Annual Financial Report

23 February 2015 XP Power Limited ("XP Power" or "the Group") Annual Results for the year ended 31 December 2014 XP Power, one of the world's leading developers and manufacturers of critical power control components for the electronics industry, today announces its annual results for the year ended 31 December 2014. Highlights Year ended Year ended 31 December 31 December Change 2014 2013 Order intake £105.1m £103.7m +1% Revenue £101.1m £101.1m - Gross margin 49.6% 49.1% +50 bps Profit before tax £24.3m £22.9m +6% Profit after tax £19.5m £18.4m +6% Diluted earnings per share 101.1p 95.1p +6% Operating cash flow £21.8m £20.2m +8% Net cash/(net debt) £1.3m (£3.5m) - Final dividend per share 22.0p 19.0p +16% Total dividend per share 61.0p 55.0p +11% Proven strategy of developing and manufacturing our own range of market leading products produced another year of strong progress First complete power converters manufactured at the Vietnam facility Order intake increased to £105.1 million (2013: £103.7 million) setting a new record for the Group, an increase of 6% in constant currency Revenues for the year were ahead by 5% in constant currency at £101.1 million XP Power's own-design revenues increased to a record £67.2 million (2013: £64.2 million) an increase of 11% in constant currency and representing a record 66% of revenue Sales of high efficiency products increased by 36% to £18.6 million representing 18% of revenues (2013: £13.7 million or 14% of revenues) Strong earnings and continued strong cash flows resulted in a net cash position of £1.3 million at year-end (2013: net debt of £3.5 million) Total dividend for the year increased by 11% to 61 pence per share (2013: 55 pence per share) Successful repositioning as a designer and manufacturer leaves the Group well positioned to continue to take market share James Peters, Chairman, commented: "2014 was a year of significant progress which saw us again achieve underlying growth in revenues and earnings, while taking further market share." "While the global economic outlook again looks mixed in the year ahead, we believe we can grow our revenues as the new designs won in 2014 and prior years enter production. We also plan to invest in additional sales and engineering resources in North America during 2015 to help drive further growth." "We enter 2015 with a strong balance sheet having closed 2014 debt free. This places us in an excellent position to make bolt on acquisitions to further broaden our product offering and engineering capabilities alongside our organic growth. While we are not immune from capital equipment cycles and global economic conditions we continue to expect further revenue growth in 2015." Enquiries: XP Power Duncan Penny, Chief Executive +44 (0)7776 178018 Jonathan Rhodes, Finance Director +44 (0) 7500 944614 Citigate Dewe Rogerson +44 (0)20 7638 9571 Kevin Smith/Jos Bieneman 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. XP Power typically designs-in power control solutions into the end products of major blue chip OEMs, with a focus on the industrial (circa 50% of sales), healthcare (circa 30% sales) and technology (circa 20% of sales) sectors. Once designed into a programme, XP Power has a revenue annuity over the life cycle of the customer's product which is typically 5 to 7 years depending on the industry sector. XP Power has invested in research and development and its own manufacturing facilities in China 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 serves a global blue chip customer base from 27 locations in Europe, North America and Asia. For further information, please visit www.xppower.com Chairman's Statement Our progress 2014 was a year of significant progress on many fronts despite economically challenging conditions for the industrial electronics markets. Against this backdrop, we have again achieved underlying growth in revenues and earnings and taken share from the competition. In addition, we have strengthened the Board, and enhanced our competitive position by producing the first complete power converters in our Vietnam facility and implementing a new Customer Relationship Management system across the Group. Revenues were £101.1 million (2013: £101.1 million), representing a 5% increase in constant currency. Order intake was £105.1 million (2013: £103.7 million) setting a new record for the Group and representing an increase of 6% in constant currency. Revenues from XP Power's own designed product - a key indicator of our strategic progress - grew by 5% (or 11% in constant currency) to £67.2 million (2013: £64.2 million) representing 66% of revenue (2013: 64%) and setting another