been $59m . This level of headroom is
sufficient to meet the Group's future borrowing needs, is consistent with our
aim of reducing leverage to 0-1x Adjusted LTM EBITDA and allows the Group to
reduce the cost of unutilised borrowing capacity.
The Directors are confident that the Group will remain in full compliance with
its banking covenants for the foreseeable future, in both its base case and
severe but plausible downside case scenarios, as required by mandatory going
concern testing, with clear covenant headroom.
Matt Webb
Chief Financial Officer
6 August 2024
XP Power Limited
Condensed Consolidated Income Statement
For the six months ended 30 June 2024
£m Note Adjusted Adjustments Six Adjusted Adjustments Six
(see Note months (see Note
months
5) ended 5)
ended
30 30
June June
2024 2023
Revenue 4 127.1 - 127.1 160.2 -
160.2
Cost of sales (75.5) - (75.5) (93.2) -
(93.2)
Gross profit 51.6 - 51.6 67.0 - 67.0
Operating
Expenses
Distribution (26.4) (2.9) (29.3) (31.7) (1.9)
(33.6)
and marketing
Administrative (2.1) (1.5) (3.6) (2.1) (2.6)
(4.7)
Research and (9.6) - (9.6) (11.4) -
(11.4)
development
Operating 13.5 (4.4) 9.1 21.8 (4.5) 17.3
profit
Net finance (5.9) - (5.9) (6.0) (0.4)
(6.4)
expense
Profit before 7.6 (4.4) 3.2 15.8 (4.9) 10.9
tax
Taxation 6 (1.7) 0.7 (1.0) (4.0) 0.9
(3.1)
Profit for the 5.9 (3.7) 2.2 11.8 (4.0) 7.8
period
Attributable
to:
Equity 2.1 7.6
shareholders
Non 0.1 0.2
-controlling
interests
Profit for the 2.2 7.8
period
Earnings per
share (pence)
Basic 8 24.5 (15.6) 8.9 59.3 (20.4) 38.9
Diluted 8 24.4 (15.6) 8.8 59.1 (20.4) 38.7
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2024
£m Six months ended Six months ended
30 June 2024 30 June 2023
Profit for the period 2.2 7.8
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on (1.0) (3.8)
translation of foreign operations
Items that will not be - -
reclassified subsequently to
profit or loss:
Other comprehensive loss, net of (1.0) (3.8)
tax
Total comprehensive income for 1.2 4.0
the period
Attributable to:
Equity shareholders 1.1 3.9
Non-controlling interests 0.1 0.1
Total comprehensive income for 1.2 4.0
the period
The above condensed consolidated income statement and statement of comprehensive
income should be read in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Balance Sheet
As at 30 June 2024
£m Note 30 June 31 December
2024 2023
ASSETS
Current assets
Cash and bank balances 13.0 12.0
Inventories 81.7 91.6
Trade receivables 34.9 43.1
Bond receivables 37.6 36.7
Other current assets 5.5 8.1
Current income tax 0.6 0.5
receivable
Total current assets 173.3 192.0
Non-current assets
Cash and bank balances 1.4 1.4
Goodwill 75.2 75.6
Intangible assets 9 63.8 63.1
Property, plant and 10 64.3 59.5
equipment
Right-of-use assets 53.0 54.0
Deferred income tax assets 1.0 0.7
Total non-current assets 258.7 254.3
Total assets 432.0 446.3
LIABILITIES
Current liabilities
Current income tax 2.9 5.0
liabilities
Trade and other payables 41.2 48.3
Lease liabilities 1.5 1.4
Provisions 45.0 44.9
Borrowings 11 0.5 0.4
Accrued consideration 1.8 -
Total current liabilities 92.9 100.0
Non-current liabilities
Accrued consideration - 1.7
Borrowings 11 118.1 125.7
Deferred income tax 9.4 9.3
liabilities
Provisions 1.2 1.0
Lease liabilities 53.2 53.3
Total non-current 181.9 191.0
liabilities
Total liabilities 274.8 291.0
NET ASSETS 157.2 155.3
EQUITY
Equity attributable to
equity holders of the
Company
Share capital 71.2 71.2
Share-based payment 2.2 2.1
reserve
Merger reserve 0.2 0.2
Translation reserve (1.9) (0.9)
Other reserve 8.2 7.6
Retained earnings 76.5 74.4
156.4 154.6
Non-controlling interests 0.8 0.7
TOTAL EQUITY 157.2 155.3
The above condensed consolidated balance sheet should be read in conjunction
with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2024
£m
Attributable
