Powering The World’s CriTiCal sysTems
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XP POWER
ANNUAL REPORT & ACCOUNTS
for the year ended 31 December 2014
stock code: XPP
23848-04 3 March 2015 8:57 AM Proof 5
XP POWER – POWERIng ThE WORLD’s cRITIcaL sysTEMs
Power is a vital resource and its efficient use is becoming ever more critical as electronic
systems become pervasive in all areas of our lives, as the world continues to urbanise and as
climate change becomes a growing concern.
XP Power’s portfolio of leading edge, ultra-high efficient products are helping the world’s
leading manufacturers to create technologies and products to face these trends head on.
Our power converters live inside the world’s critical systems, taking the electrical mains
supply from the grid and converting it into the correct form of electricity to power our
customers’ equipment in critical applications in the industrial, healthcare and technology
industries.
Our long term investment in research and development has resulted in the broadest, most up
to date product portfolio in the industry and has positioned XP Power as a key partner for the
world’s leading manufacturers of critical capital equipment.
XP iNdUsTrial
XP healThCare
XP TeChNoloGy
49%
of Revenue
31%
of Revenue
20%
of Revenue
23848-04 3 March 2015 8:57 AM Proof 5
OuR InvEsTMEnT PROPOsITIOn
Exposure to a broad cross section of end markets –
Industrial, Healthcare and Technology – but with no
direct exposure to consumer electronics.
A diverse customer base of over 3,500 active
customers, with no one customer accounting for
more than 6% of revenue.
A growing penetration of a global, blue chip
customer base.
Powerful customer relationship management
tools which allow the efficient management of our
customer base and identification of pricing and
product trends that enable the development of
appropriate, innovative new products.
An established pipeline of new class leading
“green” products which operate at high efficiency.
attractive margins and lower capital investment
requirements when compared to many
manufacturing industries, resulting in strong free
cash flow and margins that are amongst the highest
in the industry.
Revenue annuity – although design cycles are
often long, once our power converters are
approved for use in our customer’s end equipment
XP Power enjoys a revenue annuity for the lifetime
of the customer’s equipment, which is typically
seven years.
Progressive Dividend – the business model allows
for a progressive dividend which is paid quarterly.
contents
STRATEGIC REPORT
04 Chairman’s Statement
05 Financial and Operational Highlights
06 XP Power at a Glance
08 Our Marketplace and Growth Drivers
10 Our Strategy
12 Our Business Model
14 Our Model in Action – Our People
15 Our Model in Action – Our Products
16 Our Model in Action – Our Design
Engineering
17 Our Model in Action – Our Green
Innovation
18 Our Model in Action – Our
Manufacturing
19 Our Model in Action – Our Quality and
Reliability
20 Committed to Sustainability
OuR PERFORMancE
28 Operating and Financial Review
32 Our Key Performance Indicators
34 Managing Our Risks
GOVERNANCE
38 Directors and Officers
40 Chairman’s Introduction to Governance
41 Corporate Governance Report
45 Report from the Chairman of the
Remuneration Committee
46 Remuneration Report – Policy
49 Remuneration Report – Annual Report
56 Other Governance and
Statutory Disclosures
57 Statement by Directors
FINANCIALS
60 Independent Auditor’s Report
61 Consolidated Statement of
Comprehensive Income
62 Consolidated Balance Sheet
63 Consolidated Statement of Changes
in Equity
64 Consolidated Statement of Cash Flows
65 Notes to the Consolidated Financial
Statements
96 Company Balance Sheet
97 Notes to the Company Balance Sheet
106 Five Year Review
107 Advisers
navIgaTIng ThE REPORT
For further information within this
document and relevant page numbers
01
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STRATEGIC REPORTwww.xppower.com stock code: XPP cOnTROL
WhEn IT’s
cRITIcaL
XP iNdUsTrial
Powering state of the art 3D printers, test
and measurement, factory automation, signs
and screens, industrial printers and other
critical applications.
02
XP Power annual Report & accounts for the year ended 31 December 2014
23848-04 3 March 2015 8:57 AM Proof 5
sTRaTEgIc REPORT
ChAIRmAN’S STATEmENT
FINANCIAL ANd OPERATIONAL hIGhLIGhTS
XP POwER AT A GLANCE
OuR mARkETPLACE ANd GROwTh dRIVERS
OuR STRATEGy
OuR BuSINESS mOdEL
OuR mOdEL IN ACTION
— Our people
— Our products
— Our engineering
— Our green innovation
— Our manufacturing
— Our quality and reliability
COmmITTEd TO SuSTAINABILITy
OuR PERFORMancE
OPERATING ANd FINANCIAL REVIEw
OuR kEy PERFORmANCE INdICATORS
mANAGING OuR RISkS
04
05
06
08
10
12
14
15
16
17
18
19
20
28
32
34
www.xppower.com stock code: XPP
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chaIRMan’s sTaTEMEnT
“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.”
James Peters Chairman
23 February 2015
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
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XP Power Annual Report & Accounts for the year ended 31 December 2014 FInancIaL hIghLIghTs
Order Intake
(£ millions)
+6%
in constant currency
Revenue
(£ millions)
+5%
in constant currency
103.4
98.3
96.6
105.1
103.7
68.4
2009
2010
2011
2012
2013
2014
103.6
93.9
91.8
101.1
101.1
67.3
Operating
Margin (%)
+120
basis points
24.4
22.4
23.0
24.2
21.5
14.3
2009
2010
2011
2012
2013
2014
106.4
101.1
95.1
83.7
81.3
Earnings per
share (pence)
+6%
40.8
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
gross Margin
(%)
49.1
49.6
49.1
48.0
47.8
+50
basis points
45.0
Dividend per
share (pence)
+11%
33
22
61
55
50
45
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
OPERaTIOnaL hIghLIghTs
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 setting
a new record for the group, an increase of 6% in
constant currency
XP Power’s own-design revenues increased to a
record £67.2 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
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)
www.xppower.com stock code: XPP
05
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STRATEGIC REPORT XP POWER aT a gLancE
XP Power provides the world’s Original Equipment Manufacturers
(OEMs) with the electronic sub-assemblies necessary to power
their equipment.
Powering and Protecting
the World
The relatively high voltage alternating
current (AC) provided to the mains socket
is an efficient way to move electrical power
around the grid but all electronic equipment
requires stable low voltage direct current
(DC) to function. XP Power provides the
power solution that converts the mains
power into a format suitable to the electronic
equipment to operate.
Meeting Our customers’
Requirements
Our customers manufacture capital
equipment and we target the healthcare,
industrial and technology markets. We do
not have any direct exposure to consumer
electronics or high volume low margin
business seen in the computing and
datacentre industries. The equipment our
products power is often mission critical so
quality and reliability are paramount.
As well as this basic power conversion, the
power converter fulfils a number of other
functions. Importantly, it shields the end
user of the equipment from the potentially
lethal mains voltage; the power converter
therefore is a safety critical element of the
end system.
allowing Our customers to
gain a competitive advantage
XP Power reduces the production and
running costs of our customers’ equipment
enabling them to gain a competitive
advantage.
In addition, the power converter will prevent
electrical noise from the mains interfering
with the end equipment and will also prevent
the end equipment transmitting noise into
the mains supply. The power converter is
therefore a vital part of any piece of electrical
equipment.
Our customers value the service and
support we offer, particularly during
the design in stage.
What we Offer
Broad, leading-
edge product line
with ultra-high
efficiency
class leading
manufacturing
ensuring
excellent quality,
reliability and
competitive cost
class leading
customer service
and support
through highly
knowledgeable
and experienced
sales team (the
largest in the
industry) and
power systems
engineers
Engineering on
three continents
providing
excellent design
support during
design in to
reduce time to
market
SALES
SYSTEMS
ENGINEERS
MANUFACTURING,
OPERATIONS
& QUALITY
Customer’s
product
specification
and design
Power
converter
selection
Testing and
evaluation of
power converter
in customer’s system
Customer
production
Customer’s Design Cycle
Customer’s overall time to market – Typically 18 to 30 months
06
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XP Power Annual Report & Accounts for the year ended 31 December 2014 STRATEGIC REPORT
NORTH
AMERICA
17 Sales Offices
EUROPE
8 Sales Offices
ASIA
4 Sales Offices
51% OF TOTAL REVENUE
2013 revenue US$78.4 million
2014 revenue US$84.9
UP 8.3%
42%
OF TOTAL REVENUE
2013 revenue GB£43.8 million
2014 revenue GB£42.2 million
DOWN 3.7%
7% OF TOTAL REVENUE
2013 revenue US$11.5 million
2014 revenue US$12.6 million
UP 9.6%
increasingly, the design and manufacturing process of major
international oeMs takes place across different continents, with
these blue chip companies demanding global support. in response,
XP Power has established an international network of offices which
offers the necessary customer support across technical sales, design
engineering, logistics and operations.
This network gives XP Power a strong competitive advantage over both its
smaller competitors, who do not have the scale and geographic reach to serve
global customers, and its larger competitors, who often lack the operational
flexibility to provide excellent service and speed. We believe that this balance
is key to our success in winning new contracts and offers XP Power the
opportunity to further increase its market share.
XP Power’s mix of quick response capability and global reach is a major
competitive advantage. XP Power maintains a network of 29 sales offices
spread over North America, Europe and Asia, with a further 16 distributors
supporting its smaller customers. The size and scope of this network is kept
under continuous review to ensure the business remains best placed to
capitalise on growth opportunities in each of its geographies.
XP Power has the largest, most technically trained sales force in the industry.
Our detailed in-house training programme demands that the sales force pass
numerous technology and customer service modules, making them a “value
add” partner to our customers’ product development teams. Management
believes that this gives the business a competitive edge compared to many
within its peer group.
nORTh aMERIca
The North American network consists
of 17 sales offices and an extensive
engineering services function based in
Northern California. This network allows
XP Power to provide its major customers
with local, face to face support and rapid
response times.
EuROPE
In Europe, the XP Power network consists
of eight sales offices and a further nine
distributor offices. In addition, XP Power
has engineering services centres in
Germany and the UK. A direct sales office
was added in Israel early in 2015.
asIa
We have four direct sales offices in Asia
run from Singapore, where we also
manage a network of seven distributors
serving the region. A direct sales
presence was added in Japan during
the year.
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STRATEGIC REPORTwww.xppower.com stock code: XPP OuR MaRkETPLacE
We continue to develop a fresh portfolio of leading edge,
ultra-high efficiency products, allowing us to take further
market share.
The Markets We serve
We have a broad exposure to the
Healthcare, Industrial and Technology
markets. We therefore have a diverse
customer base of over 3,500 customers and
approximately a further 5,000 customers
serviced through our distribution channels.
We deal with the following proportions
of the Standard & Poor’s 500 Equipment
Manufacturers:
} Healthcare 95%
} Industrial 73%
} Technology 69%
The diversity of our business is a significant
strength, with no one customer exceeding
more than 6% of revenue. Further, there is
no one dominant player in the markets we
address due to the diversity of customer
requirements.
Revenue Trends
revenue trends by sector are set out below.
Industrial
Industrial Revenue (£ millions)
healthcare
Healthcare Revenue (£ millions)
Technology
Technology Revenue (£ millions)
46.9
43.8
42.2
47.5
49.1
30.2
31.0
26.6
26.0
30.1
26.8
28.7
22.8
19.8
18.8
24.1
23.4
21.0
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
Industrial remains our most diverse end market.
Further gains from corporate approvals at the major
blue chip customers offset by the effect of the
weakening US Dollar.
Technology continues to be the most cyclical sector.
revenue by geography is set out as follows expressed in US Dollars to highlight the underlying trends in
north America and Asia.
North America
North America Revenue (US$ millions)
Europe
Europe Revenue (US$ millions)
Asia
Asia Revenue (US$ millions)
78.3
71.8
69.3
84.9
78.4
72.5
64.1
64.5
68.4
69.9
14.8
12.2
11.5
12.6
49.6
8.7
7.1
47.9
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
The North American market shows steady momentum
driven by larger opportunities in blue chip accounts.
The market in Europe remains mixed. It has been
more difficult to grow in the markets such as the UK
where the Group already has a strong share and
the programmes are more project based. However,
central and southern Europe where XP Power is a
comparative newcomer are showing sustained growth.
In prior years, the Asia business had benefitted from
one unusually large account which peaked in 2011
and reduced to zero in 2013 when the programme
went end of life. The Asian business is now showing
steady growth from customers that place value on
XP Power’s value proposition.
Market size and Opportunity
we estimate that XP Power has a 6% share of the available global market.
North America
Europe
Asia
Total Market Value
£620
MILLION
XP Power revenue
£51.3 million
8.3% Share
Total Market Value
£380
MILLION
XP Power revenue
£42.2 million
11.1% Share
Total Market Value
£650
MILLION
XP Power revenue
£7.6 million
1.2% Share
Source: MicroTech Consultants 2014 Report
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XP Power Annual Report & Accounts for the year ended 31 December 2014 gROWTh DRIvERs
There are a number of different growth drivers for our business:
Energy Efficiency and Reliability
The requirement from customers and legislation for products
to consume and waste less energy is driving demand for more
efficient power converters. This goes hand in hand with reliability for
critical applications as ultra-high efficiency products do not require
relatively unreliable fans to cool them and cooler systems mean key
components such as electrolytic capacitors have longer lifetimes.
Innovation
Our customers’ competitive need to launch new products offering
increased productivity and functionality whilst reducing harmful
environmental impacts. In addition, our customers are trying to
differentiate their products from their competitors which frequently
results in different or new power conversion requirements.
new Products
The diverse product requirements of XP Power’s target market
provide opportunities to enter new niches and provide flexible
solutions.
Penetration
Our blue chip customer base provides good opportunities to win
additional new product programmes from multiple engineering
teams across the globe. We have gained corporate approval at
many blue chip companies over the past few years. We now need
to capitalise on these approvals and win a larger share of the
business that is available.
healthcare
A global population that is both increasing and ageing, coupled with
increased legislation, is driving the deployment of more healthcare
devices, particularly in the home. This in combination with new
technologies and treatments becoming available makes healthcare
an excellent sector for XP Power. The customers in this area
demand the ultimate in quality and reliability and appreciate and
value XP Power’s value proposition.
Proliferation of Electronic Devices
Electronic devices are becoming more and more pervasive in our
lives as new technologies and innovation emerges. These devices
require power converters to operate, expanding XP Power’s
potential markets.
Legislation
Our industry continues to be the subject of an increasing raft of
legislation from numerous countries and standard setters relating
to areas such as environmental impacts, safety requirements, and
above all energy efficiency. The compliance costs of keeping up with
this legislation favour a company the size of XP Power where we are
large enough to be able to devote resources to this yet agile enough
to respond quickly with new products or documentation as required.
capital Equipment
Our products are designed into and power capital equipment and
as such are subject to the capital equipment cycles. While industrial
company investment in capital has been subdued over recent
history due to global economic conditions, new capital investment
does generally lead to greater productivity and we consider that
the medium and long term opportunities remain positive for capital
equipment. This is particularly the case as we see labour costs rising
significantly in emerging markets.
Expansion of “green” Products
Climate change and emission of greenhouse gases is becoming a
more significant issue as emerging countries develop and urbanise.
XP Power has taken a leading role in developing ultra-efficient
products which consume and waste less energy and that are
suitable for use in healthcare and industrial applications.
how We’re Responding to Take advantage
The trends that are driving growth in our markets demand a broad
range of products, many of which are required to be leading in terms
of efficiency.
We have responded by maintaining and expanding our product
development in downturns, resulting in XP Power establishing the
broadest, most up to date portfolio of products. Many of these
have leading edge efficiency and are being well received by our
customers. In particular we see opportunities in the healthcare
sector where the customers are extremely demanding but value the
proposition we offer.
We have also identified a number of attractive subsectors in the
industrial space where are customers also value what we have to
offer.
As well as an excellent product portfolio we also recognise that
the world is becoming more competitive and our costs have to be
competitive in order for XP Power and our customers to prosper.
Our move into Vietnam, where labour costs are significantly less
than China, and are not escalating at the same rate, will give us
an attractive cost base in combination with an excellent product
portfolio and local service and support.
23848-04 3 March 2015 8:57 AM Proof 5
09
STRATEGIC REPORTwww.xppower.com stock code: XPP OuR sTRaTEgy
To allow us to achieve our vision – “To inspire our people to be The
Experts in Power delivering genuine value to our customers” - XP
Power has followed a clear and consistent strategy of moving up
the value chain, powered by six strategic initiatives:
Development of a strong pipeline
of leading-edge products
Expansion of our high
efficiency “green” products
Targeting key accounts and
increasing the penetration of
existing key accounts
Our Progress in 2014
We released 26 new product families, in
2014 (2013: 31 new product families).
Some of which are amongst our most
technologically advanced ever including
the CCL400 which is a 400 Watt unit
capable of running without a fan.
Revenue from “green” products
increased by 36% to £18.6 million
representing 18% of revenues (2013:
£13.7 million or 14% of revenues)
setting a new record for the Group.
We signed strategic purchasing
agreements or gained approved supplier
status with 36 key customers in 2014.
In addition revenue from the top 30
customers represented 40% of revenue
(2013: 39%).
Plans for 2015
❯ Further product releases including
“green” products
❯ Search for suitable bolt on acquisitions
to expand our product portfolio
how We’ll Measure Our success
❯ Further “green” product releases are
❯ Continue to grow our share of
planned for 2015 which should continue
to drive further revenue growth
customers’ business where we are
preferred or approved suppliers
❯ In addition we have a number of
successful design wins of green
products released in 2014 and before
which we expect will enter production
and drive revenues in 2015
New product families released
“Green” product revenue
(£ millions)
38
31
31
26
19
18.6
13.7
8.1
5.0
2.8
} New strategic customer agreements
} Growth in business from key customers
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Read more about our Key Performance
Indicators on pages 32 and 33.
10
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 Enhancing our value proposition
to our customers by becoming a
manufacturer
Increasing the high margin
contribution of our own designed/
manufactured products
Leading our industry on
environmental matters
In 2012 we became more vertically
integrated when we started manufacture
of magnetic components in our new
Vietnamese facility. This gives us access to
lower costs and quicker lead times for these
critical components.
In 2014 we started manufacture of the
first complete power converters in our
Vietnam factory, which will preserve our cost
advantage and expand our capacity to meet
customer demand.
In 2014 we manufactured a record 1.3
million power supplies.
❯ Continue the qualification of power
converters in Vietnam
❯ Continue to ramp our magnetics
production in Vietnam to maintain cost
competitiveness
❯ Enhance our manufacturing capabilities in
our China facility for the higher complexity
product we shall be releasing in 2015
We have seen a further increase in our own
designed product in 2014 to £67.2 million or
66% of revenue (2013: £64.2 million or 64%
of revenue), setting a new record.
This mix effect resulted in an increase in
gross margin to 49.6%, which is also a
record for the group.
❯ We have a number of product releases
planned for 2015 which should allow
us to continue the trend of growing the
own design/manufactured products in
absolute terms and as a percentage of
the overall revenue
We gained our “Green Mark” Gold certificate
for the environmental performance of our
Vietnam manufacturing facility. This facility
is the most environmentally friendly in our
industry and is the first of its kind to be
awarded this rating in Vietnam.
We also undertook a number of other
initiatives including insulating and upgrading
the windows in our UK facility.
We also continued to launch a number
of high efficiency products including the
CCL400 which is a 400 Watt unit that will
run without the need for a fan.
❯ We will continue to release products with
class leading efficiency suitable for use in
healthcare and industrial applications
Number of units manufactured
(Thousands)
Own design revenue
(£ millions)
1,302
64.2
67.2
59.2
57.7
993
895
795
761
44.1
Lifetime CO2 Emission savings
from “green” products
(Tonnes)
84,000
102,200
2014
2013
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
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11
STRATEGIC REPORTwww.xppower.com stock code: XPP
OuR BusInEss MODEL
Our model is to sell directly to our key customers, offering excellent
service and support combined with class leading products.
how We
Manage Our Relationships
how we
Add Value through the Sales Cycle
Our customers are at the
heart of what We Do
Our model is to sell directly to our key customers, offering
excellent service and support combined with class leading
products.
We have carved out a leading position in our industry. An up-to-
date, high efficiency product offering, delivered to our customers
by the largest and most technically competent sales engineering
team in the industry, backed up by highly skilled power systems
engineers, combined with the safety and reliability benefits
of world class manufacturing provide a compelling value
proposition to our customers.
Having come from a sales and marketing background in our
former incarnation as a distributor, then moved into design and
then later into manufacture, we have a unique understanding
of our customers and the market compared to much of our
competition.
Managing Our supply chain carefully
The management of our supply chain is critical to our success.
Quality and reliability are paramount to our customers, who
often provide critical healthcare or industrial systems. For that
reason we need excellent suppliers with high quality standards.
We have a rigorous approval process which looks at all aspects
of a supplier before we engage with them. This not only includes
a prospective supplier’s quality systems and standards, but
also their financial viability and, of course, their environmental
performance and treatment of their people.
We are a full member of the Electronic Industry Citizen Coalition
(EICC) and have adopted the EICC Code of Conduct throughout
our organisation. This not only deals with environmental
standards but also treatment of people, health and safety and
business ethics.
Our customers demand excellent quality and security of supply
and strong corporate social responsibility standards.
Our sales process is a technical sale, from XP Power sales engineer
to customer design engineer. Our customers are typically experts in
their field, whether it is a drug delivery device, a piece of complex
factory control machinery or a high end communications device
operating in a harsh environment. They will come to a company
such as ours to recommend and help them design in a power
converter to power their end system.
IDENTIFICATION
PRODUCTION
QUOTATION
SALES CYCLE
APPROVAL
SAMPLE
1 IDEnTIFIcaTIOn
A new design programme is identified at a customer where we are an approved
or preferred vendor. This is typically quite late in the customer’s development
cycle as they will not usually know the total power requirement until they have a
working prototype system.
2 QuOTaTIOn
An XP Power salesperson will work with the customer to understand the
requirements including the power requirements at different voltages,
communication required between the power converter and end system, any
specific safety agency requirements and the physical specification. XP Power will
then advocate a solution and provide a quotation to the customer. This solution
could be a modification of one of our standard products.
3 saMPLE
One or more samples are provided to the customer for them to evaluate in their
system. This is a critical stage of the sale and we often find that the first company
providing a sample that works in the equipment will win the design slot. Speed is
therefore of the essence.
4 aPPROvaL
The power converter is approved for use in the customer system following their
technical evaluation and external safety agency approval. This is generally the
longest part of the sales cycle as the technical and safety evaluation are very time
consuming for the customer. XP Power will often add value by providing technical
assistance during this stage and it is not unusual for us to have a technical power
systems engineer working directly with the customer.
5 PRODucTIOn
The customer commences production of their product and XP Power’s revenue
stream starts. This is typically around seven years depending on the application
and end market.
12
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 how We
Differentiate ourselves
generating Long-Term Revenue
annuities and shareholder value
Our People
As in any business the most important asset is our people.
We have the largest, most technically trained sales force in the
industry. Our customers deal directly with a sales engineer that
can solve their power conversion problems. We do not put our
key customers through distribution channels. We also provide
global support.
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 deliver genuine value to our customers.
Our Products
We have the broadest, most up-to-date product offering in
the industry. Our products are specific to the requirements of
the various industries we serve. Our philosophy is to provide
highly flexible products which are easy to modify. This saves our
customers the cost, time and risk of pursuing a fully customised
solution.
Our Design Engineering
We have design engineering teams on three continents – this
allows us to release the high volume of innovative new products
required by this highly diversified industry. These products often
have class leading energy efficiency and small footprints to
meet the ever higher demands of our key customers. Additional
engineering service teams in Germany, North America and the
UK are able to provide value added services close to our key
customers. We are able to provide modified product solutions
which allow the customer to more easily integrate the power
converter into their equipment, therefore delivering a cost saving.
