Interim Results

XP Power PLC 05 August 2003 Embargoed until 0700 5 August 2003 XP Power plc ('XP' or 'the Group') Interim Results for the six months ended 30 June 2003 XP, one of the world's leading providers of power supply solutions to the mid-tier of the electronics industry, today announces its interim results for the six-month period ended 30 June 2003. Highlights Six months Six months ended ended 30 June 2003 30 June 2002 Profit and loss (refer to page 4 of 9) Turnover £29.1M £33.0M Turnover Gross profit £9.7M £10.2M Gross margin 33.3% 30.9% Profit before tax £0.9M £0.2M Profit before tax and goodwill amortisation £1.7M £0.9M Basic and diluted earnings per share 2.0p (1.0)p Diluted earnings per share adjusted for goodwill amortisation 5.9p 2.9p Interim dividend per share 5.0p 5.0p Cash flow (refer to page 6 of 9 ) Cash inflow £0.7M £2.8M Free cash flow £3.0M £4.4M - Profit before tax and amortisation of goodwill up 89% to £1.7 million - Third successive half year period of earnings per share improvement - Sixth successive half year period of improvement in gross margin percentage due to further development of XP own brand product range - Continental European operations now at break even - Free cash flow of £3.0 million generated in the period Larry Tracey, Executive Chairman commented: 'XP is soundly positioned in this tough environment. Costs have been vigorously managed and efficiency gains achieved whilst we have simultaneously expanded our geographical sales presence and product offering. Our expectation is for the current challenging market conditions to persist for the immediate future. However, we continue to outperform the competition and we believe that the benefits of focusing on our own XP brand will put us in a strong position to further increase gross margins and benefit from an upturn.' Enquiries: XP Power plc 0118 976 5028 Larry Tracey, Executive Chairman James Peters, Deputy Chairman Duncan Penny, Chief Executive Officer Weber Shandwick Square Mile 020 7067 0700 Kevin Smith or Sally Lewis Notes to editors: XP Power plc, formerly IFX Power plc, provides power supply solutions to the mid-tier market of the electronics industry. All electronic equipment needs a power supply. Power supplies convert the incoming AC supply into various levels of DC voltages to drive electronic components and sub-assemblies within the end user's equipment. By servicing this market XP Power provides investors with access to technology and industrial markets through its 8,000 strong customers in the profitable, high margin, mid-tier sector of the North American and European markets. The mid-tier of the market is highly fragmented and made up of a large number of small to medium sized Original Equipment Manufacturers who source standard and modified standard power supplies from several hundred power supply companies. For further information, please visit www.xppower.com Embargoed until 0700 5 August 2003 XP Power plc ('XP' or 'the Group' formerly IFX Power plc) Interim Results for the six months ended 30 June 2003 CHAIRMAN'S STATEMENT Trading conditions in the first half have remained difficult but against this background I am pleased to report that XP has once again improved its profitability and gross margin as well as generated free cash flow. Financial Performance Like many other businesses operating in the electronics industry, we continue to experience weak demand in the end markets we serve. Our response to this prolonged period of depressed market conditions has been to seek out new geographic markets in both Europe and North America and a continued focus on gross margin enhancement. The development of our own XP branded products has been crucial to the process of generating higher gross margins on product sales. Gross margins improved to 33.3% in the first half of 2003 compared with 30.9% in the same period a year ago. This is the sixth successive half yearly report where we have demonstrated an improvement in the gross margin percentage and has been achieved during a period of unprecedented price pressure in the industry. The improvement in gross margins is the result of our strategy of moving up the value chain. In the first half of 2003 49% of our revenues came from our own branded product compared to 43% in the same period a year ago. The main driver of the Group's gross margin performance has been its ability to deliver power supply solutions which meet the needs of our customers, either through our own XP branded products or our value added and design engineering capabilities. As we rapidly expanded our own XP branded product offering certain manufacturers who we had traditionally represented in the market place as a distributor increasingly began to see XP as a competitor. As expected, implementation of this strategy has brought a number of these relationships to an end in the past year. This factor, as well as the further decline in demand from the technology end