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XP POWER LIMITED
401 COMMONWEALTH DRIVE
HAW PAR TECHNOCENTRE
LOBBY B #02-02
SINGAPORE 149598
T: +65 6411 6900
F: +65 6479 6305
XP POWER
ANNUAL REPORT & ACCOUNTS
for the year ended 31 December 2017
stock code: XPP
Introduction
OUR PURPOSE
We provide our customers in the Healthcare, Industrial and Technology
sectors with solutions to power their critical systems and get their
products to market in the shortest possible time.
Electronic equipment cannot operate directly from the electricity
provided by the mains supply which is a relatively high voltage
alternating current. All electronic equipment requires a stable, direct
current in order to operate. Our electronic power converters are
designed-in to our customers’ end equipment, often with the aid of our
engineering expertise, to provide this stable direct current. These power
solutions also provide the vital safety barrier between the potentially
lethal mains supply and the user of the end equipment.
Our target customers provide vital equipment where the cost of
downtime or implications of failure are significant.
We power the world’s critical systems.
OUR VISION
To be the first choice power solutions provider delivering the ultimate
experience for our customers and our people.
OUR CORE VALUES
Our core values of INTEGRITY, KNOWLEDGE, FLEXIBILITY, SPEED and
CUSTOMER FOCUS are our DNA and are fundamental to our success.
CUSTOMER
FOCUS
KNOWLEDGE
FLEXIBILITY
SPEED
CUSTOMER
CUSTOMER
CUSTOMER
INTEGRITY
FOCUS
FOCUS
FOCUS
KNOWLEDGE
KNOWLEDGE
KNOWLEDGE
FLEXIBILITY
FLEXIBILITY
FLEXIBILITY
SPEED
SPEED
SPEED
CUSTOMER
INTEGRITY
INTEGRITY
INTEGRITY
FOCUS
KNOWLEDGE
FLEXIBILITY
SPEED
INTEGRITY
Printed on Cocoon Silk 60.
A recycled paper containing 60% recycled waste and 40% 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)
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CONTENTS
OVERVIEW
IC
Introduction
2 Highlights in 2017
3 Our Investment Proposition
4 XP Power at a Glance
6 Chairman’s Statement
STRATEGIC REPORT
Our Marketplace
8
10 Our Growth Drivers
12 Our Business Model
14 Our Strategy
16 Our Strategy in Action
18 Our Key Performance Indicators
20 Performance: Operational Review
24 Performance: Financial Review
28 Managing Our Risks
32 Our Commitments to Sustainability
35 Our Core Values in Action
36 Our People and their Health and Safety
38 Our Customers
39 Our Suppliers
40 Our Communities
41 Our Environment
GOVERNANCE REPORT
42 Chairman’s Introduction to Governance
44 Directors and Officers
46 Corporate Governance Report
50 Audit Committee Report
54 Remuneration Committee Report
55 Remuneration Policy
60 Remuneration Report – Annual Report
69 Other Governance and Statutory
Disclosures
70 Statement by Directors
Independent Auditor’s Report
FINANCIALS
71
77 Consolidated Statement of
Comprehensive Income
78 Consolidated Balance Sheet
79
Consolidated Statement of Changes
in Equity
2017 has been another excellent year for
XP Power as we have successfully grown order
intake, revenues and earnings across all sectors
and geographies. Whilst we have benefited from
market growth it has been encouraging that we
captured further market share. We achieved this by
being customer focused and ensuring we remain
an attractive power partner to our customers
through the products and innovation we offer. The
completion of the Comdel acquisition in September
allows us to further expand our offering to our
target customers and support future growth.
Our people, across the three continents where we
have a presence, lie at the heart of our success. Our
lean, flat, fast and flexible structure allows delivery
of excellent service and support and these are the
key ingredients for our continued growth.
As part of our continued drive for improvement, we
have rolled out some high quality employee training
designed around our Core Values of INTEGRITY,
KNOWLEDGE, FLEXIBILITY, SPEED and CUSTOMER
FOCUS. These values are our DNA and fundamental
to our continued success.
We look forward to further success in 2018.
Duncan Penny
Chief Executive Officer
1 March 2018
80 Consolidated Statement of Cash Flows
81
Notes to the Consolidated Financial
Statements
118 Company Balance Sheet
119 Notes to the Company Balance Sheet
129 Five Year Review
130 Advisers
XP Power Annual Report & Accounts
for the year ended 31 December 2017
stock code: XPP
01
Highlights in 2017
FINANCIAL HIGHLIGHTS
Order Intake
(£ MILLIONS)
+38%
184.3
133.5
103.7
105.1
110.5
Revenue
(£ MILLIONS)
+29%
166.8
129.8
101.1
101.1
109.7
(+31% in constant currency)
2013
2014
2015
2016
2017
(+22% in constant currency)
2013
2014
2015
2016
2017
Earnings Per
Share (PENCE)
+32%
148.3
102.1
103.7
95.8
112.0
2013
2014
2015
2016
2017
Adjusted
Earnings Per
Share (PENCE)
+27%
147.0
95.1
101.1
115.3
104.3
2013
2014
2015
2016
2017
(after adjusting for one-off
costs, non recurring tax benefits
and intangibles amortisation)
Dividend Per
Share (PENCE)
+10%
78
71
66
61
55
Employee
Cultural
Survey (SCORE)
62.9
63.0
62.0
59.2
2013
2014
2015
2016
2017
2015
2016
2017
2018
In order to provide readers with a more comprehensive view of our business
and performance, we have presented a number of alternative performance
measures (see page 93). We use constant currency to provide comparison
using the prior year information translated at current year exchange rates.
OPERATIONAL HIGHLIGHTS
¼ Record order intake, revenues and earnings achieved
in 2017
¼ Order intake of £184.3 million (2016: £133.5 million)
– an increase of 38% (31% in constant currency)
¼ Full year revenues increased by 29% (22% in constant
currency) to £166.8 million (2016: £129.8 million)
¼ Growth in all industry sectors and geographies
¼ Acquisition of Comdel adds Radio Frequency power
capability to our product portfolio expanding our
available market.
¼ Revenues from XP Power’s own-designed products
increased by 34% (24% in constant currency) to
£127.4 million (2016: £95.3 million) to reach a record
76% of total revenue (2016: 73%)
¼ Sales of high efficiency XP “Green Power” products
grew by 31% (22% in constant currency) in 2017 to
£39.7 million (2016: £30.2 million)
¼ Balance sheet remains robust, with a lower level of
net debt of £9.0 million at year end (2016: net cash of
£3.7 million)
¼ Commenced construction of a second production
facility in Vietnam to expand manufacturing capacity –
new factory to be completed by end 2018
02
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Exposure to a broad cross section of end markets –
Industrial, Healthcare and Technology – but with no direct
exposure to consumer electronics. Read more on page 8
A diverse customer base of over 4,500 active customers,
with no single customer accounting for more than 11%
of revenue. Read more on page 8
Growing penetration of a global, blue-chip
customer base. Read more on page 9
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. Read more on page 21
An established pipeline of best in class “Green” products
which operate at high efficiency. Read more on pages 13 and 32
Revenue annuity – although design-in 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. Read more on page 13
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. Read more on page 21
Progressive dividend – the business model allows for a
progressive dividend which is paid quarterly. Read more on page 13
03
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP XP Power at a Glance
XP Power’s portfolio of leading edge, ultra-high efficient products are
helping the world’s leading manufacturers to create new technologies
and products.
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.
The design and integration of these essential power conversion
devices into the end equipment they power involves many
challenges and trade-offs. The result is a unique set of requirements
from the customers who themselves are constantly attempting to
differentiate their equipment from their competitors.
Our long-term investment in research and development has
positioned XP Power as a key partner for the world’s leading
manufacturers of critical capital equipment.
MEETING OUR CUSTOMERS’ REQUIREMENTS WITH OUR POWERFUL OFFERING
} 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 our highly knowledgeable and
experienced sales team and power systems engineers
} Engineering on three continents providing excellent support during design-in to reduce
time to market
POWER OF OUR GLOBAL REACH
Our global reach and target sectors help insulate us from market volatility
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 data centre industries. The
equipment our products power is often mission-critical so quality
and reliability are paramount.
Increasingly, the design and manufacturing process of major
international Original Equipment Manufacturers 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.
04
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05
NORTH
AMERICA
18 Sales Offices
57%
OF REVENUE
EUROPE
9 Sales Offices
34%
OF REVENUE
ASIA
5 Sales Offices
9%
OF REVENUE
UP
29%
2016 REVENUE
US$93.7 million
2017 REVENUE
US$121.3 million
UP
16%
2016 REVENUE
GB£49.4 million
2017 REVENUE
GB£57.5 million
UP
18%
2016 REVENUE
US$16.1 million
2017 REVENUE
US$19.0 million
NORTH AMERICA
The North American network consists of
18 sales offices; an extensive engineering
solutions function based in Northern
California with production facilities in
Nevada and Massachusetts.
EUROPE
In Europe, the network consists of nine
direct sales offices and a further nine
distributor offices. In addition, XP Power
has engineering solutions centres in
Germany and in the UK.
This network allows XP Power to provide
its major customers with local, face-to-face
support and rapid response times.
With good coverage across Europe we
have the operational flexibility to provide
good quality and timely service.
ASIA
We have five direct sales offices in Asia run
from Singapore, where we also manage
a network of seven distributors serving
the region. We have engineering solutions
capability in Singapore and South Korea
to complement our offering to
customers in the region.
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Our Progress in 2017
2017 was another year of significant progress in the development
of the Company. We have continued to execute well against our
strategy and favourable market conditions, combined with new
design wins entering into production, generated another set of
strong results. We delivered record order intake, revenues, profits
and earnings per share in the year. We also acquired Comdel,
another business that significantly expands our addressable market
by strengthening our capability in higher power applications.
We believe we now have the most comprehensive product
offering in our industry, making XP Power a compelling partner to
provide power solutions to our target customers to power their
critical systems.
Results
Our financial performance in the year was strong. Revenues were
£166.8 million, exceeding the prior year of £129.8 million. This was
an increase of 22% in constant currency. Order intake also set a
new record of £184.3 million, exceeding the £133.5 million achieved
in 2016, and representing a 31% increase in constant currency.
Reported profit before tax was £32.2 million (2016: £27.8 million).
After adding back acquisition costs, both completed and aborted,
of £3.3 million (2016: £0.4 million) and amortisation of intangible
assets of £0.6 million (2016: £0.4 million), adjusted profit before tax
was £36.1 million (2016: £28.6 million), an increase of 26% over
that reported in 2016. Basic earnings per share increased by 32%
to 148.3 pence (2016:112.0 pence). Diluted adjusted earnings per
share increased by 27% to 147.0 pence (2016: 115.3 pence).
Acquisition
We have been clear for some time that we intend to use the strength
of our balance sheet and cash generation to acquire complementary
businesses that expand our product portfolio and engineering
capabilities. I was pleased to report the acquisition of Comdel, a
company specialising in Radio Frequency (RF) power, in September
2017. This strategic acquisition fulfils our ambition to add a high
power capability to our product portfolio and is an excellent fit with
the rest of the XP Power family. We are very excited about the
prospects for these products and the additional value we can now
provide to our customers.
For more information please
see pages 10 and 11
Chairman’s Statement
“ 2017 WAS ANOTHER YEAR
OF SIGNIFICANT PROGRESS
IN THE DEVELOPMENT OF
OUR COMPANY. WE HAVE
CONTINUED TO EXECUTE
OUR STRATEGY WELL AND
FAVOURABLE MARKET
CONDITIONS COMBINED WITH
NEW DESIGN WINS ENTERING
INTO PRODUCTION HAVE
DRIVEN ANOTHER SET OF
STRONG RESULTS.”
James Peters
Chairman
06
Heading Our People and Our Values
The success of an organisation is
dependent on the people and talent within
it. We have significant strength and depth
within our Company, with the majority of
our Executives boasting long tenures with
XP Power. We have conducted annual
employee engagement surveys since 2015
and I am pleased that we have shown
strong scores each time we repeat the
survey, having taken actions to address any
issues arising from the results of the prior
survey. One of the main findings from these
employee surveys was that our employees
are proud to be part of our Company,
highlighting the significant engagement we
have between the business and our people.
Our cultural survey score is one of our non-
financial key performance indicators.
As the Company grows we continually look
to acquire more talent across the business
to build even greater strength and depth.
A key focus is engineering, which remains
a constraint on our ability to address all the
opportunities we see before us. Recruiting
and on-boarding more engineering
colleagues will be a priority for 2018.
Manufacturing Capacity
Our continued growth means we need to
add manufacturing capacity. We therefore
commenced construction of a second
manufacturing facility in Ho Chi Minh City,
Vietnam in October 2017 which we expect
to complete in the second half of 2018.
For more information please
see page 23
Outlook
We are encouraged by the strong
performance in 2017 and a good start
to 2018. The Group entered 2018 with a
strong order backlog and will also benefit
from a full year’s trading from the acquired
Comdel business which expands our
addressable market.
Although we cannot be immune from all
external economic shocks resulting from
cyclicality in the capital equipment markets
we serve, we are optimistic regarding our
prospects for 2018.
We are continuing to build a leading position
in our industry to realise our vision of
becoming the first choice power solutions
provider delivering the ultimate experience
to our customers and to our people.
James Peters
Chairman
Board Changes
I would like to welcome Gavin Griggs, who
joined us on 31 October 2017, to the Board
as Chief Financial Officer. Gavin has worked
in a range of acquisitive businesses, both
public and private and with an international
footprint, most recently Daisy Group Ltd,
where he was Group Finance Director.
Gavin’s wide-ranging financial, commercial
and M&A experience, will be an asset
to XP Power in the next phase of our
development.
In December 2017 Peter Bucher, a Non-
Executive Director, informed the Board that
he would retire in December 2018 and step
down from the Board.
We will begin a search for a new Non-
Executive Director later this year.
For more information please
see pages 44 and 45
Dividend
Our continued strong financial performance,
strong cash flows and confidence in the
Group’s long-term prospects have enabled
us to increase dividends consistently
over a sustained period. The Board is
recommending a final dividend of 29 pence
per share for the fourth quarter of 2017.
This dividend will be payable to members
on the register on 16 March 2018 and will
be paid on 20 April 2018. When combined
with the interim dividends for the previous
quarters, the total dividend for the year will
be 78 pence per share (2016: 71 pence), an
increase of 10%.
The compound average growth rate of
our dividend has been 15% over the
last ten years, demonstrating the
Board’s commitment to our progressive
dividend policy.
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07
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Our Marketplace
We continue to expand our product portfolio to grow our addressable
market and provide more products to our key customers where we are
already an approved or preferred supplier.
THE MARKETS WE SERVE
We have a broad exposure to the Healthcare, Industrial and
Technology markets. Our customers are manufacturers of capital
equipment and their end markets all exhibit different degrees of
cyclicality. Generally, the Technology markets are most cyclical but
it is clear that the long-term growth prospects for technology are
robust. Healthcare is our least cyclical sector with Industrial lying
between Technology and Healthcare.
We have a diverse customer base of over 4,500 customers that
we deal with directly and many more customers serviced through
our distribution channels which have been growing strongly in
recent years.
The diversity of our business is a significant strength with no single
customer exceeding more than 11% of revenue. Further, there is
no single dominant player in the markets we address due to the
diversity of customer requirements.
We have no direct exposure to consumer products.
MARKET SIZE AND OPPORTUNITY
We estimate that XP Power has a 7% share of its addressable global market (excluding RF Power).
11% SHARE
11% SHARE
2% SHARE
3% SHARE*
TOTAL MARKET VALUE
TOTAL MARKET VALUE
TOTAL MARKET VALUE
US$1067
MILLION
US$657
MILLION
US$1210
MILLION
TOTAL MARKET VALUE
US$800
MILLION
NORTH AMERICA
North America is a significant
market for power electronics
with many large customers,
particularly in Technology
and Healthcare.
EUROPE
The European market is much
more fragmented than North
America or Asia. In particular
it contains numerous
smaller industrial companies
as well as a number of larger
medical companies.
ASIA
Although Asia is a large
market, much of it is not
readily available to XP Power.
Although XP Power has a
factory in China the regulations
require our product to be
exported and re-imported into
China. This means we are at
a tax and duty disadvantage
to local manufacturers who
are generally competing on
cost. We are able to service
customers who demand high
quality and reliability and who
value the engineering solutions
and support we provide.
RF POWER
Following the acquisition of
Comdel in September 2017
we now have RF Power
products in our portfolio
which significantly increases
our addressable market. We
believe the market for RF
Power to be approximately
US$800 million. This presents
a significant opportunity for
long-term growth.
* Share is based on annualised revenue
Source: MicroTech Consultants 2017 Report and management estimates
08
Heading
REVENUE TRENDS
Revenue trends by sector are set out below.
Industrial Revenue (£ millions)
59.8
65.6
47.5
49.1
48.6
Healthcare Revenue (£ millions)
51.0
Technology Revenue (£ millions)
50.2
37.9
34.3
30.2
31.0
32.1
26.8
23.4
21.0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
INDUSTRIAL
Reported revenues from industrial customers
grew 10% in 2017. There appears to have
been a broad recovery in the Industrial
markets. Industrial is the most fragmented
sector we deal in and very few of our top 30
accounts are industrial companies despite
the fact that Industrial makes up 39% of our
total revenues in 2017.