Our green Innovation
Environmental considerations are becoming increasingly
important to our customers. There is strong demand for products
that consume less material, including harmful chemicals, and
power converters that consume less energy. Our product portfolio
reflects this, with many products having class leading efficiencies
and low standby power consumption.
Our Manufacturing
Our Asian manufacturing base in China and Vietnam is not only
low cost but best in class. This capability is instrumental to
winning new programmes with larger blue chip customers that
require the ultimate in quality and reliability. We also offer highly
competitive lead times and flexible logistics arrangements.
Quality
Our stringent quality standards ensure the ultimate in quality and
reliability. This is vital to our customers. This starts from the design
phase right through to production and after sales support.
See page19 for more detail
generating Revenue streams
through strong annuities
Although the time from identification of a customer programme
can be very long (typically 18 to 30 months), once the product
is designed into our customers’ equipment we enjoy an ongoing
revenue annuity for a large number of years. Typically this is around
seven years but can be longer or shorter depending on the industry
sector and particular application. Our pipeline of programme wins
with significant customers continues to build.
Revenue lifecycle from ECm40/60 product family
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014
Revenue
Substantial revenue annuity
Design in cycle typically 18 months
2009 and 2012 dips due to market downturn and not typical
Progressive dividend policy
Our business model and clear strategy, consistently applied, has not
only resulted in long term growth and profitability and also strong
free cash flow. This has enabled us to adopt a progressive approach
to the dividend which is paid quarterly.
10 year dividend history (pence per share)
50
55
61
45
33
16
18
20
21
22
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
The compound average growth rate of the dividend per share has
been 23% over the last 5 years and 16% over the last 10 years.
23848-04 3 March 2015 8:57 AM Proof 5
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STRATEGIC REPORTwww.xppower.com stock code: XPP OuR MODEL In acTIOn OuR PEOPLE
The customer supplies communication equipment, serving areas such
as police, fire, rescue and other emergency services markets, and
came to us with a requirement for a Dc/Dc power converter. They had
previously been working with another company which was designing
them a custom power converter for their application but, despite
promises of a fully compliant solution, had after a period of time
discovered that the specification was too onerous for them to achieve.
The solution had to meet the stringent requirements for conducted
and radiated emissions and immunity, and a very tough environmental
requirement. In addition, even though the maximum output power was
only 15 Watts, it had to fit inside a relatively small space the customer
had allowed for the power converter in their system.
After our people had worked closely
on site with the customer regarding the
requirements, our team of experienced
design and applications engineers came
up with a solution based on one of our
standard filters and DC/DC modules.
These are designed in our standard
product design centres and built in our
manufacturing facility, ensuring a low cost
proven technology product. These parts
are qualified to the electrical specifications
required and are designed in such a way
to utilise the enclosure in which they are
placed as a heat sink. This means they can
be used within small enclosures and radiate
a large proportion of the unwanted heat to
the outside environment. This helps to keep
the internal temperature low and maximise
component lifetimes.
The tougher part of the design was the
required EMC performance. Because the
end application was a communications
system, the limits that needed to be met
were very low, allowing the system to be
used in harsh, noisy environments. This
combined with the space constraints, as is
often the case with this type of application,
did not allow for ideal component
placement. So, utilising the expertise of our
design engineers and in-house conducted
and radiated emissions facilities, we were
able to perfect the circuit before performing
the final tests and gaining approval in an
expensive third party test house. Having our
own EMC facilities and dedicated engineer
meant a very fast turnaround for the
customer, keeping costs to a minimum.
Having an experienced design and
applications team which understood the
customer’s requirements helped to ensure
that the design risks were low. Being local to
the customer allows for our engineers to be
seen as part of the customer’s design team.
This meant that ideas and thoughts could
be quickly shared, understood and acted
upon. Basing the design around standard
parts ensured that the cost expectations
of the customer were met, and removing
the need to design the filter and power
conversion stages from scratch helped to
ensure short design timescales.
14
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 OuR MODEL In acTIOn OuR PRODucTs
STRATEGIC REPORT
a manufacturer of building control
systems based in Europe uses
our standard EcE05 encapsulated
ac/Dc power module in a wall
mounted control panel. The
EcE05 was selected for its very
high efficiency and very small
size, utilising the benefits of low
heat dissipation, low profile and
small footprint to minimise the
internal ambient temperature
and maximise the available space
for the end application within the
enclosure.
Due to the customer’s high quantity
expectations of the next development,
which offers a reduced feature set at a lower
price, cost was a key driver for all system
elements including the power converter. The
customer approached XP Power to discuss
the application and cost targets compared
to an in-house development for the power
converter.
Working with the engineering group at the
customer to fully understand the precise
needs of the application and match the
power converter to the system needs,
we were able to compromise certain
specification elements of the standard
product while maintaining the key efficiency
and size benefits, adopting a simplified
feedback and control system for a modified
version of the ECE05 and removing the case
and encapsulation. The simplified control
system significantly reduced the component
count and combined with the removal of the
case and encapsulation realised a modified
standard version at significantly lower cost,
beating the original target cost for the power
converter.
Adopting this modified standard approach
also ensured that the key elements of the
development and production of the power
converter including design verification,
specification verification testing, safety
agency approvals and Electro-Magnetic
Compatibility along with the manufacturing
and test processes are managed by
XP Power rather than by the end user,
further reducing the cost of the design
and manufacture of the end equipment
throughout its lifecycle.
23848-04 3 March 2015 8:57 AM Proof 5
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STRATEGIC REPORTwww.xppower.com stock code: XPP OuR MODEL In acTIOn OuR DEsIgn EngInEERIng
how XP manage the life cycle from design to manufacture.
Our broad portfolio of innovative new
products stems from design engineering
groups on three continents, sharing an agile
approach to product development and
feeding our Asian manufacturing facilities.
Regular design reviews ensure that the
project team has a platform to share
progress, remove roadblocks and reach out
for input into any off specification areas that
may have been identified.
Once a design reaches the appropriate
control gate we run a small manufacturing
batch which provides products for the
launch to our sales team and allows product
to be sampled to key customers.
New product ideas are generated and
nurtured through a group of multidiscipline
people from sales, marketing, technical
support and research and development. The
diversity and customer facing experience of
this group, coupled with a large direct sales
force, allows us to directly translate and
aggregate the needs of our wide customer
base into our new product specifications.
This customer knowledge is key throughout
the design cycle in ensuring that our
product designs remain focused on the core
customer requirements, keeping feature
creep to a minimum. We also share the new
product roadmap with our entire sales team
and key customers as early as possible
to again sanity check the direction of the
project. Our key customers will also share
their future power requirements and trends
with us so that we are able to develop
products to meet their future needs.
The design itself starts with the sound
principle of approved components selected
from approved vendors and utilised
with strict de-rating and lifetime rules.
Parametric, cost and user needs are verified
at each stage of the project along with
design for manufacture assessments and
quality control checks.
16
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 OuR MODEL In acTIOn OuR gREEn InnOvaTIOn
There are two important elements
which our customers value when
considering green issues.
First, our target customers will only engage
with suppliers who have high standards of
corporate social responsibility. In this regard
our membership of the Electronic Industry
Citizenship Coalition (EICC) whose Code of
Conduct covers environmental, treatment
of people, and health and safety, as well
as business ethics, has been extremely
helpful in gaining approved or preferred
supplier status. When our customers audit
our facilities it is immediately evident that
we take environmental matters seriously
and have chosen to lead our industry on
environmental performance.
Second, our customers are increasingly
looking for product that is leading edge in
terms of its efficiency and consequently
its reliability. XP Power has the broadest,
most up-to-date portfolio of products,
many of which have class leading levels of
efficiency. This makes us an ideal partner for
power converter solutions when customers
are determining who they select as their
preferred vendor.
These two factors make a powerful and
compelling proposition and demonstrate the
value of XP Power’s green innovation.
23848-04 3 March 2015 8:57 AM Proof 5
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STRATEGIC REPORTwww.xppower.com stock code: XPP OuR MODEL In acTIOn OuR ManuFacTuRIng
Further Expansion – vietnam
In the first quarter of 2012 we became
more vertically integrated and commenced
manufacture of magnetic components in
our new facility located in Ho Chi Minh
City, Vietnam. This facility is both state-
of-the-art for our industry and the most
environmentally friendly power converter
manufacturing facility in the world. The
environmental features of the facility are set
out in our environmental report on page 21.
This further vertical integration enhances
the value proposition to our customers,
reduces our lead times and mitigates the
effect of rising costs in China. We started
manufacturing the first complete power
converters in Vietnam in the fourth quarter
of 2014.
as XP Power moved up the value chain we identified an opportunity
to move into manufacturing and offer our customers the assurance
of absolute control over the manufacturing process, including full
traceability of components to ensure the highest standards of quality
and reliability. The addition of our own state-of-the-art manufacturing
capability has been transformational to our business and has been
instrumental in the winning of new programmes.
state-of-the-art
Manufacturing capabilities
Our first state-of-the-art manufacturing
facility, located at Kunshan, near Shanghai,
China, opened in June 2009. It uses class
leading manufacturing techniques and
equipment. This process starts with rigorous
supplier selection and incoming component
inspection, through to automatic testing
of the final product. Throughout the
manufacturing process we make use of
the latest capital equipment to improve
throughput and enhance product reliability.
This includes the latest automatic pick and
place technology, computer controlled wave
soldering, automatic optical inspection,
in-process testing, full product burn-in and
then, finally, full function automatic testing of
the completed product.
Our manufacturing capability is instrumental
in winning more business with key blue chip
customers, who insist on detailed factory
audits before awarding contracts. Customer
audits of the Kunshan facility have been very
successful, with a number of key customers
commenting that it is the best power
converter factory that they have visited.
We recognised that moving into
manufacturing would enhance our value
proposition to these customers and allow us
to realise the full potential of the portfolio of
leading edge products we had developed.
Our performance since opening our new
Kunshan, China factory in 2009, particularly
in the healthcare sector, is a validation of the
success of this strategy.
18
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 OuR MODEL In acTIOn OuR QuaLITy anD RELIaBILITy
Quality and reliability are
paramount to our customers.
The power solutions we provide
are often powering mission
critical systems and therefore
XP Power’s customers cannot
accept any downtime. Quality
and reliability are considered at
every stage, starting early in the
product development life cycle and
consistently throughout the entire
production process.
Prior to a design development, XP Power
starts with understanding customer
expectations, not just on product quality but
all facets of the business. This information is
communicated to our New Product Creation
team that works with the other teams so
there is a clear understanding of all the
requirements.
Once a design project has started there are
various programmes in place to provide the
most reliable product to our customer base.
In addition to strict component selection
criteria, we have our own industry leading
component de-rating guidelines that we
adhere to. These rules specify the tolerance
to which we will run particular electronic
components within our designs. This has an
extremely high influence on the reliability and
lifetime of the power converter.
Other tools and techniques employed
include:
} Failure Mode and Effect Analysis of both
our design and process. This helps us
identify possible failures within our design
and manufacturing process.
} Highly Accelerated Life Testing is
performed for new product releases.
This helps us identify weaknesses of
our design and take further actions to
improve reliability.
} Specification Verification Test which
is a comprehensive test of all the
specification parameters.
} Extended Burn In Life Test which is a
continuous test at elevated temperatures
until point of failure. This data is collected
and acted upon as needed.
} Package Drop Test to ensure our
packaging is robust for both air and
ocean transportation methods.
These are just some of the programmes
in place to ensure we provide exceptional
quality and a highly reliable power solution
to our customers. At XP Power it’s not
about meeting customer expectations, but
exceeding customer expectations. Our
customers rely on our products for various
types of applications. Any downtime as
a result of the power solution could have
significant ramifications, therefore at XP
Power quality and reliability is of the upmost
importance.
Once our products are in mass production it
is essential that our manufacturing facilities
produce excellent quality product. We
continue to monitor performance, through
our Ongoing Reliability Test programme.
Products are randomly taken from the
manufacturing line and are tested on an
ongoing basis. These tests are to ensure
the reliability of the product has not been
compromised throughout the life cycle.
Our manufacturing is state of the art within
our industry. We use equipment and
processes that assure the manufacturing
quality of the product.
Our facilities make use of equipment such
as Automatic Optical Inspection machines.
This equipment ensures that all the
components are correctly populated onto
the printed circuit boards, have the proper
orientation and are properly soldered.
This equipment can carry out a detailed
inspection process more efficiently and
effectively than human inspection.
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STRATEGIC REPORTwww.xppower.com stock code: XPP cOMMITTED TO susTaInaBILITy
Modern power converters have typical
efficiencies of 80%. While this is a major
improvement over legacy products, XP
Power has developed technologies that
further reduce energy wastage, resulting in
products which are up to 95% efficient.
The magnitude of these hard-won efficiency
savings should not be underestimated. An
80% efficient product will waste 20% of
the input power in the conversion process.
Therefore, to provide 100 Watts of power
at the output requires input power of 125
Watts wasting 25 Watts as heat. If the
efficiency is increased up to 95%, only
105 Watts of input power is now required
to deliver 100 Watts at the output. This
is a five-fold improvement – a staggering
difference and a potentially vast saving when
aggregated across the operating lifetimes
of electronic equipment. To capture these
gains requires a greater number of higher
cost components.
The payback period in terms of reduced
electricity consumption is generally less
than a year. Our challenge is to continue to
develop such products and sell the benefits
to our customers. We believe this will be
helped by energy efficiency legislation,
pioneered in the consumer electronic and
office equipment markets, likely to be
applied to the industrial and healthcare
markets we serve.
Our key stakeholders
In order to communicate our policies
and progress relating to corporate social
responsibility issues we have structured
our report around our key stakeholders as
follows:
} Our customers (page 22)
} Our people and their health and safety
(page 23)
} Our suppliers (page 24)
} Our communities (page 25)
What We stand For
We are fully committed to leading our
industry on corporate social responsibility
matters. We believe we can play a pivotal
role in the world of industrial and healthcare
electronics where our ultra-high efficiency
products can save energy and reduce
greenhouse gas emissions year after year.
In 2009 we established an environmental
committee to help us achieve our vision
of leading our industry on environmental
matters. Beneath that committee we
put in place a network of environmental
representatives for each of our key sites.
These environmental representatives
share ideas and best practice across our
Company and promote and encourage
responsible environmental behaviour
amongst our employees and engagement in
the local communities in which we operate.
Managing Our
Environmental Impacts
We conducted a review of our impact on
the environment and it was clearly evident
that the greatest contribution we can make
to protect the environment is by developing
and encouraging our customers to adopt
our ultra-high efficiency products. These
class leading “Green XP Power” products
waste less energy, consume less physical
material and avoid the use of hazardous
substances. These energy savings will occur
year after year for the period in which the
customers’ end equipment is operating.
In parallel, we are ensuring we adopt good
environmental practices within our facilities
and the communities in which we operate.
Our sustainability strategy
Historically, electronic power conversion has
been a notoriously inefficient process. The
original linear transformers still in use today
in some sectors are typically less than 50%
efficient, with more than half the input power
wasted as heat. XP Power does not operate
in this area, specialising instead in power
converters utilising modern “switching”
techniques enabled by semiconductor
technology, which are much smaller and
more efficient.
23848-04 3 March 2015 8:57 AM Proof 5
“We are continuing to lead
our industry regarding
environmental matters;
particularly with our
class leading ultra-high
efficiency Green XP Power
product offering. This
a key business driver
for us from which we
expect to gain a long term
commercial advantage.”
sean Ross Environmental Committee Chairman
and Vice President of Quality Assurance
23 February 2015
“green” Product Revenue
(£ Million)
18.6
13.7
8.1
5.0
2.8
2010
2011
2012
2013
2014
20
XP Power Annual Report & Accounts for the year ended 31 December 2014 Our Vietnam factory is the most environmentally
friendly manufacturing facility in our industry
The Most Environmentally
Friendly Manufacturing
Facility in Our Industry
Our Vietnamese facility, located in Ho Chi
Minh City, meets the demanding Gold Plus
rating of the BCA Green Mark Scheme,
the leading environmental standard set by
the Singapore Building and Construction
Authority for non-residential buildings in
tropical climates. This rating covers not only
the energy efficiency of the building but also
water efficiency, environmental protection,
indoor environmental quality and other green
features and innovations.
A photovoltaic solar panel array helps
provide power to the facility and rain water
is collected for use within “grey water”
systems in the building. High efficiency air
conditioning systems have been deployed
and energy saved through an efficient
building envelope.
Other environmental initiatives
implemented by our team of
Environmental Representatives:
} Low energy lighting
} Water reduction initiatives such as water
saving toilets
} Encouraging the use of electric cars by
the installation of charging stations in our
key North American facilities
} Holding employee awareness events
promoting Earth Day, cycling to work and
ride sharing
} Recycling of our waste materials
} Unplugging power converters overnight
} Using electronic burn in equipment
which is able to reuse 50% of the burn
in power
} Recycling our solder waste on site
The Real Environmental
Impact We have!
In 2014 we shipped a record £18.6 million
(2013: £13.7 million) of high efficiency
“Green XP Power” products representing
18% of revenue (2013: 14%).
We estimate that the annual savings in CO2
emissions from these products versus a
standard 80% efficiency converter are a
massive 14,600 tonnes. This annual saving
will recur each year for the lifetime of the
product, which we estimate conservatively
as seven years. This would bring the
estimated lifetime savings in this typical
example to 102,200 tonnes of CO2, clearly
illustrating the huge scale of the opportunity
to reduce harmful emissions. This example
applies to just one year of shipments; the
potential cumulative effect of multiple years
of shipments of our green products is
enormous.
23848-04 3 March 2015 8:57 AM Proof 5
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STRATEGIC REPORTwww.xppower.com stock code: XPP cOMMITTED TO susTaInaBILITy
WITh OuR cusTOMERs
“By far the greatest
impact we can have
on the environment
is encouraging our
customers to use our
ultra-efficient ‘Green
XP Power’ products
which waste less energy,
consume less physical
material and avoid
the use of hazardous
substances.”
ccB200 – able to produce 200 Watts of
power with efficiency levels up to 95%
without the need for fan cooling
Delivering higher Efficiency
Power converters to Our
customers
Our customers clearly see the benefits of
ultra-high efficiency power converters when
we see the growth in our “Green XP Power”
revenues. Many customers are willing to pay
the premium for these products due to their
higher performance.
The interesting aspect of ultra-high efficiency
products is that they are also inherently
more reliable. Once the power converter
gets to a level of efficiency that it is
producing very little waste energy as heat it
no longer needs a mechanical fan to cool it.
If the system engineer can dispense with a
mechanical fan they have now removed the
most unreliable part of the power system.
In addition, as the power converter runs
cooler the electronic components which
are sensitive to heat, such as electrolytic
capacitors, have longer lifetimes. The
result is that not only is the power system
consuming and wasting less energy it has
also become significantly more reliable. This
is of particular benefit when we consider
that many of our products are designed into
critical applications in the healthcare and
high end industrial sectors where product
failure and downtime are not acceptable.
The additional benefit of dispensing with fan
cooling is that the system does not require
vents to expel the waste heat so can be
sealed to prevent ingress of liquids and
other material that could affect its reliability.
It is for these reasons that our customers
who are concerned about reliability have
been keen to adopt and design our
ultra-high efficiency products into their
equipment.
Developments During the year
Having established the customer demand
for ultra-high efficiency products we have
continued to expand our product portfolio
in this area. We consider that we have the
lead portfolio of high efficiency products,
many of them certified for use in healthcare
equipment.
We have consistently raised the power
level at which our products can operate
without the need for fan cooling. While it
is comparatively straightforward to design
products in the 100 Watt power range that
do not require fan cooling, the challenges
become much greater as the power levels
increase.
In the first half of 2014 we released the
CCB200. This a cost effective power
converter which can deliver 200 Watts
of power without need for fan cooling.
Impressively, this unit can deliver this level
of power at high ambient temperatures right
across its input range and can achieve levels
of 95% efficiency.
We have now pushed the bar even higher
with the release of the CCL400, which can
deliver 400 Watts of power without the need
for a fan.
Focus for 2015
We will continue to meet our customers’
current and anticipated requirements for
high efficiency products and continue to
expand our product portfolio in this area.
We are working on a number of exciting
new products which we expect to launch
during 2015.
ccL400 – a class leading ultra-high efficiency
product able to deliver 400 Watts of power without
the need for fan cooling
22
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 cOMMITTED TO susTaInaBILITy
WITh OuR PEOPLE anD ThEIR hEaLTh anD saFETy
Our People
Our people are our most important asset
and we make great efforts to ensure an
environment of open communication
with frequent opportunities for two-way
communication between management
and staff. In addition, XP Power’s factories
have employee committees which provide
a more formal mechanism for staff to feed
back issues and ideas to management.
These meetings have proved to be excellent
forums for promoting environmental
awareness, with employees subsequently
suggesting many excellent ideas to improve
our performance.
All main sites have environmental
representatives who champion
environmental awareness and share best
practice and ideas across the Company.
They encourage and promote ideas for
engagement with the local communities in
which we operate. They meet regularly to
assess progress and these meetings are
chaired by the Chief Executive. Feedback
from these meetings is also shared with the
Environmental Committee.
XP Power’s workforce is free to join unions
and we have formal policies in place to
ensure staff are treated fairly and have equal
opportunities.
Like many companies, we also have a
formal “whistle blowing” process where
employees can raise concerns on any
matter at the highest level of management.
stakeholder Dialogue
We maintain two-way communications with
our employees on environmental issues
via our environmental representatives and
regular awareness events.
A number of our key customers engage
us on environmental issues, generally via
completion of questionnaires and many of
our larger customers have also conducted
environmental audits on our facilities, all of
which we have passed. We also hold regular
engagement days for our key suppliers
where we encourage them to adopt sound
environmental practices and adopt the
Electronic Industry Citizenship Coalition
Code of Conduct. Our policy is to disengage
with suppliers who have unacceptable
environmental performance.
Diversity
XP Power operates in a global market and recognises its talented and diverse
workforce as a key competitive advantage. Our business success is a reflection of the
quality and skill of our people and the Group is committed to seeking out and retaining
the finest talent.
XP Power believes in treating all people with respect and dignity. We strive to create
and foster a supportive and understanding environment in which all individuals realise their
maximum potential within the Company regardless of their differences.
We believe our diversity benefits individuals, teams, our Company as a whole and our
customers. We recognise that each employee brings their own unique capabilities,
experiences and characteristics to their work and we value diversity at all levels of the
Company.
Diversity Metrics
Male
Asia
Europe
North America
Total Male
Female
Asia
Europe
North America
Total Female
executive Management
All other
Total
2
6
3
11
20
10
21
51
422
68
81
571
executive Management
All other
0
0
0
0
6
4
6
16
658
28
26
712
444
84
105
633
Total
664
32
32
728
health and safety
We take the health and safety of our
employees extremely seriously. We ensure
we comply with all local legislation relating to
health and safety and the standards set out
in the Electronic Citizenship Coalition Code
of Conduct. We also expect our suppliers
to adopt the same standards as we do
relating to the safety and well-being of their
employees.
health and safety Metrics
Number of Minor Accidents
13
7
3
2
China
Europe
Vietnam
North
America
We did not have any serious health and
safety incidents during the year.