markets in the second half of 2002, contributed to a decline in revenues compared to the same period a year ago, particularly in the US. However, despite reduced revenues, I am pleased to report our third successive period of increased earnings per share resulting from an improvement in gross margins and the cost reductions which were made in Continental Europe during the second half of 2002. European revenues were flat at £11.0 million compared to the same period a year ago, however our Continental European operations are now making a small operating profit compared with an operating loss of £0.8 million in the same period a year ago. Again, this is due to cost reduction initiatives which were taken in the second half of 2002 together with improved gross margins in that region. The overall result is that profit before tax and £0.8 million of goodwill amortisation was £1.7 million, up from £0.9 million in the same period a year ago (refer to profit and loss account on page 4). Basic earnings per share were 2.0 pence compared with a loss of 1.0 pence in the same period a year ago. Earnings per share before amortisation of goodwill were 5.9 pence compared with 2.9 pence in the same period a year ago. Dividend The Group has declared an interim dividend of 5.0 pence per share for the six months ended 30 June 2003 (2002: 5.0 pence per share). The interim dividend will be paid on 8 October 2003 to shareholders on the register at 5 September 2003. Cash Flow and Share Buy Back The net cash inflow for the six months to June 2003 was £0.7 million compared with £2.8 million in the same period a year ago (refer to cash flow on page 6). The period under review is XP's fourth successive half yearly period of free cash flow generation (cash flow before acquisitions, dividends and financing). The Group generated £3.0 million of free cash flow in the six months to June 2003, illustrating the benefits of our cash generative business model. In early May we purchased 470,000 of our own shares in the market at an average price of 108.5 pence per share. In view of the high yield on our own shares and the absence of suitable acquisition targets, we considered a share buy back to be the best use of the cash resources available to us at this time. Net debt was £6.7 million at the end of June 2003 compared to £7.8 million at the end of December 2002. It is pleasing to report a £1.1 million improvement in our net debt position despite returning £1.9 million pounds to shareholders in the same period in the form of our final dividend for 2002 of £1.4 million and a share buy back of £0.5 million. Change of Name Having standardised on 'XP' as the Group's global brand, the Group changed its name to XP Power plc with effect from 2 May 2003. The change gives greater consistency between the parent and the operating businesses and eliminates confusion when interfacing with our customers and manufacturing partners. New Product Development and Moving up the Value Chain Over the past two years the Group has placed great emphasis on the release of new products to expand its own XP branded product line. A record 37 new product families were introduced during 2002 in addition to the 30 new product families introduced in 2001. We consider that the Group now has the broadest product offering of any company in the industry. Furthermore, these products have been specifically developed to meet the needs of the customers we serve in the mid-tier of the market. In June this year we launched our new 219 page XPiQ catalogue in the US. These new products are gradually making up an ever increasing proportion of our revenues and contributing to the consequent increase in our gross margins. Having rapidly expanded our own product line we are now focusing our engineering resources on the development of the next generation of our configurable power supply offering. Outlook The electronics market remains a tough environment in which to operate. Many of our customers still lack the business confidence to launch new programmes into which our power supplies are designed. Furthermore, some customers are continuing to manage their inventory levels very tightly, such that they will often only place orders when they have orders from their customers. Against this backdrop I am pleased that XP Power has remained profitable, one of the few power supply companies in the world to do so, while at the same time expanding its geographical sales presence and product offering. The Group's resilient performance comes at a time when many of our competitors face financial difficulties and are cutting back both their sales forces and product development capabilities. These actions can only strengthen XP's relative market position in the medium term. While we can see no quantum change in the underlying markets XP serves, we believe that the strategy we have adopted should result in gradually improving revenues and margins in the medium term. Larry Tracey