to equity
holders of
the Company
Share Share Merger Translation Other Retained Total
Non Total
capital -based reserve reserve earnings
-controlling Equity
payment reserve
reserve
interests
Balance at 1 27.2 2.5 0.2 4.2 6.1 98.4 138.6
0.9 139.5
January
2023
Exercise of - (1.1) - - 1.1 - -
- -
share
-based
payment
awards
Employee - 0.1 - - - - 0.1
- 0.1
share-based
payment
expenses, net
of
tax
Dividends - - - - - (11.2) (11.2)
(0.1) (11.3)
paid (note
7)
Future - - - - (0.1) - (0.1)
- (0.1)
acquisitions
of
non
-controlling
interests
Exchange - (0.1) - (3.6) - - (3.7)
(0.1) (3.8)
difference
arising from
translation
of financial
statements of
foreign
operations
Profit for - - - - - 7.6 7.6
0.2 7.8
the period
Total - (0.1) - (3.6) - 7.6 3.9
0.1 4.0
comprehensive
income for
the period
Balance at 30 27.2 1.4 0.2 0.6 7.1 94.8 131.3
0.9 132.2
June
2023
Balance at 1 71.2 2.1 0.2 (0.9) 7.6 74.4 154.6
0.7 155.3
January
2024
Exercise of - (0.7) - - 0.7 - -
- -
share
-based
payment
awards
Employee - 0.8 - - - - 0.8
- 0.8
share-based
payment
expenses, net
of
tax
Future - - - - (0.1) - (0.1)
- (0.1)
acquisition
of
non
-controlling
interest
Exchange - - - (1.0) - - (1.0)
- (1.0)
difference
arising from
translation
of financial
statements of
foreign
operations
Profit for - - - - - 2.1 2.1
0.1 2.2
the period
Total - - - (1.0) - 2.1 1.1
0.1 1.2
comprehensive
income for
the period
Balance at 30 71.2 2.2 0.2 (1.9) 8.2 76.5 156.4
0.8 157.2
June
2024
The above condensed consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2024
£m Six months ended Six months ended
30 June 2024 30 June 2023
Cash flows from operating
activities
Profit after income tax 2.2 7.8
Adjustments for:
- Taxation 1.0 3.1
- Amortisation and 9.3 9.2
depreciation
- Net finance expense 5.9 6.4
- Share-based payment 0.6 0.2
expenses
- Fair value gain on - (0.2)
derivative financial
instruments
- Impairment loss on - 0.1
intangible assets
- Unrealised currency (0.4) 1.0
translation (gain)/loss
- Provision for doubtful 0.1 -
debt
Change in the working capital:
- Inventories 10.3 2.5
- Trade and other 11.1 (2.9)
receivables
- Trade and other (7.1) 1.4
payables
- Provision for (0.2) 0.2
liabilities and other charges
Cash generated from operations 32.8 28.8
Income tax paid, net of refund (3.1) (1.3)
Net cash provided by operating 29.7 27.5
activities
Cash flows from investing
activities
Purchases and construction of (7.7) (8.8)
property, plant and equipment
Additions of product (5.5) (4.6)
development costs
Additions of software and (0.1) (0.3)
software under development
Proceeds from disposal of 0.2 -
property, plant and equipment
Interest received - 0.8
Net cash used in investing (13.1) (12.9)
activities
Cash flows from financing
activities
Proceeds from borrowings - 9.7
Repayment of borrowings (8.9) -
Principal payment of lease (0.8) (0.6)
liabilities
Interest paid (6.0) (7.6)
Dividends paid to equity - (11.2)
holders of the Company
Dividends paid to non - (0.1)
-controlling interests
Bank deposits pledged - (0.4)
Net cash used in financing (15.7) (10.2)
activities
Net increase in cash and cash 0.9 4.4
equivalents
Cash and cash equivalents at 12.0 22.1
beginning of financial period
Effects of currency 0.1 (1.0)
translation on cash and cash
equivalents
Cash and cash equivalents at 13.0 25.5
end of financial period
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
XP Power Limited
Notes to the condensed consolidated financial statements
1. Basis of preparation
The condensed consolidated financial statements for the period ended 30 June
2024 have been prepared in accordance with the Disclosure and Transparency Rules
of the United Kingdom's Financial Conduct Authority and with International
Accounting Standards (`IAS') 34 Interim Financial Reporting as issued by the
International Accounting Standards Board.