23
23848-04 3 March 2015 8:57 AM Proof 5
STRATEGIC REPORTwww.xppower.com stock code: XPP cOMMITTED TO susTaInaBILITy
WITh OuR suPPLIERs
Integrity of Our supply chain
As well as adopting the standards set by the
EICC Code of Conduct we also work closely
with our suppliers to encourage them
to adopt the same high standards. Our
supplier audit process includes evaluating
our suppliers’ performance against the
environmental, treatment of labour, health
and safety and business ethics standards
set out in the EICC Code of Conduct. Our
policy is to disengage with suppliers found
to be environmentally negligent or non-
compliant with our policies.
As well as conducting regular supplier
audits we also host a supplier day at our
China facility which, amongst other things,
allows us to communicate our expectations
so we can work closely together on
improving environmental, corporate social
responsibility and commercial issues.
XP Power Supplier Day – Kunshan, China
FTsE4good
XP Power has been a constituent of the
FTSE4Good Index since September 2011.
The FTSE4Good Index is a tool to help
responsible investors identify and objectively
measure the performance of companies
that meet globally recognised corporate
responsibility standards.
For inclusion, eligible companies must meet
criteria in the following categories:
} Working towards environmental
sustainability;
} Upholding and supporting universal
human rights;
} Ensuring good supply chain labour
standards;
} Countering bribery; and
} Mitigating and adapting to climate
change.
Electronic Industry citizenship
coalition (EIcc)
The Electronic Industry Citizenship Coalition
(EICC) is an industry organisation of leading
electronics manufacturers which seeks
to improve working and environmental
conditions through the promotion of
an industry Code of Conduct for global
electronics supply chains. The EICC Code of
Conduct is the highest recognised standard
for our industry on environmental and
corporate social responsibility issues and
also addresses the treatment of employees
and their well-being, health and safety and
business ethics.
XP Power achieved Full Membership of the
EICC in March 2011. We have adopted
the EICC Code of Conduct and have been
working with our key suppliers to ensure
they too are compliant with the Code.
The EICC framework is enabling us to
make continuous improvements to our
performance on environmental matters but
also in employee relations, health and safety
and business ethics.
24
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 cOMMITTED TO susTaInaBILITy
TO OuR EnvIROnMEnT anD cOMMunITIEs
cO2 Emissions
In 2009 we set ourselves a target of
reducing our CO2 emissions per unit of
revenue by 5% per annum over the next five
years. This aim aligns us with the Chinese
Government’s target of reducing carbon
emissions per unit of GDP by 40% to 45%
between 2005 and 2020. We measure
our CO2 emissions in accordance with the
internationally recognised Green House Gas
(GHG) Protocol and our metrics include
scope 1 and scope 2 emissions. The CO2
emissions data shows the three month
moving average of CO2 emissions per unit of
revenue at our Kunshan facility.
Our total Green House Gas emissions for
2014 were approximately 3,068 tonnes
compared with 2,640 tonnes in 2013.
XP Power’s CO2 emissions per unit of
factory revenue were flat compared to 2013,
however we have seen a 35% reduction
in this metric since we started measuring
CO2 emissions per unit of factory revenue
in 2009. Consequently, the Group is still
tracking ahead of its five year CO2 reduction
target. The additional environmental features
built into our new Vietnamese facility will
underpin a further improvement in the
current year and beyond. Our photovoltaic
solar panel array generated 60,916 kwh
of electricity during the year reducing our
carbon emissions by approximately 33
tonnes.
Water
XP Power does not use water within its
manufacturing processes and is therefore
a low-level water user. However, we are
mindful that to ensure our water usage is
minimized the use of alternative sources of
water such as rainwater is maximized and
that any wastewater is not contaminated.
XP Power’s new facility in Vietnam leads
the way with an on-site water capture and
recycling system supplying “grey water” to
the building’s plumbing systems.
Our water policy is to:
} Employ best practices to maximize
the efficient use of water and minimize
pollution and waste.
} Regularly review and report on the water
use of our facilities and activities.
} Commit to continuous improvement
in responsible water management
through identifying objectives and setting
measurable goals.
c02 Emissions Data
CO2 Emissions (tonnes)
CO2 Emissions per unit of factory
revenue (kg/$1,000)
Water Data
Average number of employees
Water consumed (thousand litres)
Water consumed per employee
(thousand litres)
} Involve and educate employees,
contractors and customers in our water
use programmes.
} Engage with suppliers to encourage
their participation in responsible water
management best practices.
} Disengage with any suppliers who
may be found to be negligent or
non-compliant with responsible
water management and who do not
aggressively implement corrective
actions.
2014
3,068
46
2014
1,160
25,300
2013
2,598
46
2013
1,081
21,200
2012
2,188
43
2012
895
17,500
21.8
19.6
19.5
We used 25.3 million litres of water in our
main facilities around the world in 2014
compared with 21.2 million litres in 2013.
Given water is not used in XP Power’s
manufacturing processes, we are a low-level
user of water. Nevertheless we monitor our
water usage per employee.
We have set ourselves a target to reduce
water usage per employee each year.
carbon Disclosure Project
XP Power is pleased to participate and
disclose its environmental data to the
Carbon Disclosure Project. The full data
set provided is publically available on the
Carbon Disclosure Project website at
www.cdproject.net.
25
23848-04 3 March 2015 8:57 AM Proof 5
STRATEGIC REPORTwww.xppower.com stock code: XPP cOMMITTED TO susTaInaBILITy
TO OuR EnvIROnMEnT anD cOMMunITIEs
harmful substances
European legislation on the Reduction of
Hazardous Substances (RoHS) came into
effect in 2005. This legislation limited the
levels of certain hazardous substances,
including lead, in manufactured products.
Although the legislation is applicable only
to products sold in Europe, and at the
time of its introduction was not applicable
to medical products, XP Power took the
decision to make all of the products it
designs and manufactures compliant.
This decision was not only good for the
environment but also good for our business.
We target levels of lead and hexavalent
cadmium in our products as low as is
practically possible with current technology.
We test this using X-ray spectroscopy on
our incoming components and are pleased
to report that we believe we fully met this
target in 2014.
community Relations
Our worldwide network of Environmental
Representatives also encourage and
spearhead involvement in the communities
in the locations where we operate. Our
employees around the world have continued
to engage with their local communities.
As well as providing open days for school
students, we have donated XP Power
educational kits to local primary schools
in Asia, Europe and North America to
encourage an interest in technology
and electronics. Our employees have
participated in food banks and raised money
for many charities.
Leading the Industry
We believe that we are continuing to
lead the way in our industry regarding
environmental matters; particularly with our
class-leading ultra-high efficiency Green XP
Power product offering.
This is not only good for our environment
but also a key business driver for us from
which we expect to gain a long term
commercial advantage.
XP Power Singapore provides work experience to local schools
helping Out in the community
XP Power employees helping out in the
community; in Sunnyvale, California at the
local food bank and in Singapore providing
work experience to local schools.
XP Power Sunnyvale Employees help out at the
Food Bank
26
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014
OuR PERFORMancE
OPERATING ANd FINANCIAL REVIEw
OuR kEy PERFORmANCE INdICATORS
mANAGING OuR RISkS
28
32
34
XP TeChNoloGy
Powering state of the art semiconductor
manufacturing equipment,
communications infrastructure, video and
broadcast equipment and other critical
applications.
www.xppower.com stock code: XPP
27
23848-04 3 March 2015 8:57 AM Proof 5
STRATEGIC REPORT OPERaTIng anD FInancIaL 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.
“Our design wins were also encouraging in 2014
and the North American and Asian businesses are
showing encouraging momentum. While we are not
immune from capital equipment cycles and the global
economy, we currently expect to grow revenues in
2015. We also intend to increase our investment in
sales and engineering resources in the coming year
to fuel further future growth.”
Duncan Penny Chief Executive Officer
Jonathan Rhodes Finance Director
28
23848-04 3 March 2015 8:57 AM Proof 5
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
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
29
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
23848-04 3 March 2015 8:57 AM Proof 5
STRATEGIC REPORTwww.xppower.com stock code: XPP OPERaTIng anD FInancIaL REvIEW
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.
30
The ECP 180 Series has an ultra compact 2 x 4”
footprint, occupying 46% less than the industry
standard 3 x 5” size.
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.
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 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 1.65 (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.
substantial Interests
Other than the Directors’ interests (see
Directors’ Remuneration Report), at
31 December 2014 the Company was
aware of the following interests in three per
cent or more of the issued ordinary share
capital of the Company:
Aberdeen Asset
Management
Limited
Standard Life
Investments
Number
of shares
%
1,930,959
10.0%
1,773,671
9.2%
Mawer Investment
Management
1,591,775
Hargreave Hale
1,543,096
8.3%
8.0%
Artemis Fund
Managers
Henderson Global
Investors
Generation
Investment
Management
Old Mutual Global
Investors
894,611
4.7%
795,050
4.1%
782,238
4.1%
727,000
3.8%
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
1.65 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
Jonathan Rhodes
Finance Director
23848-04 3 March 2015 8:57 AM Proof 5
31
STRATEGIC REPORTwww.xppower.com stock code: XPP OuR kEy PERFORMancE InDIcaTORs
The group has defined five key performance indicators which
are closely aligned with its strategy, and which demonstrate the
significant progress made over the last five years.
Number of new
product introductions
“green” product revenues
38
31
31
26
19
18.6
13.7
8.1
5.0
2.8
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
The number of new product families
launched to our sales team and customers
during the year including both own design
and labelled products.
Revenue generated from products which meet
the high efficiency and low stand-by power
requirements set by XP Power to qualify them
to carry the “Green XP Power” logo.
Target achieved
N/A
YES
Progress in 2014
Plans for 2015
Not all products are equal in terms of
their complexity and potential future
revenue. In assessing new product
opportunities our development teams
consider the potential revenue from a
new product family as well as the total
number of product introductions.
We would expect the growth rate of
these products to significantly outpace
the growth rate of total revenues.
❯ Twenty-six new product families were
released in 2014 (2013: 31) with
continued emphasis on high efficiency.
❯ Revenue from “green” products
increased by 36% versus a total revenue
increase of 5% in constant currency.
❯ “Green” products now represent 18% of
total revenues (2013: 14%).
❯ New product releases have been
❯ We expect the growth momentum of
identified to complement and expand our
broad product offering.
❯ Expanding existing engineering resource
and bolt on acquisitions are being
targeted to further expand our product
range.
“green” product revenues to continue in
2015 with successful design wins with
products released in 2013 and 2014
entering production to drive revenues
in 2015, and plans for further “green”
product releases in 2015.
Linked to remuneration
NO
NO
Linkage to strategy
32
❯ Develop a strong pipeline of leading
❯ Expansion of high efficiency
edge products
“Green” products
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 Own design revenues
(£ millions)
Proportion of own
design products
Earnings per share
(pence)
59.2
57.7
64.2
67.2
44.1
57%
62%
64%
66%
48%
106.4
83.7
81.3
95.1
101.1
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Revenue derived from products designed
by XP Power or where XP Power owns the
design and outsources manufacture
Revenue from own design products as a
percentage of total revenue
Diluted earnings per share adjusted for
amortisation of intangibles associated with
acquisitions and exceptional charges or
profits
YES
YES
NO
The Group targets to grow this metric by
a double digit percentage each year
The Group is targeting to achieve 75%
own design revenue over the course
of time. We are making consistent and
steady progress towards this target.
The Group targets to grow this metric by
a double digit percentage each year.
❯ Revenue from own design revenue
grew by 11% year on year in constant
currency.
❯ A consequential record gross margin
at 49.6% was achieved as a result of
both this improved mix and the factory
absorption benefit from manufacturing
these own design products ourselves.
❯ Our proportion of own design revenue
climbed to 66% of total revenue (2013:
64%) making further progress against
our overall long-term target.
❯ With all own design products being
manufactured in house, capacity has
been expanded in 2014 with power
converters now being produced in our
Vietnam facility.
❯ Earnings per share (EPS) grew by 6%
over the previous year, below our target.
❯ Whilst our financials benefit from a
natural hedge against fluctuations in
the US Dollar exchange rate, there is
a limited impact on earnings from the
weaker US Dollar in 2014.
❯ An increase in engineering resource
is planned in 2015 to ensure new
product development continues apace
unhindered by sustaining engineering.
❯ We have a number of product releases
planned for 2015 which should allow
us to continue the trend of growing the
proportion of own design revenue.
❯ Ramping up production of power
supplies in Vietnam should help mitigate
labour cost increases to help maintain
gross margin levels
❯ With a strong order backlog and
continued design wins, we expect to
continue to grow earnings per share.
❯ Additional investment in sales and
engineering capacity through 2015
should accelerate future growth in
earnings.
NO
NO
YES
❯ Target and increase penetration of
❯ Manufacture our own products
❯ Target and increase penetration of
key accounts
❯ Increase contribution of own
design products
key accounts
33
23848-04 3 March 2015 8:57 AM Proof 5
STRATEGIC REPORTwww.xppower.com stock code: XPP ManagIng OuR RIsks
Board Responsibility
Like many other international businesses the group is exposed to
a number of risks that may have a material effect on its financial
performance.
External Risks
Risk
mitigation
Change
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.
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.
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.
Internal Risks
Risk
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.
mitigation
Change
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.
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.
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.
34
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 The Board has overall responsibility for the management of risk
and sets aside time at its meetings to identify and address risks.
Internal Risks
Risk
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.
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.
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.
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.
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 18.0% 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.
mitigation
Change
The Group mitigates this risk by
keeping large safety inventories of key
components.
The Group’s profitable and robust
business model helps mitigate risks
from the factors set out above.
Performance against key goals and
resourcing of these is reviewed at
the executive management team
meetings.
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. During 2014 certain
systems have been consolidated and
others have been moved into the
Cloud. Further migration to Cloud
based systems will continue in 2015.
The Group has a dedicated Treasurer
who keeps our taxation position
under review.
23848-04 3 March 2015 8:57 AM Proof 5
35
STRATEGIC REPORTwww.xppower.com stock code: XPP cOnTROL
WhEn
IT’s vITaL
XP HeALTHCAre
Powering critical healthcare devices
and laboratory diagnostic equipment.
36
XPPower annual Report & accounts for the year ended 31 December 2014
23848-04 3 March 2015 8:57 AM Proof 5
gOvERnancE
dIRECTORS ANd OFFICERS
ChAIRmAN’S INTROduCTION TO
GOVERNANCE
CORPORATE GOVERNANCE REPORT
REPORT FROm ThE ChAIRmAN OF ThE
REmuNERATION COmmITTEE
REmuNERATION REPORT – POLICy
REmuNERATION REPORT – ANNuAL
REPORT
OThER GOVERNANCE ANd
STATuTORy dISCLOSuRES
STATEmENT By dIRECTORS
38
40
41
45
46
49
56
57
www.xppower.com stock code: XPP
37
23848-04 3 March 2015 8:57 AM Proof 5
DIREcTORs anD OFFIcERs
James Peters
Non-Executive Chairman
(age 56)
Duncan Penny
Chief Executive
(age 52)
James has over 30 years’ experience in the power
converter industry and trained with Marconi Space
and Defence Systems, prior to joining Coutant
Lambda, one of the UK’s major power converter
companies, as an internal sales engineer. He joined
Powerline shortly after its formation in 1980 and was
involved in all aspects of the business.
In November 1988, he founded XP. In April 2000,
he was appointed as European Managing Director
of the Group and was responsible for the overall
management of the Group’s European businesses.
On 3 February 2003, James was appointed as
Deputy Chairman and on 30 June 2014 appointed
as Non-Executive Chairman. James moved to a
non-executive role on 1 May 2012.
James is chairman of the Nominations Committee.
Mike Laver
President, world wide
Sales and marketing
(age 52)
Mike has 20 years’ experience in the power
converter industry. After completing his degree in
Electrical Engineering at UC Santa Barbara, Mike
held sales and technical positions with Power
Systems Distributors, Compumech and Delta
Lu Research. He joined ForeSight Electronics in
1991 and held various senior roles prior to their
acquisition of XP Power in 2000.
Mike is currently responsible for Global sales and
marketing. He joined the Board on 20 August
2002.
Between October 1998 and March 2000, Duncan
was the Controller for the European, Middle Eastern
and African regions for Dell Computer Corporation,
prior to which he spent eight years working for LSI
Logic Corporation where he held senior financial
positions in both Europe and Silicon Valley. From
1985 to 1990, Duncan spent five years at Coopers &
Lybrand in general practice and corporate finance.
He joined XP Power in April 2000 as Group Finance
Director. On 3 February 2003, he was appointed as
Chief Executive.
Jonathan Rhodes
Finance director
(age 43)
Jonathan joined the finance team of XP Power in
July 2008 as European Controller. Prior to joining the
Group, Jonathan spent nine years with JCDecaux in
various senior financial positions including Head of
Financial Reporting and worked in both its UK and
North American operations. Prior to that, he spent
three years with Mills & Allen.
Jonathan was appointed Finance Director in
December 2011.
38
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 andy sng
General manager, Asia
(age 44)
Peter Bucher
Non-Executive director
(age 71)
Andy joined the Group in July 2005 as General
Manager for Asia to start and head up our Shanghai
operations. He joined the Board in April 2007.
Prior to joining XP Power, Andy has worked in the
power supply industry for eight years in various
technical and commercial roles with companies such
as Silicon Systems (Singapore) and Advanced Micro
Devices (Singapore).
Peter joined the Board on 1 January 2014, he is well
known within the power converter industry and spent
his entire career at Traco Electronic AG (“Traco”) in
Zurich, Switzerland. Peter joined Traco in 1967 and
in 1985 was appointed managing director, a position
he held until his retirement in 2009. Under Peter’s
leadership Traco was built into a highly respected
company with revenues in excess of US$100M.
Peter is chairman of the Remuneration Committee.
John Dyson
Non-Executive director
(age 66)
Terry Twigger
Senior Non-Executive
director (age 65)
John was appointed Chief Executive of Pace Micro
Technology plc in May 2003, prior to which he had
been Finance Director since November 1997. John
retired from Pace Micro Technology plc during 2006
and co-founded a new business called Telehealth
Solutions Ltd which developed communications
technology to remotely monitor medical devices.That
business was subsequently acquired by Medvivo
and John became chairman of that group until his
retirement in February 2015.
Before Pace, he held senior positions in both Silicon
Valley and Europe for LSI Logic Corporation from
June 1990 to November 1997. From September
1988 to June 1990 John was co-founder and
Managing Director of Modacom Limited, prior to
which he was Finance Director of Norbain Electronics
plc (1986-1988) and Case Group plc from 1977
to 1986.
John joined the Board of XP Power in June 2000.
Terry joined the Board on 1 January 2015 and has a
wealth of public company experience.
Terry joined Meggitt PLC, the FTSE100 global
engineering group specialising in extreme
environment components and smart sub-systems
for aerospace, defence and energy markets, in July
1993 and spent 20 years with the group, the last
12 as Chief Executive. During his tenure as Chief
Executive Meggitt grew its revenues from £0.4Bn to
£1.6Bn through a combination of organic growth and
numerous successful acquisitions. He retired from
Meggitt in May 2013 and is currently a non-executive
director of Essentra plc, the supplier of specialist
plastic, fibre, foam and packaging products.
Terry is the Senior Non-Executive Director and
chairman of the Audit Committee.
23848-04 3 March 2015 8:57 AM Proof 5
39
GOVERNANCEwww.xppower.com stock code: XPP chaIRMan’s InTRODucTIOn TO gOvERnancE
“The Board of Directors’
primary responsibility is to
set the strategy to achieve
consistent earnings and
dividend growth superior
to our peer group whilst
keeping risk under control
and reported numbers
entirely accurate.
I consider that we have
achieved this objective.”
James Peters Chairman
23 February 2015
Earnings and dividend history
Pence per share
I am pleased to report that Terry Twigger
joined the Board on 1 January 2015. As the
former CEO of Meggitt PLC, a FTSE 100
company, Terry has a wealth of international
and public company experience and a
financial background. Terry has assumed
the role of senior non-executive director and
now chairs the Audit Committee.
Peter Bucher joined the Board on 1 January
2014. Peter has excellent commercial and
technical experience of the power converter
industry and has already made a valuable
contribution to the business during 2014.
The introduction of these two new,
independent, non-executive directors give
extra breadth and depth to our Board from
both a business and corporate governance
perspective.
The board now consists of eight members;
four of which have technical experience in
the power converter industry and four of
which are qualified accountants.
In the following pages we set out our
approach to corporate governance. Under
the Singapore Companies Act, Chapter 50,
the Company is not required to follow the
Singapore Corporate Governance Code.
The Company has voluntarily agreed to
the principles of corporate governance
contained in the UK Corporate Governance
Code (the “Code”) as required under the
Listing Rules of the Financial Services
Authority of the United Kingdom.
We have tried to clearly layout how we
meet the five sections of the Code,
namely leadership, effectiveness,
accountability, remuneration and relations
with shareholders. For the benefit of
shareholders who are not familiar with the
Code we have set out the main principles of
the Code in detail and have stated how we
have addressed them in this report.
I am pleased to report that throughout
the year ended 31 December 2014 the
Company has been in full compliance with
the provisions of the Code.
106.4
101.1
95.1
83.7
81.3
55.0
50.0
45.0
61.0
37.0
30.6
31.4
34.8
40.8
33.0
23.6
12.4
12
14.0
16.0
18.0
20.0
21.0
22.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Diluted earnings per share
Dividend per share
40
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 cORPORaTE gOvERnancE REPORT
THE BOARD
OF DIRECTORS
Non-Executive
Chairman
James Peters
(appointed 1 July 2014)
EXECUTIVE
MANAGEMENT TEAM
11 persons
Responsible for executing
the Board’s strategy
Day to day running of
the business
The full team meet face to face at
least three times a year.
A sub-set of the team conducts a
monthly business review by
teleconference.
AUDIT COMMITTEE
Chair Terry Twigger
(appointed 1 January 2015)
NOMINATIONS COMMITTEE
Chair James Peters
(appointed 1 January 2015)
Financial Reporting
Compliance
External audit
Internal controls
Board Composition
Board Appointments
REMUNERATION COMMITTEE
Chair Peter Bucher
(appointed 1 January 2014)
Directors’ Pay
Executive Management
Team Incentive Plans
Share Incentive
Plans
ENVIRONMENTAL COMMITTEE
Chair Sean Ross
(appointed 1 January 2015)
Corporate social responsibility
Sustainability initiatives
Leadership
A.1 The Role of the Board
Main Principle:
Every company should be headed by
an effective board which is collectively
responsible for the long-term success of the
company.
The directors have considered the
composition and structure of the Board and
have concluded that it is appropriate for a
Company of the size and complexity of XP
Power. The involvement of James Peters
(Non-Executive Chairman) as a founder with
a substantial shareholding is considered of
benefit to shareholders, aligning the interests
of shareholders with the Board.
The following matters are specifically
reserved for the Board’s decision:
} approval of strategic plans, financial
plans and budgets and any material
changes to them
} oversight of the Group’s operations,
ensuring competent and prudent
management, sound planning, an
adequate system of internal control and
adequate accounting and other records
} changes to the structure, size and
composition of the Board
} consideration of the independence of
non-executive directors
} review of management structure and
senior management responsibilities
} with the assistance of the Remuneration
Committee, approval of remuneration
policies across the Group
The roles of Non-Executive Chairman
(James Peters) and Chief Executive (Duncan
Penny) are separate and clearly defined.
The Chairman is responsible for the running
of Board Meetings as well as taking the
lead on strategy. The Chief Executive is
responsible for the day to day running of the
Company.
A.3 The Chairman
Main Principle:
The chairman is responsible for the
leadership of the Board and ensuring its
effectiveness on all aspects of its role.
The Chairman sets the calendar and agenda
of the Board and facilitates the discussions.
The Chairman also initiates and coordinates
the processes defined below which evaluate
the effectiveness of the Board and of the
individual directors.