new record. Gross margin improved to 49.6% (2013: 49.1%), driven by favourable product mix and manufacturing efficiencies. Operating margins also improved to 24.2% (2013: 23.0%). As a result earnings per share for 2014 grew by 6% to 101.1 pence (2013: 95.1 pence), demonstrating the effectiveness of our business model. This growth, combined with our usual strong free cash generation, allowed us to increase the dividend once again while achieving the significant milestone of moving from a net debt to a net cash position. The compound average growth rate of earnings per share has been 20% over the last five years. Governance and Board of Directors We have strengthened our Board of Directors significantly over the past year. On 1 January 2014 Peter Bucher joined the Board as a Non-Executive Director. Peter has excellent commercial and technical experience in the power converter industry and has already made a valuable contribution to the business during 2014. I am also pleased to welcome Terry Twigger to our Board with effect from 1 January 2015. As the former CEO of Meggitt PLC, Terry has a wealth of international and public company experience in the engineering sector, including numerous successful acquisitions. I am confident he will make a significant contribution to the growth of our business. Dividend Our continued strong financial performance, strong cash flows and confidence in the Group's long term prospects have enabled us to consistently increase dividends. In line with our progressive dividend policy, the Board is recommending a final dividend of 22 pence per share for the fourth quarter of 2014. This dividend will be payable to members on the register on 13 March 2015 and will be paid on 9 April 2015. When combined with the interim dividends for the previous quarters, the total dividend for the year will be 61 pence per share (2013: 55 pence), an increase of 11%. The compound average growth rate of our dividend has been 23% over the last five years. Our Talented People We have significant strength and depth in our organisation. Our executive management team, located on three different continents, is not only talented but given a relatively young average age has an impressive average length of service. The 11 person executive management team have an average age of less than 45 and average length of service of over 15 years. The breadth and depth of experience and collective teamwork of our people delivers genuine value to our customers. Building a Sustainable Business The Group believes it leads its industry on environmental performance and places sustainability at the heart of its business model. We are building a sustainable business that can grow and prosper in the long term, including how we support and provide genuine value to our customers, how we treat and reward our people, through to our business ethics. Outlook While the global economic outlook again looks mixed in the year ahead, we believe we can grow our revenues as the new designs won in 2014 and prior years enter production. We also plan to invest in additional sales and engineering resources in North America during 2015 to help drive further growth. We enter 2015 with a strong balance sheet having closed 2014 in a debt free position. This places us in an excellent position to make bolt on acquisitions to further broaden our product offering and engineering capabilities. James Peters Chairman Chief Executive's Review Review of the year The Group grew earnings despite continued mixed market conditions and currency headwinds and achieved a record order intake of £105.1 million (2013: £103.7 million) in the year. We have also once again outpaced our competition and taken further market share. Revenues for 2014 on a reported basis were £101.1 million (2013: £101.1 million), reflecting the weakness of the US Dollar versus Sterling in 2014 compared with 2013. Revenues in constant currency were ahead by 5%. As well as our strong financial performance we also made solid operational progress, commencing production of the first complete power converters in our Vietnam factory, providing additional manufacturing capacity at lower cost than our existing Chinese facility. We have also implemented a new Customer Relationship Management system to enhance collaborative working and provide better customer service and knowledge to the business. Last but not least, we introduced two class-leading ultra-high efficiency products - the CCB200 and CCL400 power converters. Progress across our marketplace The Group's geographic performance was mixed across the year, largely reflecting the varied macro economic conditions prevailing in North America, Europe