HEALTHCARE
Reported revenue from healthcare
customers grew 35% in 2017. This
growth was driven by a number of new
programmes entering the production phase
from a collection of accounts. We have
built a compelling offering for healthcare
customers due to our product focus in this
area and excellent service and support.
Medical customers also value the high
efficiency products which can operate
without the need for fan cooling. This has a
number of benefits but importantly make the
power system much more reliable as it has
no moving parts.
TECHNOLOGY
Reported revenues from technology
customers grew by 56% in 2017. This
growth was aided by the acquisition
of Comdel in September 2017 which
contributed £4.1 million of revenue in 2017.
Without Comdel, technology still grew
44% due to very strong performance from
a number of semiconductor equipment
manufacturers. Semiconductor equipment
manufacturing customers contributed
US$37.3 million (2016: US$20.8 million ) of
revenue in 2017.
Revenue by geography is set out as follows expressed in US Dollars to highlight the underlying trends in North America and Asia and
Sterling in Europe.
North America Revenue
(US$ millions)
84.9
85.5
78.4
93.7
121.3
Europe Revenue (£ millions)
57.5
Asia Revenue (US$ millions)
19.0
43.7
42.2
45.1
49.4
16.1
13.7
12.6
11.5
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
NORTH AMERICA
North America revenues grew by 29% in
2017. The growth was driven by strong
performance from semiconductor equipment
manufacturers and new healthcare
programmes entering production. The
acquisition of Comdel also contributed
US$5.4 million of revenue in 2017.
EUROPE
European revenues grew 16% on a
reported basis. Europe benefitted from a
general recovery in the Industrial sector
plus a number of new medical programmes
entering the production stage.
ASIA
Asia revenues grew by 18% in 2017.
Asia growth was fuelled by programmes in
the Healthcare and Industrial sectors.
09
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Our Growth Drivers
DRIVER
HOW WE’RE RESPONDING
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 possess a 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 are now capitalising on these approvals to 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 quality and
reliability and appreciate and value XP Power’s value proposition.
We have developed a
portfolio of XP “Green”
Power products with class-
leading efficiencies.
With the acquisition of
EMCO in November 2015 and
Comdel in September 2017
we now have five design
centres around the globe.
We have the broadest range
of standard products in our
industry which are designed
to be easy to modify to power
the customer’s specific
application.
High voltage modules from
the acquisition of EMCO
in November 2015 and RF
Power from the acquisition of
Comdel in September 2017
increase our available market
and potential.
We have the broadest, most
up-to-date range of medically
approved power converters
in our industry.
10
Heading DRIVER
HOW WE’RE RESPONDING
PROLIFERATION OF ELECTRONIC DEVICES
Electronic devices are becoming more and more pervasive in our lives
as new technologies and innovation emerges. This trend is accelerating
with the adoption of the Internet of Things (IoT), Augmented Intelligence
(AI) and big data. These devices drive demand for semiconductor
manufacturing equipment which is a key focus area for XP Power.
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 generally leads to greater
productivity. We consider that the medium and long-term opportunities
remain positive for capital equipment. This is particularly the case in
emerging markets as we see labour costs rising significantly.
EXPANSION OF “GREEN” PRODUCTS
Climate change and emission of greenhouse gases is becoming an
increasingly 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.
We have the broadest range
of standard products in our
industry which are designed
to be easy to modify to
power the customer’s
specific application. Many
of our products are suitable
to power semiconductor
manufacturing equipment.
We have dedicated resources
devoted to safety legislation
which we are expanding.
We have the largest direct
sales force in our industry
together with the broadest
product portfolio so are well
positioned to take advantage
of any recovery in the capital
equipment markets.
We have developed a
portfolio of XP “Green”
Power products with class-
leading efficiencies and have
the most environmentally
friendly manufacturing facility
in our industry.
11
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Our Business Model
Our model is to sell directly to our key customers, offering excellent service
and support combined with a broad range of class-leading products
WE MANAGE OUR RELATIONSHIPS
WE ADD VALUE THROUGH
OUR SALES CYCLE
Our customers are at the
heart of what we do
Our model is to sell directly to our key customers where we
can add genuine value, 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 evolved from a sales and marketing background as a
specialist distributor of power conversion products, then moving
into design and then later into manufacturing, we have a unique
understanding of our customers and the market compared to
much of our competition. We are now expanding our engineering
solutions group to further enhance the value we can deliver to
our key customers.
We manage 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 Responsible Business Alliance
(RBA) and have adopted the RBA 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.
12
Our sales process is generally a technical sale, between XP Power sales
engineer and 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 approach a company such
as ours to recommend and assist them to design a power converter into
their end system to allow it to function.
Generally, with larger customers it is not possible to engage on a
specific opportunity until we are on an approved or preferred vendor
list. This will involve qualification by the customer’s technical, quality
and purchasing teams and may often involve a physical audit of our
quality systems and a factory audit.
IDENTIFICATION
OUR SALES
CYCLE IN
STEPS AS
FOLLOWS:
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 of their system until they have a working prototype.
2
QUOTATION
An XP Power sales person 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 dimensions. 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 critical. Our power
systems engineers will often work closely with the customer at this stage to assist them with
any issues they might experience such as dealing with electrical noise.
4
APPROVAL
The power converter is approved for use in the customer system following the customer’s
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.
Heading We have successfully transitioned the business from a specialist distributor, to designer,
to design manufacturer ascending the value chain to grow our revenues and margins
WE DIFFERENTIATE
OURSELVES THROUGH...
WE GENERATE LONG-TERM REVENUE
ANNUITIES AND SHAREHOLDER VALUE
Our people
As in any business the most important asset is our people.
We have a large and highly technically trained sales force. 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 Leadership 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
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 with over 250 product families in our portfolio.
Our products are specific to the requirements of the various
industries and applications we target. 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 product portfolio has been
enhanced with high voltage modules following the acquisition
of EMCO in November 2015 and Radio Frequency power from
Comdel in September 2017.
Our design engineering
We have design engineering teams on three continents – this
allows us to release a high number of innovative new products
required by this highly diversified market. 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,
Singapore 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 stand-by power consumption.
Our manufacturing
Our Asian manufacturing bases in China and Vietnam are 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.
Our 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.
Generating revenue streams
with strong annuity
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 on-going 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 life cycle from ECM40/60 product family
£ million
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 2017
XP “Green” Power product Revenue Growth
“Green” product revenue (£ million)
39.7
30.2
23.6
18.6
13.7
5.0
2.8
8.1
2010
2011
2012
2013
2014
2015
2016
2017
Progressive dividend policy
Our business model and clear strategy, consistently applied, has
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.
Ten year dividend history (pence per share)
66
61
55
50
78
71
45
33
21
22
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
The compound average growth rate of the dividend per share has been
9% over the last five years and 15% over the last ten years.
13
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT
Our Strategy
XP Power has followed a clear and consistent dual track strategy of moving
up the value chain through its internally developed products and adding
complementary products through acquisitions to target key accounts where
we can add genuine value.
The key elements of our strategy are as follows and are derived from our vision:
DEVELOP A BROAD
RANGE OF COMPETITIVE
PRODUCTS
TARGET ACCOUNTS
WHERE WE CAN
ADD VALUE
VERTICAL PENETRATION
OF FOCUS ACCOUNTS
RATIONALE
PAST
PERFORMANCE
PLANNED
FUTURE ACTIONS
LINK TO KPIs
(see pages 18 and 19)
14
We need a broad product range
due to the fragmented nature
of the markets we serve which
have a multitude of product
requirements.
The broader and more up-to-
date our product range the more
chance we will have something
that will work effectively in our
target customers’ applications.
We pride ourselves in the level of
service and support we offer to
our customers, particularly during
the design-in stage.
We have a compelling proposition
where customers expect excellent
quality and reliability to power
their mission-critical equipment,
but in particular where they face
a power problem due to either
heat dissipation or electrical noise.
These are the type of customers
that we target.
We still have a relatively small
share of the available business
in some of the accounts we call
on. We are continuing to expand
our product portfolio so we can
address more of the opportunities
that are available in these
accounts to grow our revenues.
Over the past few years we have
been expanding our product
portfolio and have developed a
number of highly efficient, leading
edge products.
We have targeted customers for
which reliability is key or where
their equipment may be located
in harsh environments. These
customers value the support and
service that our highly trained
sales force and power systems
engineers deliver.
We have spent the last few
years gaining approved or
preferred supplier status at the
key customers in the Industrial,
Healthcare and Technology
sectors. We are focused on this
existing customer base in order to
grow our revenues.
Emphasis has now shifted
towards products which still have
leading efficiencies but which are
more mainstream and attractive
from a cost perspective.
We are prioritising our resource
on the customers that fit our
value proposition. We are de-
emphasising customers that may
have significant revenue potential
but where cost is a more critical
factor than quality and reliability
or engineering support during the
design phase.
As we expand our product offering
through continued product
development and acquisitions,
we aim to address an increasing
proportion of our customers’
requirements with our excellent
service and support.
NEW PRODUCT FAMILIES
RELEASED AND PROPORTION
OF OWN-DESIGNED REVENUE
REVENUE
REVENUE FROM
TOP 30 CUSTOMERS
Heading OUR VISION
THE FIRST CHOICE POWER SOLUTIONS PROVIDER
DELIVERING THE ULTIMATE EXPERIENCE FOR OUR
PEOPLE AND CUSTOMERS
ENHANCE BRAND
AWARENESS
ACHIEVE OPERATIONAL
EXCELLENCE
LEAD OUR INDUSTRY
ON ENVIRONMENTAL
MATTERS
ACQUIRE BUSINESSES TO
EXPAND OUR OFFERING
In what is a highly fragmented
industry, we are still a relatively
new player. We have the
advantage of a broad and up-
to-date product portfolio and
excellent service and support.
Awareness of our brand in the
market is key if we are to achieve
our vision of being the first choice
power solutions provider in the
market.
It is challenging to grow in
industrial markets which have
intrinsically low growth rates.
To do this we need an excellent
product range and we need to
deliver the ultimate experience
in service and support for our
customers. We need operational
excellence in order to deliver this
and to transform incremental
revenues into strong profit and
cash flow streams.
Strong corporate social
responsibility is not only important
to our key customers but also
to our employees and the
communities in which we operate.
This incorporates not only
environmental performance but
also health and safety, treatment
of our people and business ethics.
Our strong balance sheet and
cash generative business model
allow us the capacity to pursue
business acquisitions. This is
another avenue to expand our
product offering and therefore
addressable market.
Our increasing presence within
the online distribution networks
and our recent acquisitions
have continued to enhance the
XP brand.
We recognise the value of our
people, the lifeblood of the
Company, as the main asset that
can drive operational excellence.
Over the past two years we have
introduced improved training
and development opportunities
and better communication and
collaboration.
We have been a full member of
the Responsible Business Alliance
(RBA). The RBA Code of Conduct
to which we comply addresses
all of these important ethical and
environmental matters which we
strongly endorse.
Through acquisitions in the past
30 months, we have added both
high voltage products and RF
(Radio Frequency) power to our
product range.
We are able to further enhance our
brand awareness through further
expansion of distribution channels
and use of our digital marketing
tools.
We aim to provide more training
courses to employees to nurture
talent, encourage leadership,
and discuss career progression.
We are also looking to improve
processes for managing
performance of our people.
We will remain a committed
member of the RBA.
We strive to lead our industry on
environmental matters and have
a committee dedicated to raising
awareness of “green” initiatives,
however small.
We continue to look for
acquisitions to expand our
product offering and other
capabilities.
REVENUE
CULTURAL SURVEY SCORE
LIFETIME CO2 EMISSION
SAVINGS FROM “GREEN”
PRODUCTS
NEW PRODUCT
FAMILIES RELEASED
15
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT OUR STRATEGY
IN ACTION
COMDEL
ACQUISITION
MIKE LAVER
PRESIDENT,
CORPORATE DEVELOPMENT
“ Acquisitions are a key element of our
strategy in order to expand our product
offering so we can expand our addressable
market and be a more attractive partner to
our key customers. We are proud to bring
Comdel into the XP Power family. This
business is a landmark taking us significantly
up in power level, providing products that we
can sell to our existing customers.”
16
XP Comdel
Providing our customers with Radio
Frequency (RF) power technology
The acquisition of Comdel gives XP Power the
capability to provide our customers with RF
generating power supplies and RF matching
systems. This acquisition expands XP Power’s
portfolio in our existing customer base and
brings new customers that we can offer our
comprehensive range of AC-DC products.
Radio frequency generation is used in a variety
of applications. The most common are plasma
generation for deposition or etch of materials
in semiconductor equipment manufacturing
or industrial processes, induction heating, and
dielectric heating. RF power is also used in
industrial lasers, medical equipment and ion
beam inspection equipment. Ultra-sonic welding
is used to splice wires to terminals, weld thin foils
with precision, and to weld aluminium parts in
automotive applications.
Comdel not only provides XP Power with more
capabilities for our semiconductor equipment
manufacturing customers, it gives our technical
sales team the ability to sell RF power to our vast
Industrial and Healthcare customer base.
VOLTAGE
20KV
0.2KV
0.6KV
10KW+
2.5KW
0.03KW
XP
RF
(Comdel)
HV
(EMCO)
POWER
T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
DESIGN AND
SOLUTION
BASED
JAY WARNER
EXECUTIVE VICE PRESIDENT,
US SALES
“ We deliver genuine value to
our customers through our
engineering solutions groups.”
XP POWER’S SOLUTION
Working closely with the customer’s
design team, our engineering solutions
group provided an engineered power
solution for the gateway control system
to handle the rugged environment in
order to meet the customer’s reliability
requirements. We used off-the-shelf
power supplies (CCM250 and GCS350)
which were modified with specialised
components to operate below
-40ºC while custom heatsink plates
were utilised to handle the extreme
temperatures up to 70ºC. The fact we
already had standard products with
industry leading power density (small
size), high efficiency, high reliability
and green mode allowed us to win
this business and get the customer to
market quickly.
INTERNET
OVERVIEW: XP Power partnered with a leading provider of
broadband satellite services and managed network solutions.
PROBLEM: Over half the world is without reliable broadband
access. High-speed internet is key to so many things
including education, healthcare, emergency services and
communication.
SOLUTION: Our customer provides a global communications
solution utilising a constellation of hundreds of low earth
orbit satellites and thousands of ground-based gateway end
base stations capable of supporting seamless handoff of
broadband traffic between satellites to reach hundreds of
millions of potential users residing in places without existing or
reliable broadband access.
POWER CHALLENGE: The gateway end base stations
will be located at the far corners of the planet, and subject
to inhospitable environments, harsh temperatures and
challenging serviceability. A highly reliable power conversion
solution is a critical requirement.
SATELLITE CONSTELLATION
TERRESTRIAL GATEWAY
USER TERMINAL
STANDARD
ACCESS NODES
WI-FI
17
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT
Our Key Performance Indicators
We have defined a number of Key Performance Indicators (KPIs), both financial
and non-financial, which are closely aligned with our strategy and core values.
Our performance over the years demonstrates significant and consistent progress.
FINANCIAL
NEW PRODUCT
FAMILIES RELEASED
REVENUE (£ MILLIONS)
REVENUE FROM
TOP 30 CUSTOMERS (%)
47
31
26
22
27
166.8
129.8
101.1
101.1
109.7
50
44
44
40
40
DEFINITION
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
We target revenue growth of 10%
per annum. Whether we achieve
this or not can depend on market
cyclicality and exchange rates.
We expect revenue from our top
30 customers to increase as we
pursue our strategy.
Not all products are equal in
terms of their complexity to
develop or their revenue potential.
In assessing new product
opportunities, we consider the
potential revenue from a new
product family as well as the
absolute number of new product
introductions.
TARGET ACHIEVED
NO
YES
YES
OUR PROGRESS
IN 2017
OUR PLANS
FOR 2018
LINK TO STRATEGY
(see pages 14 and 15)
LINK TO
CORE VALUES
(see page 34)
LINK TO RISK
(see pages 28 to 31)
18
¼ We released 27 new product
families in 2017 (2016: 47 -
driven by the addition of a new
third party supplier to enhance
our DC-DC offering).
¼ 19 of the 2017 new product
families can be classified as
ultra-high efficiency.
¼ Acquired Radio Frequency
(RF) products offering
RF power generation and
RF matching systems.
¼ We targeted the semiconductor
¼ Revenue from the top 30
customers represented 50%
of revenue (2016: 44%).
manufacturing equipment
market, which is currently
enjoying a strong upturn.
¼ Strong growth through our
expanded distribution channels
reaching smaller customer
accounts.
¼ We continue to concentrate
our resources on the accounts
where we can add value
by having a direct sales
engagement.
¼ Target 30 new product releases
in 2018 with continued
emphasis on higher power
products.
¼ Consider further suitable
bolt-on acquisitions to expand
the offering.
¼ Provide increasing support to
our customers through our
engineering solutions group.
¼ Provide existing customers with
our expanding product offering.
¼ Continue to grow our share of
customers’ business where
we are preferred or approved
suppliers.
¼ Expansion of our product
portfolio to increase our
addressable market in our
existing customer base.