The condensed consolidated financial statements should be read in conjunction
with the annual financial statements for the year ended 31 December 2023 which
have been prepared in accordance with International Financial Reporting
Standards (`IFRSs') as issued by the International Accounting Standards Board
(IFRS as issued by the IASB) and Singapore Financial Reporting Standards
(International) (SFRS(I)s').
The condensed consolidated interim financial statements have not been audited.
2. Going concern
The Group has available to it a US $ denominated Revolving Credit Facility (RCF)
of $210m (£165m). The facility matures in December 2026 and therefore is
committed throughout the minimum period for which going concern is assessed,
which is 12 months from the date of signing these condensed consolidated
financial statements.
At 30 June 2024, the Group had drawn down $151m (£119m) against this, leaving
undrawn facility headroom of more than £50 million.
Given that the Group's borrowings are US $ denominated, net debt and therefore
the leverage ratio can be impacted by future movements in the US $ exchange
rate. In both Cases, the US $ exchange rate is assumed to $1.269 .
As part of its going concern review, the Group has developed both Base Case and
Downside Case financial forecasts, with the latter representing a severe but
plausible downside scenario, assessing forecast liquidity and covenant
compliance in each case.
Two financial covenants apply to the Group's Revolving Credit Facility:
· Leverage (as defined in Note 5) of not more 3.5x for each calendar quarter
until 31 December 2024 and not more than 3.0x thereafter.
· Interest Cover (as defined in Note 5) as follows, following a recent
amendment to specifically accommodate going concern testing requirements:
Interest Cover Not less than
Q3 2024 3.00
Q4 2024 2.75
Q1 2025 2.75
Q2 2025 2.50
Q3 2025 2.75
Q4 2025 3.25
Q1 2026 3.50
Q2 2026 and onwards 4.00
The Group is currently experiencing an unusual slowdown in demand across all
three of its market sectors. Monthly revenue and order intake have been
relatively stable during the first half of 2024, suggesting market conditions
are in the process of stabilising. The key assumption in any forecast scenario
is therefore the monthly revenue level at which market conditions stabilise and
for how long these conditions persist before markets recover. Specifically, this
requires assumptions to be made regarding the timing and impact of the expected
recovery in demand for Semiconductor Manufacturing Equipment, which has been in
an industry-wide downcycle since the end of 2022, as well as the extent and
duration of channel destocking within the Healthcare and Industrial Technology
sectors. We are confident that the Group's revenue will grow long-term due to
the nature of the markets we operate in and our attractive positions within them
but it is difficult to be precise about the timing of the return to growth. The
Base Case and Downside Case make differing assumptions in this regard.
Base Case
The Group's Base Case scenario is that channel destocking within the Healthcare
and Industrial Technology sectors, which has reduced Group revenue throughout H1
2024, continues until the end of Q3 2024. This leads to an improvement in
quarterly revenue between Q3 and Q4 2024. The Base Case also assumes that demand
for Semiconductor Manufacturing Equipment improves from the start of H1 2025
onwards. These assumptions result in a c.4% improvement in revenue from H1 to H2
2024 and 8% improvement from 2024 to 2025.
The Base Case assumes our interest cost in H2 2024 will be slightly higher than
H1 2024 due to increased borrowing margin. Total 2024 interest cost is projected
to be higher than 2023 as the benefit to interest costs from lower borrowings is
offset by an increase in lease interest costs from our new facility in Silicon
Valley.
