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Annual Results 2016 xppower.com xp 1 Disclaimer The information - - PowerPoint PPT Presentation

Annual Results 2016 xppower.com xp 1 Disclaimer The information contained in this document is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purposes


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xp xppower.com

Annual Results 2016

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Disclaimer

The information contained in this document is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purposes whatsoever on the information contained in this document or on its completeness, accuracy or fairness. The information in this document is subject to change. This document contains statements about XP Power Limited that are or may be forward-looking statements. Forward-looking statements include statements relating to (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of XP Power Limited’s operations and potential synergies; and (iii) the effects of government regulation on business. These forward-looking statements are not guarantees of future performance. They have not been reviewed by the auditors of XP Power Limited. They involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of any such person to be materially different from any results, performance or achievements expressed or implied by such statements. They are based on numerous assumptions regarding the present and future business strategies of such persons and the environment in which each will operate in the future. All subsequent oral or written forward-looking statements attributable to XP Power Limited or any of its shareholders or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. All forward-looking statements included in this document speak only as of the date they were made and are based on information then available to XP Power Limited. Investors should not place undue reliance on such forward-looking statements, and XP Power Limited does not undertake any obligation to update publicly or revise any forward-looking statements. This document does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to sell or issue, or any solicitation of any offer to buy or acquire any securities of XP Power Limited or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this document, nor the fact of its distribution, should form the basis of, or be relied upon, in connection with any contract or commitment or investment decision

  • whatsoever. This document is not a prospectus or other offering document and does not purport to be all-inclusive. The information contained in this document has

not been independently verified by XP Power Limited or any other party. No representation or warranty, either express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness, correctness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment. This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or

  • ther jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration of licensing

within such jurisdiction. The information contained in this document does not constitute a public offer under any applicable legislation, or an offer to sell or solicitation of an offer to buy any securities. This document shall not constitute an offer of securities for sale in the United States.

XP Power Annual Results 2016

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Highlights

 Record revenues and earnings achieved in 2016 despite challenging economic conditions and

political uncertainties.

 Improvement in trading conditions during the second half, with positive momentum in order intake and

revenues.

 Order intake of £133.5 million (2015: £110.5 million) up 21% (9% in constant currency).  Full year revenues increased by 18% (7% in constant currency) to £129.8 million (2015: £109.7 million).  Own design revenues increased by 28% (15% in constant currency) to £95.3 million (2015: £74.6 million)

to reach a record 73% of total revenue (2015: 68%).

 High efficiency XP “Green” Power products grew by 28% in 2016 to £30.2 million (2015: £23.6 million).  Total dividend for the year of 71 pence per share (2015: 66 pence); up 8%.  Further investment in R&D and Vietnam manufacturing facilities.  Strong cash flow – net cash £3.7 million (2015: net debt £3.7 million)

XP Power Annual Results 2016

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Strategy Review 2016

POWERING THE WORLD’S CRITICAL SYSTEMS

Refined Corporate Strategy

Current strategy Refined strategy Develop a strong pipeline of leading edge products Develop a broad range of competitive products Expand high efficiency “Green” products (Complete) Target and increase penetration of key accounts Target accounts where we can add value Manufacture our own products (Complete) Increase high margin contribution from our own designed/manufactured products (Complete) Vertical penetration of focus accounts Enhance brand awareness through digital marketing and distribution Achieve operational excellence Lead our industry on environmental matters Lead our industry on environmental matters Acquire businesses to expand our offering

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XP Power Annual Results 2016

Key Performance Indicators

Key Performance Indicator Strategy point 2012 2013 2014 2015 2016

New product families released

Develop a broad range of competitive products 19 31 26 22 47 Revenues

Target accounts where we can add value £93.9m £101.1m £101.1m £109.7m £129.8m Top 30 customers percentage

  • f revenue

Vertical penetration of focus accounts 39% 40% 40% 44% 44% Own design product revenues

Develop a broad range of competitive products £57.6m £64.2m £67.2m £74.6m £95.3m Proportion of own design products

Develop a broad range of competitive products 62% 64% 66% 68% 73% Adjusted diluted Earnings per share

All 81.3p 95.1p 101.1p 104.3p 115.3p Cultural survey score

Operational excellence

  • 59.2

62.9 63.0 Lifetime CO2 emissions savings from green products

Lead our industry on environmental matters

  • 84,000

tonnes 102,200 tonnes 133,000 tonnes 158,000 tonnes

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Market Data

Market 2016 (£ Millions) Size Share Asia

875

1.3% Europe 475 10.4% North America 760 9.0% Total 2,110 6.1%

XP Power Annual Results 2016

Source: Micro-Tech Consultants and XP Power Management

XP Revenue (£ Millions) Asia Europe North America Total % Healthcare 1.7 12.7 23.5 37.9 29% Industrial 6.5 29.6 23.7 59.8 46% Technology 3.6 7.1 21.4 32.1 25% Total 11.8 49.4 68.6 129.8 100% 9% 38% 53% 100%

