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Interim Results 2020 xp xp power.com 1 XP XP Power Interim Results - - PowerPoint PPT Presentation

Interim Results 2020 xp xp power.com 1 XP XP Power Interim Results 2020 2020 DISCLAIMER The information contained in this document is for Investors should not place undue reliance on such background purposes only and does not purport to be


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1 XP XP Power Interim Results 2020 2020

xp xppower.com

Interim Results 2020

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2 XP XP Power Interim Results 2020 2020

The information contained in this document is for background purposes only and does not purport to be full

  • r 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

  • f 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

  • r other 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.

DISCLAIMER

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3 XP XP Power Interim Results 2020 2020

GROUP HIGHLIGHTS

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  • Strong performance in challenging conditions demonstrates robust business

model

  • Order intake increases 45% to £145.8m due to recovery in Semifab and

COVID-19 related demand from Healthcare customers

  • Revenue increases 6% to £105.1m driven by Semifab recovery
  • Expansion of Vietnam manufacturing facility completed in 2019 enabled

Group to show supply chain resilience

  • Good free cash flow driven by working capital focus
  • Reinstatement of dividend from Q2 2020
  • Exposed to sectors that should perform well in a post COVID-19 world
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4 XP XP Power Interim Results 2020 2020

FINANCIAL HIGHLIGHTS

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5 XP XP Power Interim Results 2020 2020

PERFORMANCE GROUP FINANCIAL

GROUP PERFORMANCE

H1 2020 H1 2019 Change Change At CER(2)

GBP/USD 1.26 1.29

Orders (£m) 145.8 100.6 +45% +42% Revenue (£m) 105.1 98.9 +6% +4% Gross margin (%) 44.9% 44.6% +30bps

  • Adj. Operating Profit (£m) (1)

18.0 18.2 (1)%

  • Adj. Profit before tax (£m) (1)

17.0 16.6 +2%

  • Adj. ETR (%) (1)(3)

20.4% 19.4% +100bps

  • Adj. diluted EPS (p) (1)

70.2p 69.2p +1% DPS (p) 18p 35p (49)%

(1) These adjusted performance measures represent the statutory results excluding specific items. (2) At constant exchange rates (‘CER’) using the prior period’s exchange rates. (3) ETR = Effective tax rate

  • Order intake up 45% on prior year

Cyclical recovery in Semifab (+105%) COVID-19 related Healthcare demand (+141%) Industrial softer (-17%), Technology (+19%)

  • Reported revenue growth of 6%

Semifab (+61%), Healthcare (+19%) Industrial (-22%), Technology (+12%)

  • Gross margin increase despite COVID-19

related costs

  • Adjusted Profit before tax growth of 2% with

annualisation of 2019 investments

  • ETR impacted by regional profit mix
  • Reinstated Q2 dividend of 18p (2019: 18p)
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6 XP XP Power Interim Results 2020 2020

ORDERS

GROUP SEGMENTAL PERFORMANCE

GROUP PERFORMANCE

YoY change at constant FX +100% +16% (19)% +136% +45%

REVENUE

YoY change at constant FX +56% +10% (24)% +16% +6% 100.6 21.2 1.8 (9.5) 29.3 2.4 145.8 H1 2019 Semi Fab Technology Industrial electronics Healthcare FX H1 2020 £ million 98.9 10.2 1.1 (11.4) 3.9 2.4 105.1 H1 2019 Semi Fab Technology Industrial electronics Healthcare FX H1 2020 £ million

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7 XP XP Power Interim Results 2020 2020

REVENUE

GROUP REGIONAL PERFORMANCE

GROUP PERFORMANCE

YoY change at constant FX +10% (10)% +15% +6%

ORDERS

+61% +19% +13% +45% YoY change at constant FX 100.6 35.0 6.4 1.4 2.4 145.8 H1 2019 N America Europe Asia Currency H1 2020 £ million 98.9 5.9 (3.6) 1.5 2.4 105.1 H1 2019 N America Europe Asia Currency H1 2020

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8 XP XP Power Interim Results 2020 2020

PROFIT PERFORMANCE ADJUSTED OPERATING

GROUP PERFORMANCE

Gross margin increase despite COVID-19 related costs

Gross margin at 44.9%, up 30bps Positive regional and segment mix H1 margin impacted by Kunshan COVID-19 shutdown and increased freight costs