The Base Case assumes that the Secured Overnight Financing Rate ("SOFR") remains
at current level for the remainder of 2024 and 2025. The Group has capped the
interest rate applicable to the majority of its borrowings at a rate slightly
above the current SOFR. In the Base Case, the Group remains in full compliance
with its financial covenants and with ample liquidity throughout the going
concern assessment period.
The lowest point of headroom in the Leverage Ratio covenant is at 30 September
2024. EBITDA would need to fall c.29% short of expectations in the period 1
October 2023 to 30 September 2024 for a breach to occur.
The lowest point of headroom in the Interest Cover covenant is at 31 December
2024. EBITDA would need to fall c.24% short of expectations in the period 1
January to 31 December 2024 for a breach to occur.
Downside Case
In the Downside Case, channel destocking in the Healthcare and Industrial
Technology sectors continues until the end of H1 2025, 9 months longer than the
Base Case. It assumes demand from Semiconductor Manufacturing Equipment improves
from the start of H2 2025, 6 months longer than the Base Case.
This results in a 5% decline in revenue between H1 and H2 2024 and total 2024
revenue 4% lower than the Base Case. The delay of the recovery until 2025 across
all sectors means that the 2025 revenue is also 4% lower than in the Base Case.
The Downside Case assumes interest costs to be similar with the Base Case.
The interest rate assumption is the same as the Base Case.
In the Downside Case, the Group remains in compliance with its financial
covenants with ample liquidity throughout the going concern assessment period.
The lowest point of headroom in the Leverage Ratio covenant is at 30 June 2025.
EBITDA would need to fall c.10% short of expectations in the period 1 July 2024
to 30 June 2025 for a breach to occur.
The lowest point of headroom in the Interest Cover covenant is at 31 March 2025.
EBITDA would need to fall c.6% short of expectations in the period 1 April 2024
to 31 March 2025 for a breach to occur.
The Directors are confident that the Base Case and Downside Case provide an
appropriate basis for the going concern assumption to be applied in preparing
the financial statements. Therefore, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the foreseeable future. The Group, therefore, continues to adopt the going
concern basis in preparing its condensed consolidated financial statements.
3. Accounting policies
The condensed consolidated interim financial statements have been prepared under
the historical cost convention except as disclosed in the accounting policies
within the Group financial statements for the year ended 31 December 2023.
The same accounting policies, presentation and methods of computation are
followed in these condensed consolidated interim financial statements as were
applied in the presentation of the Group's financial statements for the year
ended 31 December 2023.
A number of new or amended standards became applicable for the current reporting
period. The adoption of these new or amended standards did not result in
substantial changes to the Group's accounting policies and had no material
effect on the amounts reported for the current or prior financial years.
XP Power Limited
Notes to the condensed consolidated financial statements
4. Segmented and revenue information
The Board of Directors monitors the business based on the three primary
geographical areas: North America , Europe and Asia . All geographic locations
market the same classes of products to their respective customer base.
Revenue
The Group derives revenue from the transfer of goods at a point in time in the
following major business lines and geographical regions.
Analysis by class of customer
The revenue by class of customer is as follows:
Six months ended 30 June 2024
£m
Europe North America Asia Total
Primary geographical markets
Semiconductor Manufacturing Equipment 1.9 37.4 6.4 45.7
Industrial Technology 29.6 16.1 5.2 50.9
Healthcare 11.8 16.2 2.5 30.5
43.3 69.7 14.1 127.1
Six months ended 30 June 2023
£m
Europe North America Asia Total
Primary geographical markets
Semiconductor Manufacturing Equipment 2.5 43.7 8.2 54.4
Industrial Technology 35.4 25.5 7.8 68.7
Healthcare 14.3 19.6 3.2 37.1
52.2 88.8 19.2 160.2
XP Power Limited
Notes to the condensed consolidated financial statements
4. Segmented and revenue information (continued)
Reconciliation of segment results to profit for the period:
£m Six months ended Six months ended
30 June 2024 30 June 2023
Europe 11.6 12.3
North America 19.1 28.4
Asia 5.5 6.8
Segment results 36.2 47.5
Research and development (7.9) (11.0)
Manufacturing (5.1) (5.3)
Corporate costs (9.7) (9.4)
Adjusted operating profit 13.5 21.8
Net finance expenses (5.9) (6.4)
Adjustments (4.4) (4.5)
Profit before tax 3.2 10.9
Taxation (1.0) (3.1)
Profit for the period 2.2 7.8
£m At 30 June At 31 December
2024 2023
Total assets
Europe 77.6 79.2
North America 233.8 245.9
Asia 119.0 120.0
Segment assets 430.4 445.1
Unallocated deferred and current income tax 1.6 1.2
Total assets 432.0 446.3
5. Reconciliation of non-statutory measures
The Group presents Adjusted Operating Profit and Adjusted Profit Before Tax by
adjusting for costs and profits which management believes to be significant by
virtue of their size, nature or incidence or which have a distortive effect on
current year earnings (Adjustments). Such items may include, but are not limited
to, costs associated with business combinations, amortisation of intangible
assets arising from business combinations and restructuring costs.