DEVELOP A BROAD RANGE OF
COMPETITIVE PRODUCTS
TARGET ACCOUNTS WHERE WE
CAN ADD VALUE
VERTICAL PENETRATION OF
FOCUS ACCOUNTS
CUSTOMER
CUSTOMER
FOCUS
FOCUS
KNOWLEDGE
KNOWLEDGE
FLEXIBILITY
FLEXIBILITY
CUSTOMER
FOCUS
SPEED
SPEED
KNOWLEDGE
INTEGRITY
INTEGRITY
CUSTOMER
FOCUS
FLEXIBILITY
KNOWLEDGE
SPEED
INTEGRITY
FLEXIBILITY
CUSTOMER
FOCUS
SPEED
CUSTOMER
KNOWLEDGE
FOCUS
INTEGRITY
KNOWLEDGE
FLEXIBILITY
FLEXIBILITY
SPEED
SPEED
INTEGRITY
INTEGRITY
2
3
9
1
2
3
4
5
9
10
1
2
3
5
9
Heading In addition to these quantitative KPIs, we track important governance metrics as follows:
} No significant environmental issues
} No serious health and safety events
} No breaches of the Company’s ethics policy
PROPORTION OF OWN-
DESIGNED REVENUE (%)
64
66
68
73
76
NON-FINANCIAL
EARNINGS PER
SHARE (PENCE)
after adjusting for one-off costs,
non-recurring tax benefits and intangibles
amortisation
CULTURAL
SURVEY SCORE
(index out of 100)
LIFETIME CO2 EMISSION
SAVINGS FROM “GREEN”
PRODUCTS (TONNES)
147.0
62.9
63.0
62.0
59.2
291,000
101.1
104.3
95.1
115.3
158,000
133,000
102,200
84,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2015
2016
2017
2018
2013
2014
2015
2016
2017
We have now achieved 76%
which is close to the 80% target
we had set ourselves.
We target to grow this metric by a
double digit percentage each year.
We target to improve this score
each year with the long-term aim
to achieve a score of 67 which
will put us in the “clearly the
best” category as defined by the
external consultant assisting us
with the survey.
We have set a target to increase
the lifetime CO2 emissions savings
from XP “Green” Power products
by at least 5% per annum.
NO
YES
NO
YES
¼ Continuous improvements
¼ We continue to undertake
¼ In 2017 revenue from
our own-designed/
own-manufactured products
grew 34% from £95.3 million in
2016 to £127.4 million in 2017.
This now represents 76%
of revenue.
¼ The revenue from the Comdel
business acquired at the end of
September 2017 has increased
the own design percentage.
to our customer relationship
management system including
enhanced reporting.
¼ Implemented lean cell
manufacturing at our Asia
factories to reduce lead times
and find efficiencies.
¼ Balanced the requirement to
invest in additional resource
and capital equipment to
support future growth.
¼ Continued investment in
our product development
groups and those of the
newly acquired business,
combined with growth from our
Engineering Solutions Group
will drive this metric.
¼ Roll out lean principles to North
America manufacturing sites.
¼ Upgrade and harmonise
the ERP system to include
manufacturing.
¼ Excellent operational
processes should enhance
customer experience and drive
improvement in revenue growth
and operating/EBITDA margins.
an annual employee cultural
survey to identify the areas our
people tell us where we can
improve to drive operational
excellence.
Using the results of this survey we
have introduced:
¼ More collaborative and
focused management
performance appraisal.
¼ Leadership development
training courses for both
managers and those with
management aspirations.
¼ Harmonise and improve the
on-boarding process to attract
and retain talented employees.
¼ Continue training and
development for employees
and managers to extract
maximum benefit and provide
career progression.
¼ We continued to launch a
number of high efficiency
products which bring high
efficiency at lower cost points.
Of the 27 product families
released in 2017, 19 were
ultra-high efficiency products.
¼ We saw our revenues
from XP “Green” Power
products increase 32% to
24% of revenue.
¼ We will continue to release
products with class-leading
efficiency suitable for use
in healthcare and industrial
applications.
DEVELOP A BROAD RANGE OF
COMPETITIVE PRODUCTS
ACHIEVE OPERATIONAL
EXCELLENCE
ACHIEVE OPERATIONAL
EXCELLENCE
LEADING OUR INDUSTRY ON
ENVIRONMENTAL MATTERS
CUSTOMER
FOCUS
KNOWLEDGE
CUSTOMER
FOCUS
FLEXIBILITY
KNOWLEDGE
SPEED
CUSTOMER
FLEXIBILITY
FOCUS
INTEGRITY
SPEED
KNOWLEDGE
INTEGRITY
FLEXIBILITY
SPEED
CUSTOMER
FOCUS
INTEGRITY
CUSTOMER
FOCUS
KNOWLEDGE
KNOWLEDGE
FLEXIBILITY
FLEXIBILITY
SPEED
SPEED
INTEGRITY
INTEGRITY
1
2
5
9
1
6
2
7
3
8
4
9
5
10
7
9
5
7
19
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT PERFORMANCE
Operational Review
“ WE CONTINUE TO BE EXCITED
AND CONFIDENT REGARDING
THE FUTURE PROSPECTS FOR
OUR BUSINESS.”
Duncan Penny
Chief Executive
20
Review of Our Year
XP Power has enjoyed another excellent year, achieving record
order intake, revenues, profits and earnings per share. Improvement
in our underlying markets started to take hold from the third quarter
of 2016 and continued throughout 2017. Layered on top of this
recovery were new design wins entering production, particularly in
the healthcare sector, and a strong upturn in the semiconductor
manufacturing equipment market. These factors combined to
produce an excellent set of results. We continued to move our
product portfolio up to higher power and technically more complex
applications and to expand the number of design wins with higher
engineering solutions content.
We announced the acquisition of Comdel in September 2017. This
business gives XP Power a foothold in the Radio Frequency (RF)
power market and meets our strategic aim of moving up the power
scale to expand our addressable market and provide a broader
product offering to our key customers.
We made strong progress toward expanding our manufacturing
capacity in Vietnam when we commenced construction of an
additional facility on our existing Ho Chi Minh City site during the
year. We expect this new facility to come on stream in the second
half of 2018. The expected capacity increase from this new facility
will be phased over a number of years but has the potential to
double our existing Vietnamese manufacturing capabilities in the
longer term.
We continue to be excited by the future prospects for our business.
Marketplace
All industry sectors and all geographies experienced revenue growth
in 2017 over 2016 and, significantly, sequential growth in the second
half of 2017 over the first half. The order performance was also
strong, with order intake up 38% on the prior year (2016: 21%) and
31% ahead in constant currency (2016: 9%) which resulted in a
book to bill ratio of 1.11 (2016: 1.03), demonstrating the strength of
the 2017 performance. We enter 2018 with good momentum and a
healthy order book.
During 2017 we specifically targeted the semiconductor
manufacturing equipment market. This market is traditionally cyclical
and is currently enjoying a strong upturn which has benefitted the
Group. Despite its historic cyclicality this market remains highly
attractive due to its robust fundamentals, which are being driven by
the proliferation of applications involving the internet of things (IoT),
augmented intelligence (AI), autonomous vehicles and big data.
North America revenues were US$121.3 million in 2017 (2016:
US$93.7 million), an increase of 29%. The acquisition of Comdel at
the end of September 2017 contributed US$5.4 million (2016: nil)
to North American revenues. As well as a general recovery in the
capital equipment markets, our North American business benefited
from a very strong performance in the semiconductor manufacturing
equipment sector which contributed US$37.3 million to revenues
(2016: US$20.8 million). Order intake in North America was also very
strong at US$139.2 million (2016: US$98.6 million), an increase of
41%. The acquisition of Comdel contributed US$7.7 million (2016:
nil) to North American order intake in 2017. The strong book to bill
ratio of 1.15 for North America bodes well for 2018.
Heading However, our exposure to a large number
of end markets helps mitigate the cyclicality
in any particular sector, producing an
underlying resilience in our diversified
business model.
Adapting to the Market
and the Competition
Since listing on the London Stock Market in
2000, XP Power has evolved from a specialist
distributor of power conversion products to
a designer and then manufacturer of power
solutions for the industrial, healthcare and
technology markets.
We continue to perform well against our
traditional established competition. Our
broad range of standard products, now
augmented by recent acquisitions, and
excellent customer service delivered by
the largest direct sales force in our industry
is a compelling proposition. We expect
future competitors to emerge from Asia as
companies with low cost manufacturing and
engineering attempt to enter parts of the
industrial and healthcare markets in Europe
and North America. We need to continually
adapt our product offering and services to
respond to this threat.
Low cost Asian competitors continue to
become more prevalent, particularly in
the low power/low complexity end of the
market. It is straightforward to source low
cost/low power products directly from Asian
manufacturers. Engineering solutions are
not so easily managed remotely and work
most effectively when situated close to the
customer so design discussions and design
reviews can take place face-to-face. We
continue to add more and more value to our
customers as we expand our engineering
service groups across the globe.
Our European business grew by 16% to
£57.5 million (2016: £49.4 million) which
is the third successive year of growth. The
industrial, healthcare and technology sectors
all saw growth in Europe but healthcare
showed the highest growth rate at 27%, as
a number of significant new programmes at
blue-chip customers entered production.
Asia revenues grew 18% in 2017 to
US$19.0 million (2016: US$16.1 million).
Healthcare displayed particularly good
growth in 2017 in the Asia region.
Overall, North America represented 57%
of revenue (2016: 53%), Asia represented
9% of revenue (2016: 9%) and Europe
represented 34% of revenue (2016: 38%).
The average exchange rate for the US
Dollar compared to Sterling was 1.28 in
2017 versus 1.38 in 2016, representing
a 7% weakening of Sterling following the
Brexit vote in June 2016. This caused North
America and Asia revenues to be inflated,
due to translation, but similarly all of our US
Dollar denominated product costs to also
be inflated when translated to Sterling. We
discuss the potential impact of the Brexit
vote and foreign exchange volatility in more
detail in our Financial Review.
Every sector grew in absolute terms
but technology grew most strongly
due to the strength of semiconductor
manufacturing equipment sector demand,
and also healthcare due to a number of
new programme wins entering production.
Industrial represented 39% of revenue
(2016: 46%), healthcare represented 31%
of revenue (2016: 29%) and technology
represented 30% of revenue (2016: 25%).
All our products are designed into capital
equipment so our revenues will inevitably
be affected by capital equipment cycles.
This is particularly so in the semiconductor
manufacturing equipment sector which
made up 17% of our revenues in 2017
(2016: 12%), although this industry has
more recently put forward the argument
that the sector will be much less cyclical
in the future due to the prevalence of
semiconductor devices in our modern world.
As well as providing a higher content of
engineering solutions we have moved our
product portfolio up in terms of power level
and complexity to help protect our business
from low cost Asian competition, which
remains a significant threat. Specifically,
we have expanded the capability within
our product portfolio with the acquisition of
Comdel which gives us Radio Frequency (RF)
power at high power levels.
We are building a broad and compelling
product offering which will make us an
increasingly attractive partner to leading
companies in the industrial, healthcare and
technology sectors in order to power their
mission-critical applications.
Strategic Progress
We have followed a consistent strategy
which has enabled us to produce strong
results over a sustained period of time.
The fundamental essence of the strategy
– targeting key accounts where we can
add value and gaining more of the available
business in those accounts – continues to
remain appropriate and effective.
Our strategy can be summarised as follows:
} Develop a broad range of
competitive products;
} Target accounts where we can
add value;
} Increase vertical penetration of
target accounts;
} Enhance brand awareness;
} Accelerate operational excellence;
} Lead our industry on environmental
matters; and
} Make selective acquisitions in
identified strategic markets or of
complementary businesses to
expand our product offering.
We continue to make significant progress
against each of these strategic objectives.
We believe we have the broadest, most
up-to-date portfolio of products, many of
which are class-leading in terms of efficiency
and low stand-by power. Our portfolio of XP
“Green” Power products grew by 31% in
2017 to £39.7 million (2016: £30.2 million)
demonstrating how well these products have
been adopted by our customers. We also
continue to see revenues from our own-
designed/manufactured products grow at a
faster rate than those from other products.
21
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT PERFORMANCE
Operational Review
We consider that our transition from a
specialist distribution company, through the
addition of a design capability, to designer
and manufacturer is now complete. We are
now clearly recognised as both a designer
and manufacturer by key customers in
our target markets. Revenues from our
own-designed products set a new record
of £127.4 million in the year (2016: £95.3
million), representing 76% of revenue (2016:
73%). We expect further improvement in the
mix of own-designed products in 2018. We
are now moving our business further up the
value chain by providing our key customers
with higher levels of engineering solutions
where we add value, enabling the customer
to more easily integrate the power solution
into their critical systems. These services
range from providing simple voltage and
connector changes, through to changes in
mechanical format, the addition of thermal
management, communication to the
customer’s end equipment utilising firmware
and ultimately full custom designs. This is
a much more engineering intense activity
but does mean we work very closely with
the customer’s design engineers to provide
them with a complete power solution
in the shortest possible time, delivering
genuine value.
Acquisition of Comdel
– Radio Frequency (RF) Power
On 29 September 2017 XP Power acquired
the assets and business of Comdel,
a company based in Massachusetts,
USA, specialising in Radio Frequency
(RF) power generation products which it
supplies to the industrial and technology
sectors. Total consideration of US$25.2
million (£18.8 million) was paid in cash on
completion.
Radio frequency power is used in a variety
of applications. The most common are
plasma generation for deposition or etching
of materials in semiconductor manufacturing
equipment or industrial processes, ultra-
sonic welding, induction heating, and
dielectric heating. RF power is also used
in industrial lasers, medical equipment and
ion beam inspection equipment. Ultra-sonic
welding is used to splice wires to terminals,
weld thin foils with precision, and to weld
aluminium parts in automotive applications.
Comdel and XP Power share several
customers, and while there is no direct
overlap in product lines, the power supply
solutions of the two companies are highly
complementary. Comdel’s products and
engineering capabilities will enhance the
Group’s ability to implement its strategy of
winning a greater share of business from its
target customers by achieving wider vertical
penetration of these accounts. As well as
a product offering suitable for an array of
applications used by some of XP Power’s
existing customer base, Comdel also brings
a number of new customers to the Group.
The acquisition will enable XP Power
to provide its existing customers with a
comprehensive product offering in RF power
generation and RF matching systems,
a market segment with robust demand
fundamentals but one in which we did not
previously operate.
XP-Comdel has already experienced
excellent growth in orders since the
acquisition, benefiting from the favourable
conditions in the semiconductor
manufacturing equipment sector.
We are delighted to welcome Comdel to
the XP Power Group and are excited
about the opportunity of offering their
complementary product ranges through
our global sales channel.
The combination of XP Power’s existing
low voltage power offering with the high
voltage/low power DC-DC converters
acquired through the acquisition of EMCO
in November 2015 and now the RF
power from Comdel substantially expands
XP Power’s addressable market and
makes us a compelling power solutions
provider for many customers involved in
industrial, healthcare and semiconductor
manufacturing equipment.
Engineering Solutions
As well as expanding our product
offering we have continued to expand
our engineering solutions groups in Asia,
Europe and North America. Our customers
frequently require a high degree of
customisation to allow the power conversion
system to operate within their end
equipment or simply to make it easier for the
customer to integrate the power conversion
solution into their application. Our
engineering solutions groups work closely
with the customer’s engineering teams to
provide these customised solutions.
22
Heading Speed and proximity to the customer are
critical as the power solution is often one of
the last parts of the system to be designed
so is invariably one of the gating items to get
the end product to market. This is an area
where XP Power add significant value to
the customer and we are seeing increasing
demand for these services. The addition of
high voltage and now RF power allows our
engineering solutions groups to leverage
off additional standard products as building
blocks to expand our addressable market.
We will expand these resources in 2018
to address the opportunities we continue
to identify.
Research and Development
We have continued to invest in research and
development to further expand our portfolio
of products and the size of our addressable
market opportunity. In particular, we
increased our design engineering resource
and capabilities during 2017. We released
27 new product families in 2017 (2016: 47)
and 19 (2016: 33) of these can be classified
as ultra-high efficiency.
The high level of new product introductions
in 2016 was driven by the addition of a new
third-party supplier to enhance our DC-DC
product offering.
Manufacturing – Vietnam II
In 2012, we expanded our manufacturing
footprint outside China when we started
manufacturing magnetic windings in a new
Vietnamese facility situated close to Ho Chi
Minh City. This added much needed capacity
and also enhanced our cost competitiveness
as production costs primarily labour in
Vietnam are significantly lower than those of
our existing Chinese facility.
Production volumes of magnetics windings
at our Vietnam facility have continued to
climb and in 2017 we produced 6.7 million
windings compared to 4.9 million in 2016.
We have been actively transferring the
lower power/lower complexity products
from China to Vietnam to improve our cost
position and free up capacity in China. In
2017, we manufactured 1.0 million power
supplies in our Vietnam facility compared to
0.4 million in 2016.
Outlook for 2018
We enter 2018 with a strong order book
and good momentum in our business and
a strong position in our marketplace. We
also have the benefit of a full 12 months
contribution from the acquisition of Comdel,
providing us with RF Power capability. While
we cannot be immune from any economic
shocks or cyclicality in our end markets,
and in particularly the semiconductor
manufacturing equipment sector which
represented 17% of our business in 2017,
we are optimistic regarding the outlook
for 2018.