and Asia. Our North American business has shown some clear momentum driven by strong design wins in larger blue chip customers. Revenues in local currency (US Dollars) were up by 8.3% to $84.9 million (2013: $78.4 million). North American revenues increased by 2.6% on a reported basis to £51.3 million (2013: £50.0 million). The outlook in North America is encouraging and we will be expanding our sales and power systems engineering resource in this market during 2015. The European markets have been the most challenging, particularly those countries where we already have a high market share, such as the UK. European revenues declined by 3.7% to £42.2 million (2013: £43.8 million). Despite the more challenging economic conditions in Germany and southern Europe, we saw revenue growth in these areas driven by our ability to aggressively take market share. We have also recently established a direct sales presence in Israel where we see good medium term opportunities. Asia also performed well, albeit off a smaller base. Asia revenues increased by 4.1% on a reported basis to £7.6 million (2013: £7.3 million). Underlying revenues in US Dollar were up by 9.6% to $12.6 million (2013: $11.5 million). The Asian business successfully replaced a large programme that went end of life in 2013. We also added a direct sales presence in Japan during the year, where our industry-leading product offering is already enabling us to win against the strong local competition. The sector splits of 2014 revenues were as follows: Industrial increased 3.4% to £49.1 million (2013: £47.5 million), Healthcare increased 2.6% to £31.0 million (2013: £30.2 million) and Technology declined 10.3% to £21.0 million (2013: £23.4 million). The 6% effect of a weaker US Dollar versus the Sterling noted above is also applicable to the sector splits. We believe the improvement we have seen in Industrial and Healthcare is principally due to market share growth as new programmes have entered into production. Industrial is the most diverse and fragmented sector for XP Power but we can see good progress in industrial printing, test and measurement and 3D printing applications. Our Healthcare segment continues to strengthen. We expect this sector will show higher growth rates in the medium term as we are now approved vendors at all the key players in this market, yet still have a relatively small share of their available business. These customers in particular appreciate our service and support, and the breadth of our ultra efficient, and therefore reliable, products within our portfolio. Technology continues to be the most challenging and cyclical segment. The semiconductor equipment manufacturers, where we have a strong customer base historically, are highly cyclical. We have also seen a decline in some other technology programmes outside of the semiconductor equipment manufacturers, which we continue to work to replace with new business. Our global footprint enhancing our offer Our North American business has shown greatest momentum during 2014 where we have been able to engage with larger customers with larger individual programme sizes. These customers are frequently leaders in their fields of expertise and are often providing critical equipment into the specific industries they serve. These customers recognise the value we add through our broad portfolio of class-leading products backed up by excellent service and support. We are therefore investing in the expansion of our sales and engineering support capabilities in the North American market in 2015, with aim of accelerating revenue growth from these larger customers. The global nature of our customers means we can be working simultaneously on two or even three continents on the same customer programme. The customer may choose to design in one location and require the product to be shipped and supported in others. Collaborative working with fast and efficient communication and information sharing is therefore critical to offering the high level of customer service for which we are renowned. For this reason we upgraded our Customer Relationship Management system during the year, implementing a brand new platform which was rolled out across the entire organisation. In January 2015 we successfully also rolled out SAP to our North American organization, which means we are running the same integrated system across all our sales businesses. This will ensure our systems are efficient and up to date - and capable of supporting our future growth. Research and development We have continued to invest in research and development to expand our portfolio of ultra-high efficiency products. These products are inherently