Investment in headcount and IT infrastructure

Adjusted operating margin of 17.1%, down 130bps

18.2 2.0 0.8 (0.5) (2.7) 0.2 18.0 H1 2019 Rev drop through GM contribution Covid GM impact Opex investment Currency H1 2020 £ million

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AND NET DEBT CASH FLOW STATEMENT

GROUP PERFORMANCE

£m Net debt bridge

£m H1 20 H1 19 Variance Adjusted Operating Profit 18.0 18.2

  • 1%

Amortisation of product development costs 2.2 1.8 Amortisation of computer software 0.4

  • Depreciation

2.9 2.6 Change in working capital 2.2 4.2 Adjusted Operating Cash Flow 25.7 26.8

  • 4%

Specific items (4.2) (1.6) Cash generated from Operations 21.5 25.2

  • 15%

Income tax paid, net of refund (0.6) (2.6) Payment of lease liabilities (0.8) (0.8) Purchase of property and equipment (net of disposals) (1.8) (2.5) Capitalised product development costs (4.0) (4.4) Capitalised software development costs (0.8) (1.9) Interest paid (0.8) (1.4) Sale of treasury shares 1.8 0.4 Free cash flow 14.5 12.0 21% Funding: $120 million + $60m accordion Across 3 Regional banks Leverage at 0.74x Covenant: < 3.0x Interest Cover: 22.9x Covenant: > 4.0x

(41.3) 14.5 (0.5) (3.9) (3.2) (34.4) Opening Net Debt Free Cash Flow Other cash items Dividend Payments FX Closing Net Debt

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10 XP XP Power Interim Results 2020 2020

APPROXIMATIONS 2020 MODELLING GUIDANCE

OUTLOOK

CAPEX/CAP PROD DEV/CAP IT £6.0m / £8.0m / £2.5m EFFECTIVE TAX RATE 20-22% INTEREST

  • c. £1.5m

CASH SPECIFIC ITEMS £4.5 – 5.0m COST SAVINGS

  • c. £2-3m

INFLATION

  • c. £2-3m

REVENUE H2 weighted – Backlog unwind NET DEBT / EBITDA

  • c. 0.5x by 31 December 2020

CASH FLOW Improved EBITDA & Working Capital

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BUSINESS UPDATE

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– Managing through the crisis based on clear consistent priorities:

  • 1. The safety and wellbeing of our colleagues
  • 2. Keeping our customers supported and supplied with

product

  • 3. Preserving cash

– All production and logistics facilities operating normally and following local epidemic prevention and control measures – Evidence is that the business is operating effectively in “work from home” mode – Unprecedented demand from Healthcare customers resulting in record order backlog at 30 June 2020 – XP Power’s supply chain has recovered and capacity increased in China and Vietnam to deliver customer backlog in the second half of 2020

UPDATE AS AT 3 AUGUST 2020 COVID-19

COVID-19

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– The pandemic has accelerated many trends:

– Sales processes (digital marketing) – Working from home (communications, video conferencing, collaboration tools) – Realisation of under provision of healthcare services and equipment throughout the world – Online shopping (IT, robotics)

– Polarisation between the performance and medium-term prospects for different sectors:

– Winners - Semifab, Healthcare, IT, Telecoms

– Customers revisiting their supply chains for resilience and reducing exposure to China

– Vietnam and dual manufacturing locations is a strategic advantage valued by key customers

– ESG and health and safety come into focus

ACCELERATION OF TRENDS COVID-19

COVID-19

XP Power expected to be a long-term beneficiary of the acceleration of trends caused by COVID-19 as we are already exposed to sectors and customers that will benefit

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14 XP XP Power Interim Results 2020 2020

ü Develop a market leading range of competitive products ü Target accounts where we can add value ü Vertical penetration of target accounts ü Build a Global Supply Chain which balances high efficiency with market leading customer responsiveness ü Lead our industry on environmental matters ü Make selective acquisitions in identified strategic markets to expand our product offering

IS DELIVERING OUR STRATEGY

STRATEGY IN ACTION

Consistent application of a winning strategy has meant that XP has been able to continue to invest in product development, hiring talent and expanding manufacturing capacity during the COVID-19 pandemic

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15 XP XP Power Interim Results 2020 2020