Executive Chairman 5 August 2003 XP Power plc XP Power plc Consolidated Profit and Loss Account (Unaudited) For the six months ended 30 June 2003 £ Millions Note Six months Six months ended ended 30 June 2003 30 June 2002 Turnover 2 29.1 33.0 Cost of sales (19.4) (22.8) ___________________________ Gross Profit 9.7 10.2 ___________________________ Amortisation of goodwill (0.8) (0.7) Depreciation (0.3) (0.3) Other operating expenses (7.5) (8.8) ___________________________ Total operating expenses (8.6) (9.8) ___________________________ Group operating profit 2 1.1 0.4 Earnings before interest, tax, depreciation and amortisation 2.2 1.4 Share of associates' operating profit 0.1 0.0 ___________________________ Total operating profit 1.2 0.4 ___________________________ Interest payable and similar charges (0.3) (0.2) ___________________________ Profit on ordinary activities before taxation 0.9 0.2 ___________________________ Tax on profit on ordinary activities 3 (0.5) (0.3) ___________________________ Profit/(loss) on ordinary activities after taxation 0.4 (0.1) ___________________________ Equity minority interests - (0.1) ___________________________ Profit/(loss) for the period attributable to XP shareholders 0.4 (0.2) ___________________________ Dividends payable 4 (1.0) (1.0) ___________________________ Retained loss for the period (0.6) (1.2) ___________________________ Basic and diluted earnings/(loss) per share 5 2.0p (1.0)p Basic and diluted earnings per share adjusted for goodwill amortisation 5 5.9p 2.9p Statement of total recognised gains and losses Profit attributable to XP shareholders 0.4 (0.2) Dividends (1.0) (1.0) Currency translation differences (0.5) (0.9) Total recognised losses related to the period (1.1) (2.1) XP Power plc Consolidated Balance Sheet (Unaudited) At 30 June 2003 £ Millions At 30 June At 31 December At 30 June 2003 2002 2002 Fixed assets Intangible assets 22.2 23.0 23.6 Tangible assets 3.2 3.4 3.6 Own shares 0.4 0.4 0.5 Investments 0.8 0.8 0.4 ______________________________________ 26.6 27.6 28.1 ______________________________________ Total fixed assets Current assets Stock 7.4 7.7 9.3 Debtors 10.6 10.8 13.6 Cash at bank and in hand 5.1 4.4 4.3 ______________________________________ Total current assets 23.1 22.9 27.2 ______________________________________ Creditors: amounts falling due within one year (13.0) (12.6) (14.3) Net current assets/(liabilities) 10.1 10.3 12.9 ______________________________________ Total assets less current liabilities 36.7 37.9 41.0 ______________________________________ Creditors: amounts falling due after more than one year (8.6) (8.2) (9.5) ______________________________________ Net assets 28.1 29.7 31.5 ______________________________________ Capital and reserves Called up share capital 0.2 0.2 0.2 Share premium account 27.0 27.0 27.0 Merger reserve 0.2 0.2 0.2 Profit and loss account 0.1 1.7 3.8 Total equity shareholders' funds 27.5 29.1 31.2 Minority interests 0.6 0.6 0.3 ______________________________________ Total capital and reserves 28.1 29.7 31.5 ______________________________________ These financial statements were approved by the Board of Directors on 4 August 2003. XP Power plc Consolidated Cash Flow (Unaudited) For the six months ended 30 June 2003 £ Millions Note Six months Six months ended ended 30 June 2003 30 June 2002 Net cash flow from operating activities 6 3.5 5.5 Returns on investments and servicing of finance Interest paid (0.3) (0.3) Net cash outflow from returns on investments and servicing of finance (0.3) (0.3) Taxation Tax paid (0.1) (0.4) Capital expenditure and financial investment Purchase of tangible fixed assets (0.1) (0.4) Net cash outflow from capital expenditure (0.1) (0.4) Free cash flow 3.0 4.4 Acquisitions and disposals Purchase of subsidiaries and associated undertakings - (5.4) Share buy back (0.5) - Cash outflow from acquisitions and disposals (0.5) (5.4) Equity dividends paid (1.4) (1.4) Cash inflow/(outflow) before financing 1.1 (2.4) Financing New borrowings 0.5 5.2 Repayment of borrowings (0.9) - Net cash (outflow)/inflow from financing (0.4) 5.2 ________________________ Cash inflow 7 0.7 2.8 ________________________ XP Power plc Notes to the Interim Results for the six months ended 30 June 2003 1. Basis of preparation Accounting convention The financial statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. Basis of consolidation The Group has accounted for the acquisition of XP PLC and Forx Inc. using the merger method of accounting and all other acquisitions have been accounted for using the acquisition method of accounting in accordance with Financial Reporting Standard 6, 'Acquisitions and Mergers'. Goodwill and intangible fixed assets For acquisitions of a business, where the acquisition method of accounting is adopted, purchased goodwill is capitalised in the year in which it arises and amortised over its estimated useful life up to a maximum of 20 years. The directors