} final approval of annual financial
statements and accounting policies
} approval of the dividend policy
} approval of the acquisition or disposal of
subsidiaries and major investments and
capital projects
} delegation of the Board’s powers and
authorities including the division of
responsibilities between the Chairman,
Chief Executive and the other Executive
Directors.
A.2 division of Responsibilities
Main Principle:
There should be a clear division of
responsibilities at the head of the company
between the running of the board and the
executive responsibility for the running of
the company’s business. No one individual
should have unfettered power of decision.
23848-04 3 March 2015 8:57 AM Proof 5
41
GOVERNANCEwww.xppower.com stock code: XPP cORPORaTE gOvERnancE REPORT
B.2 Appointments to the Board
Main Principle:
There should be a formal, rigorous and transparent procedure for the appointment of new
directors to the Board.
nomination committee
The Nomination Committee consists of James Peters, John Dyson and Terry Twigger
(appointed 1 January 2015). Both Larry Tracey and David Hempleman-Adams resigned
during the year on 30 June 2014 and 31 December 2014 respectively. The committee was
chaired by John Dyson until James Peters was appointed with effect from 1 January 2015.
The committee reviews and considers the appointment of new directors. All non-executive
directors are given the opportunity to interview any proposed candidates. Any appointment
of a new director is voted on by the whole Board.
The Nomination Committee met three times during the year. The attendees were as follows:
Date
2 May 2014
Attendees
All except Larry Tracey and James Peters
(Neither Larry Tracey nor James Peters were invited to the
meeting, but were informed of the meeting and the purpose
of the meeting)
9 October 2014
All except David Hempleman-Adams
18 December 2014
All except David Hempleman-Adams
The Terms of Reference of the Nomination Committee are available in the Corporate
Governance section of the Company’s website www.xppower.com.
B.3 Commitment
Main Principle:
All directors should be able to allocate sufficient time to the Company to discharge their
responsibilities effectively.
There were six Board Meetings during the year. The attendees were as follows:
Date
Attendees
21 February 2014
All
10 April 2014
7 July 2014
25 July 2014
All except Andy Sng
All
All
9 October 2014
All except David Hempleman-Adams
18 December 2014
All except David Hempleman-Adams
A.4 Non-executive directors
Main Principle:
As part of their role as members of a unitary
board, non-executive directors should
constructively challenge and help develop
proposals on strategy.
Other than their normal attendance and
participation in discussions at Board
meetings the non-executive directors
actively participate in the Company’s
strategy meetings and are able to question,
challenge and coach the managers
attending these meetings.
In October 2014 directors attended a
meeting in Singapore to review the group’s
sales strategy and manufacturing output.
Terry Twigger is the senior independent non-
executive director.
Effectiveness
B.1 The Composition of the Board
Main Principle:
The Board and its committees should
have the appropriate balance of skills,
experience, independence and knowledge
of the company to enable them to discharge
their respective duties and responsibilities
effectively.
The directors consider that the Board and
committees have the appropriate balance
of skills, experience, independence and
knowledge to discharge their duties
effectively.
The Board considers Terry Twigger, John
Dyson and Peter Bucher to be independent.
While certain corporate governance
organisations have expressed a view that
John Dyson should not be considered
independent by virtue of his length of
service, the Board’s view is that he is
independent in character and judgement
and that there are no relationships or
circumstances which are likely to affect his
judgement. In addition, John Dyson’s length
of service and knowledge of the Company
are considered to be of significant benefit.
The Corporate Governance guidelines
do not consider James Peters to be
independent by virtue of his previous
executive roles. However, as a founder and
substantial shareholder his membership
of the Board is considered beneficial to
shareholders as a whole.
42
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 B.4 development
Main Principle:
All directors should receive induction on
joining the Board and should regularly
update and refresh their knowledge and
skills.
Directors receive an induction on joining
the Board. Non-executive directors are
introduced to senior managers below board
level and participate in strategy meetings.
They are also able to meet with managers
on an informal basis to help them gain a
deeper understanding of the business and
contribute ideas.
B.5 Information and Support
Main Principle:
The Board should be supplied in a timely
manner with information in a form and of a
quality appropriate to enable it to discharge
its duties.
The Board receives “flash” reports, detailed
management accounts and detailed financial
forecasts on a monthly basis to enable it to
review trading performance, forecasts and
strategy implementation. Board meeting
materials are provided in advance of Board
meetings to allow directors sufficient time to
prepare adequately.
B.6 Evaluation
Main Principle:
The Board should undertake a formal
and rigorous annual evaluation of its own
performance and that of its committees and
individual directors.
The Board has a process for performance
evaluation that has been applied to the
Board and its Committees for 2014.
This process was based on completion of
a questionnaire by the directors in relation
to the Board and each of the Committees
of which they were members and to the
performance of individual directors. The
responses were collated and reviewed by
the Chairman and distributed to all Directors
for discussion at a Board meeting.
B.7 Re-election
Main Principle:
All directors should be submitted for
re-election at regular intervals, subject to
continued satisfactory performance.
All directors offer themselves for election at
least every three years.
accountability
C.1 Financial and Business
Reporting
Main Principle:
The Board should present a balanced
and understandable assessment of the
Company’s position and prospects.
The Board considers that both the Interim
Report and Annual Report and Accounts,
supported by quarterly trading updates
which are timetabled at the beginning
of each year, comprehensively fulfil this
requirement. The Annual Report includes a
detailed description of the Group’s strategy
and business model which has enabled it to
generate significant value over a prolonged
period of time.
going concern
The Directors, after making enquiries, are
of the view, as at the time of approving
the accounts, that there is a reasonable
expectation that the Company will have
adequate resources to continue operating
for the foreseeable future and therefore the
going concern basis has been adopted in
preparing these accounts.
C.2 Financial and Business
Reporting
Main Principle:
The Board is responsible for determining
the nature and extent of the significant risks
it is willing to take in achieving its strategic
objectives. The board should maintain
sound risk management and internal control
systems.
The Board acknowledges that it is
responsible for the Group’s internal controls
and for reviewing their effectiveness. The
Group’s internal controls are designed to
manage rather than eliminate the risk of
failure to meet business objectives, and
can only provide reasonable not absolute
assurance against material misstatement
or loss.
An on-going process for identifying,
evaluating and managing the significant risks
faced by the Group was in place during the
entire financial year and has remained in
place up to the approval date of the Annual
Report and Financial Statements. The
identified risks and the processes by which
these are addressed are documented,
reviewed and updated at Board meetings.
The risk management process and internal
control systems are regularly reviewed by
the Board and Audit Committee.
C.3 Audit Committee and Auditors
Main Principle:
The Board should establish formal and
transparent arrangements for considering
how it should apply the corporate reporting
and risk management and internal
control principles, and for maintaining an
appropriate relationship with the Company’s
auditor.
As might be expected in a group of this size,
a key control procedure is the day to day
supervision of the business by the executive
directors supported by managers within
the Group companies and internal audits.
Authority matrices are in place to clearly
define who is able to authorise particular
transactions, transfer funds, commit
company resources and enter into particular
agreements.
audit committee
The Audit Committee members during the
year were non-executive directors David
Hempleman-Adams and John Dyson.
Despite not being considered independent
by certain corporate governance institutions,
the Board considers that John Dyson’s
financial background, public company
experience and knowledge of the business
gained over a number of years make
him well equipped to serve on the Audit
Committee. The committee was chaired by
David Hempleman-Adams until he resigned
on 31 December 2014. Terry Twigger was
appointed a non-executive director of the
Company and chair of the Audit Committee
on 1 January 2015.
The Audit Committee met three times during
2014, the attendees were as follows:
Date
Attendees
19 February 2014
24 July 2014
1 October 2014
All
All
All
The Committee is responsible for,
amongst other things, ensuring that the
financial performance of the Group is
properly reported and monitored, focusing
particularly on compliance with legal
requirements, accounting standards, and
the requirements of the UK Listing Authority.
The Committee also meets with the auditors
and reviews the reports from the auditors
without executive Board members present.
No significant internal control failings or
weaknesses were reported in 2014.
23848-04 3 March 2015 8:57 AM Proof 5
43
GOVERNANCEwww.xppower.com stock code: XPP cORPORaTE gOvERnancE REPORT
Relations with shareholders
E.1 dialogue with Shareholders
Main Principle:
There should be a dialogue with
shareholders based on the mutual
understanding of objectives. The Board as
a whole has responsibility for ensuring that
a satisfactory dialogue with shareholders
takes place.
The Group engages in two-way
communication with both its institutional
and private investors and responds quickly
to all queries received. The Group uses its
website www.xppower.com to give private
investors access to the same information
that institutional investors receive in terms of
investor presentations and research where it
is permitted to be distributed. This includes
video interviews with the Chief Executive
and Finance Director. Interested parties are
also able to register for the Group’s email
alert service on this website to receive timely
announcements and other information
published from time to time.
The Board members receive any feedback
prepared by brokers or our financial
PR company following meetings with
shareholders in order to keep in touch with
shareholder opinion.
E.2 Constructive use of the AGm
Main Principle:
The Board should use the AGM to
communicate with investors and to
encourage their participation.
The Annual General Meeting is used as
an opportunity to communicate with
shareholders and Directors are available to
answer any questions.
As part of its remit, the Audit Committee
also keeps under review the nature and
extent of audit and non-audit services
provided to the Group by the auditors. The
Committee has formalised its policy and
approved a set of procedures in relation
to the appointment of external auditors to
undertake audit and non-audit work. Under
this policy:
} the award of audit-related services to
the auditors in excess of £50,000 must
first be approved by the Chairman of the
Audit Committee, who in his decision
to approve will take into account the
aggregate of audit-related revenue
already earned by the auditor in that year.
Audit related services include formalities
relating to borrowing, shareholder and
other circulars, regulatory reports, work
relating to disposals and acquisitions,
tax assurance work and advice on
accounting policies;
} the award of tax consulting services to
the auditors in excess of £100,000 must
first be approved by the Chairman of the
Audit Committee;
} the award of other non-audit related
services to the auditors in excess of
£20,000 must first be approved by the
Chairman of the Audit Committee; and
} the auditors will be required to make a
formal report to the Audit Committee
annually on the safeguards that are in
place to maintain their independence
and the internal safeguards in place to
ensure their objectivity.
The Terms of Reference of the Audit
Committee are available in the Corporate
Governance section of the Company’s
website www.xppower.com.
Audit Committee Performance
Evaluation
During the year, the Audit Committee
reviewed its performance. The Committee
considered it had the skills to perform its
responsibilities, particularly through John
Dyson’s financial and audit experience.
Internal audit
The finance group conduct regular peer to
peer balance sheet reviews, the results of
which are reported to the Audit Committee
as well as the Finance Director and Chief
Executive. In addition the Audit Committee
reviews and approves the scope and
schedule for these reviews. The Board
considers that this process fulfils the internal
audit function for a Group of the size and
complexity of XP Power.
No significant internal control failings have
been identified as a result of internal audits
during 2014.
Remuneration
d.1 The Level and Components of
Remuneration
Main Principle:
Levels of remuneration should be sufficient
to attract, retain and motivate directors of
the quality required to run the Company
successfully, but a company should
avoid paying more than is necessary for
this purpose. A significant proportion of
executive directors’ remuneration should be
structured so as to link rewards to corporate
and individual performance.
Our approach to remuneration is set out
in detail in the Report of the Remuneration
Committee on pages 45 to 55.
d.2 Procedure
Main Principle:
There should be a formal and transparent
procedure for developing policy on
executive remuneration and for fixing
the remuneration packages of individual
directors. No director should be involved in
deciding his or her own remuneration.
Our policy regarding remuneration is set out
in detail in the Report of the Remuneration
Committee on pages 45 to 55. No director
participates in the deciding of their own
remuneration. Peter Bucher is chairman of
the Remuneration Committee.
The Terms of Reference of the
Remuneration Committee are available in
the Corporate Governance section of the
Company’s website www.xppower.com.
44
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 REPORT FROM ThE chaIRMan OF
ThE REMunERaTIOn cOMMITTEE
Details of Executive remuneration are
included later in the report.
No bonuses will be paid to executive
directors in respect of 2014, with the
exception of Andy Sng, General Manager
Asia, who is incentivised based on the
gross margin achieved in the Asia business.
The bonuses for these directors have
been based on exceeding the profit after
tax achieved in 2011, which was the
Company’s record year for earnings to
date. The committee was concerned that
this performance related measure has not
been achieved for three years and as a
result, the committee reviewed whether
the performance measure for the directors’
variable compensation is an appropriate
incentive to drive further earnings growth.
During 2014 the major changes taken on
directors’ remuneration have been:
} An agreement to amend the
performance measures for directors’ and
key employees’ annual bonuses from
2015.
} All non-executive director salaries,
except the chairman (unchanged at
£50,000 per annum) were brought in
line at £40,000 per annum effective 1
January 2015.
} The base salary of our Finance Director,
Jonathan Rhodes, was increased from
£125,000 to £140,000 per annum with
effect from 1 July 2014 to bring it more in
line with the market for this position.
Introduction
This report is on the activities of the
remuneration committee for the period
to 31 December 2014. It sets out the
remuneration policy and remuneration
details for the executive and non-executive
directors of the Company. It has been
prepared in accordance with Schedule
8 of The Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008 as amended
in August 2013. The report is split into
three main areas; the statement by the
chair of the remuneration committee, the
annual report on remuneration and the
policy report. The policy report will be
subject to a binding shareholder vote at
the 2015 Annual General Meeting and
the policy will take effect from the date on
which the resolution is passed. The annual
report on remuneration provides details on
remuneration in the period and some other
information required by the Regulations. It
will be subject to an advisory shareholder
vote at the 2015 Annual General Meeting.
The auditors are required to report to
the shareholders on certain parts of the
Directors’ Remuneration Report and to
state whether, in their opinion, those parts
of the report have been properly prepared
in accordance with the Regulations. The
parts of the annual report on remuneration
that are subject to audit are indicated in
that report. The statement by the chair of
the remuneration committee and the policy
report are not subject to audit.
The chairman’s annual
statement
The Remuneration Committee’s main aim
is to ensure that payments to Directors and
key employees are appropriate and closely
aligned with shareholders’ interests.
This has been successful when measured
by the low director/key employee turnover
rate and the very favourable pay to
performance ratios compared to our quoted
peers.
The Remuneration
Committee’s main aim is
to ensure that payments
to Directors and key
employees are appropriate
and closely aligned with
shareholders’ interests.
This has been successful
when measured by the
low director/key employee
turnover rate and the
very favourable pay
to performance ratios
compared to our quoted
peers.
Peter Bucher
Remuneration Committee Chairman
23 February 2015
23848-04 3 March 2015 8:57 AM Proof 5
45
GOVERNANCEwww.xppower.com stock code: XPP REMunERaTIOn REPORT – POLIcy
The information in this section of the Directors’ Remuneration Report is not subject to audit.
The policy is that a proportion of the remuneration package should be performance related. The following table provides a summary of the
key components of the remuneration package for directors.
Salary and
fees
All taxable
benefits
Annual
bonuses
Component
Purpose
operation
opportunity
Provide a basic
salary or fee that
would be expected
for the position
Base salaries and
fees set by the
Remuneration
Committee and
reviewed annually
As set by the
Remuneration
Committee
Applicable
performance
measures
None
Provide basic
benefits that would
be expected for the
position
Benefits set by
the Remuneration
Committee and
reviewed annually
Private health care
and life assurance
up to 3 times base
salary
None
Align interests of
executives and
shareholders in the
short term
Based on a
proportion of profit
before tax exceeding
that achieved in
2014. (Mike Laver
and Andy Sng’s
bonus are based on
gross margin)
Up to 100% of base
salary
Exceeding the profit
before tax achieved
in 2014.
Long term
share
incentive
plans
Align the interests
of executives and
shareholders in the
long term
Share option scheme
with options vesting
after 4 years from
grant
Price at time of
exercising less grant
price
Total shareholder
return has to be
in the top 20th
percentile of the
FTSE350 Electronic
and Electrical
Equipment Sector
for 100% vesting;
vesting is only 25%
if below the 20th
percentile but above
the median percentile
and zero if below the
median percentile
recovery
There are no
provisions for
recovery of salary
and fees
There are no
provisions for
recovery of taxable
benefits
There are no
provisions for
recovery of annual
bonuses
There are no
provisions for
recovery of long term
share incentive plans
Pensions
Provide a basic
pension benefit that
would be expected
for the position
Percentage of base
salary between 2
to 3% depending
on geography
paid into a defined
contribution scheme
2 to 3% depending
on geography
None
There are no
provisions for
recovery of
pension payments
contributions
The performance targets above were chosen as they are considered suitable for aligning the interests of the executives with those of
shareholders.
The following table provides a summary of the key elements of the remuneration package for non-executive directors:
element
Fees
Purpose
operation
Attract and retain individuals of high calibre
Fixed as set by the remuneration committee
Additional fees payable for
other duties to the company
Not applicable
Other items
Private healthcare
approach to Recruitment Remuneration
46
Included in the fixed annual fee
As set by the remuneration committee
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 In the event of the recruitment of a new executive or non-executive director the committee would take into consideration the structure and
levels of the remuneration for existing directors and prevailing market together with the skills and value it believed the new director would
bring to the Company. It is therefore expected that a new director’s package would include the same elements as existing directors and the
maximum level of variable remuneration would also be capped at 100% of base salary as it is for existing executive directors.
Directors’ service contracts
The executive directors’ contracts run for an indefinite period, with the Company being able to terminate the contracts without cause giving
12 months notice. When a director is terminated without cause, the director is entitled to a termination payment of 12 months of basic pay.
Directors’ service contracts are available for inspection at the Annual General Meeting of the Company.
non-Executive Directors
The non-executive directors’ contracts run for an indefinite period, with the Company being able to terminate the contracts without cause
giving 12 months’ notice. If the shareholders do not re-elect a non-executive director, or they are retired from office under the Articles, their
appointment terminates automatically, with immediate effect and without compensation. Non-executive directors are not entitled to share
options or pensions.
Illustration of the application of the Remuneration Policy
The charts below give an indication of the level of remuneration that would be received by each executive director in accordance with the
directors’ remuneration policy in its first year of operation (excluding share price appreciation):
Chief Executive Officer
Duncan Penny
271,141
President Worldwide Sales and Marketing
Mike Laver
213,242
Fixed (£) Annual variable (£)
Minimum
In line with
expectation
Maximum
271,141
65,000
271,141
260,000
Minimum
In line with
expectation
Maximum
213,242
33,000
213,242
220,000
Finance Director
Jonathan Rhodes
146,467
Minimum
146,467 17,500
146,467
140,000
In line with
expectation
Maximum
General Manager – Asia
Andy Sng
158,703
Minimum
In line with
expectation
Maximum
158,703 14,500
158,703
112,500
23848-04 3 March 2015 8:57 AM Proof 5
47
GOVERNANCEwww.xppower.com stock code: XPP REMunERaTIOn REPORT – POLIcy
The “In line with expectation” scenario has been calculated based on the 2015 approved budget.
The “Maximum” scenario has been calculated assuming that the directors achieve the maximum allowed variable bonus which is capped at
100% of their respective base salaries. In order for all directors to achieve the maximum variable bonus profit before tax would have to reach
£43.8 million.
The fixed element of remuneration includes base salary, benefit in kind and pension contributions. The benefits in kind are measured
according to their taxable value as follows:
Position
Chief Executive
Finance Director
President Worldwide Sales and
Marketing
name
Base salary
Benefits
Pension
Total fixed pay
Duncan Penny
Jonathan Rhodes
£260,000
£140,000
£3,341
£2,267
£7,800
£4,200
£271,141
£146,467
Mike Laver
US$330,000
US$16,393
US$6,600
US$352,993
General Manager Asia
Andy Sng
S$225,000
S$80,006
S$12,400
S$317,406
The Company provides share options as a long term incentive to executive directors. Unvested share options vest in October 2016. It is not
possible to predict the value of these awards as it is dependent on the share price at the time the options vest and is also contingent on
meeting the performance criteria of total shareholder return versus the FTSE350 Electronic and Electrical Equipment Sector. The table below
shows the number of unvested share options and their potential value assuming the share price was £13.98 which was the closing price on
31 December 2014:
Duncan Penny
Mike Laver
Jonathan Rhodes
Andy Sng
Total shareholder
return less than
median percentile
Total shareholder return
between median percentile
and 20th percentile
Total shareholder
return above
the 20th percentile
Zero
Zero
Zero
Zero
£84,750
£84,750
£22,600
£22,600
£339,000
£339,000
£90,400
£90,400
48
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 REMunERaTIOn REPORT – annuaL REPORT
The members of the Remuneration Committee during 2014 were all non-executive directors; Peter Bucher (chair), John Dyson,
David Hempleman-Adams (resigned 31 December 2014), James Peters and Larry Tracey (resigned 30 June 2014).
From 1 January 2015 the Remuneration Committee comprises non-executive directors; Peter Bucher (chair), John Dyson and
James Peters.
The Committee makes recommendations to the Board. No Director plays a part in any discussion regarding his own remuneration.
There were four Remuneration Committee meetings during the year and the dates of the meeting and attendees were as follows:
Date
8 January 2014
25 July 2014
9 October 2014
Attendees
All except David Hempleman-Adams
All
All except David Hempleman-Adams
18 December 2014
All except David Hempleman-Adams
Performance Evaluation
During the year, the Committee reviewed its performance and considered it had the skills and experience to perform its responsibilities.
Remuneration Policy for the Executive Directors
Executive remuneration packages are prudently designed to attract, motivate and retain directors of the high calibre needed to maintain the
Group’s position and to reward them for enhancing shareholder value. The performance measurement of the executive directors and key
members of senior management and the determination of their annual remuneration package are undertaken by the Committee.
The Committee consider the experience and value the individual directors contribute to the Group in assessing their level of pay.
There are five main elements of the remuneration package for executive directors and senior management:
} basic annual salary;
} benefits-in-kind;
} annual profit share payments;
} long term share incentives; and
} pension arrangements.
The Company’s policy is that a proportion of the remuneration of the Executive Directors should be performance-related. As described
below, executive directors may earn annual profit shares together with the long term benefits of participation in share option schemes.
Basic salary
Directors’ basic salaries are reviewed by the Committee each year and when an individual changes position or responsibility. Basic salaries
for all directors were reviewed as follows:
executive
Mike Laver
Duncan Penny
Jonathan Rhodes
Andy Sng
Base salary
Date of
last review
effective date of
last increase
US$330,000
18 December 2014
1 January 2012
£260,000
18 December 2014
1 January 2012
£140,000
18 December 2014
1 July 2014
S$225,000
18 December 2014
1 January 2008
Executive directors’ contracts of service, which include details of remuneration, will be available for inspection at the Annual General
Meeting.
Benefits-in-kind
The executive and non-executive directors receive certain benefits-in-kind, principally life assurance and private medical insurance. In
addition Andy Sng receives a housing allowance relating to his relocation to Shanghai where he spends approximately half his time.
23848-04 3 March 2015 8:57 AM Proof 5
49
GOVERNANCEwww.xppower.com stock code: XPP REMunERaTIOn REPORT – annuaL REPORT
annual Profit share Payments
The Committee establishes the profit thresholds that must be met for each financial year before a cash bonus is to be paid. The Committee
believes that any incentive compensation awarded should be tied to the interests of the Company’s shareholders. Account is also taken of
the relative success of the different parts of the business for which the executive directors are responsible. No profit shares are payable to
the directors in respect of 2014 with the exception of Andy Sng who is incentivised based on the gross margin of the Asian business rather
than profit after tax.