more reliable as they do not require mechanical fans to cool them and continue to attract strong customer interest. In the first half of 2014 we released the CCB200, which is a compact product able to produce 200 Watts of power without the need for fan cooling, and which can operate at full power at up to 70 degrees Celsius without de-rating. In the second half of 2014 the CCB200 was joined by the even more advanced CCL400, which produces 400 Watts of power without the need for fan cooling. These products have been well received by our customers and our design win pipeline for both is strong. Manufacturing progress In 2012 we began production of magnetic components to incorporate into our power converters at a new facility in Vietnam. Production volumes and quality to date have both been very encouraging. In the fourth quarter of 2014 we started to produce the first complete power converters in Vietnam, as planned. This addition of a second full manufacturing site adds needed capacity and also enhances our cost competitiveness owing to the lower costs in Vietnam compared to our existing Chinese facility. The quality from Vietnam has been excellent and we are pleased and excited with the progress made at this facility and by its future potential. Revenue and operating profit Revenues for the twelve months ended 31 December 2014 of £101.1 million (2013: £101.1 million) were ahead of those achieved in 2013 by 5% in constant currency. Exchange rate volatility has an impact on Group revenue as over 70% of revenues are derived in US Dollars. The average rate of the US Dollar weakened against Sterling during 2014 to 1.66 (2013: 1.56). The Group's gross margin in 2014 set a new record at 49.6% due to a higher mix of our own designed product, in combination with improved factory loading as our factories benefited from the mix changes and produced in higher volumes. In 2014 £67.2 million of our revenues were from own designed products (2013: £64.2 million) representing 66% of overall revenue (2013: 64%). Operating expenses for the year totalled £25.6 million compared with £26.3 million in 2013. As with revenue the weakening of the US Dollar versus Sterling had an impact but in this case it reduced reported operating expenses by £0.7 million. Operating profit improved by 5% over the previous year to £24.5 million (2013: £23.3 million) resulting in an increased operating margin of 24.2% (2013: 23.0%). Taxation The tax charge for the year was £4.8 million (2013: £4.5 million) which represents an effective tax rate of 19.8% (2013: 19.7%). We expect that the effective tax charge will increase further in 2015 and is likely to be in the range of 23.0% to 24.5%. Earnings per share Basic earnings per share increased by 7% from 95.8 pence to 102.1 pence per share. Diluted earnings per share increased by 6% from 95.1 pence to 101.1 pence per share. Dividends Our policy is to increase dividends progressively whilst maintaining an appropriate level of cover. This year's financial performance in terms of both profitability and cash flow has enabled the Board to recommend a final dividend of 22 pence per share which, together with the quarterly dividends already paid, gives a total dividend for the year of 61 pence per share (2013: 55 pence per share) an increase of 11%. Dividend cover for the year was 1.67 times. Cash flow, funding and net cash The Group's strong cash generation allowed us to move from net debt of £3.5 million at the beginning of the year to a net cash position of £1.3 million at the end of the year. This is after returning £10.8 million to shareholders in dividends. Derivatives The Group's financial instruments consist of cash, money market deposits, overdrafts, and various other items such as trade receivables and trade payables that arise directly from its business operations. The Group uses forward currency contracts to convert Sterling and Euro long positions to cover the US Dollar short positions in its parent company. The Group had £12.4 million of forward currency contracts outstanding at 31 December 2014 (2013: £13.7 million). Funding In September 2014 the Group's existing term debt facility expired and was considered unnecessary to renew. At the same time the Group renewed its annual working capital facility at a level of US$ 15.0 million (2013: US$ 10.0 million). This facility stepped down to US$ 12.5 million on 1 January 2015 and then to US$ 7.5 million from 1 July 2015. The facility is priced at the Bank of Scotland base rate plus a margin of 1.75%. At 31 December 2014, £2.5 million (representing 25.9%) of the working capital facility was drawn down. Bank of Scotland PLC provides the facility. Outlook