regard 20 years as a reasonable maximum for the estimated useful life of goodwill. Capitalised purchased goodwill in respect of subsidiaries is included within intangible fixed assets. Tangible fixed assets Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Plant and machinery - 25-33% Motor vehicles - 25% Office equipment - 25-33% Leasehold improvements - 10% or over the life of the lease if shorter Long leasehold land and buildings - Term of the lease Investments Investments held as fixed assets are stated at cost less provision for impairment if applicable. Stocks Stocks are stated at the lower of cost and net realisable value. Cost represents materials and appropriate overheads based on the normal levels of activity. Deferred taxation Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Foreign exchange Transactions denominated in foreign currencies are translated at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These translation differences are dealt with in the profit and loss account. The results of overseas subsidiary undertakings are translated in sterling at average rates for the period. The exchange differences arising as a result of restating retained profits to closing rates are dealt with as a movement on reserves. Leases Rental costs under operating leases are charged to the profit and loss account in equal instalments over the period of the leases. 2. Segmental analysis The Group operates substantially in one class of business, the provision of power supply solutions to the electronics industry. Analysis of total Group operating profit, net assets, turnover and total Group operating profit by geographical region is set out below. £ Millions Six months Six months ended ended 30 June 2003 30 June 2002 Turnover Europe 11.0 11.0 United States 18.1 22.0 ____________ ____________ Total turnover 29.1 33.0 ____________ ____________ Group operating profit Europe 1.0 (0.2) United States 0.1 0.6 ____________ ____________ Total Group operating profit 1.1 0.4 ____________ ____________ At 30 June At 30 June 2003 2002 Operating Net Assets Europe 7.5 8.2 United States 28.3 32.9 ____________ ____________ Total Operating Net Assets 35.8 41.1 ____________ ____________ Operating net assets are defined as net assets adjusted for net borrowings and the proposed dividend. 3. Taxation £ Millions Six months Six months ended ended 30 June 2003 30 June 2002 Europe 0.2 0.2 United States 0.3 0.1 ____________ ____________ Total taxation 0.5 0.3 ____________ ____________ 4. Equity dividends An interim dividend of 5p (2002: 5p) per share will be paid on 8 October 2003 to shareholders on the register of members on 5 September 2003. 5. Earnings per share £ Millions Six months Six months to to 30 June 2003 30 June 2002 Profit/(loss) attributable to XP shareholders for the financial period for basic earnings per share 0.4 (0.2) Amortisation of goodwill 0.8 0.7 Earnings for adjusted earnings per share 1.2 0.5 Weighted average number of shares (thousands) (basic) 20,370 20,514 Weighted average number of shares (thousands) (diluted) 20,370 20,632 Supplementary earnings per share figures are presented to exclude the effect of goodwill amortisation as the board regards this to be more meaningful. 6. Reconciliation of operating profit to net cash inflow from operating activities £ Millions Six months Six months ended ended 30 June 2003 30 June 2002 Operating profit 1.1 0.4 Depreciation and amortisation 1.1 1.0 Decrease in stocks 0.3 2.2 Decrease in debtors 0.2 0.8 Increase in creditors 0.8 1.1 ____________ ____________ Net cash inflow from operating activities 3.5 5.5 ____________ ____________ 7. Reconciliation of net debt £ Millions Six months Six months ended ended 30 June 2003 30 June 2002 Net debt at 1 January (7.8) (6.2) Increase in cash 0.7 2.8 Cash outflow/(inflow) from decrease/(increase) in debt 0.4 (5.2) ____________ ____________ Net debt at 30 June (6.7) (8.6) ____________ ____________ Represented by Cash at bank and in hand 5.1 4.3 Overdraft/Revolving Credit Facility (11.8) (12.9) ____________ ____________ Net debt at 30 June (6.7) (8.6) ____________ ____________ 8. Borrowings In August 2001 the Group agreed a working capital facility of £10 million and a revolving credit facility for acquisitions of £20 million committed for three years from the Bank of Scotland. 9. Commitments The Group is committed to acquiring the remaining 75% of the issued share capital of MPI-XP Power AG that it does not already own in 2006. The consideration will be a minimum of 4.9 million Swiss Francs (approximately £2.2 million). 10. Share buy back During May 2003 the company repurchased 470,000 of its own shares at an average price of 108.5 pence per share. These shares were cancelled and accordingly a transfer of £0.5 million was made from retained earnings. This information is provided by RNS The company news service from the London Stock Exchange

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