During the year the committee reviewed the performance measure for the directors’ variable compensation to assess whether it is an
appropriate incentive in driving growth. The committee resolved to change the bonus arrangements for directors in 2015. Bonuses for
Duncan Penny and Jonathan Rhodes will be based on a proportion of profit before tax beyond that achieved in 2014. Mike Laver’s bonus
will be based on the gross profits of the Group. Andy Sng’s bonus remains unchanged based on the gross profits of the Asia business. All
bonuses are capped at 100% of base salary.
Long Term share Incentives
deferred Payment Share Plan
The Group has operated a deferred payment share plan which gave participants the opportunity to purchase shares in the Company at
market value with payment deferred until the shares are sold. This arrangement strongly aligns the interest of the participant directly with
those of the shareholders with the participant exposed to any increase or decrease in the market value of the shares concerned. Shares
purchased under this arrangement could not be sold for four years from the date of the award. Dividends accruing on the shares are paid to
the participants.
share Option Plans
The Group operated The XP Power Share Option Plan (the “Plan”) as approved by the shareholders on 2 April 2012. This Plan allowed the
Company to grant options up to 1,924,229 shares representing 10% of the issued share capital at the time the Plan was set up. Shares
granted under the Plan vest after 4 years and vesting of these options is subject to XP’s Total Shareholder Return (“TSR”) relative to the
FTSE350 Electronic and Electrical Equipment Sector as set out in the following table:
TSr relative to the FTSe350 electronic and electrical equipment Sector
Top 20th percentile
Median
Below median
There is no re-measurement of performance criteria.
Percentage of
award that vests
100%
25%
Zero
Pension arrangements
In the UK the Group operates a “Stakeholder Pension Scheme” and contributes 3% of base salary into this scheme on behalf of the
participants including executive directors.
In the USA, the Group operates a defined contribution “401K Plan”. The Group matches the director’s contribution to this plan up to a
maximum of 2% of salary.
50
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 Performance graph
The following graph shows the Company’s performance, compared with the performance of the FTSE 350 Electronic and Electrical
Equipment Price Index.
500
450
400
350
300
250
200
150
100
50
r
e
w
o
P
P
X
o
t
d
e
s
a
b
e
r
n
r
u
t
e
R
l
a
t
o
T
0
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
XP Power
FTSE All Share Electronic and
Electrical Equipment
FTSE 350 Electronic and
Electrical Equipment
The compound average growth rate total shareholder return from 1 January 2010 until 31 December 2014 was 29%.
chief Executive Remuneration
The table below sets out the details of the director undertaking the role of chief executive officer.
£ Thousands
Base salary
Pension
relocation
expenses
Benefits
Annual
bonus
payout
Total Ceo
remuneration
2010
2011
2012
2013
2014
223
235
254
260
260
8
7
8
8
8
75
77
8
—
—
11
8
4
3
3
58
—
—
—
—
375
328
274
271
271
Relocation expenses relate to Duncan Penny’s relocation from the UK to Singapore for the period 2007 to 2012.
23848-04 3 March 2015 8:57 AM Proof 5
51
GOVERNANCEwww.xppower.com stock code: XPP
REMunERaTIOn REPORT – annuaL REPORT
The table below shows the percentage change in remuneration of the director undertaking the role of chief executive officer and the
company’s employees as a whole in 2014 and 2013.
Percentage increase in remuneration in 2014 compared with 2013
Base salary
All taxable benefits
Annual bonuses
Total
Ceo
0%
0%
0%
0%
Chosen employee
group1
2%
3%
1%
2%
1 The chosen employee group for this comparison excludes Chinese employees where there has been significant salary inflation
Total pay for
manufacturing
(£ millions)
4.0
6.1
5.3
17.3
17.6
18.5
Total pay
for sales,
administration
and R&D
(£ millions)
24.6
22.9
21.3
Total
employee pay
(£ millions)
+7%
2012
2013
2014
+5% 2012
2013
2014
2012
2013
2014
+15%
Operating
income
(£ millions)
+5%
24.4
23.3
21.0
Dividends
(£ millions)
11.0
10.0
8.9
+10%
2012
2013
2014
2012
2013
2014
All Non-Executive Directors have specific terms of engagement and their remuneration is determined by the Board within the limits set by the
Articles of Association. The annual fee for each Non-Executive Director is set out below:
non-executive
James Peters
Peter Bucher
John Dyson
Terry Twigger
52
Fee
£50,000
£40,000
£40,000
£40,000
Date of
last review
9 October 2014
9 October 2014
9 October 2014
effective date of
last change
25 July 2014
1 January 2015
1 January 2014
Not applicable
Appointed 1 January 2015
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 aggregate Directors’ Remuneration
The total amounts for directors’ remuneration were as follows:
£
Basic salaries
Benefits in kind
Profit share
Money purchase pension contributions
Non-executive director fees
Total remuneration
Directors’ Remuneration for 2014
name of Director
£
executive
Duncan Penny
Mike Laver
Jonathan Rhodes
Andy Sng
non-executive
Larry Tracey
(resigned 30 June 2014)
James Peters
John Dyson
David Hempleman-Adams
(resigned 31 December 2014)
Peter Bucher
Directors’ Remuneration for 2013
name of Director
£
executive
Duncan Penny
Mike Laver
Jonathan Rhodes
Andy Sng
non-executive
Larry Tracey
James Peters
John Dyson
David Hempleman-Adams
2014
2013
699,513
691,818
58,537
8,310
21,685
170,000
958,045
Salary
and fees
Profit share
Pension
Benefits
260,000
199,352
132,500
107,661
25,000
45,000
40,000
30,000
30,000
Salary
and fees
260,000
204,082
112,500
115,236
50,000
50,000
50,000
30,000
—
—
—
8,310
—
—
—
—
—
7,800
3,987
3,975
5,923
—
—
—
—
—
3,341
9,903
1,808
38,289
2,110
3,086
—
—
—
Profit share
Pension
Benefits
—
—
—
12,534
—
—
—
—
7,800
4,082
3,375
6,922
—
—
—
—
3,253
9,488
1,668
45,495
6,055
3,067
—
—
69,026
12,534
22,179
181,216
976,773
2014
Total
271,141
213,242
138,283
160,183
27,110
48,086
40,000
30,000
30,000
2013
Total
271,053
217,652
117,543
180,187
56,055
53,067
50,000
30,000
In the year under review, there were no increases to the base salaries for the executive directors other than Jonathan Rhodes whose base
salary was increased from £125,000 per annum to £140,000 per annum with effect from 1 July 2014; for all other staff (excluding Chinese
manufacturing staff) the average increase was approximately 2%.
The profit thresholds in order to trigger profit share payments were not met for 2014, therefore no profit shares are payable to executive
directors in respect of 2014. As stated above Andy Sng received an incentive based on the gross margin of the Asian business.
23848-04 3 March 2015 8:57 AM Proof 5
53
GOVERNANCEwww.xppower.com stock code: XPP REMunERaTIOn REPORT – annuaL REPORT
Directors’ Interests in Ordinary shares of XP Power Limited
executive
Mike Laver (a)
Duncan Penny
Andy Sng
non-executive
James Peters (b)
At 31
December
2014
123,969
326,990
6,000
At 01
January
2014
136,494
326,990
6,000
2,049,279
2,191,754
There is no requirement for directors to hold shares in the Company.
(a) Mike Laver participated in the deferred payment share scheme. He sold 12,525 of these shares at a price of £17.55 on 27 February 2014. As at 31 December
2014, the outstanding balance of the deferred payment share scheme is £157,346.
(b) James Peters sold 62,475 shares at a price of £17.55 on 28 February 2014 and 20,000 shares at a price of £17.00 on 4 March 2014. He also transferred
60,000 shares to his daughter on 5 March 2014.
In addition to the directors’ interests in the ordinary shares of the Company, the following directors have interests in share options:
executive
Mike Laver
Duncan Penny
Jonathan Rhodes
Andy Sng
Date of grant Exercise price
10 October 2012
10 October 2012
10 October 2012
21 April 2005
26 April 2007
10 October 2012
£9.46
£9.46
£9.46
£4.11
£5.072
£9.46
At 31
December
2014
number of
shares
At 01
January
2014
Number of
shares
75,000
75,000
20,000
15,000
30,000
20,000
75,000
75,000
20,000
20,000
30,000
20,000
The above options that were granted on 10 October 2012 will vest on the fourth anniversary from the date of grant. The vesting of these
options is subject to XP’s Total Shareholder Return (“TSR”) relative to the FTSE350 Electronic and Electrical Equipment Sector as set out in
the following table:
TSr relative to the FTSe 350 electronic and electrical equipment Sector
Top 20th percentile
Median
Below median
Percentage of
award that vests
100%
25%
Nil
Share options held by Andy Sng granted prior to 10 October 2012 are fully vested.
No share options were granted during the year.
The highest and lowest closing mid market prices of the shares of XP Power Limited during 2014 were £17.98 and £13.40 per share
respectively. The closing mid-market price on 31 December 2014 was £13.98 per share.
54
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 statement of voting at the annual general Meeting
The Group is committed to on-going shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial
votes against resolutions in relation to directors’ remuneration, the reasons for any such vote will be sought, and any actions in response will
be detailed here.
The following table sets out actual voting in respect of the approval of the 2013 remuneration policy and remuneration report:
number
of votes
cast for
Percentage
of votes
cast for
number
of votes
cast against
Percentage
of votes
cast against
Total
votes cast
number
of votes
withheld
Approval of remuneration policy
Approval of remuneration report
9,273,779
12,150,139
86.3%
99.6%
1,466,971
46,585
13.7%
10,740,750
1,452,029
0.4%
12,196,724
1,321
statement of consideration of Employment conditions Elsewhere in the company
The Remuneration Committee takes account of the pay and employment conditions of employees elsewhere in the Company when setting
the remuneration of executive directors. However, it does not consult other employees when setting executive directors remuneration.
The Remuneration Committee has not employed any remuneration consultants.
statement of shareholder views
The Company has received views from shareholders that it did not consider James Peters independent by virtue of him previously holding
an executive position within the Company. This is despite the fact that James Peters is a major shareholder and the Board considered that
his interests would therefore be strongly aligned with all shareholders. In view of this Peter Bucher was appointed as the new chair of the
remuneration committee following his appointment on 1 January 2014.
approval
This report was approved by the Board of Directors on 23 February 2015 and signed on its behalf by:
Peter Bucher
Remuneration Committee Chairman
23848-04 3 March 2015 8:57 AM Proof 5
55
GOVERNANCEwww.xppower.com stock code: XPP OThER gOvERnancE anD sTaTuTORy DIscLOsuREs
Directors
The directors of the Company in office at the date of this report are as follows:
Peter Bucher (appointed 1 January 2014)
John Dyson
Mike Laver
James Peters
Andy Sng
Duncan Penny
Jonathan Rhodes
Terry Twigger (appointed 1 January 2015)
In accordance with the Company’s Articles of Association Duncan Penny, James Peters, Andy Sng and Terry Twigger retire and, being
eligible, offer themselves for re-election at the Annual General Meeting. In addition John Dyson and Peter Bucher will also offer themselves
for re-election at the Annual General Meeting.
Larry Tracey retired from the Board on 30 June 2014 and David Hempleman-Adams retired from the Board on 31 December 2014.
Terry Twigger was nominated as Senior Non-Executive Director and chair of the audit committee on his appointment.
Directors’ Interests in shares or share Options
The present membership of the Board and the interests of the Directors in the shares of XP Power Limited are set out in the Directors’
Remuneration Report.
Dividends
Interim dividends were paid and are proposed as follows:
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter (proposed)
Total
Payment date
10 July 2014
10 October 2014
9 January 2015
9 April 2015
Amount
2013 Comparative
12.0 pence
13.0 pence
14.0 pence
22.0 pence
61.0 pence
11.0 pence
12.0 pence
13.0 pence
19.0 pence
55.0 pence
We are proposing a final dividend of 22.0 pence per share which would be payable to members on the register on 13 March 2015 and will
be paid on 9 April 2015. This would make the total dividend for the year 61.0 pence (2013: 55.0 pence) which is an increase of 11%.
audit committee
The members of the Audit Committee at the end of the financial year were as follows:
David Hempleman-Adams (chair); retired 31 December 2014
John Dyson
All members of the Audit Committee were non-executive directors.
The Audit Committee carried out its functions in accordance with Section 201B(5) of the Singapore Companies Act. In performing those
functions, the Committee reviewed:
} The audit plan of the Company’s independent auditor and its report on internal accounting controls arising from the statutory audit;
} The assistance given by the Company’s management to the independent auditor; and
} The balance sheet of the Company and the consolidated financial statements of the Group for the financial year ended 31 December
2014 before their submission to the Board of Directors, as well as the independent auditor’s report on the balance sheet of the Company
and the consolidated financial statements of the Group.
The Audit Committee has recommended to the Board that the independent auditor, PricewaterhouseCoopers LLP, be nominated for re-
appointment at the forthcoming Annual General Meeting of the Company.
Independent auditor
The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment.
56
23848-04 3 March 2015 8:57 AM Proof 3
XP Power Annual Report & Accounts for the year ended 31 December 2014 sTaTEMEnT By DIREcTORs
In the opinion of the Directors,
(a) the balance sheet of the Company and the consolidated financial statements of the Group as set out on pages 61 to 105 are drawn up
so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2014 and of the results of
the business, changes in equity and cash flows of the Group for the financial year then ended; and
(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
fall due.
On behalf of the directors
James Peters
Non-Executive Chairman
23 February 2015
Duncan Penny
Chief Executive
23848-04 3 March 2015 8:57 AM Proof 5
57
GOVERNANCEwww.xppower.com stock code: XPP cOnTROL
WhEn
IT’s vITaL
58
XPPower annual Report & accounts for the year ended 31 December 2014
23848-04 3 March 2015 8:57 AM Proof 5
FInancIaLs
INdEPENdENT AudITOR’S REPORT
CONSOLIdATEd STATEmENT OF
COmPREhENSIVE INCOmE
CONSOLIdATEd BALANCE ShEET
CONSOLIdATEd STATEmENT OF ChANGES
IN EquITy
CONSOLIdATEd STATEmENT
OF CASh FLOwS
NOTES TO ThE CONSOLIdATEd FINANCIAL
STATEmENTS
COmPANy BALANCE ShEET
NOTES TO ThE COmPANy BALANCE ShEET
FIVE yEAR REVIEw
AdVISERS
60
61
62
63
64
65
96
97
106
107
www.xppower.com stock code: XPP
59
23848-04 3 March 2015 8:57 AM Proof 5
InDEPEnDEnT auDITOR’s REPORT
to the members of XP Power Limited
Report on the Financial statements
We have audited the accompanying financial statements of XP Power Limited (the “Company”) and its subsidiaries (the “Group”) set out
on pages 61 to 105, which comprise the consolidated balance sheet of the Group and balance sheet of the Company as at 31 December
2014, the consolidated statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group for
the financial year then ended, and a summary of significant accounting policies and other explanatory information.
management’s Responsibility for the Financial Statements
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the
Singapore Companies Act (the “Act”) and International Financial Reporting Standards as adopted by the European Union, and for devising
and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against
loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the
preparation of true and fair income statement accounts and balance sheets and to maintain accountability of assets.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements of the Group and the balance sheet of the Company are properly drawn up in
accordance with the provisions of the Act and International Financial Reporting Standards as adopted by the European Union so as to give a
true and fair view of the state of affairs of the Group and of the Company as at 31 December 2014, and of the results, changes in equity and
cash flows of the Group for the financial year ended on that date.
Report on other Legal and Regulatory Requirements
In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in
Singapore of which we are the auditors, have been properly kept in accordance with the provisions of the Act.
Pricewaterhousecoopers LLP
Public Accountants and Chartered Accountants
Singapore
60
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 cOnsOLIDaTED sTaTEMEnT OF cOMPREhEnsIvE IncOME
For the financial year ended 31 December 2014
£ Millions
Revenue
Cost of sales
gross profit
Expenses
Distribution and marketing
Administrative
Research and development
Operating profit
Finance cost
Profit before income tax
Income tax expense
Profit for the year
other comprehensive income:
items that may be subsequently reclassified to profit and loss:
Cash flow hedges
Exchange differences on translation of foreign operations
other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share attributable to equity holders of the Company (pence per share)
– Basic
– Diluted
Note
4
7
6
8
24
24
24
24
10
10
2014
101.1
(51.0)
50.1
(20.6)
(0.7)
(4.3)
24.5
(0.2)
24.3
(4.8)
19.5
0.9
1.7
2.6
22.1
19.4
0.1
19.5
22.0
0.1
22.1
102.1
101.1
23848-04 3 March 2015 8:57 AM Proof 5
2013
101.1
(51.5)
49.6
(21.2)
(0.7)
(4.4)
23.3
(0.4)
22.9
(4.5)
18.4
(0.1)
(0.3)
(0.4)
18.0
18.2
0.2
18.4
17.8
0.2
18.0
95.8
95.1
61
FINANCIALSwww.xppower.com stock code: XPP
cOnsOLIDaTED BaLancE shEET
As at 31 December 2014
£ Millions
ASSeTS
Current Assets
Cash and cash equivalents
Inventories
Trade receivables
Other current assets
Derivative financial instruments
Total current assets
non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred income tax assets
ESOP loan to employees
Total non-current assets
Total assets
LiABiLiTieS
Current liabilities
Current income tax liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Total current liabilities
non-current liabilities
Provision for deferred contingent consideration
Deferred income tax liabilities
Total non-current liabilities
Total liabilities
neT ASSeTS
eQUiTY
equity attributable to equity holders of the Company
Share capital
Merger reserve
Treasury shares
Hedging reserve
Translation reserve
Retained earnings
non-controlling interests
ToTAL eQUiTY
62
23848-04 3 March 2015 8:57 AM Proof 5
Note
2014
2013
15
16
17
18
22
11
12
13
23
26
8
19
21
22
20
23
24
24
24
24
24
24
24
3.8
25.2
16.0
1.7
0.3
47.0
30.6
9.9
14.4
0.3
0.9
56.1
103.1
1.7
14.4
2.5
—
18.6
1.7
2.5
4.2
22.8
80.3
27.2
0.2
(1.1)
0.6
(6.3)
59.6
80.2
0.1
80.3
5.0
20.4
15.4
1.4
—
42.2
30.6
8.5
12.7
0.5
1.0
53.3
95.5
1.1
12.7
8.5
0.1
22.4
1.7
2.0
3.7
26.1
69.4
27.2
0.2
(1.0)
(0.3)
(8.0)
51.1
69.2
0.2
69.4
XP Power Annual Report & Accounts for the year ended 31 December 2014
cOnsOLIDaTED sTaTEMEnT OF changEs In EQuITy
For the financial year ended 31 December 2014
£ Millions
Note
Share
capital
Treasury
shares
Merger
reserve
Hedging
reserve
Translation
reserve
retained
earnings
Total
non-
controlling
interests
Total
equity
Attributable to equity holders of the Company
(0.2)
(7.7)
42.8
Balance at
1 January 2013
Sale of treasury shares
24
Employee share option
plan expenses
Dividends paid
Total comprehensive
income for the year
Balance at
31 December 2013
Sale of treasury shares
Purchase of treasury
shares
Employee share option
plan expenses
Dividends paid
Total comprehensive
income for the year
Balance at
31 December 2014
9
24
24
24
9
24
27.2
—
—
—
—
27.2
—
—
—
—
—
(1.2)
0.1
0.1
—
—
(1.0)
0.1
(0.3)
0.1
—
—
0.2
—
—
—
—
0.2
—
—
—
—
—
27.2
(1.1)
0.2
—
—
—
(0.1)
(0.3)
—
—
—
—
0.9
0.6
—
—
—
—
—
(9.9)
61.1
0.1
0.1
(9.9)
(0.3)
18.2
17.8
(8.0)
—
—
—
—
51.1
(0.1)
—
—
(10.8)
69.2
—
(0.3)
0.1
(10.8)
1.7
19.4
22.0
(6.3)
59.6
80.2
0.2
—
—
(0.2)
0.2
0.2
—
—
—
(0.2)
0.1
0.1
61.3
0.1
0.1
(10.1)
18.0
69.4
—
(0.3)
0.1
(11.0)
22.1
80.3
23848-04 3 March 2015 8:57 AM Proof 5
63
FINANCIALSwww.xppower.com stock code: XPP cOnsOLIDaTED sTaTEMEnT OF cash FLOWs
For the financial year ended 31 December 2014
£ Millions
Cash flows from operating activities
Profit for the year
Adjustments for
— Income tax expense
— Amortisation and depreciation
— Finance cost
— ESOP expenses
— Loss/(gain) on fair valuation of derivative financial instruments
— Unrealised currency translation loss/(gain)
Change in the working capital
— Inventories
— Trade and other receivables
— Trade and other payables
— Provision for liabilities and other charges
— Income tax paid
net cash generated from operating activities
Cash flows from investing activities
Purchases and construction of property, plant and equipment
Research and development expenditure capitalised
Proceeds from disposal of property, plant and equipment
ESOP loans repaid
net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Sale of treasury shares
Purchase of treasury shares by ESOP
Interest paid
Dividend paid to equity holders of the Company
Dividend paid to non-controlling interests
net cash used in financing activities
net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effects of currency translation on cash and cash equivalents
Cash and cash equivalents at end of financial year
Note
2014
2013
19.5
18.4
4
6
8
13
12
9
24
15
4.8
3.1
0.2
0.1
0.6
1.2
(4.8)
(0.9)
1.7
(0.1)
(3.6)
21.8
(2.9)
(2.9)
0.1
0.1
(5.6)
(7.3)
0.1
(0.3)
(0.1)
(10.8)
(0.2)
(18.6)
(2.4)
3.8
(0.1)
1.3
4.5
2.7
0.4
0.1
(0.2)
(0.4)
(0.6)
(1.4)
1.6
0.1
(5.0)
20.2
(1.0)
(2.2)
0.1
0.2
(2.9)
(3.8)
0.1
—
(0.3)
(9.9)
(0.2)
(14.1)
3.2
0.5
0.1
3.8
64
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
1.
general 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 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre, Singapore 149598.
The nature of the Group’s operations and its principal activities are set out in the Markets and Products sections of the Annual Report
on pages 8 to 9.
2.
summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of XP Power Limited have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union (IFRSs as adopted by the EU).
The consolidated financial statements have been prepared on the historical cost convention except as disclosed in the accounting
policies below.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of these accounting policies and the reported amounts of assets, liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of
assets and liabilities that are not readily apparent from other sources. Areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3.
(a) Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its
consolidated financial statements.
(b) Changes in accounting policy and disclosures
(i) New and amended standards adopted by the Group
Amendment to IAS 32, ‘Financial instruments: Presentation’ on offsetting financial assets and financial liabilities. This amendment
clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties
in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers
settlement mechanisms. The amendment did not have a significant effect on the Group financial statements.
(ii) New standards and interpretations issued not yet adopted
There are no other IFRSs or International Financial Reporting Interpretation Committee (“IFRIC”) interpretations that are not yet
effective that would be expected to have a material impact on the Group.
2.2 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic
environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Pounds
Sterling, which is different from the Company’s functional currency. The Company’s functional currency is the United States Dollar.
The financial statements are presented in Pounds Sterling, as the majority of the Company’s shareholders are based in the UK and
the Company is listed on the London Stock Exchange. It is the currency that the Directors of the Group use when controlling and
monitoring the performance and financial position of the Group.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency at the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and
qualifying net investment hedges.
Non-monetary items measured at fair value in foreign currencies are translated using exchange rates at the date when the fair values
are determined. Currency translation differences on these items are included in other comprehensive income.
23848-04 3 March 2015 8:57 AM Proof 5
65
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
summary of significant accounting policies (continued)
2.