for 2015 We remain confident of our prospects for 2015. The Group achieved a record order intake of £105.1 million in 2014 and currently the US Dollar has strengthened in our favour compared to the average rate of 1.66 to Sterling prevailing in 2014. Our design wins were also encouraging in 2014 and the North American and Asian businesses are showing encouraging momentum. We also intend to increase investment in our sales and engineering resources in the coming year to help fuel further future growth. While we are not immune from capital equipment cycles and global economic conditions we continue to expect further revenue growth in 2015. Duncan Penny Chief Executive £ Millions Note 2014 2013 Revenue 2 101.1 101.1 Cost of sales (51.0) (51.5) Gross profit 50.1 49.6 Expenses Distribution and marketing (20.6) (21.2) Administrative (0.7) (0.7) Research and development (4.3) (4.4) Operating profit 24.5 23.3 Finance cost (0.2) (0.4) Profit before income tax 2 24.3 22.9 Income tax expense 3 (4.8) (4.5) Profit for the year 19.5 18.4 Profit attributable to: Equity holders of the Company 19.4 18.2 Non-controlling interests 0.1 0.2 Profit for the year 19.5 18.4 Earnings per share attributable to owners of the parent (pence per share) - Basic 5 102.1 95.8 - Diluted 5 101.1 95.1 XP Power Limited Consolidated Statement of Comprehensive Income For the year ended 31 December 2014 XP Power Limited Consolidated Balance Sheet As at 31 December 2014 £ Millions Note 2014 2013 ASSETS Current Assets Cash and cash equivalents 3.8 5.0 Inventories 25.2 20.4 Trade receivables 16.0 15.4 Other current assets 1.7 1.4 Derivative financial instruments 0.3 - Total current assets 47.0 42.2 Non-current assets Goodwill 30.6 30.6 Intangible assets 9.9 8.5 Property, plant and equipment 14.4 12.7 Deferred income tax assets 0.3 0.5 ESOP loan to employees 0.9 1.0 Total non-current assets 56.1 53.3 Total assets 103.1 95.5 LIABILITIES Current liabilities Current income tax liabilities 1.7 1.1 Trade and other payables 14.4 12.7 Borrowings 6 2.5 8.5 Derivative financial instruments - 0.1 Total current liabilities 18.6 22.4 Non-current liabilities Provision for deferred contingent consideration 7 1.7 1.7 Deferred income tax liabilities 2.5 2.0 Total non-current liabilities 4.2 3.7 Total liabilities 22.8 26.1 NET ASSETS 80.3 69.4 EQUITY Equity attributable to owners of the parent Share capital 27.2 27.2 Treasury shares (1.1) (1.0) Merger reserve 0.2 0.2 Hedging reserve 0.6 (0.3) Translation reserve (6.3) (8.0) Retained earnings 59.6 51.1 80.2 69.2 Non-controlling interests 0.1 0.2 TOTAL EQUITY 80.3 69.4 XP Power Limited Consolidated Statement of Cash Flows For the year ended 31 December 2014 £ Millions 2014 2013 Cash flows from operating activities Profit for the year 19.5 18.4 Adjustments for - Income tax expense 4.8 4.5 - Amortisation and depreciation 3.1 2.7 - Finance cost 0.2 0.4 - ESOP expenses 0.1 0.1 - Loss/(Gain) on fair valuation of derivative financial instruments 0.6 (0.2) - Unrealised currency translation Loss/ (Gain) 1.2 (0.4) Change in the working capital - Inventories (4.8) (0.6) - Trade and other receivables (0.9) (1.4) - Trade and other payables 1.7 1.6 - Provision for liabilities and other charges (0.1) 0.1 - Income tax paid (3.6) (5.0) Net cash generated from operating activities 21.8 20.2 Cash flows from investing activities Purchases and construction of property, plant and equipment (2.9) (1.0) Research and development expenditure capitalised (2.9) (2.2) Proceeds from disposal of property, plant and equipment 0.1 0.1 ESOP loans repaid 0.1 0.2 Net cash used in investing activities (5.6) (2.9) Cash flows from financing activities Repayment of borrowings (7.3) (3.8) Sale of treasury shares 0.1 0.1 Purchase of treasury shares by ESOP (0.3) - Interest paid (0.1) (0.3) Dividend paid to equity holders of the Company (10.8) (9.9) Dividend paid to non-controlling interests (0.2) (0.2) Net cash used in financing activities (18.6) (14.1) Net increase/ decrease in cash and cash equivalents (2.4) 3.2 Cash and cash equivalents at beginning of financial year 3.8 0.5 Effects of currency translation on cash and cash equivalents (0.1) 0.1 Cash and cash equivalents at end of financial year 1.3 3.8 Notes to the Annual Results Statement For the year ended 31 December 2014 Basis of preparation These financial statements are presented in Pounds Sterling and have been prepared using the accounting principles incorporated within International Financial Reporting Standards (IFRS) as adopted by the European Union. 