  • 35% of revenue
  • Declined 24% (constant currency

YoY)

  • Distribution channel destocking
  • Most diverse sector with high level
  • f innovation
  • 3D printing
  • Robotics
  • Analytical instruments
  • Industrial printing
  • Industrial LED lighting
  • 27% of revenue
  • Grew 56% (constant currency

YoY) with market recovery and share gains

  • RF and high voltage facilitating

greater penetration

  • Attractive long-term growth

drivers (big data, AI, 5G, IoT)

  • Design win pipeline very strong
  • n next generation tools
  • 26% of revenue
  • Grew 16% (constant currency YoY)
  • Building a leading position, strong
  • rder performance
  • High efficiency products well

received due to high reliability

  • Corporate approvals with all the

major players

  • COVID-19 impact in H1 2020 expect

recovery in non-COVID demand in H2 2020

  • 12% of revenue
  • Grew 9% (constant currency

YoY)

  • Broadcast
  • Communications – Satellite,

secure, harsh environments

  • Projection technology
  • Recovery expected in H2

2020

SECTOR DYNAMICS

STRATEGY IN ACTION

COVID-19 will accelerate digitization and long-term demand for healthcare equipment. Areas to which XP is favourably exposed

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16 XP XP Power Interim Results 2020 2020

Revenue (£ Millions)

CAGR +42.1%

BY SECTOR REVENUE

STRATEGY IN ACTION

CAGR +4.9% CAGR +14.6% CAGR +10.6%

Note: 2020 is annualised H1 2020 performance

High level Trends

  • Increased connectivity of

the power converter to the customer's equipment

  • Higher power
  • Higher engineering

services content (customisation)

  • Industrial revolution 4.0
  • Increased legislation

56.8 10.0 28.4 14.5 70.2 15.1 30.7 13.7 78.6 28.3 41.4 18.4 83.6 47.5 43.6 20.4 89.2 37.4 45.9 27.4 73.8 56.4 55.8 24.2 Industrial Electronics Semi Fab Healthcare Technology 2015 2016 2017 2018 2019 2020

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17 XP XP Power Interim Results 2020 2020

– Phase II completed in Q1 2019 - significant capacity increase (>75%) – Over 2,200 different low voltage and 350 high voltage products now approved for production – Cost competitiveness advantage over China – COVID-19 is resulting in expedited transfers from China to Vietnam and helps mitigate Section 301 Tariffs and provides a competitive advantage over competitors with Chinese based manufacturing – Supply chain resilience highly valued by customers – Focused on increasing capacity in both locations – lean initiatives, capex and headcount – Will have capability to produce broad product range delivering flexibility and savings

– LVLP, HVLP, RF, Engineering Services (ES)

A COMPETITIVE ADVANTAGE VIETNAM

SUPPLY CHAIN Revenue Capacity ($m) 2020 Est. Utilisation China ~100 50% Vietnam I ~150 70% Vietnam II ~150

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– Transfer of the manufacture of our low power/high voltage DC-DC modules from Minden, Nevada to Vietnam announced in August 2019 – Minden facility expected to be closed by mid-August 2020 (previously 30 June 2020 but delays due to COVID-19) – Expect annualised cost savings of approximately £4 million

TRANSFER TO VIETNAM SUPPLY CHAIN RE-ENGINEERING

SUPPLY CHAIN

  • £1-2 million of the savings to be invested back

into the business to expand and strengthen our new product introduction team

  • Charges associated with the site closure of

approximately £1 million taken over the 14 months to August 2020

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19 XP XP Power Interim Results 2020 2020

BUILDING OUR ESG CREDENTIALS

LEADING ON ENVIRONMENTAL MATTERS

ESG

Area What we have done Our Environment

  • “Green” XP Power produces ongoing CO2 savings
  • CO2 emissions savings from solar PV in Vietnam
  • Vietnam rainfall water recycled
  • Third party verification of environmental metrics

Our People’s Health and Safety • Incident rates below industry benchmarks Our Communities

  • XP Power events benefitting the local communities in which we work

Our Standards

  • Member of the Responsible Business Alliance
  • Aligned with 8 of 17 of the UN Sustainable Development Goals (SDG’s)
  • Diversity & Inclusion – high employee survey rating