We remain excited and confident regarding
the long-term prospects for our Group.
Duncan Penny
Chief Executive Officer
We continue to make process
improvements in our manufacturing facilities,
where we are applying more lean process
principles. Our internal yields continue to
improve and we have redesigned some of
our processes to reduce product lead times
to provide improved customer service and
reduced freight costs.
In October 2017, we commenced
construction of a second manufacturing
facility on our existing site in Vietnam.
Our Vietnamese site currently houses a
2,100m2 administration building and a three-
storey 9,260m2 manufacturing facility. The
new Vietnamese facility will be a four-storey
building with 11,000m2 of floor area. We
have spent US$0.3 million in 2017 and
anticipate a further spend of US$5.0 million
in 2018 to complete the project. Our
longer-term planning indicates we will need
this additional manufacturing capacity in the
first half of 2019.
Our key operational challenge in 2017 has
been keeping pace with the growth in the
business. Our lean manufacturing initiatives
have helped in that regard but we still have
opportunities to improve our supply chain
and planning processes to reduce our lead
times and make our supply chain more agile.
23
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT
PERFORMANCE
Financial Review
“ 2017 FINANCIAL RESULTS HAVE
DEMONSTRATED THAT OUR
STRATEGY IS WORKING AND WE
HAVE ENDED THE YEAR IN A
STRONG FINANCIAL POSITION.”
Gavin Griggs
Chief Financial Officer
24
XP Power delivered a strong performance in 2017. The significant
order and revenue growth coupled with effective control of operating
expenditure, has delivered strong year-on-year growth in profits.
We have also made further investment in capital projects in order to
build the capabilities necessary to support our future sales growth.
The business exited the year with a robust financial position.
Revenue and Order Intake
The Group generated revenue growth of 29% during the year on a
reported basis (22% in constant currency and 19% on an organic
constant currency basis). The Group’s performance was driven by
revenue growth from XP Power’s own-designed products, a key
indicator of XP Power’s strategy in action, which grew 34% (or
approximately 24% in constant currency) to £127.4 million (2016:
£95.3 million) representing 76% of revenue (2016: 73%).
Regionally, North America grew strongly, up 38% (29% in constant
currency and 24% on an organic constant currency basis),
supported by good revenue growth performances in Europe of 16%
(12% in constant currency) where the Nordic markets and Italy were
standout performers, up 21% and 26% respectively, and Asia, up
26% (18% constant currency), with a notable performance in South
Korea, which was up 50%.
This performance was driven strong order performance of £184.3
million, an increase of 38% over 2016 on a reported basis, or 31%
in constant currency.
Orders and revenue for 2017 represent a full year book to bill ratio of
1.11 (2016: 1.03) reflecting the strength of customer demand across
the year.
Gross Profitability
Gross margin declined slightly to 46.5% (2016: 47.8%), largely
due to product mix and the effect of the depreciation of Sterling
versus the US Dollar. Proportionately more of our product costs are
denominated in US Dollars compared to our revenues. As Sterling
weakens, our reported revenue increases due to the translation
benefit but so does our cost of sales, although at a greater rate. The
result is higher gross margin in absolute terms but the gross margin
percentage declines. The average exchange rate for converting
US Dollars into Sterling in 2017 was 1.28 (2016: 1.38). Operating
margins declined from 21.6% in 2016 to 19.5%. This was largely
due to weakness of Sterling.
Operating Expenses
The Group increased its investment in operating resources by 29.9%
to £44.8 million, with the total operating costs to revenue ratio
increasing by 0.3% to 26.9% (2016: 26.6%). Payroll and staff costs
increased by 20.3% and were 17.1% of revenue as a result of cost
leveraging. Headcount has increased 29.7% (2017: 1,953; 2016:
1,506). Non-cash share-based payment charges amounted to £0.1
million (2016: nil) and related to a grant to senior management under
the Long-Term Incentive Scheme during the year. Other operating
costs up 60.3% and represented 7.0% of revenue. Depreciation
and amortisation increased by 28.6% and was 2.7% of revenue, a
consequence of the strong sales growth versus prior year together
with a significant element of capital expenditure being in relation to
projects which go live in the next financial year.
Heading Exceptional Items
Exceptional items are excluded from
management’s assessment of profit
because by their size or nature they could
distort the Group’s underlying earnings. In
2017, the Group incurred £3.3 million of
exceptional costs, predominantly related
to costs associated with acquisitions, both
completed and aborted, and £0.6 million for
intangible assets amortisation.
Income statement
The Group generated continuing profit
before tax and exceptional items of £36.1
million, up 26.2% compared to last year,
lower than revenue growth due to a gross
margin dilution of 130bps and an increase
of 299bps investment in operating costs.
When reviewing XP Power’s performance,
the Board and management team
particularly focus on adjusted results rather
than statutory results. There are a number
of items that are included in statutory results
but which are considered to be one-off in
nature or not representative of the Group’s
performance and which are excluded from
adjusted results. The tables on pages 94
and 95 show the full list of adjustments
between statutory operating profit and
adjusted operating profit by business, as well
as between statutory profit before tax and
adjusted profit before tax at Group level for
both 2017 and 2016.
For the current financial year, adjusted
EBITDA was up 26.4% to £41.7 million and
adjusted operating profit was 26.4% ahead
at £36.4 million. Both metrics demonstrate
the strength of performance that the Group
delivered in 2017.
Taxation
The effective tax rate from continuing
operations before exceptional items
decreased by 1,220bps to 10.1% (2016:
22.3%). This arose mainly from the recently
enacted Tax Cuts and Jobs Act in the
United States, and prior year refunds
predominantly in Singapore. The Tax Cuts
and Jobs Act has resulted in a non-cash
tax credit in 2017 relating to the revaluation
of US deferred tax balances of circa £1.3
million, based on the net deferred tax liability
at the end of 2017. This credit is as a result
of the reduction in the federal tax rate from
35% to 21% and will be excluded from
adjusted earnings.
The effective tax rate from continuing
operations after exceptional items
decreased by 1,150bps to 11.2% (2016:
22.7%). Going forward, XP Power expects
the effective tax rate to be approximately
15-17% depending predominantly on the
regional mix of profits.
Earnings Per Share
Basic and diluted earnings per share from
continuing operations before exceptional
items increased by 32% and 31% to 148.3
pence and 146.0 pence respectively (2016:
112.0 pence and 111.2 pence). This was
driven by the increase in continuing profit
before tax during the year.
After adding back costs associated with
acquisitions of £3.3 million (2016: £0.4
million), £3.7 million non-recurring tax
benefits (2016: nil) and intangible assets
amortisation of £0.6 million (2016: £0.4
million), adjusted diluted earnings per share
was 147.0 pence (2016: 115.3 pence), an
increase of 27%.
Statement of
Financial Position
The Group continues to enjoy a healthy
financial position including a low level of net
debt at £9.0 million (2016: net cash at £3.7
million). The reduction in cash includes the
consideration for Comdel at £18.2 million
(excluding associated legal fees of £0.2
million and consideration payable of £0.6
million) and the dividend paid out of £14.0
million, partially offset by the free cash flow
generated of £19.4 million. Net assets
increased by £10.0 million to £116.9 million
during the year (2016: £106.9 million).
As part of the acquisition of Comdel, XP
Power entered into a revolving credit facility
of US$40 million with a further US$20
million accordion structure for a further four
years (with a potential one year extension)
to September 2021. The finance charge
associated with this facility was £0.2 million
in 2017. Due to the average level of debt in
2018, the charge in 2018 is expected to be
double the 2017 level.
At the forthcoming AGM, the Board is
proposing an ordinary resolution to change
the borrowing restriction currently stipulated
in the Company’s Articles of Association in
order to make it more appropriate for the
size of business that XP Power has become.
The resolution proposes that Group
borrowings must not exceed the greater
of £125 million (previously £50 million) and
three times adjusted capital. This is to
provide sufficient headroom in the Articles
to support future growth through external
borrowing, should the Board consider this
appropriate in the future. It should be noted
that the Board will continue to use net
debt / EBITDA as the primary metric with
which to measure and control the Group’s
leverage. The Board believes this proposed
amendment to the Articles of Association to
be in the best commercial interests of the
Group. As at 1st March 2018, the Group
has available to its committed external
borrowing facilities of up to US$40 million.
25
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT PERFORMANCE
Financial Review
Fixed Asset Additions
We continue to invest in our business with the majority of spend on
manufacturing and supporting our future sales growth. The majority of the
manufacturing spend relates to our new Vietnam site located adjacent to our
current facility. We plan to invest circa £10 million during the new financial year,
a £4 million increase on 2017. This acceleration is principally due to the building
of our new Vietnam site and an investment in upgrading our ERP system.
Statement of Cash Flows
Our high margin business model, with modest capital requirements, continues
to produce excellent free cash flows.
We finished 2017 in a net debt position of £9.0 million compared with a net
cash position of £3.7 million at the end of 2016. This position was achieved after
funding the acquisition of Comdel (£18.2 million) and returning £14.0 million
to Shareholders in the form of dividends. There was a working capital outflow
which is predominately made up of higher inventory which reflects a high level
of orders to be shipped in early 2018, offset by a movement in trade and other
payables £5.3 million.i
Dividends
The attractive cash flow generated by the XP Power business model has enabled
the Company to pursue a progressive dividend policy over a sustained period of
time.
The 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 us to recommend a final dividend of 29 pence per share
which, together with the quarterly dividends already paid, gives a total dividend for
the year of 78 pence per share (2016: 71 pence per share), an increase of 10%.
Dividend cover for the year was 2.0 times.
Financial Instruments
The Group’s financial instruments consist of cash, money market deposits, 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 hedge highly probable forecast
transactions. The instruments purchased are denominated in the currencies of
the Group’s principal markets. The Group had £13.7 million of forward currency
contracts outstanding at 31 December 2017 (2016: £11.5 million).
Substantial Interests
Other than the Directors’ interests, at 31 December 2017 the Company was
aware of the following interests in 3% or more of the issued ordinary share
capital of the Company:
Number of
shares
3,156,588
1,693,093
1,670,917
1,488,000
734,563
724,246
Percentage
of shares in
issue
16.4%
8.8%
8.7%
7.7%
3.8%
3.8%
Standard Life Aberdeen plc
Hargreave Hale
Mawer Investment Management
Capital Group Companies
BlackRock Investment Mgt (UK)
Old Mutual Global Investors
26
Heading As at 27 February 2018, the following information had been received in accordance with the
Disclosure and Transparency Rules:
Standard Life Aberdeen plc
Hargreave Hale
Mawer Investment Management
Capital Group Companies
BlackRock Investment Mgt (UK)
JP Morgan Asset Management
Old Mutual Global Investors
Number of
shares
3,104,302
1,686,807
1,661,458
1,488,000
780,508
673,103
644,864
Percentage
of shares in
issue
16.1%
8.8%
8.6%
7.7%
4.1%
3.5%
3.4%
Brexit and Foreign Exchange
The weakening of Sterling versus the US Dollar in the period following the United Kingdom
Referendum on EU membership in June 2016 had a material effect on the presentation of
our financial results in both 2016 and 2017.
Approximately 82% of our revenues (2016: 75%) are denominated in US Dollars and the
translation of these revenues into Sterling for reporting purposes has had a beneficial effect.
However, the majority of our cost of sales and a large proportion of our operating expenses
are also denominated in US Dollars. While a stronger US Dollar helps our overall gross
margin in absolute terms (albeit to a limited degree) it also has the effect of reducing the
gross margin percentage as costs rise disproportionately to the revenues. We estimate that
our reported 2017 gross margin percentage could be approximately 60bps (2016: 130bps)
lower as a result.
In terms of the broader economic impacts of Brexit on our business, we do not consider
that they will be material. Our products are made in Asia and are already imported into
Europe where we have warehouses in both Germany and the United Kingdom and hence
we could ship our product destined for the European Union directly into Germany or another
appropriate location.
Systems Development
Efficient and robust systems are essential
in order for us to manage an international
business and supply chain with a highly
diverse customer base. We operate a global
Customer Relationship Management system
covering all three regions which allows us to
collaborate, share information and provide
efficient and effective customer service. The
cornerstone of our supply chain is built on
the SAP Enterprise Resource Management
System. In 2018, we are embarking on a
project to implement the latest version of
SAP across our entire global supply chain
with the first focus being on our China and
Vietnam manufacturing facilities. We expect
this first stage to have significant benefits in
terms of factory planning and will of course
give us significant operational advantages
with the factory systems running on the
same platform as sales companies. Further
gains will be realised when we migrate the
supply chain across.
This integrated approach ensures that we
have the robust systems and reporting
necessary to support our future growth.
Outlook
We have started the new financial year well
with continuing momentum in new orders
and revenue. We intend to invest further
capital expenditure in our business in key
areas such as supply chain, manufacturing
and systems to support the anticipated
growth of our business. We currently
anticipate that orders and revenue in 2018
will be above the level seen in 2017.
Gavin Griggs
Chief Financial Officer
27
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Managing Our Risks
OUR RISK ASSESSMENT
The Group has well-established annual and ongoing risk management
processes to identify and assess risks. Nonetheless, renewed emphasis,
encouraged by the more recently appointed Non-Executive Directors, coupled
with the introduction of internal audit reviews, has strengthened these
processes. The Group’s principal risks have been mapped onto a detailed risk
universe from which key areas for business focus can be identified. This helps
facilitate further discussions on risk appetite and draws out the risks that
require a greater level of attention in terms of audit or assessment. A robust
risk assessment has been carried out at Board level and where possible
actions set to mitigate and/or reduce the identified risk.
The key risks that have been identified and
the mitigating actions are summarised on
the following pages classified according to:
} The assessment of their level of impact
to the viability of the business if they
occurred – ranging from severe to minor;
} The likelihood of a risk occurring –
ranging from high to low; and
} The direction in which they are trending
– risks are classified according to
whether they are assessed as becoming
more likely to occur, less likely to occur
or whether the risk of occurrence
remains unchanged.
Although the attributes assigned to the
identified risks are judgemental and
qualitative in nature, the Board regards the
methodology as useful in determining the
focus that should be given to each risk.
This is not an exhaustive list of risks that
the Board has identified and considered but
does include all risks which are assessed as
having a severe or moderate impact to the
business if they occurred.
HEAT MAP OF THE IDENTIFIED RISKS INDICATING
THE LIKELIHOOD AND LEVEL OF IMPACT
1
2
3
4
5
6
7
8
9
An event that causes a disruption to one of
our manufacturing facilities.
Product recall.
Competition from new market entrants
and new technologies.
Fluctuations of revenues, expenses and
operating results due to an economic shock.
Dependence on key customers/suppliers.
Cybersecurity/information
systems failure.
Risks relating to regulation, compliance
and taxation.
Strategic risk associated with valuing or
integrating new acquisitions.
Loss of key personnel or failure to attract
new personnel.
High
Likelihood
10
Exposure to exchange rate fluctuations.
1
2
2
6
5
7
4
9
3
8
10
Impact
Severe
Minor
Low
28
Heading Risks that could have a severe impact on the Company’s business and possibly on the viability of the Company’s business
Risk
Mitigation
1
AN EVENT CAUSES A DISRUPTION TO OUR
MANUFACTURING FACILITIES
An event that results in the temporary or permanent loss
of a manufacturing facility would be a serious issue. As
the Group manufactures 76% of revenues, this would
undoubtedly cause at least a short-term loss of revenues
and profits and disruption to our customers and therefore
damage to reputation.
¼ We now have two facilities (China and Vietnam)
where we are able to produce power supplies.
However, not all power converter series can be
produced in both facilities.
¼ We have disaster recovery plans in place for
both facilities.
¼ We have undertaken a risk review with the
manufacturing management to identify and
assess risks which could cause a serious
disruption to manufacturing, and then identified
and implemented actions to reduce or mitigate
these risks where possible.
Assessed Trend
UNCHANGED
2
PRODUCT RECALL
A product recall due to a quality or safety issue would
have serious repercussions to the business in terms of
potential cost and reputational damage as a supplier to
critical systems.
¼ We perform 100% functional testing on all own-
UNCHANGED
manufactured products and 100% hi-pot testing,
which determines the adequacy of electrical
insulation, on own-manufactured products.
This ensures the integrity of the isolation barrier
between the mains supply and the end user
of the equipment. We also test all the medical
products we manufacture to ensure the leakage
current is within the medical specifications.
¼ Where we have contracts with customers,
we limit our contractual liability regarding
recall costs.
¼ No single customer project accounts for more
than 4% of overall revenue.
Risks that could have a moderate impact on the Company’s business
Risk
Mitigation
3
COMPETITION FROM NEW MARKET ENTRANTS
AND NEW TECHNOLOGIES
The power supply market is diverse and competitive. 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, in terms of both
power range and programme size, the barriers to entry
are lower and there is, therefore, a risk that competition
could quickly increase, particularly from emerging low cost
manufacturers in Asia.
¼ 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.
¼ The general direction of our product roadmap is
to move away from lower complexity products
and to increase our engineering solutions
capabilities so reducing the inherent market
competitiveness.
Assessed Trend
MORE LIKELY
29
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Managing Our Risks
Risks that could have a moderate impact on the Company’s business
Risk
4
FLUCTUATIONS OF REVENUES,
EXPENSES AND OPERATING RESULTS
DUE TO AN ECONOMIC SHOCK
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; and 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.