2. Segmental reporting The Group is organised on a geographic basis. The Group's products are a single class of business; however the Group is also providing sales by end market to assist the readers of this report. The geographical segmentation is as follows: £ Millions 2014 2013 Revenue Europe 42.2 43.8 North America 51.3 50.0 Asia 7.6 7.3 Total Revenue 101.1 101.1 Segment result Europe 7.6 7.4 North America 13.6 13.3 Asia 1.7 0.9 Segment result 22.9 21.6 Research and development (4.3) (4.4) Finance cost (0.2) (0.4) Corporate recovery from operating segment 5.9 6.1 Profit before income tax 24.3 22.9 Income tax expense (4.8) (4.5) Profit for the year 19.5 18.4 Analysis by end market The revenue by end market was as follows: Year to 31 December 2014 Year to 31 December 2013 North North £ Millions Europe America Asia Total Europe America Asia Total Technology 6.5 11.9 2.6 21.0 9.1 11.3 3.0 23.4 Industrial 25.5 19.9 3.7 49.1 25.3 19.0 3.2 47.5 Healthcare 10.2 19.5 1.3 31.0 9.4 19.7 1.1 30.2 Total 42.2 51.3 7.6 101.1 43.8 50.0 7.3 101.1 3. Income taxes £ Millions 2014 2013 Singapore corporation tax - current 1.2 year 1.2 Overseas corporation tax - current year 3.3 3.4 - adjustment in respect of prior year (0.3) (0.2) Current income tax 4.2 4.4 Deferred income tax - current year 0.6 0.1 Income tax expense 4.8 4.5 The differences between the total income tax expense shown above and the amount calculated by applying the standard rate of Singapore income tax rate to the profit before income tax are as follows: £ Millions 2014 2013 Profit before tax 24.3 22.9 Tax on profit at standard Singapore tax rate of 17% 4.1 3.9 Tax incentives (0.8) (0.7) Higher rates of overseas corporation tax 1.7 1.8 Deduction for loss/(gain) on employee share options 0.1 (0.3) Adjustments in respect of prior year (0.3) (0.2) Income tax expense 4.8 4.5 4. Dividends Amounts recognised as distributions to equity holders in the period 2014 2013 Pence Pence per £ per £ share Millions share Millions Prior year third quarter dividend paid 13.0 * 2.5 12.0 2.3 Prior year final dividend paid 19.0 * 3.6 17.0 3.2 First quarter dividend paid 12.0 ^ 2.2 11.0 * 2.1 Second quarter dividend paid 13.0 ^ 2.5 12.0 * 2.3 Total 57.0 10.8 52.0 9.9 * Dividends in respect of 2013 (55.0p) ^ Dividends in respect of 2014 (61.0p) The third quarter dividend of 14.0 pence per share was paid on 9 January 2015. The proposed final dividend of 22.0 pence per share for the year ended 31 December 2014 is subject to approval by shareholders at the Annual General Meeting scheduled for 2 April 2015 and has not been included as a liability in these financial statements. It is proposed that the final dividend be paid on 9 April 2015 to members on the register as at 13 March 2015. 5. Earnings per share The calculations of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company are based on the following data: 2014 2013 £ Millions £ Millions Earnings Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to equity shareholders of the parent) 19.4 18.2 Earnings for earnings per share 19.4 18.2 Number of shares Weighted average number of shares for the purposes of basic earnings per share (thousands) 18,998 18,990 Effect of potentially dilutive share options (thousands) 196 157 Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,194 19,147 Earnings per share from operations Basic 102.1p 95.8p Diluted 101.1p 95.1p 6. Borrowings The borrowings are repayable as follows: £ Millions 2014 2013 On demand or within one year 2.5 8.5 Total 2.5 8.5 The other principal features of the Group's borrowings are as follows: 1. Bank overdrafts are repayable on demand. The bank overdrafts are secured on the assets of the Group. At 31 December 2014, the Group had an overdraft of £2.5 million (2013: £1.2 million). In October 2014, the Group renewed its annual working capital facility to US$15.0 million (2013: US$10.0 million). This facility steps down to US$12.5 million from 1 January 2015 and to US$7.5 million from 1 July 2015. The facility is priced at the Bank Of Scotland (BOS) base rate plus a margin of 1.75%. 2. The Group has fully repaid the term debt facility with Bank of Scotland PLC with a final repayment of US$9.0 million (£5.5 million) in September 2014. The term loan is priced at LIBOR plus a margin of 1.75% (2013: priced at LIBOR plus a margin of 2%). 