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  • 46% of revenue
  • Grew 23% (year on year)

after declining in 2015

  • Most fragmented sector

Interesting sub-sectors:

  • 3D printing
  • Industrial printing
  • Industrial LED lighting
  • Smart Grid
  • 29% of revenue
  • Grew 10% (year on year)
  • Building a leading position
  • Gains in the “Big 3” but the next

tier driving our growth

  • High efficiency products well

received due to high reliability

  • Corporate approvals with all the

major players

  • 25% of revenue
  • Grew 19% (year on year)
  • Good growth after being in the

doldrums

  • Semi fab grew 33% from $15.4m

to $20.5m (12% of revenue)

  • New programs also helping to

drive growth (e.g. broadcast)

Sector Dynamics

XP Power Annual Results 2016

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XP Power Annual Results 2016 45.4 40.8 7.7 50.1 43.7 7.3 51.3 42.2 7.6 55.7 45.1 8.9 68.6 49.4 11.8

NORTH AMERICA EUROPE ASIA

2012 2013 2014 2015 2016

Revenue by Geography (£M)

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Revenue by Sector (£M)

43.7 26.1 24.1 47.4 30.3 23.4 49.1 31.0 21.0 48.5 34.3 26.9 59.7 37.6 32.5

INDUSTRIAL HEALTHCARE TECHNOLOGY

2012 2013 2014 2015 2016

Growth 2012 2013 2014 2015 2016 Industrial

  • 7%

+8% +3%

  • 1%

+23% Healthcare

  • 2%

+16% +2% +11% +10% Technology

  • 20%
  • 3%
  • 10%

+28% +21%

XP Power Annual Results 2016

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XP Power Annual Results 2016

Own Design Revenue Trend

2012 2013 2014 2015 2016 Third party 6.9 7.4 5.9 4.8 4.4 Labelled product 29.3 29.5 28.0 30.3 30.1 Own design product 57.7 64.2 67.2 74.6 95.3 20 40 60 80 100 120 140 Revenue (£ Millions)

66% 23%

 Average compound annual growth rate of 10% for own brand revenue to 2016 (own design 13%)

Own Design Labelled Own Brand 73%

44%

4% 62% 31% 7% 7% 29% 64% 6% 28% 28% 4% 68%

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Revenue from “Green” Products

2.8 5.0 8.1 13.7 18.6 23.6 30.2

  • 5.0

10.0 15.0 20.0 25.0

  • 5.0

10.0 15.0 20.0 25.0 30.0 35.0 2010 2011 2012 2013 2014 2015 2016 Revenue (£ millions) % of revenue

% of revenue Revenue (£ millions)

 “Green” products are continuing to gain traction  Reliability has been the key demand driver for these products so far  Green products remain a major market opportunity XP Power Annual Results 2016

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Customers – Selection of Top 30

XP Power Annual Results 2016  We do business with over 70% of the S&P 500 Equipment Manufacturers  Top 30 customers account for 44% (2015: 44%) of revenue (largest customer <7%)

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Case Study

XP Power Annual Results 2016

Internet of Things (IoT) Smart Metering

Customer is a global leader in smart grid technology Customer’s application provides wireless communication capability for real time data management to utility companies and to the end users. They were releasing a firmware update to their latest residential smart meter. The new firmware required increased power. Needed for existing product field retrofits and new

  • rders.

Technical challenges:

  • Unique form factor with severe space restrictions
  • Unusually low profile
  • Power requirements in a rugged environment (full power at temperatures from -40C to +85C)
  • Communication feedback to report remote power supply health status
  • Capability to withstand AC surges lightning surge protection features

Result:

  • We designed and delivered first article units in just seven weeks.
  • The pilot product units are already in the field and we expect the program to go into production in

the first Q1 2018.

  • The design resulted in a five year contract to support field upgrades and fulfil new orders.
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Brexit – Potential Impact

 Sterling depreciation

  • Translational benefit to revenues as approximately 75% of revenues are

billed in US Dollars

  • Effect on profit is marginal as a higher proportion of our cost of sales is

in US dollars (~92%)

 Approximately 13% of our revenues billed in Sterling  Effect on the gross margin for 2016 is approximately 130bps lower  Have increased prices which are now feeding through  Vast majority of our product is manufactured in Asia - see no issues in the

event tariffs are introduced between the EU and UK

 Medium term effects are uncertain but the weaker Sterling could actually

benefit many of our UK customers if they export

XP Power Annual Results 2016

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Vietnam – Phase II

 Implemented lean manufacturing and reduced lead times  Significant capacity increase and cost competitiveness

advantage over China

 Performance to date has been excellent  Current approximate factory utilisation is:

 China – 70%  Vietnam – 50%

 Expect to break ground on Vietnam II in Q4 2017 and bring

  • n line in early 2019 (capital cost in Q4 2017 of $1.5M and

total cost approximately $6.0M)

XP Power Annual Results 2016

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Typical Product Life Cycle

0.2 0.9 2.0 3.7 4.6 4.1 6.2 7.4 6.1 6.7 7.1 5.4 4.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenue (£ Millions)

XP Power Annual Results 2016

Substantial revenue annuity

Design in cycle typically 18 months

2009 and 2012 dips due to market downturn and not typical

ECM40/60 Series

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Income and Expenditure Statement

£ Millions 2016 Margin 2015 Margin Change

GBP/USD exchange rate 1.37 1.54 +11%

Orders 133.5 110.5 +21% Revenue 129.8 100.0% 109.7 100.0% +18% Gross margin 62.0 47.8% 54.6 49.8% +14% Research and development (net) 5.9 5.8 +2% Other operating expenses 27.3 22.9 +19% Adjustments (see note below) 0.8 0.3

  • Adjusted EBITDA*

33.0 25.4% 29.7 27.1% +11% Operating profit 28.0 21.6% 25.6 23.3% +9% Net interest expense 0.2 0.2

  • Profit before tax

27.8 21.4% 25.4 23.2% +9% Adjusted profit before tax* 28.6 22.0% 25.7 23.4% +11% Taxation 6.3 5.5 +15% Minority interest 0.2 0.2

  • Profit after tax

21.3 16.4% 19.7 18.0% +8% Adjusted profit after tax* 22.1 17.0% 20.0 18.2% +11% Adjusted diluted earnings per share* 115.3p 104.3p +11% Dividend per share 71.0p 66.0p +8% XP Power Annual Results 2016 * Adjusted for one-off costs associated with acquisitions of £0.4 million (2015: £0.3 Million) and intangibles’ amortisation of £0.4 million (2015: nil)

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Operating Expenses Reconciliation

£ Millions

R&D Other Opex Adjustments*

Total Opex 2015 5.8 22.9 0.3 29.0 % of revenue 5.3% 20.9%

  • 26.4%

Foreign exchange 0.5 1.5

  • 2.0

Acquisition of EMCO

  • 2.3
  • 2.3

Additional people 0.7 0.3

  • 1.0

Other (decreases) / increases (0.1) 0.3 0.5 0.7 R&D costs capitalised (1.0)

  • (1.0)

2016 5.9 27.3 0.8 34.0 % of revenue 4.6% 21.0%

  • 26.2%

XP Power Annual Results 2016 * One-off costs associated with acquisitions of £0.4 million (2015: £0.3 Million) and intangibles’ amortisation of £0.4 million (2015: nil)

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Summary Balance Sheets

XP Power Annual Results 2016 £ Millions December 2016 December 2015

GBP/USD exchange rate 1.24 1.50

Cash 9.2 4.9 Trade and other receivables 24.3 19.9 Inventories 32.2 28.7 Total current assets 65.7 53.5 Property, plant and equipment 19.1 16.1 Other non-current assets 54.1 49.3 Total non-current assets 73.2 65.4 Trade and other current payables 20.3 15.8 Short term borrowings 5.5 4.0 Total current liabilities 25.8 19.8 Deferred consideration and deferred tax 6.2 5.4 Long term borrowings

  • 4.6

Net assets 106.9 89.1 Net cash/(net debt) 3.7 (3.7)

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Cash Flow Statement

£ Millions 2016 2015 Operating Profit 28.0 25.6 Amortisation of development costs 2.5 1.8 Depreciation 2.1 2.0 Currency translation losses/(gains)/ESOP expenses 5.5 0.7 Change in working capital (6.0) (4.5) Income tax paid (4.1) (4.7) Cash provided by operating activities 28.0 20.9 Capitalised development costs (4.2) (2.9) Interest paid (0.2) (0.1) Free cash flow 23.6 17.9 Opening net cash/(net debt) (3.7) 1.3 Acquisition (net of cash acquired)

  • (8.3)

Purchase of property and equipment (net of disposals) (2.5) (2.5) Dividends (13.1) (12.2) Effects of currency translation on cash / ESOP shares (0.6) 0.1 Closing net cash/(net debt) 3.7 (3.7) XP Power Annual Results 2016

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2017 Outlook

Strong finish to 2016 and good start to 2017 Order intake, growing backlog and strong US Dollar

underpins confidence

We are actively seeking acquisition opportunities to

broaden our product offering and engineering capabilities

While not immune to macro-economic and political

impacts we are encouraged regarding our prospects for 2017

XP Power Annual Results 2016

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