2.2 Foreign currency translation (continued)
(c) Translation of Group entities’ financial statements
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i) assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date;
(ii)
income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate
significantly and the average rate is not considered a reasonable approximation of the cumulative effect of the rates prevailing
on the transaction dates in which case income and expenses are translated using the exchange rates at the dates of the
transactions;
(iii) exchange differences arising, if any, are recognised in other comprehensive income and accumulated in the currency translation
reserve. These currency translation differences are reclassified to profit or loss on disposal or partial disposal of the entity giving
rise to such reserve; and
(iv) goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate at the date of the balance sheet.
2.3 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for goods provided in the ordinary course of the Group’s
business, net of discounts, Value Added Tax/Goods and Services Tax, returns and rebates, and after eliminating sales within the
Group.
(a) Sales of goods are recognised when a Group entity has shipped the goods to locations specified by its customers in accordance
with the sales contract and the collectability of the related receivable is reasonably assured.
(b) Interest income is recognised using the effective interest method.
2.4 Group accounting
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and
operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect
of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls
another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the
acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by
the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration
arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in
the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair
value of any previously-held equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as
goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference
is recognised directly in the statement of comprehensive income.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
Investments in subsidiaries are accounted for at cost less impairment in the separate financial statements. This cost of investment is
subsequently adjusted to reflect changes in contingent consideration, if any. In the separate financial statements, cost of investment
in subsidiaries also includes directly-attributable acquisition costs.
66
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XP Power Annual Report & Accounts for the year ended 31 December 2014 summary of significant accounting policies (continued)
2.
2.2 Group accounting (continued)
(b) Transactions with non-controlling interests
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from
non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net
assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with
the change in carrying amount recognised in the income statement. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the
related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the
income statement.
2.5 Property, plant and equipment
Items of property, plant and equipment, including land and buildings, are stated at historical cost less accumulated depreciation and
any recognised impairment losses.
The historical cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is
directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management.
Subsequent costs are included in the asset’s carrying amount, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in
which they are incurred.
Freehold land and property under development are not depreciated. Depreciation on other items of property, plant and equipment is
calculated using the straight-line method to allocate their cost over their estimated useful lives as follows:
Plant and equipment
Motor vehicles
Building improvements
Buildings
Leasehold land and buildings
— 10–33%
— 20–25%
— 10–33%
— 2–5%
— 2–5%
The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted
as appropriate, at each balance sheet date. The effects of any revision are recognised in the income statement when the changes
arise.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Gains or losses arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds less cost
to sell and the carrying amount of the asset, and are recognised in the income statement.
2.6
Intangible assets
(a) Goodwill
The excess of the consideration transferred, the amount of non-controlling interest in the acquiree and the acquisition-date fair value
of any previous equity interest in the acquire over the fair value of the Group’s share of identifiable net assets acquired is recorded as
goodwill. Goodwill on acquisitions of subsidiaries is included in “Intangible assets”.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill
are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating
units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose,
identified according to operating segment.
23848-04 3 March 2015 8:57 AM Proof 5
67
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
2.
summary of significant accounting policies (continued)
2.6
Intangible assets (continued)
(b) Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense as incurred.
An internally generated intangible asset arising from the Group’s product development is recognised only if all of the following criteria
are met:
} There is an ability to use or sell the asset;
} Management intends to complete the asset and use or sell it;
} It can be demonstrated the asset will generate probable future economic benefits;
} It is technically feasible to complete the asset so that it will be available for use;
} Adequate technical, financial and other resources to complete the development and to use or sell the asset are available; and
} The expenditure attributable to the asset during its development can be reliably measured.
Internally generated intangible assets are amortised on a straight-line basis over their useful lives, which vary between 4 and 7 years
depending on the exact nature of the project undertaken. Amortisation commences when the product is ready and available for use.
2.7
Impairment of non-financial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.
2.8 Borrowing costs
All borrowing costs are recognised in the income statement using the effective interest method except for those costs that are
directly attributable to the construction or development of properties which are capitalised using an average financing rate.
2.9 Financial assets
(a) Classification
The Group classifies its financial assets depending on the nature of the asset and the purpose for which the assets were acquired.
Management determines the classification of its financial assets at initial recognition. The Group’s financial assets comprise loans and
receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are presented as current assets, except for those maturing later than 12 months after the balance sheet date, which
are presented as non-current assets. Loans and receivables are presented as “trade receivables”, “other current assets”, “cash and
cash equivalents” and “ESOP loans to employees” in the balance sheet.
(b) Recognition/derecognition
Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to
purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a
financial asset, the difference between the carrying amount and the sale proceeds is recognised in the income statement. Loans and
receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the effective
interest method.
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XP Power Annual Report & Accounts for the year ended 31 December 2014 2.
summary of significant accounting policies (continued)
2.6 Financial assets (continued)
(c) Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there
is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss
event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest
rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously
recognised impairment loss is recognised in the consolidated income statement.
(d) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to
offset and there is an intention to settle on a net basis or realise the asset and the liability simultaneously.
2.10 Trade and other payables
Trade payables are obligations to pay for goods that have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if
longer). If not, they are presented as non-current liabilities.
Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest
method.
2.11 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is more
likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax
discount rate that reflects the current market assessment of the time value of money and the risks specific to the obligation. The
increase in the provision due to the passage of time is recognised as a finance expense. Changes in the estimated timing or amount
of the expenditure or discount rate are recognised in the income statement when the changes arise.
2.12 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity
services and amortised over the period of the facility to which it relates.
2.13 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessors are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessors) are charged to the income statement
on a straight-line basis over the period of the lease.
23848-04 3 March 2015 8:57 AM Proof 5
69
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
summary of significant accounting policies (continued)
2.
2.14 derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair
value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly
probable forecast transaction (cash flow hedge).
The Group documents at the inception of the transaction the relationship between the hedging instruments and hedged items, as
well as its risk management objective and strategies for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, on whether the derivatives designated as hedging instruments are
highly effective in offsetting changes in fair value or cash flows of the hedged items.
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The
Group periodically uses foreign exchange forward contracts to hedge the foreign currency exposures and interest rate swaps to
hedge floating interest rate exposures.
Cash flow hedge
(i) Currency forwards
The Group has entered into currency forwards that qualify as cash flow hedges against highly probable forecasted transactions
in foreign currencies. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised
immediately in the income statement.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecasted transaction is
ultimately recognised in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative
gains and losses that were previously recognised in equity are transferred to the income statement immediately.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any these derivative instruments
are recognised immediately in the income statement.
Amounts accumulated in equity are reclassified to the income statement in the periods when the hedged item affects profit or
loss.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 22. Movements on the hedging
reserve in other comprehensive income are shown in Note 24. The full fair value of a hedging derivative is classified as a non-
current asset or liability when the remaining expected life/or maturity of the hedged item is more than 12 months, and as a
current asset or liability when the remaining maturity of the hedged item is less than 12 months.
2.15
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of finished goods and work-in-progress comprises raw
materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes
borrowing costs.
Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and distribution.
2.16 Current and deferred income tax
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
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XP Power Annual Report & Accounts for the year ended 31 December 2014 summary of significant accounting policies (continued)
2.
2.16 Current and deferred income tax (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity in
which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
2.17 Cash and cash equivalents
For the purpose of presentation in the consolidated cash flow statement, cash and cash equivalents include cash on hand, deposits
with financial institutions and bank overdrafts. Bank overdrafts are presented as current liabilities on the balance sheet.
2.18 Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at
fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on
a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. The vesting conditions
are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. These
features would need to be included in the grant date fair value for transactions with employees and others providing similar services;
they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. At each balance sheet
date, the Group revises its estimates of the number of shares under options that are expected to become exercisable on the vesting
date and recognises the impact of the revision of the estimates in the income statement, with a corresponding adjustment to the
share option reserve over the remaining vesting period.
When the options are exercised, the proceeds received (net of transaction costs) and the related balance previously recognised in
the share option reserve are credited to share capital account, when new ordinary shares are issued, or to the “treasury shares”
account, when treasury shares are re-issued to employees.
2.19 Retirement benefit costs
The Group operates several defined contribution plans. Defined contribution plans are post-employment benefit plans under which
the Group pays fixed contributions into separate entities on a mandatory, contracted or voluntary basis. The Group has no further
payment obligations once the contributions have been paid.
2.20 Employee leave entitlements
Employee entitlements to annual leave are recognised in the income statement when they accrue to employees. A provision is made
for the estimated liability for leave as a result of services rendered by employees up to the balance sheet date.
2.21 Share capital and treasury shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in
equity, net of tax, from the proceeds.
When any entity within the Group purchases the Company’s ordinary shares (“treasury shares”), the consideration paid including any
directly attributable incremental cost (net of income taxes) is deducted from equity attributable to the Company’s equity holders, until
they are cancelled, sold or re-issued.
When treasury shares are subsequently cancelled, the cost of treasury shares are deducted against the share capital account if the
shares are purchased out of capital of the Company, or against the retained earnings of the Company if the shares are purchased
out of earnings of the Company.
When treasury shares are subsequently sold or re-issued pursuant to the employee share option scheme, the cost of treasury
shares is reversed from the treasury share account and the realised gain or loss on sale or re-issue, net of any directly attributable
incremental transaction costs and related income tax, is recognised in the retained earnings of the Company.
2.22 dividend distribution
Dividend distributions to the Company’s shareholders are recognised when the dividends are approved for payment.
23848-04 3 March 2015 8:57 AM Proof 5
71
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
summary of significant accounting policies (continued)
2.
2.23 Investments in subsidiaries and associated companies
Investments in subsidiaries and associated companies are carried at cost less accumulated impairment losses in the Company’s
balance sheet. On disposal of investments in subsidiaries and associated companies, the difference between disposal proceeds and
the carrying amounts of the investments are recognised in the income statement.
2.24 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Makers
who are responsible for allocating resources and assessing performance of the operating segments. Segment reporting is disclosed
in Note 4.
3.
critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, as described in Note 2, management has made the following judgements
and estimations that have the most significant effect on the amounts recognised in the financial statements.
(a) Recoverability of Capitalised R&D
During the year £2.9 million (2013: £2.2 million) of development costs were capitalised, bringing the total amount of development
cost capitalised as intangible assets as at 31 December 2014 to £9.9 million (2013: £8.5 million), net of amortisation. Management
has reviewed the balances by project, compared the carrying amount to expected future revenues and profits and is satisfied that no
impairment exists and that the costs capitalised will be fully recovered as the products are launched to market. New product projects
are monitored regularly and should the technical or market feasibility of a new product be in question, the project would be cancelled
and capitalised costs to date removed from the balance sheet and charged to the income statement.
(b) Impairment of Goodwill
The Group tests annually for impairment of goodwill, or more frequently if there are indications that goodwill might be impaired.
The recoverable amount of the goodwill is determined from value in use calculations. The key assumptions and estimates for the
value in use calculations are those regarding the discount rates, growth rates and expected changes to sales and overheads during
the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the cash generating units.
The Group prepares cash flow forecasts derived from the most recent financial results and takes into account industry growth
forecasts for the next five years and extrapolates cash flows for the following five years assuming no growth from that date. The
carrying amount of goodwill as at 31 December 2014 was £30.6 million (2013: £30.6 million) with no impairment adjustment required
for 2014.
Management assessed that there are no realistic foreseeable changes that will result in impairment loss on the goodwill allocated to
the North America and Europe operating segments.
(c) Estimation of future deferred contingent consideration payments
As of the 31 December 2014 balance sheet date the Group has recorded estimated future payments related to the acquisition of
the final of 16.0% of Powersolve Electronics Limited in early 2017. When discounted to present value the total of these payments is
estimated at £1.7 million and that amount is reflected on the balance sheet. Since the final payment will be dependent on the actual
future financial performance of the business an estimate is required to approximate future business conditions. Refer to Note 20 for
more details.
If Powersolve’s future earnings increase or decrease by 10% year on year for January 2015 to January 2016, the deferred
consideration will be affected by £0.1 million. There will be no impact to net profit or total equity as changes in estimates of the
deferred consideration are adjusted against goodwill.
(d) Deferred income tax
The Group has exposures to income taxes in numerous jurisdictions. The Group’s tax position includes judgements about past
and future events and relies on estimates and assumptions. Although the Directors believe that the estimates and assumptions
supporting our positions are reasonable and are supported by external advice, our ultimate liability in connection with these matters
will depend upon the outcome of tax assessments that have been raised or may be raised in the future. Where the final tax outcome
of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred
tax provisions in the period in which such determination is made and could adversely affect our financial position, results and cash
flows.
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XP Power Annual Report & Accounts for the year ended 31 December 2014 4. segmental reporting
Management has determined the operating segments based on the reports reviewed by the Chief Operating Decision Makers
(CODM) that are used to make strategic decisions. The Chief Operating Decision Makers are the Executive Board of Directors who
will review the operating results and forecasts to make decisions about resources to be allocated to the segments and assess their
performance.
The Executive Board of Directors considers and manages the business on a geographic basis. Management manages and monitors
the business based on the three primary geographic areas: Asia, Europe, and North America. All geographic locations market the
same class of products to their respective customer base.
The Executive Board of Directors assesses the performance of the operating segments based on net sales and operating income.
Net sales for geographic segments are based on the location of the design win rather than where the end sale is made. The
operating income for each segment includes net sales to third parties, related cost of sales, operating expenses directly attributable
to the segment, and a portion of corporate expenses. Costs excluded from segment operating income include stock-based
compensation expense, income taxes, various non-operating charges, and other separately managed general and administrative
costs.
Segment assets consist primarily of property, plant and equipment, goodwill, intangible assets, inventories, receivables, cash and
cash equivalents and exclude tax assets.
Segment liabilities comprise trade and other current liabilities, derivative financial instruments, borrowings, deferred contingent
consideration and exclude tax liabilities.
Capital expenditure comprises additions to property, plant and equipment.
The segment information provided to the CODM for the reportable segments for the year ended 31 December 2014 is as follows:
£ Millions
revenue
Europe
North America
Asia
Total revenue
Reconciliation of segment results to profit for the year:
£ Millions
Europe
North America
Asia
Segment result
Research and development
Finance cost
Corporate recovery from operating segment
Profit before income tax
Income tax expense
Profit for the year
23848-04 3 March 2015 8:57 AM Proof 5
2014
2013
42.2
51.3
7.6
101.1
2014
7.6
13.6
1.7
22.9
(4.3)
(0.2)
5.9
24.3
(4.8)
19.5
43.8
50.0
7.3
101.1
2013
7.4
13.3
0.9
21.6
(4.4)
(0.4)
6.1
22.9
(4.5)
18.4
73
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
4. segmental reporting (continued)
The Group operates in the following regions and countries:
£ Millions
North America
United Kingdom
Singapore
Germany
Switzerland
Other countries
Total revenue
2014
51.3
22.4
7.5
8.9
3.4
7.6
2013
50.0
23.9
7.3
9.4
3.5
7.0
101.1
101.1
The majority of North America’s revenue is generated from the United States of America.
£ Millions
other information
Capital additions
Depreciation
Intangible assets additions
Amortisation
Balance sheet
Goodwill
Other non-current assets
Inventories
Trade receivables
Other current assets
Cash
Segment assets
Unallocated deferred income tax
Consolidated total assets
Trade and other payables
Other current liabilities
Deferred contingent consideration
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred and current
income tax
Consolidated total liabilities
year to 31 December 2014
Year to 31 December 2013
Europe
north
america
asia
Total
Europe
North
America
Asia
Total
0.5
0.3
0.4
0.2
10.5
2.6
1.4
5.9
0.6
2.2
23.2
—
(2.0)
—
(1.6)
(3.6)
—
—
0.5
0.2
1.4
0.8
19.5
10.8
7.9
8.0
0.4
0.2
46.8
—
1.9
1.1
1.1
0.5
0.6
11.8
15.9
2.1
1.0
1.4
32.8
—
(1.8)
(10.6)
—
—
—
—
(1.8)
(10.6)
—
—
—
—
2.9
1.6
2.9
1.5
30.6
25.2
25.2
16.0
2.0
3.8
102.8
0.3
103.1
(14.4)
—
(1.6)
(16.0)
(2.6)
(4.2)
(22.8)
0.3
0.3
0.4
0.3
0.2
0.2
1.2
0.7
10.6
19.4
2.6
1.5
5.8
0.5
3.2
24.2
—
(1.9)
—
(1.7)
(3.6)
—
—
9.1
6.4
7.2
0.2
0.8
43.1
—
(1.8)
—
—
(1.8)
—
—
0.5
0.9
0.6
0.3
0.6
10.5
12.5
2.4
0.7
1.0
27.7
—
(9.0)
(0.1)
—
(9.1)
—
—
1.0
1.4
2.2
1.3
30.6
22.2
20.4
15.4
1.4
5.0
95.0
0.5
95.5
(12.7)
(0.1)
(1.7)
(14.5)
(8.5)
(3.1)
(26.1)
74
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XP Power Annual Report & Accounts for the year ended 31 December 2014 4. segmental reporting (continued)
Analysis by class of customer
The revenue by class of customer was as follows:
£ Millions
Technology
Industrial
Healthcare
Total
year to 31 December 2014
Year to 31 December 2013
Europe
north
america
6.5
25.5
10.2
42.2
11.9
19.9
19.5
51.3
asia
Total
Europe
2.6
3.7
1.3
7.6
21.0
49.1
31.0
101.1
9.1
25.3
9.4
43.8
North
America
11.3
19.0
19.7
50.0
Asia
Total
3.0
3.2
1.1
7.3
23.4
47.5
30.2
101.1
There is no individual external customer that represents 6% or more of the Group’s total revenue.
Non-current assets by countries:
£ Millions
North America
United Kingdom
Singapore
Germany
Switzerland
Other countries
Total non-current assets
5.
Employee compensation (including Directors)
£ Millions
Wages and salaries
Pensions
Total
For further information regarding Directors’ remuneration, refer to the Directors’ Remuneration Report.
6. Finance cost
£ Millions
Interest expense on bank loans and overdrafts
Unwinding of discount on deferred consideration (Note 20)
Total
2014
30.3
3.8
2.9
0.3
3.6
14.9
55.8
2014
21.1
3.5
24.6
2014
0.1
0.1
0.2
2013
28.5
4.0
2.7
0.3
3.6
13.7
52.8
2013
19.7
3.2
22.9
2013
0.3
0.1
0.4
75
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FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
7. Expenses by nature
£ Millions
Profit for the year is after charging:
Amortisation of intangibles
Depreciation of property, plant and equipment
Employee compensation
Foreign exchange loss/(gain)
(Gain)/Loss on foreign exchange forward
Purchases of inventories
Changes in inventories
Audit fee
Other services – tax
Rent/lease expense
Finance cost
Other charges
Total
Included in the above is net research and development expenditure as follows:
£ Millions
Gross research and development expenditure
Research and development expenditure capitalised
Amortisation of development expenditure capitalised
net research and development expenditure
8.
Income taxes
£ Millions
Singapore corporation tax
— current year
Overseas corporation tax
— current year
— adjustment in respect of prior year
Current income tax
Deferred income tax
— current year
income tax expense
2014
2013
1.5
1.6
24.6
0.4
(0.5)
49.1
(4.8)
0.4
0.1
1.2
0.2
3.0
76.8
2014
5.7
(2.9)
1.5
4.3
1.3
1.4
22.9
(0.2)
0.2
46.4
(0.6)
0.4
0.1
1.3
0.4
4.6
78.2
2013
5.3
(2.2)
1.3
4.4
2014
2013
1.2
3.3
(0.3)
4.2
0.6
4.8
1.2
3.4
(0.2)
4.4
0.1
4.5
76
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XP Power Annual Report & Accounts for the year ended 31 December 2014
8.
Income taxes (continued)
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
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
Profit before income tax
Tax on profit at standard Singapore tax rate of 17%
Tax incentives
Higher rates of overseas corporation tax
Deduction for gains on employee share options
Adjustment in respect of prior year
income tax expense
2014
24.3
4.1
(0.8)
1.7
0.1
(0.3)
4.8
2013
22.9
3.9
(0.7)
1.8
(0.3)
(0.2)
4.5
Deferred tax liabilities of £8.3 million (2013: £6.9 million) have not been recognised on the unremitted earnings of overseas
subsidiaries. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable
future.
Movement in current income tax liabilities:
£ Millions
At 1 January 2014
Currency translation differences
Income tax paid
Income tax payable — current year
— prior year
At 31 December 2014
* These balances are less than £0.1 million.
2014
2013
(1.1)
(0.1)
3.6
(4.4)
0.3
(1.7)
(1.6)
—*
5.0
(4.6)
0.1
(1.1)
The tax (charge)/credit relating to components of other comprehensive income are as follows:
£ Millions
Cash flow hedges
Currency translation differences
Other comprehensive income
Current tax
Deferred tax
2014
Before tax
Tax (charge)
after tax
0.9
1.7
2.6
—
—
—
—
—
—
—
0.9
1.7
2.6
—
23848-04 3 March 2015 8:57 AM Proof 5
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FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
8.
Income taxes (continued)
£ Millions
Cash flow hedges
Currency translation differences
Other comprehensive income
Current tax
Deferred tax
9.
Dividends
Amounts recognised as distributions to equity holders in the period:
2013
Before tax
Tax (charge)
After tax
(0.1)
(0.3)
(0.4)
—
—
—
—
—
—
—
(0.1)
(0.3)
(0.4)
—
Prior year third quarter dividend paid
Prior year final dividend paid
First quarter dividend paid
Second quarter dividend paid
Total
* Dividends in respect of 2013 (55.0p)
^ Dividends in respect of 2014 (61.0p)
2014
2013
Pence per
share
£
Millions
Pence per
share
£
Millions
13.0*
19.0*
12.0^
13.0^
57.0
2.5
3.6
2.2
2.5
10.8
12.0
17.0
11.0*
12.0*
52.0
2.3
3.2
2.1
2.3
9.9
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.
10. 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:
£ Millions
earnings
Earnings for the purposes of basic and diluted earnings per share
(profit for the year attributable to equity holders of the Company)
earnings for earnings per share
number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands)
Effect of potentially dilutive share options (thousands)
Weighted average number of shares for the purposes of dilutive earnings per share (thousands)
earnings per share from operations
Basic
Diluted
2014
2013
19.4
19.4
18,998
196
19,194
18.2
18.2
18,990
157
19,147
102.1p
101.1p
95.8p
95.1p
78
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 11. goodwill
£ Millions
Cost
At 1 January
Provision for deferred contingent consideration (Note 20)
Foreign currency translation
At 31 December
Accumulated impairment loss
At 31 December
Carrying amount
At 31 December
* These balances are less than £0.1 million.
2014
2013
30.6
(0.1)
0.1
30.6
—
30.6
30.5
0.1
—*
30.6
—
30.6
Goodwill arises on the consolidation of subsidiary undertakings.
A change in deferred contingent consideration of £0.1 million in 2014 was due to a decrease in the forecasted earnings related to the
Powersolve acquisition. The final amount due in 2017 is related to the prior three years’ earnings, the estimates for which, based on
the 2014 performance, were revised downwards.
For the purpose of impairment testing, goodwill has been allocated to the operating segments identified in Note 4.
The recoverable amount of the goodwill is determined from value in use calculations. The key assumptions and estimates for the
value in use calculations are those regarding the discount rates, growth rates and expected changes to sales and overheads during
the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the cash generating units (a rate of 7.1% was used for 2014 and for 2013, the rate was 6.9%).
The Group prepares cash flow forecasts derived from the most recent financial results and takes into account industry growth
forecasts for the next five years and extrapolates cash flows for the following five years assuming no growth from that date.