3. The Group has pledged all assets as collateral to secure banking facilities granted to the Group. Management assessed all loan covenants have been complied with as of 31 December 2014. Deferred consideration The Group owns 84.0% (2013: 84.0%) of the shares of Powersolve Electronics Limited ("Powersolve") and had entered into an agreement on 19 December 2011 to purchase the remaining 16.0% of the shares in 2017. The commitment to purchase the remaining ownership has been accounted for as deferred consideration and is calculated based on the expected future payment which will be based on a predefined multiple of the earnings for 3 years ending 2016. Principal risks and uncertainties Board Responsibility Like many other international businesses the Group is exposed to a number of risks which may have a material effect on its financial performance. The Board has overall responsibility for the management of risk and sets aside time at its meetings to identify and address risks. Risks Specific to the Industry in which the Group Operates Fluctuations in foreign currency The Group deals in many currencies for both its purchases and sales including US Dollars, Euro and its reporting currency Pounds Sterling. In particular, North America represents an important geographic market for the Group where virtually all the revenues are denominated in US Dollars. The Group also sources components in US Dollars and the Chinese Yuan. The Group therefore has an exposure to foreign currency fluctuations. This could lead to material adverse movements in reported earnings. Risk mitigation - The Group reviews balance sheet and cash flow currency exposures and where considered appropriate uses forward exchange contracts to hedge these exposures. Any forward contract requires the approval of both the Chief Executive and Finance Director. Competition The power supply market is diverse and competitive in Asia, Europe and North America. The Directors believe that the development of new technologies could give rise to significant new competition to the Group, which may have a material effect on its business. At the lower end of the Group's target market the barriers to entry are low and there is, therefore, a risk that competition could quickly increase particularly from emerging low cost manufacturers in Asia. Risk mitigation - The Group reviews activities of its competition, in particular product releases, and stays up to date with new technological advances in our industry especially those relating to new components and materials. The Group also tries to keep its cost base competitive by operating in low cost geographies where appropriate. Risks Specific to the Group Dependence on manufacturing facilities The Group is dependent on its manufacturing facilities in China and Vietnam for the production of the majority of its products. Any issues that cause disruption at these production facilities could have a material adverse effect on their businesses. Risk mitigation - The Group reviews the risks that may cause a disruption in supply and has developed disaster recovery plans to help cope with unexpected events. With manufacturing of power converters in the Vietnam facility now possible, each manufacturing facility can now act as a backup in the event of a disaster. Dependence on key personnel The future success of the Group is substantially dependent on the continued services and continuing contributions of its Directors, senior management and other key personnel. The loss of the services of any of their respective executive officers or other key employees could have a material adverse effect on their businesses. Risk mitigation - The Group undertakes performance evaluations and reviews to help it stay close to its key personnel. Where considered appropriate the Group also makes use of financial retention tools such as equity awards. Loss of key customers/suppliers The Group is dependent on retaining its key customers and suppliers. Should the Group lose a number of its key customers or a key supplier this could have a material impact on the Group's businesses financial condition and results of operations. However, for the year ended 31 December 2014, no one customer accounted for more than 6% of revenue. Risk mitigation - The Group mitigates this risk by providing excellent service. Customer complaints and non-conformances are reviewed monthly by members of the executive management team. On the supply side we conduct regular audits of our key suppliers and in addition keep large amounts of safety inventory of key components. Shortage, non-availability or technical fault with regard to key electronic components The Group is reliant on the supply, availability and reliability of key electronic components. If there is a shortage, non-availability or technical fault with any of the key electronic components this may impair the Group's ability to operate its business efficiently and lead to potential disruption to its operations and revenues. Risk mitigation - The Group mitigates this risk by keeping large safety inventories of key components. Fluctuations of revenues, expenses and operating results The