In addition, the Group presents an Adjusted Profit For The Period measure by
adjusting for certain tax charges and credits which management believe to be
significant by virtue of their size, nature, or incidence or which have a
distortive effect.
The Group uses these and other adjusted measures to evaluate performance and as
a method to provide shareholders with clear and consistent reporting.
XP Power Limited
Notes to the condensed consolidated financial statements
5. Reconciliation of non-statutory measures (continued)
(i) Adjusted Operating Profit, Net Finance Expense, Profit Before Tax, Tax
and Profit For The Period
Six
months
ended 30
June 2024
£m Operating Net Profit Taxation Profit for
profit finance before the period
expense tax
Statutory result 9.1 (5.9) 3.2 (1.0) 2.2
Adjusted for:
Restructuring 1.1 - 1.1 - 1.1
costs
Costs relating to 0.6 - 0.6 - 0.6
legal dispute
Amortisation of 1.6 - 1.6 - 1.6
intangible assets
acquired from
business
combinations
Global supply 0.9 - 0.9 - 0.9
chain
transformation
Bid defence costs 0.2 - 0.2 - 0.2
Non-recurring tax - - - (0.7) (0.7)
benefits
Adjusted result 13.5 (5.9) 7.6 (1.7) 5.9
Six
months
ended 30
June 2023
£m Operating Net Profit Taxation Profit for
profit finance before the period
expense tax
Statutory result 17.3 (6.4) 10.9 (3.1) 7.8
Adjusted for:
Restructuring 1.5 1.0 2.5 - 2.5
costs
Costs relating to 1.4 - 1.4 - 1.4
legal dispute
Amortisation of 1.6 - 1.6 - 1.6
intangible assets
acquired from
business
combinations
Costs related to 0.2 - 0.2 - 0.2
Enterprise
Resource Planning
system
implementation
Fair value gain (0.2) - (0.2) - (0.2)
on derivative
financial
instruments
Gain on - (0.6) (0.6) - (0.6)
modifications of
revolving
credit facility
Non-recurring tax - - - (0.9) (0.9)
benefits
Adjusted result 21.8 (6.0) 15.8 (4.0) 11.8
(ii) Adjusted Operating Cash Flow and Conversion %
£m Six months ended 30 June 2024 Six months
ended 30 June
2023
Cash generated from 32.8 28.8
operations
Adjusted for cash
flows in respect
of:
Costs relating to 1.0 1.2
legal dispute
Restructuring costs 0.7 -
Global supply chain 0.4 -
transformation
Adjusted Operating 34.9 30.0
Cash Flow
Adjusted Operating 13.5 21.8
Profit
Adjust Operating 259% 138%
Cash Conversion
XP Power Limited
Notes to the condensed consolidated financial statements
5. Reconciliation of non-statutory measures (continued)
(iii) Adjusted LTM EBITDA
£m Twelve months Twelve months
ended 30 June
ended 30 June
2024
2023
Profit before tax 3.5 28.1
Adjusted for:
Net finance expense 12.8 10.3
Depreciation 9.0 10.0
Amortisation 11.2 9.1
LTM EBITDA 36.5 57.5
Adjusted for:
Restructuring costs 4.0 0.8
Costs relating to legal dispute 1.3 5.8
Global supply chain transformation 3.6 -
Impairment loss on intangible assets 2.0 0.3
Costs related to Enterprise Resource 0.1 0.4
Planning system implementation
Acquisition costs 0.1 1.5
Foreign exchange gain on Euro - (0.8)
-denominated loan drawn down to finance
acquisition
Revolving credit facility fees - (0.2)
Fair value loss/(gain) on derivative 0.1 (0.6)
financial instrument
Bid defence costs 0.2 -
Adjusted LTM EBITDA 47.9 64.7
XP Power Limited
Notes to the condensed consolidated financial statements
5. Reconciliation of non-statutory measures (continued)
(iv) Net Debt