Our strong ESG credentials are highly valued as COVID-19 brings ESG and health and safety into particular focus

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20 XP XP Power Annual Results 2019 2019

  • Entering second half of 2020 with a record order backlog due to strength

in Semiconductor Equipment Manufacturing and Healthcare demand

  • Expect sequential revenue growth in the second half of 2020
  • Increased Vietnam production capacity brings cost competitive supply

chain advantage and highly valued resiliency

  • Larger addressable market; the expanding product range, engineering

support and customer reach will enable XP to take further market share

  • Exposed to sectors that will benefit from the long-term trends caused by

the COVID-19 pandemic

GROUP OUTLOOK

HIGHLIGHTS

20 XP XP Power Interim Results 2020 2020

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QUESTIONS AND ANSWERS

HIGHLIGHTS

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xp xppower.com

Interim Results 2020 - Appendices

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Market 2018 ($ Millions) Size Share Asia 1,303 1.6% Europe 679 12.0% North America 1,098 12.0% Total 3,080 7.6% RF Power 1,200 1.8% High power/high voltage 500 3.6% Grand total 4,780 5.5%

Source: Micro-Tech Consultants and XP Power Management

XP H1 2020 Revenue (£ Millions) Asia Europe North America Total Share of XP (%) Healthcare 2.5 8.8 16.6 27.9 26% Industrial Electronics 3.8 17.3 15.8 36.9 35% Semifab 0.4 0.4 27.4 28.2 27% Technology 4.6 3.4 4.1 12.1 12% Total 11.3 29.9 63.9 105.1 100% Share of XP (%) 11% 28% 61% 100%

DATA MARKET

COMPANY OPERATIONS

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24 XP XP Power Interim Results 2020 2020

– Acquisitions in high voltage (EMCO and Glassman) and Radio Frequency (RF) power expand our addressable market from $2.7Bn to $4.7Bn – One of few companies in the world who can provide solutions right across the power and voltage spectrum – Can use our engineering services capabilities to combine different products to give the customer a complete solution – Presents significant long-term growth

  • pportunity

STRATEGY IN ACTION

SIGNIFICANT GROWTH OPPORTUNITY PRODUCT PORTFOLIO

PRODUCT

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25 XP XP Power Interim Results 2020 2020

Healthcare

  • Imaging
  • Patient monitoring
  • Life science
  • Surgical tools
  • Home healthcare

Technology

  • High end computing
  • Broadcast
  • Displays
  • Communications
  • Security

Semifab

  • Deposition
  • Etch
  • Wafer handling
  • Ion implantation
  • Semiconductor test

Industrial

  • 3D printing
  • Process control
  • Test and measurement
  • Smart grid
  • Transport

CONVERTERS EVERYHERE XP POWER

STRATEGY IN ACTION

Trends

  • Higher power
  • Higher engineering

services content

  • Increased

connectivity of the power converter to the customer's equipment

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26 XP XP Power Interim Results 2020 2020 0.2 0.9 2 3.7 4.6 4.1 6.2 7.4 6.1 6.7 7.1 5.4 4.8 5.4 5.2 4.1 4.7 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

REVENUE HISTORY ECM40/60 SERIES (£ MILLIONS)

LIFE CYCLE TYPICAL PRODUCT

COMPANY OPERATIONS

  • Substantial revenue

annuity

  • Design in cycle typically

18 months (longer in healthcare)

  • 2009 and 2012 dips due

to market downturn and not typical

*2020 annualised

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27 XP XP Power Interim Results 2020 2020

Service and Support

  • Large technical sales

team

  • Significant support at

the design-in stage allowing customer faster time to market

  • Flexibility in terms of

product modifications and logistics

  • Speed and agility

Quality

  • Quality is a given and

paramount for mission critical solutions

Product Offering

  • Product has to solve

the customer’s power problem and work in their application

  • XP Power breadth of

product is a competitive advantage

  • Customers prefer

standard/modified standards over custom solutions

Cost

  • Not the customers’ top

priority but product needs to be cost competitive

  • Low cost Asian

manufacturing an advantage against local/smaller in competition

  • Vietnam expansion

timely given Section 301 tariffs in the USA

XP POWER SUCCESSFUL? WHAT MAKES

STRATEGY IN ACTION

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28 XP XP Power Interim Results 2020 2020