revenues, expenses and operating results of the Group could vary significantly from period to period as a result of a variety of factors, some of which are outside its control. These factors include general economic conditions, adverse movements in interest rates, conditions specific to the market, seasonal trends in revenues, capital expenditure and other costs, the introduction of new products or services by the Group, or by their competitors. In response to a changing competitive environment, the Group may elect from time to time to make certain pricing, service, marketing decisions or acquisitions that could have a short term material adverse effect on the Group's revenues, results of operations and financial condition. Risk mitigation - The Group's profitable and robust business model helps mitigate risks from the factors set out above. Management stretch The management team is likely to be faced with increased challenges associated with any sustained adverse macroeconomic conditions. With the financial markets uncertain, the management team must also be able to adapt to the changing conditions and implement corrective measures as they are needed. It could adversely affect the Group if the management team is not able to successfully cope with these challenges. Risk mitigation - Performance against key goals and resourcing of these is reviewed at the executive management team meetings. Information Technology Systems The business of the Group relies to a significant extent on information technology systems used in the daily operations of its operating subsidiaries. Any failure or impairment of those systems or any inability to transfer data onto any new systems introduced could cause a loss of business and/or damage to the reputation of the Group together with significant remedial costs. Risk mitigation - The Group has disaster recovery plans in place to help deal with disruption including information technology issues. The Group's key data is replicated on different sites and backed up or is held in the cloud. Risks relating to taxation of the Group The Group is exposed to corporation tax payable in many jurisdictions including the USA where the effective rate can be as high as 40.0%, the UK where the corporation tax rate is currently 21.0%, Switzerland where the corporation tax rate amounts to 18% and a number of European jurisdictions where the rates vary between 22.0% and 33.3%. In addition, the Group has manufacturing activities in China, Vietnam and Hong Kong where the corporation tax rates are 25%, 22% and 16.5% respectively and a sales and head office operation in Singapore where the corporation tax rate is 17.0%. The effective tax rate of the Group is affected by where its profits fall geographically. The Group effective tax rate could therefore fluctuate over time. This could have an impact on earnings and potentially its share price. Risk mitigation - The Group has a Treasurer who keeps our taxation position under review. 8. Responsibility Statement The Directors' confirm to the best of their knowledge and belief that this condensed set of financial statements: - gives a fair view of the assets, liabilities, financial position and profit of the Group; and - includes a fair review of the information required by the Disclosure and Transparency Rules. 9. Other information XP Power Limited (the "Company") is listed on the London Stock Exchange and incorporated and domiciled in Singapore. The address of its registered office is 401 CommonwealthDrive, Lobby B, #02-02, Haw Par Technocentre, Singapore 149598. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2014. The financial information for the year ended 31 December 2013 is derived from the XP Power Limited statutory accounts for the year ended 31 December 2013, which have been delivered to the Accounting and Corporate Regulatory Authority in Singapore. The auditors reported on those accounts; their report was unqualified. The statutory accounts for the year ended 31 December 2014 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Accounting and Corporate Regulatory Authority in Singapore following the Company's Annual General Meeting. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European union, this announcement does not itself contain sufficient information to comply with IFRSs as adopted by the European union. The Company expects to publish full financial statements that comply with IFRSs as adopted by the European union later this month. This announcement was approved by the directors on 23 February 2015.

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XP Power Ltd. (DI) (XPP)
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