£m At 30 June 2024 At 30 June
2023
Borrowings
Current 0.5 0.7
Non-current 118.1 174.6
Total borrowings 118.6 175.3
Cash and bank balances
Cash at bank and on hand 14.3 26.8
Short-term bank deposits 0.1 0.1
Total cash and bank balances 14.4 26.9
Net Debt 104.2 148.4
(v) Leverage (Net Debt: Adjusted LTM EBITDA)
£m At 30 June 2024 At 30 June
2023
Net Debt (Note 5(iv)) 104.2 148.4
Adjusted LTM EBITDA (Note 5(iii)) 47.9 64.7
Leverage (Net Debt: Adjusted LTM EBITDA) 2.2x 2.3x
(vi) Interest Cover (Adjusted LTM EBITDA : Adjusted LTM Net Finance Expense)
£m Twelve months ended 30 June 2024 Twelve months
ended 30 June
2023
Adjusted LTM EBITDA (Note 47.9 64.7
5(iii))
Net finance expense 12.8 10.3
Adjusted for:
Restructuring costs1 (1.4) (1.1)
Gain on modification of - 0.6
revolving credit facility
Adjusted LTM Net Finance 11.4 9.8
Expense
Interest Cover 4.2x 6.6x
(Adjusted LTM EBITDA :
Adjusted LTM Net Finance
Expense)
1 Restructuring cost consist only of interest on lease liabilities related to
lease for office spaces in the United States of America .
XP Power Limited
Notes to the condensed consolidated financial statements
6. Taxation
The average effective tax rate applied to Adjusted Profit Before Tax for the
period is 22% (2023: 25%). This is based on an estimate of the full year
effective tax rate by jurisdiction.
7. Dividends
Amounts recognised as distributions to equity holders of the Company in the
period:
Six months ended Six months ended
30 June 2024 30 June 2023
Pence per share £ Millions Pence per share £ Millions
Prior year third - - 21.0 4.1
quarter dividend
paid
Prior year final - - 36.0 7.1
dividend paid
Total - - 57.0 11.2
8. Earnings per share
Earnings per share attributable to equity holders of the company arise from
continuing operations as follows:
£m Six months Six months
ended 30 June 2024 ended 30 June 2023
Earnings
Earnings for the purposes of basic and 2.1 7.6
diluted earnings per share (profit for
the period attributable to equity
holders of the company)
Restructuring costs 1.1 2.5
Costs relating to legal dispute 0.6 1.4
Amortisation of intangibles acquired 1.6 1.6
from business combinations
Global supply chain transformation 0.9 -
Costs related to Enterprise Resource - 0.2
Planning system implementation
Fair value gain on derivative - (0.2)
financial instruments
Gain on modifications of revolving - (0.6)
credit facility
Bid defence costs 0.2 -
Non-recurring tax benefits (0.7) (0.9)
Earnings for Adjusted Earnings Per 5.8 11.6
Share
Number of shares
Weighted average number of shares for the 23,700 19,555
purposes of basic earnings per share
(thousands)
Effect of potentially dilutive share options 39 58
(thousands)
Weighted average number of shares for the 23,739 19,613
purposes of dilutive earnings per share
(thousands)
Earnings per share from operations:
Basic 8.9p 38.9p
Adjusted Basic 24.5p 59.3p
Diluted 8.8p 38.7p
Adjusted Diluted 24.4p 59.1p
XP Power Limited
Notes to the condensed consolidated financial statements
9. Intangible assets
Product Brand Trademarks Technology Customer
Customer Software Assets Total
Development relationships
contracts under
costs
development
£ Millions
Cost
At 31 December 51.0 1.8 1.1 7.9 24.8 2.6
24.2 25.6 139.0
2023
Additions - - - - - -
0.1 5.5 5.6