Management has forecast year on year increases in sales and overheads averages of 5.0% and 3.0% respectively. The carrying
amount of goodwill as at 31 December 2014 was £30.6 million (2013: £30.6 million) with no impairment adjustment required
for 2014.
For the purpose of the impairment test, the Group has adopted what it believes to be reasonable EBITDA assumptions for the period
from 1 January 2015 to 31 December 2019. Management believes that any reasonable possible change in the key assumptions on
which the recoverable amount is based would not cause the carrying amount of goodwill to exceed its recoverable amount.
23848-04 3 March 2015 8:57 AM Proof 5
79
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
12. Intangible assets
£ Millions
Cost
At 1 January 2013
Additions
At 1 January 2014
Additions
At 31 December 2014
Amortisation
At 1 January 2013
Charge for the year
At 1 January 2014
Charge for the year
At 31 December 2014
Carrying amount
At 31 December 2014
At 31 December 2013
Development
costs
Trade
marks
11.3
2.2
13.5
2.9
16.4
3.7
1.3
5.0
1.5
6.5
9.9
8.5
1.0
—
1.0
—
1.0
1.0
—
1.0
—
1.0
—
—
Total
12.3
2.2
14.5
2.9
17.4
4.7
1.3
6.0
1.5
7.5
9.9
8.5
The amortisation period for development costs incurred on the Group’s products varies between four and seven years according to
the expected useful life of the products being developed.
Amortisation commences when the product is ready and available for use.
80
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XP Power Annual Report & Accounts for the year ended 31 December 2014 13. Property, plant and equipment
£ Millions
Cost
At 1 January 2013
Additions
Disposals
Transfer
Foreign currency
translation
At 1 January 2014
Additions
Disposals
Transfer
Foreign currency
translation
At 31 December 2014
Depreciation
At 1 January 2013
Charge for the year
Disposals
Foreign currency
translation
At 1 January 2014
Charge for the year
Disposals
Foreign currency
translation
At 31 December 2014
Carrying amount
At 31 December 2014
At 31 December 2013
Freehold
land
Leasehold
land and
buildings Buildings
Plant
and
equipment
Motor
vehicles
Building
improvements
Projects
under
development
Total
0.2
—
—
—
—
0.2
—
—
—
—
0.2
—
—
—
—
—
—
—
—
—
0.2
0.2
8.2
—
—
—
—
8.2
—
—
—
0.4
8.6
0.4
0.2
—
—
0.6
0.3
—
—
0.9
7.7
7.6
1.4
—
—
—
—
1.4
—
—
—
0.1
1.5
0.2
—
—
—
0.2
—
—
—
0.2
1.3
1.2
10.1
0.6
(0.3)
0.2
—
10.6
2.0
(0.4)
0.5
0.2
12.9
6.9
0.9
(0.3)
—
7.5
1.1
(0.4)
0.3
8.5
4.4
3.1
0.6
0.2
(0.2)
—
—
0.6
0.2
(0.2)
—
—
0.6
0.2
0.2
(0.1)
—
0.3
0.1
(0.1)
—
0.3
0.3
0.3
1.7
—
—
—
—
1.7
0.1
—
0.1
0.1
2.0
1.3
0.1
—
—
1.4
0.1
—
—
1.5
0.5
0.3
—
0.2
—
(0.2)
—
—
0.6
—
(0.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
22.2
1.0
(0.5)
—
—
22.7
2.9
(0.6)
—
0.8
25.8
9.0
1.4
(0.4)
—
10.0
1.6
(0.5)
0.3
11.4
14.4
12.7
The Group has entered into agreements to lease land and buildings ranging from 37 years to 999 years.
The Group has pledged all property, plant and equipment as collateral to secure banking facilities granted to the Group.
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FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
14. subsidiaries
Details of principal subsidiaries as at 31 December 2014, all of which are consolidated are as follows:
Place of
Incorporation/
ownership
(or registration)
and operation
Switzerland
USA
UK
Denmark
Germany
Norway
France
Sweden
UK
China
Italy
HK
Singapore
Vietnam
Singapore
name of subsidiary
XP Power AG
XP Power LLC
XP PLC
XP Power ApS
XP Power GmbH
XP Power Norway AS
XP Power SA
XP Power Sweden AB
Powersolve Electronics
Limited*
XP Power (Shanghai) Co.,
Limited
XP Power Srl
XP Power (Hong Kong) Limited
XP Power Singapore Holdings
Pte Limited
XP Power (Vietnam) Co.,
Limited
XP Power Singapore
Manufacturing Pte Ltd
Proportion
of
Ownership
2014
(%)
Proportion
of
Ownership
2013
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
auditor of subsidiaries
Karpf Treuhand & Revisions AG
Exempted to be audited by local statutory law
PricewaterhouseCoopers LLP
Bierholm
Exempted to be audited by local statutory law
BDO AS
Deloitte
Rodl & Partner Nordic AB
PricewaterhouseCoopers LLP
100
100
100
100
100
100
100
100
100
100
Shanghai Jahwa CPAs
100
100
100
Exempted to be audited by local statutory law
PricewaterhouseCoopers Limited
PricewaterhouseCoopers LLP
100
PricewaterhouseCoopers (Vietnam) Limited
100
PricewaterhouseCoopers LLP
* The legal shareholding and the proportion of voting power held is 84% (2013: 84%). Refer to Note 20.
82
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 15. cash and cash equivalents
£ Millions
Cash at bank and on hand
Total
2014
3.8
3.8
2013
5.0
5.0
For the purpose of presenting the consolidated cash flow statement, the consolidated cash and cash equivalents comprise the
following:
£ Millions
Cash at bank and on hand (as above)
Less: Bank overdrafts (Note 21)
Cash and cash equivalents per consolidated cash flow statement
Reconciliation of changes in Cash and Cash Equivalents to movements in Net debt
£ Millions
Net (decrease)/increase in cash and cash equivalents
Repayment of borrowings
Effects of currency translation
Movement in net debt
Net debt at start of year
net cash/(debt) at end of year
Reconciliation to free cash flow
£ Millions
Net cash inflow from operating activities
Research and development expenditure capitalised
Net interest paid
Free cash flow
16.
Inventories
£ Millions
Goods for resale
Raw materials
Work-in-progress
Total
2014
3.8
(2.5)
1.3
2013
5.0
(1.2)
3.8
2014
2013
(2.4)
7.3
(0.1)
4.8
(3.5)
1.3
2014
21.8
(2.9)
(0.1)
18.8
2014
16.1
8.7
0.4
25.2
3.2
3.8
0.1
7.1
(10.6)
(3.5)
2013
20.2
(2.2)
(0.3)
17.7
2013
13.1
7.0
0.3
20.4
The cost of inventories recognised as an expense and included in “cost of sales” amounts to £51.0 million (2013: £51.5 million).
23848-04 3 March 2015 8:57 AM Proof 5
83
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
17. Trade receivables
£ Millions
Trade receivables
Total
2014
16.0
16.0
2013
15.4
15.4
The average credit period taken on sales of goods is 58 days (2013: 56 days). No interest is charged on the outstanding receivables
balance. The carrying amounts of trade receivables approximate their fair values.
18. Other current assets
£ Millions
Other receivables and prepayments
Total
19. Trade and other payables
£ Millions
Trade and other payables
Current income tax liabilities
Bank loans and overdrafts (see note 21)
Derivative financial instruments
Total
2014
1.7
1.7
2014
14.4
1.7
2.5
—
18.6
2013
1.4
1.4
2013
12.7
1.1
8.5
0.1
22.4
Trade creditors and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The carrying
amounts of trade and other payables approximate their fair values.
20. Provision for deferred contingent consideration
£ Millions
At 1 January
Movement in provision during the year
Adjustment for unwinding of discount rate
At 31 December
Non-current portion of provision for deferred contingent consideration
Total
2014
2013
1.7
(0.1)
0.1
1.7
1.7
1.7
1.5
0.1
0.1
1.7
1.7
1.7
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 the three years ending 2016.
The future payment is discounted to the present value, with the discount amortised to interest expense each period as the payment
draws nearer. At each reporting period, the anticipated future payment is recalculated and an adjustment made accordingly, with
a corresponding adjustment to goodwill. As a result of the purchase commitment and the amount of control XP Power Limited
exerts over Powersolve, the Powersolve results are fully consolidated in the Group with a non-controlling interest charge made in the
amount of dividends that will be payable for that year to the non-controlling shareholders.
84
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XP Power Annual Report & Accounts for the year ended 31 December 2014 21. Borrowings
The borrowings are repayable as follows:
£ Millions
On demand or within one year
Total
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
2014
2.5
2.5
2013
8.5
8.5
gBP
USD
eUr
ToTAL
December 2014
£ Millions
Bank overdrafts
Bank loans
Total
December 2013
£ Millions
Bank overdrafts
Bank loans
Total
0.6
—
0.6
GBP
0.5
—
0.5
1.8
—
1.8
USD
0.5
7.3
7.8
0.1
—
0.1
2.5
—
2.5
EUR
TOTAL
0.2
—
0.2
1.2
7.3
8.5
2014
2013
2.3%
1.9%
2.4%
2.2%
The average interest rates paid were as follows:
Bank overdrafts
Bank loans
The fair value of the Group’s bank loans and overdrafts are the same as their book value.
The other principal features of the Group’s borrowings are as follows:
1.
2.
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 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%.
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. This was priced at LIBOR plus a margin of 1.75% depending on the ratio of Net Debt to EBITDA.
(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.
4. Management assessed all loan covenants have been complied with as at 31 December 2014.
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FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
22. Derivative financial instruments
Forward foreign exchange contracts
The Group utilises currency derivatives to hedge highly probable forecast transactions. The instruments purchased are denominated
in the currencies of the Group’s principal markets.
(a) Qualify for hedge accounting
In 2014, the total notional amount of outstanding currency forward contracts that the Group has committed is £6.8 million (2013:
£8.2 million). These contracts are to hedge against exchange movements on future sales and qualify for hedge accounting.
December 2014
£ Millions
Forward foreign exchange contracts
Current portion
Non-current portion
Total
December 2013
£ Millions
Forward foreign exchange contracts
Current portion
Non-current portion
Total
Contract
notional
amount
Fair value
asset
6.8
6.6
0.2
6.8
0.6
0.6
—
0.6
Contract
notional
amount
Fair value
(liability)
8.2
7.1
1.1
8.2
(0.3)
(0.3)
—
(0.3)
(b) Do not qualify for hedge accounting
Certain currency forward contracts were taken up to protect against exchange movements on future purchases of goods. These
contracts did not qualify for hedge accounting.
The total notional amount and fair value asset/(liability) of the forward contracts is as follows:
December 2014
£ Millions
Forward foreign exchange contracts
Current portion
Total
December 2013
£ Millions
Forward foreign exchange contracts
Current portion
Total
Contract
notional
amount
Fair value
(liability)
5.6
5.6
5.6
Contract
notional
amount
5.5
5.5
5.5
(0.3)
(0.3)
(0.3)
Fair value
asset
0.2
0.2
0.2
86
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XP Power Annual Report & Accounts for the year ended 31 December 2014
23. Deferred income taxes
The following are the major deferred tax assets and (liabilities) recognised by the Group and movements thereon during the current
and prior reporting period.
Accelerated
tax
depreciation
goodwill
amortisation
Share
based
payment
Capitalised
development
costs
other
temporary
differences
(0.2)
—
(0.2)
(0.2)
(0.4)
(0.8)
—
(0.8)
(0.1)
(0.9)
0.2
0.2
0.4
(0.1)
0.3
(1.6)
(0.2)
(1.8)
(0.3)
(2.1)
1.0
(0.1)
0.9
—
0.9
Total
(1.4)
(0.1)
(1.5)
(0.7)
(2.2)
£ Millions
At 1 January 2013
Charge to income statement
At 1 January 2014
Charge to income statement
At 31 December 2014
£ Millions
Deferred tax assets
— To be recovered after more than 12 months
Deferred tax liabilities
— To be recovered after more than 12 months
Deferred tax liabilities (net)
24. share capital and reserves
Called up share capital
£ Millions
Allotted and fully paid 19,242,296 ordinary shares (2013: 19,242,296)
2014
2013
0.3
0.3
(2.5)
(2.5)
(2.2)
0.5
0.5
(2.0)
(2.0)
(1.5)
2014
27.2
2013
27.2
As at 31 December 2014, the Group’s Employee Share Ownership Plan (ESOP) held 237,684 (2013: 227,746) shares carrying a
value of £1,392,044 (2013: £1,182,717) owned by the Trust.
merger reserve
£ Millions
Balance at 31 December
Treasury shares
£ Millions
Balance at 1 January
Sale of treasury shares
Purchase of treasury shares
Employee share option plan expenses
Balance at 31 December
2014
0.2
2014
(1.0)
0.1
(0.3)
0.1
(1.1)
2013
0.2
2013
(1.2)
0.1
—
0.1
(1.0)
87
23848-04 3 March 2015 8:57 AM Proof 5
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
24. share capital and reserves (continued)
hedging reserve
£ Millions
Balance at 1 January
Fair value gain/(loss)
Balance at 31 December
Translation reserve
£ Millions
Balance at 1 January
Exchange differences on translation of foreign operations
Balance at 31 December
Retained earnings
£ Millions
Balance at 1 January
Dividend paid
Profit for the year
Loss on treasury shares
Balance at 31 December
2014
(0.3)
0.9
0.6
2014
(8.0)
1.7
(6.3)
2014
51.1
(10.8)
19.4
(0.1)
59.6
2013
(0.2)
(0.1)
(0.3)
2013
(7.7)
(0.3)
(8.0)
2013
42.8
(9.9)
18.2
—
51.1
Non-controlling interests
The non-controlling shareholders are entitled to their share of any dividend declared. £0.2 million was paid to Powersolve non-
controlling shareholders in 2014. The balance payable for 2014 was £0.1 million (2013: £0.2 million).
25. Operating leases and other commitments
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under operating leases
which fall due as follows:
£ Millions
Within one year
In the second to fifth years inclusive
After five years
Total
2014
2013
1.3
3.0
0.9
5.2
1.0
2.1
0.4
3.5
Operating lease payments represent rentals payable by the Group for certain of its office properties and warehouses.
88
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XP Power Annual Report & Accounts for the year ended 31 December 2014
26. EsOP loan to employees
£ Millions
ESOP loan to employees
Total
2014
0.9
0.9
2013
1.0
1.0
The Group offers interest free loans to employees to purchase company shares under a deferred payment scheme managed through
the XP Employees’ Share Ownership Plan Trust (ESOP). Under this scheme, payment is deferred until the shares are sold. The
shares cannot be sold until four years from the date of acquisition. However, the loan becomes interest bearing after ten years. The
Group does not classify a portion of this loan under current assets as the Company cannot predict when the employees will repay
their loans.
27. Pensions
The total pensions cost recognised is £3.5 million (2013: £3.2 million) for the Group.
In the USA, the Group operates a defined contribution “401K Plan”. The Group can contribute an amount matching the employees’
contribution up to a maximum of 2% of the employees’ total earnings. The total cost charged to the income statement of £1.6 million
(2013: £1.4 million) represents the Group’s “matching” contribution.
In the United Kingdom and Europe, the Group operates a defined contribution pension scheme for its employees with contributions
amounting to £1.1 million (2013: £1.1 million).
In Asia, the Group contributes to the defined contribution plans regulated and managed by the governments of the countries in
which the Group operates. The Group’s contribution to the defined contribution plans is charged to the income statement in the
period to which the contributions relate and the total cost charged to the income statement was £0.8 million (2013: £0.7 million).
28. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company have been eliminated on
consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed
below.
As at 31 December 2014, the Company’s Employee Share Ownership Plan has provided interest rate free loans totalling £157,346
(2013: £220,879) to 1 Director (2013: 1 Director) for the deferred payment share scheme. The detailed information is provided for in
the Directors’ Remuneration Report on page 49 to 55.
The remuneration of the Directors of the Group is set out below for each of the categories specified in IAS 24 Related Party
Disclosures. Further information about the remuneration of the individual Directors is provided in the Directors’ Remuneration Report
on page 49 to 55.
Short-term employee benefits
Post employment benefits
Total Directors’ remuneration
2014
£
936,360
21,685
958,045
2013
£
954,594
22,179
976,773
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FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
29. share-based payments
Options have been granted under the Company’s Approved Share Option Schemes. The numbers outstanding, subscription prices
and exercise periods are as follows:
number of shares
15,000
2,500
4,000
65,250
345,000
431,750
exercise
Price
grant
Date
expiry
Date
£4.11
£3.20
£3.90
£5.073
£9.46
21 April 2005*
21 April 2015
14 December 2005*
14 December 2015
28 September 2006*
28 September 2016
26 April 2007*
26 April 2017
10 October 2012
10 October 2022
* Approved option schemes, vesting in four equal annual instalments from the exercisable date.
Outstanding at beginning of the year
Forfeited during the year
Exercised during the year
outstanding at the end of the year
Exercisable at the end of the year
2014
2013
number of
share options
Weighted
average
exercise price
(pence)
Number of
share options
Weighted
average
exercise price
(pence)
442,250
—
(10,500)
431,750
86,750
844
—
485
852
480
466,800
(1,000)
(23,550)
442,250
97,250
822
507
431
844
480
The weighted average share price at the date of exercise for the share options exercised during the period was £16.27 (2013:
£14.79). The options outstanding at 31 December 2014 had a weighted average exercise price of £8.52 (2013: £8.44), and a
weighted average remaining contractual life of 6.6 years.
In 2014, the Group has taken a charge of £0.1 million (2013: £0.1 million) to recognize the issuance of employee share based
options. The fair value of options was determined using the Black Scholes Model with a share price of £10.09 and a weighted
average exercise price of £9.46, standard deviation of expected share returns of 0.0171, and an annual risk free interest rate of
0.33%. The volatility measured as the standard deviation of expected share price returns was based on statistical analysis of share
prices over the last year.
30. Financial risk management
The Group’s activities expose it to capital risk, currency risk (including both transactional and translational currency risk), interest rate
risk, credit risk and liquidity risk. The Group seeks to minimise adverse effects from the unpredictability of financial markets on the
Group’s financial performance.
(a) Capital risk
The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the debt and equity.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 21, cash and equity attributable
to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Note 24.
The Board reviews the capital structure of the business and considers the cost of capital and risks associated with each class of
capital. The Group aims to balance its overall capital structure through the payment of dividends, new share issues and share buy-
backs as well as the issue of new debt or the redemption of existing debt.
90
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XP Power Annual Report & Accounts for the year ended 31 December 2014 30. Financial risk management (continued)
(b) Currency risk
The Group operates in Asia, Europe and North America and its activities expose it to transactional risks resulting from changes
in foreign currency exchange rates. The Group monitors and manages these transactional foreign exchange risks relating to the
operations of the Group through internal reports analysing major currency exposures. Where possible, the Group seeks to offset
exposures by matching monetary asset and liability exposures in like currencies against each other, often using its bank facilities
to square off or reduce exposures. To manage the currency risk, the Group manages the overall currency exposure mainly through
currency forwards. The Group’s risk management policy is to hedge a portion of highly probable forecast purchase transactions by
our customers.
In addition the Group is exposed to translation risk when the results of its various operations are translated from their local functional
currencies to Sterling, the Group’s reporting currency. In particular a significant proportion of the Group’s revenues and earnings are
derived in US Dollars. The Group is therefore exposed to risk when these US Dollar revenue streams are translated into Sterling for
Group reporting purposes. The Group regards this as a fundamental consequence of operating in markets which are dominated by
US Dollar transactions. The Group does not hedge this translational risk as there is no underlying mismatch of foreign currencies as
the translation is merely performed for reporting the Group’s results in Sterling.
The Group’s transactional currency exposure based on the information provided to key management is as follows:
£ Millions
gBP
eUr
USD
others
ToTAL
At 31 December 2014
Financial assets
Cash and cash equivalents
Trade receivables
Other current assets
ESOP loan to employees
Sub-total
Financial liabilities
Borrowings
Trade and other payables
Other financial liabilities
Sub-total
net financial assets/(liabilities)
Less: Currency forwards
Currency profile excluding non-
financial assets and liabilities
Less: Financial (liabilities)/assets
denominated in the respective entities’
functional currencies
Currency exposure of financial
(liabilities)/assets
1.0
1.9
0.7
0.9
4.5
(0.6)
(1.2)
(1.5)
(3.3)
1.2
4.9
(3.7)
0.6
(4.3)
0.6
1.5
—
—
2.1
(0.1)
(0.5)
(0.1)
(0.7)
1.4
7.5
(6.1)
1.3
(7.4)
1.8
12.4
0.8
—
15.0
(1.8)
(12.4)
(0.1)
(14.3)
0.7
—
0.7
(2.0)
2.7
0.4
0.2
0.2
—
0.8
—
(0.3)
—
(0.3)
0.5
—
0.5
0.3
0.2
3.8
16.0
1.7
0.9
22.4
(2.5)
(14.4)
(1.7)
(18.6)
3.8
12.4
(8.6)
0.2
(8.8)
23848-04 3 March 2015 8:57 AM Proof 5
91
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
30. Financial risk management (continued)
(b) Currency risk (continued)
£ Millions
GBP
EUR
USD
Others
TOTAL
At 31 December 2013
Financial assets
Cash and cash equivalents
Trade receivables
Other current assets
ESOP loan to employees
Sub-total
Financial liabilities
Borrowings
Trade and other payables
Other financial liabilities
Sub-total
net financial assets/(liabilities)
Less: Currency forwards
Currency profile excluding non-
financial assets and liabilities
Less: Financial (liabilities)/assets
denominated in the respective entities’
functional currencies
Currency exposure of financial
(liabilities)/assets
1.4
2.1
0.6
1.0
5.1
(0.5)
(1.0)
(1.6)
(3.1)
2.0
4.2
(2.2)
1.7
(3.9)
1.0
1.4
—
—
2.4
(0.2)
(0.6)
(0.1)
(0.9)
1.5
9.5
(8.0)
1.5
(9.5)
2.2
11.8
0.6
—
14.6
(7.8)
(10.5)
—
(18.3)
(3.7)
—
(3.7)
(6.9)
3.2
0.4
0.1
0.2
—
0.7
—
(0.6)
—
(0.6)
0.1
—
0.1
0.1
—
5.0
15.4
1.4
1.0
22.8
(8.5)
(12.7)
(1.7)
(22.9)
(0.1)
13.7
(13.8)
(3.6)
(10.2)
If the US Dollar and Euro change against Sterling by 6% and 5% respectively (2013: US Dollar 1%, Euro 7%) with all other variables,
including tax rates, being held constant, the effects arising from the net financial (liability)/asset position will be as follows:
£ Millions
group
EUR against GBP
– strengthened
– weakened
USD against GBP
– strengthened
– weakened
2014
Profit
after tax
2013
Profit
after tax
(0.4)
0.4
0.2
(0.2)
(0.7)
0.7
—*
—*
* These are balances less than £0.1 million.
The impact of the currency risk on the other comprehensive income is not significant.
(c) Interest rate risk
The Group’s borrowings are at variable interest rates and are denominated in a number of currencies including Euros, Sterling, Swiss
Francs and US Dollars. If the average interest rates on these borrowings increased/decreased by 0.5% (2013: 0.5%) with all other
variables, including tax rates, being held constant, the profit after tax will be lower/higher by £33,000 (2013: £61,000) as a result of
higher/lower interest expense on these borrowings.
92
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XP Power Annual Report & Accounts for the year ended 31 December 2014
30. Financial risk management (continued)
(d) Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss to the Group.
For trade receivables the Group adopts a policy of only dealing with customers of appropriate credit history or rating. For other
financial assets, the Group adopts the policy of only dealing with high credit quality counterparties.