5
DEPENDENCE ON 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 key suppliers, this could have a material impact
on the Group’s financial condition and results of operations.
However, for the year ended 31 December 2017, no single
customer accounted for more than 11% of revenue.
6
CYBERSECURITY/INFORMATION
SYSTEMS FAILURE
The Group is reliant on information technology in multiple
aspects of the business from communications to data
storage. Assets accessible online are potentially vulnerable
to theft and customer channels are vulnerable to disruption.
Any failure or downtime of these systems or any data theft
could have a significant adverse impact on the Group’s
reputation or on the results of operations.
Assessed Trend
UNCHANGED
Mitigation
¼ Although not immune from an economic shock
or the cyclicality of the capital equipment
markets, the Group’s diverse customer base,
geographic spread and revenue annuities reduce
exposure to this risk.
¼ The Group’s business model is not capital
intensive and the strong profit margins lead
to healthy cash generation which also helps
mitigate risks from these external factors.
¼ The Group benefits from good order exposure
12 months out allowing it to recognise market
changes and mitigate the impact.
UNCHANGED
¼ The Group mitigates this risk by providing
excellent service. Customer complaints and
non-conformances are reviewed monthly by
members of the Executive Leadership team.
¼ As the proportion of our own-manufactured
products has increased, the reliance on suppliers
for third party product has been mitigated
proportionally. There has been a shift from a
finished goods risk to a raw materials risk.
¼ We conduct regular audits of our key suppliers
and in addition keep large amounts of safety
inventory of key components.
¼ The Group has a defined Business Impact
UNCHANGED
Assessment which identifies the key information
assets; replication of data on different systems or
in the Cloud; an established backup process in
place as well as a robust anti-malware solution
on our networks.
¼ Internally produced training materials are used
to educate users regarding good IT security
practice and to promote the Group’s IT policy.
¼ A cyber assessment carried out by the
outsourced internal auditor resulted in
recommendations that are being implemented
to further mitigate cyber risk and safeguard the
Group’s assets.
7
RISKS RELATING TO REGULATION,
COMPLIANCE AND TAXATION
The Group operates in multiple jurisdictions with applicable
trade and tax regulations that vary. Failing to comply with local
regulations or a change in legislation could impact the profits
of the Group. In addition, the effective tax rate of the Group is
affected by where its profits fall geographically. The Group’s
effective tax rate could therefore fluctuate over time and have
an impact on earnings and potentially its share price.
¼ An outsourced internal audit function has been
introduced to provide risk assurance in targeted
areas of the business and recommendations
for improvement. The scope of these reviews
includes behaviour, culture and ethics.
¼ The Group hires employees with relevant
skills and uses external advisers to keep
up-to-date with changes in regulations and
to remain compliant.
UNCHANGED
30
Heading Risks that could have a moderate impact on the Company’s business
Risk
Mitigation
8
STRATEGIC RISK ASSOCIATED WITH VALUING
OR INTEGRATING NEW ACQUISITIONS
The Group may elect from time to time to make strategic
acquisitions. A degree of uncertainty exists in valuation
and in particular in evaluating potential synergies. Post-
acquisition risks arise in the form of change of control
and integration challenges. Any of these could have an
effect on the Group’s revenues, results of operations and
financial condition.
9
LOSS OF KEY PERSONNEL OR FAILURE
TO ATTRACT NEW 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 key employees could have a material
adverse effect on own business.
10 EXPOSURE TO EXCHANGE
RATE FLUCTUATIONS
The Group deals in many currencies for both its purchases
and sales including US Dollars, Euros 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.
Assessed Trend
UNCHANGED
¼ Preparation of robust business plans and cash
projections with sensitivity analysis and the help
of professional advisers if appropriate.
¼ Post-acquisition reviews are performed to extract
“lessons learned”.
¼ The Group undertakes performance evaluations
and reviews to help it stay close to its key
personnel as well as annual employee
engagement surveys. Where considered
appropriate, the Group also makes use of
financial retention tools such as equity awards.
MORE
UNLIKELY
¼ The Group reviews balance sheet and cash
UNCHANGED
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
Officer and Chief Financial Officer.
¼ The Group does not hedge any translation of
its subsidiaries’ results to Sterling for reporting
purposes.
Viability Statement
In accordance with provision C.2.2 of the 2016 revision of the UK
Corporate Governance Code, the Directors are required to assess
the prospects of the Company over a period longer than the
12 months required by the “Going Concern” provision.
Various options were considered, taking into account the Group’s
identified risks, its current borrowing arrangements and capacity to
extend borrowing and after consideration the Directors are of the
opinion that the Company is viable for at least a period of three years
to 31 December 2020. This timeframe is within the Group’s strategic
financial planning period used to evaluate performance and liquidity
and aligns with the design-in cycle for which the Group has visibility.
The Company has a business model where the Company’s product
is designed into numerous applications, with numerous customers,
in numerous geographies. The Company’s products are all designed
into capital equipment which is generally in production for a number
of consecutive years, resulting in a revenue annuity. This diversity
and revenue annuity are both deemed important factors in mitigating
many of the risks that could affect the long-term viability of the Group.
Nevertheless, the Directors’ obligation is to assess the Company’s
viability in conjunction with the principal risks that could cause a
severe but plausible threat. The major risks set out on pages 28 to
31 were each modelled in a hypothetical and deliberately austere
scenario to help determine the potential effect, primarily to cash flow.
Certain subjective assumptions and judgments were made to achieve
this. Given the cash generative nature of the business, each risk
scenario occurring in isolation did not breach the Group’s theoretical
borrowing facility headroom, though factors such as a temporary
dividend reduction or temporary reduction in capital expenditure may
be necessary. The most severe threats occurring in isolation were
found to be a serious and prolonged systems failure, such as to our
ERP or CRM systems, or a temporary or permanent disruption at one
of our manufacturing facilities.
Scenarios were also prepared to model the unlikely event of more
than one risk occurring at the same time. A combination of a
temporary or permanent disruption at one of our manufacturing
facilities together with a serious and prolonged economic shock
was found to compromise the viability of the Company, if mitigating
actions such as expanding the debt facility were unsuccessful.
In determining the viability term, the Board assessed the deliberately
austere scenarios against the controls in place to prevent or mitigate
the risks occurring. It also considered them against the Group’s
current banking facilities, a revolving credit facility of US$40 million
with a US$20 million additional accordion, and in relation to its
capacity to potentially extend borrowing. The current facility without
the accordion represents 0.78 times the 2017 EBITDA.
31
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Our Commitments to Sustainability
Our Commitment
As a member of the Responsible Business Alliance, we strive
to advance sustainability initiatives globally within XP Power. We
are fully committed to leading our industry on Corporate Social
Responsibility matters.
Within the organisation we have established an Environmental
Committee that helps with our vision to be the industry leader. This
group helps further develop plans on key initiatives within the Group
and set best-in-class practices. As part of our communiqué within
the organisation, there are periodic newsletters and communication
meetings to convey the message. All of our key locations are
represented by a local committee member.
Our Impacts
We performed our own internal risk assessment of the most
significant impact that we as an organisation have on environment.
The greatest environmental contributor is the efficiency of the power
converter products we provide to our customers. This past year
we continued to expand our portfolio by increasing our offering
of “Green XP Power” products. This includes products that have
ultra-high efficiency and/or have low stand-by power mode. These
products are good for the environment as they are void of hazardous
material, consume less material and require less energy during
use. We continue to promote the benefits and the use of these
“Green XP Power” products to our internal and external customers.
Original Equipment Manufacturers that utilise these products will
see significant energy savings when incorporated into their end
equipment compared to other power products in the industry.
Our Sustainability Strategy
Our strategy is to continue to focus on developing new product
that can provide industry leading efficiencies and/or low stand-by
power. This helps reduce the amount of heat loss and wastage
during operation within the customer system. XP Power has been
successful in developing products that can achieve efficiencies of
up to 95% which is a considerable improvement compared to most
other power supply converters on the market. To further expand on
the significance of the impact of a 15% difference in efficiency, the
following example is provided:
} Utilising a power converter with 80% efficiency would require
input power of 125 watts to provide 100 watts of output
power as there is a waste of 25 watts. Utilising an XP Power
converter with 95% efficiency would require input power of
105 watts to provide 100 watts of output power as there is a
waste of 5 watts.
The waste heat as highlighted above is calculated in watts. There is
a significant difference considering there is a five-fold improvement
in energy wastage and the overall potential for savings will be
throughout the entire lifetime of electronic equipment. To achieve
these efficiency gains requires a greater number of higher cost
components and more complex circuits.
The return on investment of a higher efficiency product can be
captured in terms of consumption of electricity. The full payback
on electricity costs is usually within the first year of use. Therefore,
we continue to promote and encourage the use of these high
efficiency products.
“ ANOTHER STRONG
PERFORMANCE WITH
RECORD REVENUES FROM ‘XP
POWER GREEN PRODUCT’ OF
£39.7 MILLION.”
Sean Ross
Environmental Committee Chairman and
Vice-President of Quality Assurance
32
Heading The market trend through both demand
and legislation for higher efficiency products
is expected to continue in the electronics
industry. These legislation requirements
are projected to extend from consumer
equipment to the industrial and healthcare
markets that we serve.
Our Key Achievements
in 2017
We established new records for revenues
of XP Green Products shipped in 2017.
In 2017, we shipped £39.7 million of high
efficiency products to our customer base.
This represents an increase of 31% from
2016 and currently is 23.8% of our overall
revenue. Of the new 27 product families we
launched during this past year, 19 meet our
“Green XP Power” criteria.
The annual savings in CO2 emissions from
these products compared to a standard
80% efficient converter are quite significant.
Based on our calculations, we estimate that
the annual emission savings from the “Green
XP Power” converters we sold in 2017 is
41,500 tonnes.
The annual savings will recur each year
for the lifetime of the product, which we
estimate conservatively as seven years. This
would result in lifetime savings of 291,000
tonnes of CO2. This helps demonstrate the
environmental impact that we can make
by providing these types of products. XP
Power also invested in LED (light-emitting
diode) lighting within our Bremen, Germany
location. This new lighting system will add
additional energy savings which is a positive.
Sustainability Initiative
– Earth Day 2017
In April, we celebrated Earth Day by having
an entire week of activities coordinated
across the different XP Power locations.
Some of the activities planned by the local
environmental representatives included:
} Clean up activities at public parks
and beaches.
} Vegetable picking to support locally
sourced materials which are used to
feed the homeless.
} Office and household E-waste
collection centres.
} Ride share and public transportation
campaign.
Our Plans for the Year Ahead
Products: There currently are additional high
efficiency products that are on our road map
for 2018.
Facilities: At the facilities that we are
currently utilising we are evaluating which
locations we could add solar panels and/
or Electric Vehicle Charging stations. This
would complement those existing locations
in which these are already established.
Manufacturing: Further expansion of our
Vietnam manufacturing location will utilise
the same industry leading environmental
design as the original building envelope.
OUR VALUES
See page 34
READ MORE:
OUR PEOPLE AND THEIR
HEALTH AND SAFETY
See page 36
OUR CUSTOMERS
See page 38
OUR SUPPLIERS
See page 39
OUR COMMUNITIES
See page 40
33
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT
OUR CORE VALUES
KNOWLEDGE
FLEXIBILITY
CUSTOMER
FOCUS
SPEED
INTEGRITY
KNOWLEDGE
FLEXIBILITY
SPEED
INTEGRITY
CUSTOMER
FOCUS
Honest in all our interactions with our colleagues, customers and suppliers
Always doing the right thing
Taking care of our people-ensuring XP Power is a great place to work where we trust the
people we work with, have pride in what we do and gain enjoyment from our work
Delivering genuine value to our customers through our knowledge and experience
KNOWLEDGE
KNOWLEDGE
FLEXIBILITY
Continually developing our skills and capabilities as individuals and as an organisation
INTEGRITY
FLEXIBILITY
SPEED
CUSTOMER
FOCUS
Receptive to the needs of our customers to provide outstanding customer service
Willing to challenge the way we do things and adapt to constantly improve and innovate
Collaborating with our colleagues and customers for better results
CUSTOMER
FOCUS
INTEGRITY
SPEED
KNOWLEDGE
FLEXIBILITY
CUSTOMER
FOCUS
SPEED
Responding to our customers and colleagues with impressive speed
Constantly looking at faster and more efficient ways of delivering value in everything we do
INTEGRITY
KNOWLEDGE
FLEXIBILITY
CUSTOMER
FOCUS
SPEED
INTEGRITY
Always considering our customer’s experience in everything we do
Never forgetting that without our customer we do not have a business
34
Heading Our Core Values in Action
“ WE ARE PLEASED WITH THE
RESULTS OF OUR EFFORTS,
BUT KNOW THAT WE MUST
KEEP PRESSING ON TO
ENSURE THAT WE DELIVER
THE ULTIMATE EXPERIENCE
TO OUR PEOPLE, SO THEY
WILL DELIVER THE ULTIMATE
EXPERIENCE TO OUR
CUSTOMERS!”
Heather Murdock
Vice President, Human Resources
CULTURAL SURVEY SCORE
59.2
62.9
63.0
62.0
2015
2016
2017
2018
Last year we increased our focus on developing our people and
improving operational excellence in our Human Resources function.
We created a new global performance management system called
People Power that enables our employees to engage in frequent
feedback, goal setting and training and development planning. This
process is designed to customise training and development plans
around the specific skills required for their position. We anticipate
this will equip and grow our employees as we rise to meet the
demands that face a fast-growing organisation. This is a new
programme, but we are already receiving positive feedback from our
global teams.
Employee engagement is a top priority at XP Power and we are
in the process of transforming our recruiting and onboarding
processes so that our employees truly enjoy the ultimate experience.
When employees get off to a great start, they become productive
faster and are more likely to commit to the organisational vision. We
design our onboarding strategies with that in mind.
At XP Power, we believe that you don’t have to have a title
to be a leader. Leadership development is a key strategy in
growing our organisational capability. This year we will offer
customised leadership training to not only management, but also
anyone who aspires to grow their leadership skills. There are
significant differences between management and leadership, and
understanding the differences can be critical to effective leadership.
We are pleased with the results of our efforts, but know that we
must keep pressing on to ensure that we deliver the ultimate
experience to our people, so they will deliver the ultimate experience
to our customers!
35
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Our People and their Health and Safety
Our people are our most important asset and we make great efforts to ensure
we have policies in place to provide a safe working environment to protect
our employees. As an organisation, it is important that XP Power promotes
workforce diversity, integrity and a safe and healthy work environment.
Health and Safety
As an organisation, XP Power seriously
considers the suitability of our Health and
Safety programme. The programme we
have in place focuses on preventive action
to ensure that we are being proactive and
therefore reducing the risk of incidents
from occurring. In addition to meeting the
requirements set out in the Responsible
Business Alliance Code of Conduct, there
are local requirements that we continuously
set out to comply with and keep abreast
of any changes. There are Committee
members at each of our key sites that
ensure any accidents are reported, acted
upon and analysed for management
review. The accidents and their severity
are periodically reported to the Board of
Directors to ensure visibility throughout all
levels of the organisation.
HEALTH AND SAFETY
Number of incidents
14
9
9
ASIA
EUROPE
NORTH
AMERICA
Integrity
It is imperative that all of our employees are
ethical. This is one of our corporate core
values and is communicated throughout
the organisation. We have also posted the
core values throughout our facilities and
embedded them into our performance
appraisal process as a reminder of the
importance of these values throughout our
day-to-day activities. The expectation for
integrity is as follows:
} Honest in all our interactions with our
colleagues, customers and suppliers.
} Always doing the right thing.
} Taking care of our people to ensure XP
Power is a great place to work where
we trust the people we work with, have
pride in what we do and gain enjoyment
from our work.
36
Heading Diversity
We operate in a global market and
recognise the benefits of a diverse and
talented workforce and consider this 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 all our
stakeholders and our Company as a whole.
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.
MALE
Asia
Europe
North America
Total Male
FEMALE
Asia
Europe
North America
Total Female
Non-
Executive
Board
–
3
–
3
Non-
Executive
Board
–
1
–
1
Executive Management
All Other
Total
2
8
3
13
22
14
26
62
593
91
158
842
617
116
187
920
Executive Management
All Other
Total
–
1
1
2
3
4
14
21
881
40
88
884
46
103
1,009
1,033
Modern Slavery Act 2015
The United Kingdom has enacted legislation to address abhorrent abuse of human rights. XP Power does not
engage in any slavery or human trafficking activities and is strongly against any offences of slavery, servitude forced labour and/or human
trafficking. XP Power has also adopted a corporate policy which has been communicated to all employees.
Modern Slavery Policy
XP Power is committed to a work environment that is free from modern slavery. This is achieved by:
} Communicating that as an organisation we do not engage and are strongly against any offences of slavery, servitude forced labour and/
or human trafficking.
} Performing due diligence on our supply chain. We would immediately disengage with any supplier that does not have the same vision on
forced labour as XP Power.
} Complying with all relevant legislation including the Modern Slavery Act 2015.
} Adopting this policy within our Corporate Sustainability and Code of Ethics programme.
This policy is supported by all levels of the XP Power organisation. Any abuse of human rights would be acted upon immediately and
appropriate action taken.