Disposal - - - - - -
(0.1) - (0.1)
Transfer 0.2 - - - - -
- (0.2) -
Reclassification - - - - - -
- (0.9) (0.9)
Foreign currency 0.2 (0.1) - - (0.1) -
0.2 0.2 0.4
translation
At 30 June 2024 51.4 1.7 1.1 7.9 24.7 2.6
24.4 30.2 144.0
Accumulated
amortisation and
impairment
losses
At 31 December 35.9 0.8 1.0 4.4 13.6 1.9
8.3 10.0 75.9
2023
Amortisation 2.1 0.1 - 0.4 0.8 0.3
1.1 - 4.8
charge for the
year
Disposal - - - - - -
(0.1) - (0.1)
Reclassification (0.9) - - - - -
- - (0.9)
Foreign currency 0.2 - - - 0.1 -
0.1 0.1 0.5
translation
At 30 June 2024 37.3 0.9 1.0 4.8 14.5 2.2
9.4 10.1 80.2
Carrying amount
At 30 June 2024 14.1 0.8 0.1 3.1 10.2 0.4
15.0 20.1 63.8
At 31 December 15.1 1.0 0.1 3.5 11.2 0.7
15.9 15.6 63.1
2023
The amortisation period for development costs incurred on the Group's products
varies between five and seven years according to the expected useful life of the
products being developed.
Amortisation commences when the product is ready and available for use.
The remaining amortisation period for customer relationships ranges from four to
nine years.
10. Property, plant and equipment
£ Millions Freehold Buildings Plant and Motor Building Assets
under Total
land equipment vehicles improvements
construction
Cost
At 31 December 1.5 18.2 38.1 0.2 26.9 7.6
92.5
2023
Additions - 0.3 1.0 - - 6.4
7.7
Disposals - - (0.5) (0.1) (1.8) -
(2.4)
Transfers - - 1.7 - 0.9 (2.6)
-
Foreign - 0.1 - - 0.2 (0.2)
0.1
currency
translation
At 1.5 18.6 40.3 0.1 26.2 11.2
97.9
30
June
2024
Accumulated
depreciation
At 31 December - 5.3 22.9 0.2 4.6 -
33.0
2023
Depreciation - 0.3 2.0 - 0.5 -
2.8
charge
Disposals - - (0.3) (0.1) (1.8) -
(2.2)
At 30 June - 5.6 24.6 0.1 3.3 -
33.6
2024
Carrying
amount
At 30 June 1.5 13.0 15.7 - 22.9 11.2
64.3
2024
At 31 December 1.5 12.9 15.2 - 22.3 7.6
59.5
2023
Assets under construction pertains to cost incurred for the building of Malaysia
factory of £7.6 million and renovation of the office space in North America
which is due for completion in 2024 of £3.6 million.
XP Power Limited
Notes to the condensed consolidated financial statements
11. Borrowings
As at 30 June 2024 the Group's borrowings had been drawn down from a US$255m
Revolving Credit Facility ("RCF") (subsequently reduced to $210m concurrent with
the renegotiation of covenants referred to below). The RCF was committed until
June 2026 and had no fixed repayment terms until maturity. The finance costs on
the RCF are priced based on the Secured Overnight Financing Rate (SOFR)
administered by the Federal Reserve Bank of New York plus a margin. The margin
applicable to drawn amounts range from 1.5-3.25%, depending on the Net Debt :
Adjusted LTM EBITDA ratio for the previous quarter. The non-utilisation fee
payable for the undrawn element of the facility is priced at 40% of the margin
applicable to drawn amounts.
The covenants attaching to the RCF were renegotiated in July 2024. The interest
cover (Adjusted LTM EBITDA: Adjusted LTM Net Finance Expense) covenant has been
reduced to a range between 2.50x to 3.50x until maturity of the facility.
Subsequent to the balance sheet date, the maturity date of the RCF has also been
extended to December 2026 and therefore repayment will be due in the third year
after the date of these accounts.