The Group’s business is highly fragmented, reducing the credit exposure to any one customer. At the balance sheet date no trade
receivable represented more than 6% of the total trade receivables balance.
The credit risk for trade receivables, which are all with non-related parties, by geographic area is as follows:
£ Millions
By geographical areas
Europe
North America
Asia
The age analysis of trade receivables past due and/or impaired is as follows:
£ Millions
Past due 0–2 months
Past due 3–4 months
Past due over 4 months
2014
2013
5.9
8.0
2.1
16.0
2014
9.0
0.8
0.3
10.1
5.8
7.2
2.4
15.4
2013
8.4
0.7
0.2
9.3
The carrying amount of trade receivables individually determined to be impaired and the movement in the related allowance for
impairment are as follows:
£ Millions
Gross amount
Less: Allowance for impairment
Beginning of financial year
Allowance made
Allowance utilised
End of the financial year
2014
2013
0.4
(0.3)
0.1
(0.3)
—
—
(0.3)
0.4
(0.3)
0.1
(0.3)
—
—
(0.3)
23848-04 3 March 2015 8:57 AM Proof 5
93
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOnsOLIDaTED FInancIaL sTaTEMEnTs
For the financial year ended 31 December 2014
30. Financial risk management (continued)
(e) Liquidity risk
The table below analyses the maturity profile of the Group’s derivative and non-derivative financial liabilities at the balance sheet
date based on contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of
discounting is not significant.
£ Millions
group
At 31 December 2014
Trade and other payables
Provision for deferred contingent
consideration
Borrowings
Total
£ Millions
Group
At 31 December 2013
Trade and other payables
Provision for deferred contingent
consideration
Derivative financial instruments
Borrowings
Total
Less than 1
year
Between
1 and 2
years
Between
2 and 5
years
over 5
years
14.4
—
2.5
16.9
—
—
—
—
—
1.7
—
1.7
—
—
—
—
Less than 1
year
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
12.7
—
0.1
8.5
21.3
—
—
—
—
—
—
1.7
—
—
1.7
—
—
—
—
—
Total
14.4
1.7
2.5
18.6
Total
12.7
1.7
0.1
8.5
23.0
The Group manages the liquidity risk by maintaining sufficient cash and bank facilities to enable it to meet its normal operating
commitments.
(f) Fair value measurements
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
(i) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(ii)
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices) (Level 2); and
(iii) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The following table presents the assets and liabilities measured at fair value at 31 December 2014.
2014
£ Millions
Assets
Derivatives used for hedging
Liabilities
Derivatives used for hedging
94
Level 1
Level 2
Level 3
Total
—
—
0.3
—
—
—
0.3
—
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 30. Financial risk management (continued)
(f) Fair value measurements (continued)
2013
£ Millions
Assets
Derivatives used for hedging
Liabilities
Derivatives used for hedging
Level 1
Level 2
Level 3
Total
—
—
—
(0.1)
—
—
—
(0.1)
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined
by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions
existing at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward
exchange rates at the balance sheet date. These derivative financial instruments are included in Level 2.
(g) Offsetting financial assets and financial liabilities
(i) Financial assets
Related amounts set off in the balance sheet
Related amounts not set off in the balance sheet
Gross
amount –
financial
assets
Gross
amount –
financial
liabilities
Net amount –
financial
assets
presented in
the balance
sheet
Financial
assets/
liabilities
Financial
collateral
received
Net
amount
0.6
0.6
—
—
(0.3)
(0.3)
—
—
0.3
0.3
—
—
—
—
—
—
—
—
—
—
0.3
0.3
—
—
Related amounts set off in the balance sheet
Related amounts not set off in the balance sheet
Gross
amount –
financial
liabilities
Gross
amount –
financial
assets
Net amount –
financial
liabilities
presented in
the balance
sheet
Financial
assets/
liabilities
Financial
collateral
pledged
Net
amount
—
—
0.3
0.3
—
—
(0.2)
(0.2)
—
—
0.1
0.1
—
—
—
—
—
—
—
—
—
—
0.1
0.1
£ Millions
At 31 December 2014
Derivative financial assets
At 31 December 2013
Derivative financial assets
(ii) Financial liabilities
£ Millions
At 31 December 2014
Derivative financial liabilities
At 31 December 2013
Derivative financial liabilities
31. Other information
These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of XP Power Limited
on 23 February 2015.
23848-04 3 March 2015 8:57 AM Proof 5
95
FINANCIALSwww.xppower.com stock code: XPP
cOMPany BaLancE shEET
As at 31 December 2014
£’000
ASSeTS
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Derivative financial instruments
Inventories
Total current assets
non-current assets
Investments in subsidiaries
Property, plant and equipment
Intangible assets
Derivative financial instruments
Long term receivable
Total non-current assets
Total assets
LiABiLiTieS
Current liabilities
Trade and other payables
Current income tax liabilities
Derivative financial instruments
Bank overdraft
Total current liabilities
non-current liabilities
Derivative financial instruments
Deferred income tax liabilities
Total non-current liabilities
Total liabilities
neT ASSeTS
eQUiTY
Share capital
Hedging reserve
Translation reserve
Retained earnings
ToTAL eQUiTY
96
23848-04 3 March 2015 8:57 AM Proof 5
Note
2014
2013
4
5
6
7
8
3
9
10
7
13
12
14
7
15
7
11
16
16
16
16
1,021
12,696
417
263
6,291
20,688
29,786
1,859
2,596
23
5,783
40,047
60,735
10,294
1,416
—
507
653
12,068
495
—
4,747
17,963
29,786
1,687
2,069
—
5,121
38,663
56,626
9,802
1,212
81
491
12,217
11,586
—
332
332
12,549
48,186
13
273
286
11,872
44,754
29,786
29,786
617
648
17,135
48,186
(325)
(272)
15,565
44,754
XP Power Annual Report & Accounts for the year ended 31 December 2014
nOTEs TO ThE cOMPany BaLancE shEET
For the financial year ended 31 December 2014
1. general 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 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre, Singapore 149598.
The nature of the Company’s operations and its principal activities are manufacturing, providing power supply solutions and acting as
an investment holding company.
2. Basis of accounting policies
The principal accounting policies are set out in Note 2 under the Group Consolidated Financial Statements.
3.
Investment in subsidiaries
£’000
Cost at carrying value
At 1 January
Additions
At 31 December
name of subsidiary
XP Power Plc
2014
2013
29,786
—
29,786
29,786
—
29,786
Place of
incorporation/
ownership (or
registration)
and operation
Proportion
of
ownership
%
2014
Proportion
of
Ownership
%
2013
Auditor
of
subsidiaries
UK
XP Power Singapore Holdings Pte Limited
Singapore
4. cash and cash equivalents
£’000
Cash at bank
Total
100
100
100
100
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2014
1,021
1,021
2013
653
653
The Company’s cash at bank is denominated into the following currencies:
gBP
£’000
USD
£’000
eUr
£’000
SgD
£’000
JPY
£‘000
SeK
£’000
DKK
£’000
noK
£’000
ToTAL
£’000
At 31 December 2014
Cash at bank
43
780
145
50
1
—
2
—
1,021
GBP
£‘000
USD
£‘000
EUR
£‘000
SGD
£‘000
JPY
£‘000
SEK
£‘000
DKK
£‘000
NOK
£‘000
TOTAL
£‘000
At 31 December 2013
Cash at bank
22
180
330
73
—
2
46
—
653
The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
23848-04 3 March 2015 8:57 AM Proof 5
97
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOMPany BaLancE shEET
For the financial year ended 31 December 2014
5. Trade and other receivables
£’000
Trade receivables
Trade receivables from Group companies
Total
2014
1,840
10,856
12,696
2013
2,309
9,759
12,068
The average credit period taken on sales of goods is 44 days (2013: 58 days). No interest is charged on the outstanding receivables
balance.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
6. Other current assets
£’000
Deposit
Other receivables and prepayments
Total
2014
61
356
417
2013
54
441
495
The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
7. Derivative financial instruments
The total notional amount of outstanding currency forward contracts that the Company has committed is £6.8 million (2013:
£8.2 million). These contracts are to hedge against exchange movements on future sales and qualify for hedge accounting.
As at 31 December 2014, the fair value asset of the currency forward contracts recognised under a hedging reserve is £617,000
(2013: liability of £325,000) (Note 16).
December 2014
£’000
Current portion
Non-current portion
Total
December 2013
£’000
Current portion
Non-current portion
Total
contract
notional
amount
6,569
235
6,804
Contract
notional
amount
7,053
1,134
8,187
Fair value
asset
594
23
617
Fair value
(liability)
(312)
(13)
(325)
Certain currency foward contracts were taken up to protect against exchange movements on future sales. These contracts did not
qualify for hedge accounting.
December 2014
£’000
Current portion
Total
98
contract
notional
amount
5,604
5,604
Fair value
(liability)
(331)
(331)
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 7. Derivative financial instruments (continued)
December 2013
£’000
Current portion
Total
8.
Inventories
£’000
goods for resale
Contract
notional
amount
5,543
5,543
Fair value
asset
231
231
2014
6,291
2013
4,747
The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
9. Property, plant and equipment
£’000
Cost
At 1 January 2013
Additions
Foreign currency translation
At 1 January 2014
Additions
Disposals
Foreign currency translation
At 31 December 2014
Depreciation
At 1 January 2013
Charge for the year
Foreign currency translation
At 1 January 2014
Charge for the year
Disposals
Foreign currency translation
At 31 December 2014
Carrying amount
At 31 December 2014
At 31 December 2013
Freehold
land
Building
Plant and
equipment
Motor
vehicles
Building
improvements
180
—
(1)
179
—
—
9
188
—
—
—
—
—
—
—
—
188
179
1,437
—
(11)
883
127
(6)
1,426
1,004
—
—
76
285
(28)
55
1,502
1,316
178
43
(1)
220
45
—
12
277
1,225
1,206
617
119
(5)
731
128
(14)
39
884
432
273
10
—
—
10
—
—
—
10
10
—
—
10
—
—
—
10
—
—
329
6
(2)
333
2
—
17
352
281
25
(2)
304
18
—
16
338
14
29
The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
Total
2,839
133
(20)
2,952
287
(28)
157
3,368
1,086
187
(8)
1,265
191
(14)
67
1,509
1,859
1,687
99
23848-04 3 March 2015 8:57 AM Proof 5
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOMPany BaLancE shEET
For the financial year ended 31 December 2014
10.
Intangible assets
£’000
Cost
Balance at 1 January
Additions
Balance at 31 December
Amortisation
Balance at 1 January
Additions
Balance at 31 December
Carrying amount
Balance at 31 December
2014
2013
2,538
1,067
3,605
469
540
1,009
1,910
628
2,538
119
350
469
2,596
2,069
Intangible assets arise from development costs incurred on the Group’s products. The amortisation period for development costs
incurred varies between four and seven years according to the expected useful life of the products being developed.
Amortisation commences when the products are ready for sale.
11. Deferred income taxes
The following are the major deferred tax liabilities recognised by the Company and movements thereon during the current and prior
reporting period.
£’000
At 1 January 2013
Charge to income statement
Exchange difference
At 1 January 2014
Charge to income statement
Exchange difference
At 31 December 2014
£’000
Deferred tax liabilities – to be recovered after more than 12 months
Total
Accelerated
tax
depreciation
Capitalised
development
costs
Other
temporary
differences
(39)
—
—
(39)
(9)
(2)
(50)
(187)
(27)
2
(212)
(44)
(11)
(267)
(7)
(15)
—
(22)
8
(1)
(15)
2014
(332)
(332)
Total
(233)
(42)
2
(273)
(45)
(14)
(332)
2013
(273)
(273)
100
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 12. Trade and other payables
£’000
Trade payables and other creditors
Amount payable to Group companies
Total
2014
5,061
5,233
10,294
2013
4,313
5,489
9,802
Trade payables and other creditors principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors
consider that the carrying amount of trade and other payables approximates their fair value.
The Company borrows from subsidiaries at an interest rate of 1.5% – 1.75% above LIBOR. The borrowing is repayable upon
demand.
13. Long term receivable
£’000
Loan to related parties
Total
Loan to XP Power Vietnam is recoverable on demand and bears interest at LIBOR plus 1.5% per annum.
14. current income tax liabilities
£’000
At 1 January
Currency translation differences
Income tax paid
Current year tax expense
At 31 December
15. Bank overdraft
£’000
Bank overdraft
Total
2014
5,783
5,783
2014
1,212
41
(1,071)
1,234
1,416
2014
507
507
2013
5,121
5,121
2013
1,015
(25)
(945)
1,167
1,212
2013
491
491
The Company’s bank overdraft is denominated in the following currencies:
£’000
At 31 December 2014
Bank overdraft
At 31 December 2013
Bank overdraft
gBP
£’000
USD
£’000
ToTAL
£’000
507
491
—
—
507
491
23848-04 3 March 2015 8:57 AM Proof 5
101
FINANCIALSwww.xppower.com stock code: XPP nOTEs TO ThE cOMPany BaLancE shEET
For the financial year ended 31 December 2014
16. share capital and reserves
Share capital
£’000
Allotted and fully paid 19,242,296 ordinary shares
Retained earnings
£’000
Balance at 1 January
Dividends paid
Profit for the year
Balance at 31 December
Translation reserve
£’000
Balance at 1 January
Exchange differences on translation
Balance at 31 December
hedging reserve
£’000
Balance at 1 January
Fair value gain/(loss)
Balance at 31 December
2014
2013
29,786
29,786
2014
15,565
(10,832)
12,402
17,135
2014
(272)
920
648
2014
(325)
942
617
2013
14,631
(9,872)
10,806
15,565
2013
(69)
(203)
(272)
2013
(214)
(111)
(325)
17. Financial risk management
The Company’s activities expose it to capital risk, currency risk (including both transactional and translational currency risk), interest
rate risk, credit risk and liquidity risk. The Company seeks to minimise adverse effects from the unpredictability of financial markets
on the Company’s financial performance.
(a) Capital risk
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to
shareholders through the optimisation of the debt and equity balance.
The capital structure of the Company consists of debt, cash and equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in Note 16.
(b) Currency risk
The Company operates in Asia, Europe and North America and its activities expose it to transactional risks resulting from changes
in foreign currency exchange rates. The Company monitors and manages these transactional foreign exchange risks relating to
the operations of the Company through internal reports analysing major currency exposures. Where possible the Company seeks
to offset exposures by matching monetary asset and liability exposures in like currencies against each other often using its bank
facilities to square off or reduce exposures. To manage the currency risk, the Company manages the overall currency exposure
mainly through currency forwards. The Company’s risk management policy is to hedge a portion of highly probable forecast sales
transactions.
102
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014
17. Financial risk management (continued)
(b) Currency risk (continued)
In addition the Company is exposed to translation risk when the results of its operations and balance sheet are converted from its
functional currency to Sterling, the Group’s reporting currency. In particular a significant proportion of the Company’s revenues and
earnings are derived in US Dollars. The Company regards this as a fundamental consequence of operating in markets which are
dominated by US Dollar transactions. The Company does not hedge this translational risk as there is no underlying mismatch of
foreign currencies as the translation is merely performed for reporting the Company’s results in Sterling.
The Company’s currency exposure based on the information provided to key management is as follows:
At 31 December 2014
£’000
Financial assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Subtotal
Financial liabilities
Borrowings
Trade and other payables
Subtotal
net financial (liabilities)/assets
Less: Currency forwards
Currency profile excluding non-
financial assets and liabilities
Less: Financial (liabilities)/assets
denominated in the entity’s functional
currencies
Currency exposure of financial
(liabilities)/assets
At 31 December 2013
£’000
Financial assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Subtotal
Financial liabilities
Borrowings
Trade and other payables
Subtotal
net financial (liabilities)/assets
Less: Currency forwards
Currency profile excluding non-
financial assets and liabilities
Less: Financial (liabilities)/assets
denominated in the entity’s functional
currencies
Currency exposure of financial
(liabilities)/assets
gBP
eUr
USD
others
Total
43
9
249
301
(507)
(5,400)
(5,907)
(5,606)
4,900
145
1,025
(34)
1,136
—
131
131
1,267
7,508
780
17,319
137
18,236
—
(4,959)
(4,959)
13,277
—
(10,506)
(6,241)
13,277
—
—
13,277
(10,506)
(6,241)
—
53
126
65
244
—
(67)
(67)
177
—
177
—
177
1,021
18,479
417
19,917
(507)
(10,295)
(10,802)
9,115
12,408
(3,293)
13,277
(16,570)
GBP
EUR
USD
Others
Total
22
—
275
297
(491)
(4,444)
(4,935)
(4,638)
4,200
330
1,631
1
1,962
—
(31)
(31)
1,931
9,530
180
10,176
132
10,488
—
(4,865)
(4,865)
5,623
—
(8,838)
(7,599)
5,623
—
—
5,623
(8,838)
(7,599)
—
121
261
87
469
—
(462)
(462)
7
—
7
—
7
653
12,068
495
13,216
(491)
(9,802)
(10,293)
2,923
13,730
(10,807)
5,623
(16,430)
103
23848-04 3 March 2015 8:57 AM Proof 5
FINANCIALSwww.xppower.com stock code: XPP
nOTEs TO ThE cOMPany BaLancE shEET
For the financial year ended 31 December 2014
17. Financial risk management (continued)
(c) Interest rate risk
The Company borrows from subsidiaries at an interest rate of 1.5% –1.75% above LIBOR.
(d) Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss to the Company.
For trade receivables the Company adopts a policy of only dealing with customers of appropriate credit history or rating. For other
financial assets, the Company adopts the policy of only dealing with high credit quality counterparties.
The Company is not exposed to significant credit risk as a majority of the sales are made to the subsidiaries.
The Company does not hold any collateral and the maximum exposure to credit risk for each class of financial instruments is the
carrying amount of that class of financial instruments on the balance sheet.
(e) Liquidity risk
The table below analyses the maturity profile of the Company’s financial liabilities at the balance sheet date based on contractual
undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant.
£’000
At 31 December 2014
Trade and other payables
Bank overdraft
Total
£’000
At 31 December 2013
Trade and other payables
Bank overdraft
Total
Less than
1 year
Between
1 and 2
years
Between
2 and 5
years
10,294
507
10,801
—
—
—
—
—
—
Less than
1 year
Between
1 and 2
years
Between
2 and 5
years
9,802
491
10,293
—
—
—
—
—
—
over 5
years
—
—
—
Over 5
years
—
—
—
Total
10,294
507
10,801
Total
9,802
491
10,293
The Company manages the liquidity risk by maintaining sufficient cash and bank facilities to enable it to meet its normal operating
commitments.
(f) Fair value measurements
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
(i) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(ii)
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices) (Level 2); and
(iii) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The following table presents the assets and liabilities measured at fair value at 31 December 2014:
£’000
2014
Assets
Level 1
Level 2
Level 3
Total
Derivatives used for hedging
—
286
—
286
104
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 17. Financial risk management (continued)
(f) Fair value measurements (continued)
£’000
2013
Liabilities
Level 1
Level 2
Level 3
Total
Derivatives used for hedging
—
(94)
—
(94)
(g) Offsetting financial assets and financial liabilities
(i) Financial assets
The Company has the following financial instrument subject to enforceable master netting arrangement or similar agreement as
follows:
Related amounts set off in the balance sheet
Related amounts not set off in the balance sheet
Gross
amounts
– financial
assets
Gross
amounts
– financial
liabilities
Net amounts
– financial
assets
presented in
the balance
sheet
Financial
assets/
liabilities
Financial
collateral
received
Net amount
634
2,660
3,294
—
7,955
7,955
(348)
(2,089)
(2,437)
—
(2,052)
(2,052)
286
571
857
—
5,903
5,903
—
10,285
10,285
—
3,856
3,856
—
—
—
—
—
—
286
10,856
11,142
—
9,759
9,759
As at 31 December 2014
Derivative financial assets
Trade receivables
Total
As at 31 December 2013
Derivative financial asset
Trade receivables
Total
(ii) Financial liabilities
The Company has the following financial instruments subject to enforceable master netting arrangements or similar agreement as
follows:
Related amounts set off in the balance sheet
Related amounts not set off in the balance sheet
Gross
amounts
– financial
liabilities
Gross
amounts
– financial
assets
Net amounts
– financial
liabilities
presented in
the balance
sheet
Financial
assets/
liabilities
Financial
collateral
pledged
Net amount
As at 31 December 2014
Derivative financial liabilities
Trade payables
Total
As at 31 December 2013
Derivative financial liabilities
Trade payables
Total
—
7,510
7,510
332
9,287
9,619
—
(2,277)
(2,277)
(238)
(3,804)
(4,042)
—
5,233
5,233
94
5,483
5,577
—
—
—
—
6
6
—
—
—
—
—
—
—
5,233
5,233
94
5,489
5,583
23848-04 3 March 2015 8:57 AM Proof 5
105
FINANCIALSwww.xppower.com stock code: XPP FIvE yEaR REvIEW
Consolidated Information
results
Revenue
Profit from operations
Profit before tax
Assets employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
net assets
Financed by
Equity
Non-controlling interests
Key statistics (pence)
Earnings per share
Diluted earnings per share
Diluted adjusted earnings per share
Share price in the year (pence)
High
Low
Dividends per share (pence)
2014
£Millions
2013
£Millions
2012
£Millions
2011
£Millions
2010
£Millions
101.1
24.5
24.3
56.1
47.0
(18.6)
(4.2)
80.3
80.2
0.1
80.3
102.1
101.1
101.1
101.1
23.3
22.9
53.3
42.2
(22.4)
(3.7)
69.4
69.2
0.2
69.4
95.8
95.1
95.1
93.9
21.0
20.2
52.8
39.3
(20.2)
(10.6)
61.3
61.1
0.2
61.3
81.7
81.3
81.3
103.6
25.3
24.3
52.7
46.9
(28.2)
(15.6)
55.8
55.6
0.2
55.8
107.1
106.4
106.4
91.8
19.7
18.6
47.7
43.1
(32.0)
(16.0)
42.8
42.6
0.2
42.8
83.9
83.2
83.7
1,798.0
1,340.0
61.0
1,630.0
972.0
55.0
1,283.0
805.0
50.0
1,950.0
870.0
45.0
1,100.0
418.5
33.0
106
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 XP POWER LIMITED aDvIsERs
company Brokers
Investec
2 Gresham Street
London
EC2V 7QP
United Kingdom
Principal Bankers
Bank of Scotland Plc
The Mound
Edinburgh
EH1 1YZ
United Kingdom
solicitors
Osborne Clarke
2 Temple Back East
Temple Quay
Bristol
BS1 6EG
United Kingdom
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
company secretary
m & C Services Private Limited
112 Robinson Road #05-01
The Corporate Office
Singapore 068902
auditors
PricewaterhouseCoopers LLP
8 Cross Street
PWC Building, #17-00
Singapore 048424
23848-04 3 March 2015 8:57 AM Proof 5
107
FINANCIALSwww.xppower.com stock code: XPP shaREhOLDER InFORMaTIOn
108
23848-04 3 March 2015 8:57 AM Proof 5
XP Power Annual Report & Accounts for the year ended 31 December 2014 Printed on Cocoon Silk 50.
A recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured
at a mill certified with ISO 14001 environmental management standard.
The pulp used in this product is bleached using an Elemental Chlorine Free process. (ECF)
23848-04 3 March 2015 8:57 AM Proof 5
X
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XP POWER LIMITED
LOBBY B #02–02
HAW PAR TECHNOCENTRE
401 COMMONWEALTH DRIVE
SINGAPORE 149598
T: +65 6411 6900
F: +65 6479 6305
23848-04 3 March 2015 8:57 AM Proof 5