It is critical that we continue to convey to our staff that any ideas or areas of concern should be brought to the attention of our management
team. XP Power has a “whistleblowing” policy that has been communicated to the entire organisation and encourages individuals to come
forward with any suspicious activity, without fear of repercussion.
37
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Our Customers
Customer Focus
Customers have helped drive our growth
with our “Green XP Power” offering.
This is demonstrated by the increase in
revenues year over year since 2010 of these
product offerings. This aligns with one of
our organisation’s core values, customer
focus. Customers clearly see the benefit of
ultra-high efficiency power converters and
this has allowed us to be more focused
on delivering these products to meet the
customer expectations. The feedback we
have also received is that customers are
willing to pay a premium for these “Green”
products due to the higher performance.
One of the underlying benefits of a high
efficiency product is that the product is
inherently more reliable. Once the power
converter gets to a level of efficiency that
we are achieving, there is very little waste
energy as heat, and there is no longer
a need for a mechanical fan for cooling
(which also consumes power). If the system
engineer can design-in a power converter
without a mechanical fan they have now
removed the most unreliable part of the
power system.
Furthermore, 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. It
is with this understanding of the customer’s
expectation for an ultra-high efficiency,
extremely reliable power supply that we
have been able to focus on providing
the best solution for the customer’s
requirements.
Key Achievements
We have added 19 additional product series
to our portfolio of “Green XP Power” during
2017. One example is a 65 watt desktop
product that has the IP32 Environmental
rating in addition to Energy Efficiency Level
VI. This is the first product family that was
introduced to be manufactured directly out
of our environmentally friendly manufacturing
facility located in Vietnam.
Our Plans Ahead
Our plan is to continue to invest in products
we can bring to market that provide the
most benefit to customers in terms of the
high efficiency, and low stand-by power that
meet our customers’ cost expectations.
38
Heading Our Suppliers
Responsible Business
Alliance (RBA)
Since 2010, XP Power has been a member
of the RBA, formerly known as the
Electronic Industry Citizenship Coalition.
We continue to promote the benefits of
being a member to all of our stakeholders
and encourage active participation from
our supplier base. We visit and audit our
suppliers to ensure they share the same
vision consistent with the RBA Code of
Conduct. We would disengage our business
relationship with those suppliers that are not
committed to continuously work towards
compliance with the Code of Conduct.
Supply Chain Ethics
One of the key elements of XP Power’s
core values is integrity. We work towards
ensuring our supply chain partners have the
same approach towards ethical business
practices as XP Power. This is done by
a stringent on-site qualification process
of potential new suppliers. It includes
an assessment regarding environmental
performance, treatment of labour, health and
safety and business ethics standards. As the
suppliers we engage with are considered
long-term partners it is imperative that these
suppliers share our vision.
The XP Power ethics policy is included
within our Corporate Sustainability Manual
and includes the following requirements as it
pertains to suppliers:
} We will uphold high levels of business
ethics in dealing with our suppliers; and
} We will not at any time take or give,
bribes or other means of inducement to
obtain improper advantage.
These requirements have been actively
communicated and the policy is readily
available to our supply chain employees.
Our Plans for the Year Ahead
The supply chain programme we have
in place has been extremely effective in
promoting industry leading sustainable
programmes with our suppliers.
We will continue to expand this programme as
we determine additional ethical requirements
that are in alignment with our core values.
The new legislation such as the Modern
Slavery Act of 2015 will also be a focus
for the coming year to ensure proper
due diligence.
Supply Chain Due Diligence
As part of our due diligence process within
our supply chain, we have updated our
qualification process to include an evaluation
to ensure our suppliers do not engage in
or support any slavery, human trafficking,
servitude or forced labour. We disengage
with suppliers that fail to meet our vision on
ethical standards.
In 2010 the US Dodd-Frank Wall Street
Reform and Consumer Protection Action
was passed concerning “conflict minerals”
originating from the Democratic Republic
of the Congo or adjoining countries. XP
Power has worked with our suppliers to try
and eliminate using those sources that have
originated from those countries in question.
We have adopted the reporting template
issued by the Global e-Sustainability
Initiative (GeSI) and Responsible Business
Alliance which we provide to our customers
so they gain the necessary assurance
we are not using conflict minerals in
our products.
39
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT
Our Communities
Second Harvest Food Bank
Volunteers from the Orange County office,
California office helped again at the second
harvest foodbank.
} Employees from our Sunnyvale office,
California handed out race shirts, bibs
and guided participants at a “Turkey
Trot” – an event that raises money for
charities and other good causes.
} Supporting families in Reading, UK, via
the Home Start charity, three employees
helped clear up an untidy backyard via
our community service policy.
Our Plans for the Year Ahead
The local representatives that coordinate
activities continue to be fully engaged within
the community. These include opportunities
for volunteering, raising funds to support
local charities, simply promoting awareness
of events or activities that will enhance our
environments. This is an ongoing agenda
item as part of our local environmental
teams’ periodic meetings to see how
we can make a difference within the
communities in which we operate.
Community Policy
Last year we implemented a new policy
for community service. The organisation
allows for paid time off to support local
community activities. This shows a level of
commitment by the organisation to allow
our employees to give back to the local
communities in which we operate. This has
been a successful programme and we have
seen lots of enthusiasm for this new policy.
Some of the activities that took place in
2017 included:
} Supporting the upkeep and
maintenance of water passageways in
the United Kingdom, in collaboration
with the Canal and River Trust
Foundation,
} Supporting a Rescue Mission Center in
Orange County, California by donating
time to stock shelves and serve food for
those in unfortunate situations. This is
the second year in a row supporting this
organisation.
} Beach clean up’s. Members of the
Singapore office volunteered in
the National Environment Agency’s
Clean Singapore Learning Trail. Also,
in the United Kingdom employees
devoted time picking up plastics, drink
containers, rope and other debris from
a Devon beach.
40
Heading Our Environment
CO2 Emissions
In 2009 we set ourselves a target of reducing CO2 emissions per unit of revenue by 5% per
annum. This aligns 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 2017 were 3,906 tonnes of CO2 compared to 3,581
tonnes in 2016. This increase is lower than our revenue increase for the year, demonstrating
some efficiency gains. CO2 emissions per unit of revenue also declined in China and
Vietnam.
Water
We have determined that our operations are considered as low water usage. Water is not
used in the design, manufacturing or services of our products. We are cognisant of the fact
that there is some level of water usage at our facilities and try to limit the use and employ
best practices. Our water usage is tracked and monitored as one of our key environmental
metrics across the business. The necessary actions are taken to reduce usage as needed
and consistent with our corporate water policy.
CO2 Emissions Data
CO2 Emissions (tonnes) –
China and Vietnam facility
CO2 Emissions per unit of factory
revenue (kg/$1,000) – China facility
CO2 Emissions per unit of factory
revenue (kg/$1,000) – Vietnam facility
2017
2016
2015
2014
2013
3,906
3,581
3,361
3,068
2,598
54
81
56
82
47
46
141
110
46
–
Water Data
Average number of employees
2017
1,953
2016
1,506
2015
1,448
2014
1,160
2013
1,081
Water consumed (thousand litres)
39,480
32,582
32,220
25,300
21,200
Water consumed per employee
(thousand litres)
20.2
21.6
22.3
21.8
19.6
Carbon Disclosure Project
Annually we participate and report our
environmental data to the Carbon Disclosure
Project. The data is publicly available on
the Carbon Disclosure Project website at
www.cdproject.net.
Harmful Substances
In 2005 new legislation was introduced in
Europe which limited the levels of certain
hazardous substances. The European
legislation, Restriction of Hazardous
Substances (RoHS) has been implemented
in the design and manufacture of XP Power
products. XP took the initiative to be compliant
with this legislation not just for our European
customer base, but for our customers in Asia
and North America.
The RoHS directive was recast with additional
requirements which came into effect in July 2011.
We are pleased to report that with the exception
of recently acquired Comdel, we are compliant
with the latest RoHS directive as of July 2014.
Our Plans For The Year Ahead
} Assessment of facilities that currently do
not have solar panels to determine the
suitability.
} Utilising environmentally friendly design
concepts during expansion of the XP
Power Vietnam manufacturing location.
} Expand on our “XP Power Green” product
portfolio.
41
XP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPPSTRATEGIC REPORT Chairman’s Introduction to Governance
The Board of Directors’ primary remit is to provide direction to
help shape the strategy of the Group and ensure that this is being
executed effectively within a structure that is well controlled,
mitigates risk and is compliant with corporate and social
responsibility. Good corporate governance emanates from the top
which is why the Board gives continued prominence to this area.
I am pleased to welcome Gavin Griggs to the Board who joined
us on 31 October 2017 as Chief Financial Officer. Gavin is a CIMA
qualified accountant and has worked in a range of acquisitive
businesses with an international footprint, most recently Daisy Group
Ltd, where he was Group Finance Director. Gavin’s wide-ranging
financial, commercial and M&A experience, gained within a number
of international businesses, will be an asset to XP Power in the next
phase of our development. Jonathan Rhodes stepped down from
the Board on Gavin’s appointment, but will remain with the Group in
a senior finance position.
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 lay out 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.
“ THE BOARD OF DIRECTORS’
PRIMARY REMIT IS TO
PROVIDE DIRECTION TO HELP
SHAPE THE STRATEGY OF THE
GROUP AND ENSURE THAT
THIS IS BEING EXECUTED
EFFECTIVELY WITHIN A
STRUCTURE THAT IS WELL
CONTROLLED, MITIGATES
RISK AND IS COMPLIANT
WITH CORPORATE AND
SOCIAL RESPONSIBILITY.”
James Peters
Non-Executive Chairman
42
Heading IN THIS SECTION...
42 Chairman’s Introduction to Governance
44 Directors and Officers
46 Corporate Governance Report
50 Audit Committee Report
54 Remuneration Committee Report
55 Remuneration Policy
60 Remuneration Report – Annual Report
69 Other Governance and
Statutory Disclosures
70 Statement by Directors
43
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Directors and Officers
Duncan Penny
CHIEF EXECUTIVE
OFFICER
Appointed 3 February 2003
Gavin Griggs
CHIEF FINANCIAL
OFFICER
Mike Laver
PRESIDENT, CORPORATE
DEVELOPMENT
Andy Sng
EXECUTIVE VICE
PRESIDENT, ASIA
Appointed 31 October 2017
Appointed 20 August 2002
Appointed April 2007
XP POWER
Duncan joined as Group
Finance Director, a position
he held between April 2000
and February 2003 before
being promoted to Chief
Executive Officer.
SKILLS AND BUSINESS
EXPERIENCE
Extensive experience of
corporate finance matters.
Between 1985 to 1990, he
spent five years at Coopers
& Lybrand in general
practice and corporate
finance.
Worked for LSI Logic
Corporation for eight years
where he held senior
financial positions in both
Europe and Silicon Valley.
From October 1998 to
March 2000, he was the
Controller for the European,
Middle Eastern and African
regions for Dell Computer
Corporation.
XP POWER
Gavin has recently joined
the Group.
SKILLS AND BUSINESS
EXPERIENCE
CIMA qualified accountant
who has worked in a range
of acquisitive businesses
with an international
footprint.
Held senior finance roles at
Logica, Sodexo, PepsiCo
and SABMiller.
Served as CFO of Alternative
Networks plc, a listed
Information Technology
and Telecommunications
provider, prior to its
acquisition by Daisy in
December 2016 when he
became Group Finance
Director for Daisy Group.
XP POWER
Mike joined the Group as
a result of the acquisition
of ForeSight Electronics
in 2000.
Mike was responsible for
global sales and marketing
prior to becoming Corporate
Development Officer in
November 2017.
SKILLS AND BUSINESS
EXPERIENCE
Over 28 years’ experience in
the power converter industry.
After completing his degree
in Electrical Engineering
at UC Santa Barbara, he
held several sales and
technical positions with:
Power Systems Distributors,
Compumech and Delta
Lu Research.
Mike joined ForeSight
Electronics in 1991 and held
various senior roles prior
to their acquisition by XP
Power in 2000.
XP POWER
Andy joined the Group
in July 2005 as General
Manager for Asia where he
started up the Shanghai
operation.
He currently oversees the
sales and marketing for
Singapore, China, Japan,
South Korea and India.
SKILLS AND BUSINESS
EXPERIENCE
Over 15 years in the power
converter industry.
Graduated from Nanyang
Technological University with
a degree in Electrical and
Electronic Engineering and
an MBA from Manchester
Business School.
Prior to joining the Group,
he held technical and
commercial roles with
companies such as
Silicon Systems (Singapore)
and Advanced Micro
Devices (Singapore).
44
Heading James Peters
NON-EXECUTIVE
CHAIRMAN
Terry Twigger
SENIOR NON-
EXECUTIVE DIRECTOR
Peter Bucher
NON-EXECUTIVE
DIRECTOR
Polly Williams
NON-EXECUTIVE
DIRECTOR
Appointed 30 June 2014
Appointed 1 January 2015
Appointed 1 January 2014*
Appointed 1 January 2016
COMMITTEES
Audit (Chair)
Nomination
Remuneration
SKILLS AND BUSINESS
EXPERIENCE
Between July 1993 and
May 2013, Terry spent 20
years with Meggitt PLC, the
FTSE100 global engineering
group specialising in extreme
environment components
and smart sub-systems for
aerospace, defence and
energy markets.
For the last 12 years at
Meggitt, Terry was Chief
Executive Officer and grew
its revenues from £0.4
billion to £1.6 billion through
a combination of organic
growth and numerous
successful acquisitions.
On 19 April 2018, Terry is
retiring from his position as
a Non-Executive Director of
Essentra plc, the supplier of
specialist plastic, fibre, foam
and packaging products.
COMMITTEES
Nomination (Chair)
SKILLS AND BUSINESS
EXPERIENCE
James has over 35 years'
experience in the power
converter industry.
Trained as an electronics
engineer with Marconi
Space and Defence
Systems followed by roles
at TDK-Lambda, a global
power converter company.
Joined Powerline
Electronics shortly after its
formation in 1980 where he
was involved in all aspects
of their power business.
XP POWER
James founded XP Power
in November 1988.
Appointed European
Managing Director in April
2000, responsible for the
development of the Group’s
European business.
Became Deputy Chairman
in February 2003 and
moved to a non-executive
role in May 2012, before
his appointment as
Non-Executive Chairman in
June 2014.
COMMITTEES
Remuneration
Audit
SKILLS AND BUSINESS
EXPERIENCE
Peter joined Traco Electronic
AG in 1967 and was
appointed Managing Director
in 1985, 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$100 million.
Peter is well known within
the power converter industry
with excellent product
knowledge.
COMMITTEES
Remuneration (Chair)
Audit
Nomination
SKILLS AND BUSINESS
EXPERIENCE
Polly is a chartered
accountant and a former
Partner at KPMG LLP.
She resigned from her
partnership in 2003 and
has held a number of non-
executive directorship roles.
She is currently a Non-
Executive Director at Jupiter
Fund Management plc,
TSB Group plc and Royal
Bank of Canada Europe Ltd.
She is also a Trustee of the
Guide Dogs for the Blind
Association.
* Tendered his resignation
in December 2017 and will
retire from the Board on
31 December 2018.
45
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Corporate Governance Report
THE BOARD
OF DIRECTORS
Non-Executive
Chairman
James Peters
AUDIT COMMITTEE
Chair: Terry Twigger
Financial reporting
Compliance
External audit
Internal controls
REMUNERATION
COMMITTEE
Chair: Polly Williams
Directors’ fixed and
variable pay
Share Incentive Plans
Key employee retention
NOMINATION
COMMITTEE
Chair: James Peters
Board composition
Board appointments
SUSTAINABILITY
COMMITTEE
Chair: Sean Ross
Corporate social
responsibility
Sustainability
initiatives
INTERNAL AUDIT
EXECUTIVE LEADERSHIP TEAM
Risk framework
Internal audits
Process improvements
Continous improvement
Executing the Board’s strategy
Assessment and mitigation of risk
Managing the control environment
Promoting the culture, core values and ethics
TOP-DOWN
Oversight,
governance,
strategic direction,
risk appetite at
corporate level
BOTTOM-UP
Execution of strategy,
compliance, control
environment,
assessment and
mitigation of risk
across functional areas
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. Despite not being considered
independent by the Corporate Governance
guidelines, 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 Senior Non-Executive Director is an
independent Director.
The following matters are specifically
reserved for the Board’s decision:
} Opinion of the Group’s viability and
going concern.
} 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.
} 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 Officer 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.
The roles of Non-Executive Chairman
(James Peters) and Chief Executive Officer
(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
Officer is responsible for the day-to-day
running of the Company and the execution
of the strategy.
46
Heading THE BOARD
OF DIRECTORS
Non-Executive
Chairman
James Peters
AUDIT COMMITTEE
Chair: Terry Twigger
Financial reporting
Compliance
External audit
Internal controls
REMUNERATION
COMMITTEE
Chair: Polly Williams
Directors’ fixed and
variable pay
Share Incentive Plans
Key employee retention
NOMINATION
COMMITTEE
Chair: James Peters
Board composition
Board appointments
SUSTAINABILITY
COMMITTEE
Chair: Sean Ross
Corporate social
responsibility
Sustainability
initiatives
INTERNAL AUDIT
EXECUTIVE LEADERSHIP TEAM
Risk framework
Internal audits
Process improvements
Continous improvement
Executing the Board’s strategy
Assessment and mitigation of risk
Managing the control environment
Promoting the culture, core values and ethics
TOP-DOWN
Oversight,
governance,
strategic direction,
risk appetite at
corporate level
BOTTOM-UP
Execution of strategy,
compliance, control
environment,
assessment and
mitigation of risk
across functional areas
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.