As at 30 June 2024, the borrowings were repayable as follows:
£m At 30 June At 31 December 2023
2024
On demand or within one year 0.5 0.4
In the second year 118.1 -
In the third year - 125.7
Total 118.6 126.1
The timing of repayment is subject to the compliance of loan covenants and any
non-compliance can result in earlier repayment. All loan covenants have been
complied with as at 30 June 2024 (refer to Note 2 Going Concern for further
information).
12. Foreign exchange rates
Exchange rates applied in these condensed consolidated financial statements are
the average for the six month period for Income Statement items (including
£1/USD1.2636 , £1/€1.1679, £1/SGD1.7007 ) and are the closing rate for Balance
Sheet items (including £1/USD1.2640 , £1/€1.1802, £1/SGD1.7135 at 30 June 2024).
13. Principal risks
The Group has well-established risk management processes to identify and assess
risks. The Group's principal risks are regularly reviewed by the Board and
mapped onto a risk universe, where risk mitigation or reduction can be tracked
and managed. This facilitates further discussion regarding risk appetite and
identifies the risks that require greater attention. Details of our risk
management framework are set out in the Group's Annual Report & Accounts for the
year ended 31 December 2023 on pages 52 to 59.
The Board has reviewed the principal risks as of 30 June 2024 against the
context of the environment in which the Group operates and the operational
developments during the first six months of the financial year and the outlook
for the remainder of the financial year. There is no change in principal risks
as disclosed in the Group's Annual Report & Accounts:
1. Disruption to manufacturing
2. Supply chain risks
3. Market/customer related risks
4. Product-related risks
5. IT/data
6. Funding/treasury
7. Legal & regulatory
8. M&A
9. People-related
10. Climate-related
XP Power Limited
Directors' responsibility statement
The Directors confirm to the best of their knowledge that:
· the unaudited interim results have been prepared in accordance with IAS 34
Interim Financial Reporting issued by the International Accounting Standards
Board; and
· the interim results include a fair view of the information required by DTR
4.2.7 (indication of important events during the first six months and
description of principal risks and uncertainties for the remaining six months of
the year) and DTR 4.2.8 (disclosure of related party transactions and changes
therein).
The Directors of XP Power Limited are as follows:
Jamie Pike Non-Executive Chair
Gavin Griggs Chief Executive Officer
Matt Webb Chief Financial Officer
Andy Sng Executive Vice President, Asia
Polly Williams Senior Independent Director
Pauline Lafferty Non-Executive Director
Sandra Breene Non-Executive Director
Amina Hamidi Non-Executive Director
By order of the Board:
Gavin GriggsMatt Webb
Chief Executive OfficerChief Financial Officer
6 August 2024
Independent review report to XP Power Limited
Report on review of interim financial information
We have reviewed the accompanying condensed consolidated financial information
of XP Power Limited ("the Company") and its subsidiaries ("the Group") set out
on pages 13 to 26, which comprise the condensed consolidated balance sheet of
the Group as at 30 June 2024, the condensed consolidated income statement,
statement of comprehensive income , changes in equity and cash flows for the 6
-month period then ended and the other explanatory notes. Management is
responsible for the preparation and presentation of this condensed consolidated
interim financial information in accordance with International Accounting
Standard 34 Interim Financial Reporting as issued by the International Standards
Board. Our responsibility is to express a conclusion on this condensed
consolidated interim financial information based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity. A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim report for the 6
-month period ended 30 June 2024, which comprise the "Interim Results" set out
on pages 1 to 3, "Chief Executive Officer's Review" set out on pages 4 to 8 and
"Chief Financial Officer's Review" set out on pages 9 to 12 and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed consolidated interim financial information.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying condensed consolidated interim financial information is
not prepared, in all material respects, in accordance with International
Accounting Standard 34 Interim Financial Reporting as issued by the
International Accounting Standards Board.
Restriction on Distribution and Use
This report has been prepared solely for the Company in accordance with the
letter of engagement between us and the Company. We do not accept or assume
liability or responsibility to anyone other than the Company for our work or
this report.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore ,
6 August 2024
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