Year at a Glance Y e a r e n d e d 3 1 D e c e m b e r 2 0 0 3 Significantly improved financial performance Diluted earnings per share adjusted for goodwill amortisation and profit on sale of own shares grows 70% to 12.4 pence per share. Basic earnings per share increased from 0.0 pence to 7.0 pence Gross margins improved by a further 1.6% points to 33.5% - the fourth year of successive improvement Strong free cash flow and increased profitability enabled dividend to be maintained at 12p per share Introduction of own brand XP product range now materially complete Continental European operations report first operating profit (cid:3) New design wins and the introduction of further own branded product families to underpin prospects in 2004 Inspiring our people to be The Experts in Power delivering genuine value to our customers. XP Power plc Annual Report and Accounts 2003 01 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Background to the Group, its Products and MarketsY e a r e n d e d 3 1 D e c e m b e r 2 0 0 3 The Group The Group provides power supply solutions to the electronics industry. Power supplies take the relatively high voltage alternating current supply from the mains and convert it into various lower voltage, stable direct current outputs that are required to drive electronic equipment. Products As we are not constrained by our own factory, we are able to offer over 5,000 standard products, this, combined with our engineering services group and custom design facility, allows us to offer the industry’s largest range of power solutions. These products range from AC to DC power supplies, DC to DC converters, through to secure power systems. The Group also provides ancillary products such as filters and fans necessary for meeting electro magnetic compatibility (EMC) legislation and thermal management. The need for our customers to differentiate their product from that of their competitors gives rise to a vast number of power supply requirements to satisfy the endlessly increasing combinations of voltages at different power levels. Market The world merchant market can be split into three distinct tiers: The use of 3D computer design allows us to quickly generate a proposal with no financial commitment from the customer. We can now satisfy approximately 70% of all requirements with our own products. The Group specifies and designs its own products as well as providing other manufacturers’ products. We have a design engineering team with over 20 engineers based in Southern California and New England. Our products are manufactured for us by a number of manufacturing partners throughout the world. Upper-Tier: consists of a small number of large original equipment manufacturers (OEMs) who typically source custom power supplies in high volumes. Mid-Tier: our target market, which is highly fragmented, is made up of a large number of small to medium sized OEMs who source standard and modified standard power supplies. Lower-Tier: small volume customers such as maintenance, education and research establishments who we service via catalogue companies. Competition ranges from numerous small custom manufacturers, mid-tier manufacturers and distributors of Asian manufacturers. Consolidation continues to occur in the industry as scale, time to market, shorter product life cycles and design costs make it harder for the small custom manufacturers to compete. 02 XP Power plc Annual Report and Accounts 2003 Y e a r e n d e d 3 1 D e c e m b e r 2 0 0 3 Customers Engineering Services Our customers can be characterised as having expertise in their particular industry, whether it be in communications, medical, industrial or defence electronics - our key areas of focus - they generally do not have in-house power supply expertise. XP’s technical sales force provides this expertise; assisting our customers’ engineers to design in a suitable power supply from our extensive range of products that meets both the customer’s cost target and technical requirements. Equipment design involves meeting the relevant safety standards that apply to an industry such as particular medical or telecom standards as well as EMC legislation and thermal performance. Our customers may also require non-standard output voltages or want the power supply in a format that makes it easier and therefore more cost effective to integrate into their equipment. This may involve incorporating several power supplies into one chassis, adding signals, special housings, thermal and EMC management and specific cable harnesses or connectors. Photo Therapeutics worked with our engineers Photo Therapeutics worked with our engineers to source a suitable power supply for their to source a suitable power supply for their innovative skin cancer treatment. innovative skin cancer treatment. Our engineering services group offer pre and post application support. World Merchant Market $7.5Bn 1,000 customers (Spend >$1M) $4.9Bn 20 Manufacturers 100,000 customers ($10k