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.
During the year the Non-Executive
Directors convened to assess the roles and
responsibilities of the senior management
team with effective succession plans.
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.
B.2 Appointments to the Board
Main Principle:
B.3 Commitment
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 (Chair), Terry Twigger and
Polly Williams. 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 twice
during the year. The attendees were as
follows:
All Directors should be able to allocate
sufficient time to the Company to
discharge their responsibilities
effectively.
There were five Board meetings during the
year. The attendees were as follows:
Date
Attendees
7 March 2017
All
15 May 2017
All except Polly
Williams. By invite:
Operations Director
and VP Global
Manufacturing.
28 July 2017
6 October 2017
8 December 2017
All
All
All
The Board considers Peter Bucher,
Terry Twigger and Polly Williams to be
independent.
Date
Attendees
27 July 2017
All and
Duncan Penny (guest)
Polly Williams was unable to attend the May
meeting due to a prior commitment.
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.
07 December
2017
All
The Terms of Reference of the Nomination
Committee are available in the Corporate
Governance section of the Company’s
website www.xppower.com.
47
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Corporate Governance Report
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 a full induction on joining
the Board. The programme is tailored to the
individual needs of each Director.
A visit to the Group’s North American
facilities is planned in 2018. Non-Executive
Directors will be able to update and refresh
their knowledge of the business first-hand
and will be able to interact with the
management team and employees helping
them gain a deeper understanding of the
business and allowing them to contribute
ideas.
During the year, the Directors also received
presentations from the Operations Director
and the Executive VP, Global Manufacturing.
These presentations reported on systems
security and the plans for expanding the
Vietnam manufacturing facility, respectively.
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 prepared 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. The Board also received
specific presentations and information from
management during the year covering the
results and actions of the employee survey,
the results of a strengths, weaknesses,
opportunities and threats review by the
executive management team, compliance
exception reports, insurance coverage and
the sustainability policy and metrics.
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’s evaluation of its own
performance and that of its Committees
is conducted annually using a Board
effectiveness questionnaire. The
questionnaire was revamped in 2016
with the help of an independent external
consultant to ensure that it covered all
aspects of effectiveness: capabilities and
communication; culture and practice;
process and organisation; as well as
meeting rigour and relationships. With
respect to continually improving Board
effectiveness, the questionnaire also asked
Directors to comment on what it should
stop doing, start doing and continue doing.
The questionnaire was circulated to each
Director in relation to the Board and the
Committees on which they serve. The
independent consultant collated the
responses into an anonymous report for the
Board to consider and discuss at a Board
meeting.
There were no significant issues or
concerns raised in the report.
B.7 Re-election
Main Principle:
All Directors should be submitted for re-
election at regular intervals, subject to
continued satisfactory performance.
All Directors voluntarily offer themselves
for re-election annually. This is in spite of
the Company’s Articles of Association
which require Directors to retire and offer
themselves for re-election on a rotation
basis and 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. It
also details the significant risks that the
Group faces and how these are mitigated
and includes the Board’s assessment of the
longer term viability of the Group.
The Company also makes available a
number of videos on its investor relations
website at the time of its interim and
annual reporting as well as investor videos
describing products, markets, strategy,
business model, growth drivers and its
investment proposition.
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. In addition, in
accordance with C.2.2 of the revision of the
Code, the Directors have considered the
prospects of the Company over the longer
term and provided a viability statement on
page 31.
C.2 Risk Management and
Internal Control
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 Directors confirm that an assessment
of the principal risks facing the Group
was reviewed, further details of which are
included in the Managing Our Risks and
Viability Statement sections within the
Strategic Report on pages 28 to 31.
48
Heading 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. Examples of key controls
with respect to ongoing processes include:
} 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.
} Monthly reporting of management
accounts and key metrics to senior
management with performance
measured to budget and material
variances reported to the Board.
} Quality control checks throughout
our manufacturing process, burn in,
electrical testing to detect early failures,
100% functional testing, and quality
inspection.
} Disaster recovery and business
continuity plans are in place at
all facilities, documented and
communicated to key personnel to help
cope with unexpected events.
} The Audit Committee reviews the
effectiveness of internal controls.
} An internal audit and risk assurance
programme is operating.
C.3 Audit Committee and Auditor
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.
The Audit Committee Report on pages
50 to 53 sets out in detail the Group’s
arrangements to ensure corporate reporting
complies with legal and accounting
standards together with effective risk
management and internal control
processes and appropriate supervision and
performance of the external Auditor.
The Terms of Reference of the Audit
Committee are available in the Corporate
Governance section of the Company’s
website www.xppower.com.
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.
The Remuneration Committee report on
pages 54 to 68 sets out in detail the Group’s
approach to remuneration.
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.
The Report of the Remuneration Committee
on pages 54 to 68 sets out in detail the
Group’s policy on remuneration and the
remuneration packages for the Board. No
Director participates in the deciding of their
own remuneration. Polly Williams is Chair 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.
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. This includes
video interviews with the Chief Executive
Officer and Chief Financial Officer available
on the morning of the day that the interim
and annual results are published. The
Company also makes available a number of
informational videos on its investor relations
website which cover products, markets,
strategy, business model, growth drivers
and its investment proposition.
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 Chairman and Senior Independent
Director are available to meet Shareholders
if required.
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
Shareholders’ opinions.
The Remuneration Committee consulted
with major Shareholders in respect
of significant decisions on Executive
remuneration.
E.2 Constructive Use of the
Annual General Meeting
Main Principle:
The Board should use the Annual
General Meeting to communicate
with investors and to encourage their
participation.
The Annual General Meeting is an
opportunity to communicate with
Shareholders and certain Directors are
available to answer any questions.
49
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Audit Committee Report
Dear Shareholder
As Chairman of the XP Power Audit Committee, I am pleased to
present the 2017 Audit Committee Report to Shareholders and to
be able to confirm, on behalf of the Board, that the Annual Report is
fair, balanced and understandable.
The report aims to provide the following information:
} The Audit Committee’s principal responsibilities and
its governance.
} The key activities which were reviewed by the Audit Committee,
including those items of regular annual review and other current
areas of focus.
} The discussions and actions undertaken, in conjunction with the
external Auditor, on any significant judgements and/or issues.
} Details of the on going review of the external Auditor and the
amount of non-audit work undertaken.
The year has seen considerable activity with substantial organic
and acquisition-led growth together with the appointment of Gavin
Griggs as Chief Financial Officer (CFO) during the final months of
the year. As a consequence, during the year the Audit Committee
has, in addition to monitoring the integrity of the financial reporting,
devoted considerable time to developing a more mature risk
management environment and to ensure controls remain robust
as the Company grows. This is being accomplished primarily as a
result of the internal audit programme which has been outsourced to
Deloitte. During the year Deloitte completed the following reviews:
} Regional reviews of the financial controls in place.
} Assessment of the controls and capabilities of the Asian
supply chain.
} Cybersecurity controls in place.
} Assessment of the effectiveness of the monitoring of customer
contractual obligations.
} An assessment of the Group’s maturity to compliance
procedures.
“ FURTHER PROGRESS HAS
BEEN MADE DURING
THE YEAR IN DEVELOPING
A MORE MATURE RISK
MANAGEMENT ENVIRONMENT
AND TO ENSURE CONTROLS
REMAIN ROBUST.”
Terry Twigger
Audit Committee Chair
50
Heading These reviews continue to provide
insightful perspectives and are leading to
improvements in processes and controls;
actions that are all the more necessary
given the significant organic and acquisition
growth of the Group.
In addition, during the year Ernst & Young
carried out a review of the Company’s
documented transfer pricing model in
the light of the significant changes in
international tax legislation in recent years
and the Audit Committee received internal
presentations on Tax and Treasury and
Systems security.
I believe the Audit Committee has
the necessary experience, expertise
and financial understanding to fulfil its
responsibilities and to continue to monitor
and contribute into the various improvement
initiatives.
The Audit Committee is satisfied that the
Company has maintained adequate internal
financial controls throughout the year, and
that the internal audit programme has been
devised and sufficiently resourced to confirm
that these controls are effective.
The Audit Committee has proposed to
the Board that the reappointment of
PricewaterhouseCoopers LLP should be
proposed at the forthcoming Annual General
Meeting, and I hope that you will support
me in this resolution.
Terry Twigger
Audit Committee Chairman
01 March 2018
Members of the
Audit Committee
Terry Twigger (Chair),
Independent Non-Executive Director
Peter Bucher, Independent Non-Executive
Director
Polly Williams, Independent Non-Executive
Director
Governance
The current Audit Committee members are
all independent Non-Executive Directors
and have financial and/or related business
experience gained in senior positions in
other diverse organisations. Terry Twigger
has been the Audit Committee Chair since
2015 and the Board is satisfied that Terry
has recent and relevant financial experience.
Performance Evaluation of
the Audit Committee
During the year, the Audit Committee
reviewed its performance as part of the
Board’s updated evaluation process.
The Audit Committee considered it had
adequate qualifications and skills to perform
its responsibilities, particularly through
Terry Twigger’s financial and management
background and Polly Williams’ financial and
audit experience.
Meetings of the Audit
Committee
The Audit Committee met four times during
2017 on the dates as follows:
Date
19 January 2017
6 March 2017
26 July 2017
19 October 2017
Attendees
All except
Peter Bucher
All
All
All
Peter Bucher was unable to attend the
January meeting due to a prior commitment.
The Finance Director and Group Financial
Controller were involved at each of the
meetings as were the external Auditor,
PricewaterhouseCoopers LLP, and the
outsourced internal audit firm, Deloitte
LLP. The Audit Committee also discussed
matters with the external Auditor without the
Group’s management being present.
The Audit Committee supports the Board
and reports to it on a regular basis, certainly
no less frequently than at every Board
meeting following a meeting of the Audit
Committee.
There is an annual cycle of items that are
considered by the Audit Committee. The
timetable of these items is scheduled
in accordance with the requirement of
the annual audit cycle and any other
requirements of the Audit Committee.
Responsibilities of the
Audit Committee
The Terms of Reference of the Audit
Committee were reviewed during the
year and are available in the Corporate
Governance section of the Company’s
website www.xppower.com.
The Audit Committee is responsible for,
amongst other things:
} Ensuring that the financial performance
of the Group is properly reported and
monitored;
} Advising the Board on whether it
believes the Annual Report and
Accounts, taken as a whole, is fair,
balanced and understandable;
} Compliance with legal requirements;
} Adoption and correct implementation of
accounting standards;
} Meeting the requirements of the UK
Listing Authority;
} Assessing the Group’s internal control
processes and assurance framework;
} Supervising the relationship and
performance of the external Auditor;
and
} Reviewing the nature and extent of audit
and non-audit services provided to the
Group by the external Auditor.
Activities of the
Audit Committee
} Reviewing and challenging the
31 December 2016 Annual Report and
the 30 June 2017 Half Year Report
to assess whether the reports, taken
as a whole, were fair, balanced and
understandable prior to recommending
these to the Board for approval.
} Reviewing and challenging areas of
significant risk and judgement and the
level of disclosure. Some of these are
described in the ‘Significant risks and
judgements in the financial reporting’
section below.
} Probing and recommending for approval
the going concern basis of preparation,
the accounting policies and disclosures,
the financial reporting issues and the
assumptions and adjustments made.
51
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Audit Committee Report
} Continuing to develop the Group’s risk
and compliance framework by guiding
the outsourced internal auditors,
Deloitte LLP, and reviewing the work
scopes of the target areas.
} Reviewing the findings of the internal
audit work and the follow ups of reviews
done in the previous year.
} Reviewing the effectiveness of
the Group’s internal controls and
disclosures made in the Annual Report
and Financial Statements.
} Challenging the assumptions and
analysis produced by management in
relation to the Group’s going concern
and long-term viability statement.
} Reviewing the results of the finance
functions’ peer to peer balance sheet
reviews.
} Appraising the Group’s tax and treasury
functions with a focus on areas prone to
significant change.
} Assessing the accounting principles to
be adopted in the preparation of the
2017 accounts including any new IFRS
pronouncements.
The Audit Committee is satisfied that the
Company has maintained appropriate risk
management and internal controls for a
company of its size throughout the year.
Significant Risks and
Judgements in the Financial
Reporting
In relation to the 31 December 2017 Annual
Financial Statements included in this report
on pages 77 to 117, the Audit Committee
considered the following topics:
Goodwill
The carrying value of goodwill is a significant
item within the Group’s balance sheet
and is prone to further increase while the
Group remains acquisitive. Impairment
assessments, performed annually, require
judgements in relation to discount rates
and future growth forecasts to generate
discounted cash flows for the cash
generating units. The Audit Committee
ascertains that appropriate sensitivity
analysis is conducted by the external
Auditor on the Company’s impairment
calculations. It also assesses the carrying
value in the context of the Group's wider net
asset value and market capitalisation. After
consideration, the Audit Committee were
satisfied that there was no indication
of impairment.
Capitalised product development
The Group’s product development activity
leads to direct costs associated with new
products being capitalised and amortised
over the useful life of the products. The
carrying value of the product development
costs is rising in line with increased product
development. The future success and the
useful lives of these products require a
degree of judgement. The Audit Committee
regularly assesses the revenue streams
of capitalised products that have been
released for sale against their carrying
value. The Audit Committee also reviews a
projection of the estimated future carrying
values. The Audit Committee were satisfied
with the judgements used.
Deferred tax on
unremitted earnings
The Group does not currently record
deferred tax on the unremitted earnings
held in Group subsidiaries. The Board
recognises that where there is no intention
to repatriate these earnings back to the
parent Company, deferred tax should not
be provided. The Audit Committee receive
periodic updates on the unremitted earnings
position including forward projections. The
Audit Committee determined that there is
no specific requirement to move earnings
currently held in subsidiaries.
Inventory
The carrying value of the Group’s inventory
has been a focus for the Audit Committee
and significant progress has been made in
improving finished goods inventory turns
during the year. The high product mix and
the effect of certain service level agreements
with customers are recognised factors in the
inventory levels. In addition, rapid growth
and an acquisition are further reasons
for an overall increase in inventory during
the year. Exposure to the risk of inventory
obsolescence remains an area of ongoing
review. The Company’s peer to peer balance
sheet reviews, which are reviewed by
the Audit Committee, includes testing of
the provision. The Audit Committee were
satisfied with the provision.
Business combination
Following the acquisition of the business
and assets of Comdel Inc. on 29 September
2017, the Company has performed an
assessment of identifying and valuing
the intangible assets with the help of a
third party valuer; a process that involves
judgement. The use of an independent
valuer that has expertise in such judgements
combined with recent experience from
valuation of the EMCO intangible assets
helped balance these judgements. The
Audit Committee verified that the external
Auditor had independently assessed these
calculations and were satisfied with the
values attributed to the intangible assets.
Internal Control
The Board is ultimately responsible for the
Group’s system of internal controls and
the on going assessment of these further
details of which are included in C.2 Risk
Management and Internal Control of the
Corporate Governance section on page 48.
IFRS 9 Financial
Instruments
(effective for annual periods
beginning on or
after 1 January 2018)
IFRS 9 Financial Instruments is effective for
accounting periods beginning on or after
1 January 2018 and replaces the existing
guidance in IAS 39 Financial Instruments:
Recognition and Measurement.
IFRS 9 includes revised guidance on
the classification and measurement of
financial instruments, impairment on
financial assets and new general hedge
accounting requirements. IFRS 9 relaxes
the requirements for hedge effectiveness by
replacing the bright line hedge effectiveness
tests. It requires an economic relationship
between the hedged item and hedging
instrument and for the "hedged ratio" to be
the same as the one management actually
use for risk management purposes.
The Group has completed an initial impact
assessment of IFRS 9 and determined that
there will be no change in the classification
and measurement of financial assets. The
Group’s hedging arrangements will continue
to qualify for hedge accounting upon the
adoption of IFRS 9.
52
Heading IFRS 15 Revenue from
Contracts with Customers
(effective for annual periods
beginning on or
after 1 January 2018)
IFRS 15 Revenue from Contracts with
Customers is effective for accounting
periods beginning on or after 1 January
2018 and establishes a comprehensive
framework for determining whether, how
much and when revenue is recognised.
Based on an initial assessment of the
adoption of IFRS 15, the Group quantify
the impact as a de minimis (circa 0.02%)
reduction of the total revenue as a result
of the timing of the recognition of early
payment discounts and volume rebate.
This results in a de minimis timing impact
on operating profit (less than 0.1%). On this
basis, the Group does not believe it to be
likely that there will be a significant impact
on its consolidated financial statements.
IFRS 16 Leases (effective for
annual periods beginning on or
after 1 January 2019)
IFRS 16 Leases is effective for accounting
periods beginning on or after 1 January
2019. There will be changes to the Group’s
net assets due to bringing the right of use
asset relating to operating leases onto the
balance sheet, and to the Group’s profit
before tax as a result of the change in the
treatment of the interest implicit in the lease
and associated depreciation rather than the
straight-line recognition of operating lease
costs as they are currently recognised. The
quantification of these changes and other
effects on the Group is currently being
assessed. The Group does not consider
that any other standards, amendments or
interpretations issued by the IASB, but not
yet applicable, will have a significant impact
on the financial statements.
Internal Audit
As the Group continues to expand in scale
and complexity, the remit of the independent
internal audit process by Deloitte LLP
has also increased. The Audit Committee
reviewed the risk framework that was
developed last year in combination with the
Board’s risk monitoring process to identify
areas for risk assurance work and internal
audits to be carried out. These included
an assessment of the Group’s maturity to
compliance; a review of the financial controls
and capital management in the UK and USA
regions; a follow up to the cybersecurity
review; a logistics review comprising
finished goods management, warehouse
management and customer delivery; and
a site visit to the Vietnam factory to assess
business continuity and disaster recovery.
Findings and control observations from the
reviews are rated and presented to the Audit
Committee for comment or further action.
The recommendations made by the internal
auditors are assessed by management and
addressed accordingly within an agreed
timeline. The internal auditor regularly
follows up on these actions and keeps the
Audit Committee informed on progress
against the agreed timeline.
In addition to the internal audit, the Group’s
Financial Controllers conduct a formal
process of peer to peer balance sheet
reviews, the results of which are reported to
the Audit Committee. The Audit Committee
reviews and approves the scope and
schedule for these reviews as a means of
providing a secondary level of comfort over
the financial controls.
External Audit
The current external Auditor,
PricewaterhouseCoopers LLP, was
appointed in 2007. The current audit
engagement partner term began in 2014
with a maximum term of five years. In line
with best practice, as recommended by the
Financial Reporting Guideline, the external
audit is anticipated to be re-tendered in
2019 at the latest. The Audit Committee
has reported to the Board that the
reappointment of PricewaterhouseCoopers
LLP should be proposed at the forthcoming
Annual General Meeting.
The Audit Committee keeps under review
the role and independence of the external
Auditor. A formal statement of independence
is received each year together with a
report on the safeguards that are in place
to maintain their independence and the
internal measures to ensure their objectivity.
The Audit Committee is satisfied that this
independence has been maintained.
The Audit 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 Auditor 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 Auditor in excess of £50,000,
subject to compliance with the EU
member state restrictions, must first be
approved by the Chairman of the Audit
Committee;
} The award of other non-audit related
services to the Auditor in excess of
£20,000 must first be approved by the
Chairman of the Audit Committee.
During the year, no non-audit fees were paid
to the Auditor (2016: £25,000).
53
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Committee Report
w
“ THE REMUNERATION
POLICY AND THE
LONG-TERM
INCENTIVE PLAN
(LTIP) DESIGNED TO
REPLACE THE SHARE
OPTION PLAN WERE
BOTH APPROVED AT
THE LAST ANNUAL
GENERAL MEETING.”
Polly Williams
Remuneration Committee Chair
54
As Chair of the XP Power Remuneration
Committee, I am pleased to present the
2017 Remuneration Committee Report on
behalf of the Board.
The Remuneration Policy and the Long-
Term Incentive Plan (LTIP) designed to
replace the Share Option Plan were both
approved at the 2017 Annual General
Meeting. LTIP awards under the new plan
were made during the year to Executive
Directors and key management personnel.
As well as the incentive and retention
benefits these awards provide, they also
align rewards with the long-term nature of
the Group’s design-in cycles and revenue
annuities.
The Remuneration Committee's main focus
during the year was on the fixed elements
of the Executive Directors’ remuneration.
Following the benchmarking report that the
Remuneration Committee commissioned
the previous year, it was evident that
these elements of pay were not in line
with market rates for a company with the
scale and complexity of XP Power. The
practical implications of this were clear
during our search to attract a new Chief
Financial Officer (CFO) with the appropriate
experience to complement both the organic
and acquisition growth aspirations of the
Group and our discussions with him. In
addition, a significant increase has been
made to the base pay of the Chief Executive
Officer (CEO) with effect from 1 January
2018. Further details of the remuneration
packages of the CEO and CFO are in the
Remuneration Report on pages 60 to 68.
As well as reviewing the Directors’
remuneration packages, the Remuneration
Committee also keeps under review the
fixed and variable elements of the key
management personnel within the Group to
ensure they comprise sufficient reward to
motivate and retain.
The Group performed strongly during 2017
with adjusted pre-tax profits rising from
£28.6 million in 2016 to £36.1 million in
2017, an increase of 26.2%. As a result of
this strong performance, annual bonuses will
be paid to Executive Directors at the upper
end of the spectrum with the CEO’s bonus
at the 100% cap of salary of £260,000. No
long-term incentive awards were due to vest
in 2017.
The Remuneration Committee was pleased
that the revised policy and new LTIP
received strong Shareholder support with
96.2% of votes cast being in favour of both
resolutions. The level of support for the
advisory vote on the Remuneration Report
was lower, at 90.5%, and the Remuneration
Committee recognised that proxy advisers
and some Shareholders made some
comments on our Executive remuneration,
principally on our disclosures on annual
bonuses. We have therefore reviewed all
disclosures thoroughly with an advisor, and
increased the level of disclosure on annual
bonuses in this report. We communicated
with our largest Shareholders, covering over
57% of the register, on these changes and
also informed them of the details of the new
packages of the CEO and CFO.
We seek your support for the Annual Report
on Remuneration and the Remuneration
Committee welcomes any further comments
from Shareholders with respect to our
approach to remuneration.
Introduction
This report is on the activities of the
Remuneration Committee for the period
to 31 December 2017. 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)
(Amendment) Regulations 2013.
The report is split into two areas:
} The annual report on remuneration; and
} The policy report.
The policy report was approved by a binding
Shareholder vote at the 2017 Annual
General Meeting and the policy took effect
from the date on which that resolution was
passed. The policy report is not subject to
audit.
The annual report on remuneration provides
details on remuneration in the period
together with other information required
by the Regulations. It will be subject to
an advisory Shareholder vote at the 2018
Annual General Meeting. The Auditor has
reviewed certain parts of the Directors’
Remuneration Report and is required
to report if the information is materially
inconsistent with the financial statements.
Polly Williams
Remuneration Committee Chair
Heading Remuneration Policy
The information in this section of the Directors’ Remuneration Report is not subject to audit.
The objectives of the Remuneration Policy are as follows:
} To reward employees and Executives appropriately for the work they do (base salary);
} To provide market competitive remuneration packages to enable retention or recruitment (base salary plus benefits);
} To incentivise the employees and Executives to perform at their best consistently (bonus/Long-Term Incentive Plan);
} To align Shareholders' and senior management’s interests (bonus in shares, Long-Term Incentive Plan and shareholding guidelines); and
} To retain key staff (long-term structures with delayed vesting).
The following table provides a summary of the key components of the remuneration package for:
Executive Directors
Applicable
performance
measures
n/a
Recovery
n/a
n/a
n/a
Component
Purpose
Operation
Opportunity
Base salary
To help recruit, retain
and motivate high
performing Executives.
Reflects the individual
experience, role and
importance of the
Executive Director to
the business.
Base salaries are set by the
Remuneration Committee
and reviewed annually and
increases are effective from 1
January, although increases
may be awarded at other times
if the Remuneration Committee
considers it appropriate.
A market benchmarking exercise
will be undertaken periodically as
determined by the Remuneration
Committee to ensure that base
salary remains around the median
of the market level for roles of a
similar nature and to reflect the
individual’s skills, experience and
performance.
Benefits
To help recruit,
retain and motivate
high performing
Executives.
To provide market
competitive benefits.
Benefits are set by the
Remuneration Committee and
reviewed annually.
Benefits currently received by
the Directors include:
} Paid holidays
} Life insurance
} Private medical cover
} Housing allowance
} Car allowance
Base salaries are
reviewed annually.
Increases will not
normally exceed the
range of increases
awarded to other
employees within
the Group.
The Remuneration
Committee may also
increase a Director’s
salary should there
be a change in the
scope of their role, the
scale or complexity
of the business or if
significant changes
to market practice
arise, which the
Remuneration
Committee believes
justifies a further
increase in base salary.
The Company
provides a range of
market-benchmarked
benefits. The costs
of these benefits may
change year-on-year
due to external costs.
The Remuneration
Committee has
flexibility to provide
benefits which
would typically have
been available to an
Executive Director
in an overseas
jurisdiction when
recruiting from outside
of the UK.
55
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Policy
Applicable
performance
measures
Specific targets and
weightings may vary
according to strategic
priorities and may
include:
} Financial
performance
} Attainment
of personal
objectives
Weighting will focus
on Group financial
performance.
It is the Remuneration
Committee's intention
to set relative TSR
targets for 50%
of the award and
absolute EPS growth
targets for the other
50%, although
the Remuneration
Committee will
set appropriate
performance
conditions and
weightings each year
prior to awards being
made.
Recovery
The Remuneration
Committee has the
power to reduce
unpaid annual bonuses
and clawback bonuses
already paid on a net
basis in circumstances
of material financial
misstatement, a
major environmental
event, a breach of
the Company’s code
of ethics or a serious
health and safety issue.
The Remuneration
Committee has the
discretion to clawback
some or all of the
awards granted under
the LTIP by reducing
unvested awards or
requiring the return
of the net value of
vested awards to
the Company in
circumstances of
material financial
misstatement, a
major environmental
event, a breach of
the Company’s code
of ethics or a serious
health and safety
issue.
Component
Purpose
Operation
Opportunity
Annual
bonuses
Align interests of
Executive Directors
and Shareholders in
the short-and medium-
terms.
Long-term
incentive plan
(LTIP)
Align the interests of
Executive Directors
and Shareholders in
the long-term.
Incentivises long-term
value creation.
Up to 100% of base
salary.
The maximum award
level under the LTIP is
100% of base salary
or such higher amount
as the Remuneration
Committee in its
absolute discretion
may determine, up to
a maximum of 200%
of base salary.
The 200% cap
is restricted
to exceptional
circumstances only.
The annual bonus scheme
participation levels (including
maximum opportunities) are
determined by the Remuneration
Committee following the end of
the year, based on performance
achieved against the performance
metrics set.
Awards are split equally between
(i) cash and (ii) shares vesting over
two years, subject to continued
employment.
The XP Power Long-Term
Incentive Plan was approved
at the 2017 Annual General
Meeting. This replaced the
Company’s share option
scheme for awards to Executive
Directors.
LTIP awards may be made in
the form of conditional share
awards, nil or nominal cost
options. The LTIP also provides
for awards to be structured as
stock appreciation or phantom
rights, which may be suitable
for awards granted in overseas
jurisdictions.
Performance is typically
measured over three financial
years starting with the year or
date of grant, or any longer
period as the Remuneration
Committee may decide.
50% of a vested award will be
distributed at that time, with the
remaining 50% distributed after
a period of one year.
Amounts equivalent to any
dividends or Shareholder
distributions made in respect
of awards at vesting, are at the
discretion of the Remuneration
Committee.
56
Heading Component
Purpose
Operation
Opportunity
Share option
plan
Align the interests of
Executive Directors
and Shareholders in
the long-term.
Incentivises long-term
value creation.
Prior to the adoption of the XP
Power Long-Term Incentive Plan,
market value share options were
granted with 50% options vesting
after three years from date of
grant and 50% options vesting
after four years.
No further options are
intended to be granted
to Executive Directors.
Applicable
performance
measures
Vesting of outstanding
options is based on
total Shareholders'
return relative to the
FTSE 350 Electronic
and Electrical
Equipment Sector.
Top 20th percentile:
100% vest. Between
median and top 20th
percentile: vest on
a straight line basis
between 25% and
100%. Below median:
zero vest.
Pensions
Shareholding
(minimum)
Provide a basic
pension benefit that
would be expected for
the position.
Align the interests of
Executive Directors
and Shareholders in
the long-term.
Percentage of base salary paid
into a defined contribution
scheme.
2–3% depending on
geography.
n/a
n/a
n/a
n/a
To build a minimum shareholding
equivalent to two years’ salary.
Directors have a period of five
years from 1 April 2016 (the date
of approval) to achieve this.
Restricted shares awarded under
the annual bonus plan can be
included in this measure.
Recovery
The Remuneration
Committee has the
discretion to clawback
unvested options
or require the return
of the net value of
vested options in
circumstances of
material financial
misstatement, a major
environmental event
or a breach of the
Company’s code of
ethics or a serious
health and safety issue.
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.
Use of Discretion
The Company’s incentive plans including the annual bonus scheme, share option scheme and LTIP will be operated within the rules of the
relevant scheme, together with all applicable laws and regulations. The Remuneration Committee may operate the discretion contained in
the relevant plan in order to facilitate its administration and operation. Discretion includes (but is not limited to) who is invited to participate
or receive awards, the size and timing of awards or payments, the setting of appropriate performance measures and targets for annual
bonuses and incentive schemes from year to year and any adjustment of these to take account of market conditions, the annual review of
performance against targets for the determination of bonuses and awards, the determination of vesting and performance periods and the
treatment of leavers, and discretion when dealing with adjustments in respect of corporate events (such as changes in control, rights issues,
de-mergers, acquisitions etc).
57
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Policy
Non-Executive Directors
Component
Purpose
Operation
Opportunity
Applicable
performance
measures
Fees
Fees are set at a level
which is sufficient to
attract, motivate and
retain quality Non-
Executive Directors.
Fees are reviewed periodically.
The Board (excluding the
Non-Executive Directors) is
responsible for setting Non-
Executive Directors’ fees.
n/a
The total amount
of Non-Executive
Directors’ fees shall
not exceed £300,000.
Recovery
n/a
Non-Executive Directors are
not entitled to participate in the
Group’s incentive plans.
Approach to Executive Recruitment
Where a new director is to be appointed, a candidate profile is developed based on a review of future business requirements against the
experience and skills of existing Board members. This is used to brief external recruitment consultants appointed by the Remuneration
Committee to undertake the selection process. Initial meetings with prospective candidates are held by the Chief Executive Officer. A
shortlist is selected to meet other Board members and a number of executive managers. The Remuneration Committee then meets and
decides which candidate, if any, will be recommended to join the Board.
For our recruitment activities in relation to Gavin Griggs, we appointed The Zygos Partnership to assist us. Zygos Partnership is accredited
under the Enhanced Code of Conduct for search firms and does not have any other connection to the Company, and are therefore fully
independent. Any appointments to the Board receive an induction in respect of their directorship. This will typically include meetings with
senior management and our corporate advisers, presentations from key business areas, and visits to our overseas businesses.
In the event of the recruitment of a new Executive Director, the Remuneration 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 for annual bonus and LTIP would also be capped as it is for existing Executive Directors.
In addition, the Remuneration Committee will have discretion to make payments or awards to buy out incentive arrangements forfeited on
leaving a previous employer, i.e. over and above the approach outlined in the table above, and may exercise the discretion available under
Listing Rule 9.4.2R if necessary to do so. In doing so, the Remuneration Committee will seek, to the best possible extent, to do no more
than match the fair value of the awards forfeited, taking account of the applicable performance conditions, the likelihood of those conditions
being met and the proportion of the applicable vesting period remaining.
Where an Executive Director appointment is an internal candidate, the Remuneration Committee will honour any pre-existing remuneration
obligations or outstanding variable pay arrangements that relate to the individual’s previous role.
The Remuneration Committee retains the discretion to offer appropriate remuneration outside the standard policy where an interim
appointment is made to fill an Executive role on a short-term basis or where exceptional circumstances require that the Chairman or a Non-
Executive Director takes on an Executive function.
Executive Directors’ 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. Directors are able to terminate the
contracts giving 12 months’ notice.
Non-Executive Directors’ Contracts
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
option awards, Long-Term Incentive Plans or pensions.
Shareholder Consultation
The Remuneration Committee's policy is to consult with major Shareholders in respect of significant decisions on Executive remuneration.
The Company communicated with Shareholders representing 57% of its register in respect of making changes to its disclosures on annual
bonus and the new packages of the CEO and CFO.
58
Heading CHIEF EXECUTIVE OFFICER
Duncan Penny
PRESIDENT, CORPORATE DEVELOPMENT
Mike Laver
£400,756
100%
£400,756
£292,500
£97,500
51%
37%
12%
£277,341
100%
£277,341
£128,500
£64,250
59%
27%
14%
Minimum
On target
£400,756
£390,000
£390,000
34%
33%
33%
Maximum
£277,341
£257,000
£257,000
36%
32%
32%
Minimum
On target
Maximum
CHIEF FINANCIAL OFFICER
Gavin Griggs (appointed 31 October 2017)
£310,358
Minimum
100%
£310,358
£210,00
£70,000
53%
35%
12%
£310,358
£280,000
36%
32%
£280,000
32%
On target
Maximum
EXECUTIVE VICE PRESIDENT, ASIA
Andy Sng
£193,443
100%
£193,443
£70,327
£35,163
65%
23%
12%
£193,443
£140,653
£140,653
40%
30%
30%
Minimum
On target
Maximum
Fixed (£)
Annual variable (£)
LTIP
Statement of Consideration of Employment Conditions Elsewhere in the Company
Pay and conditions throughout the Group are taken into consideration when setting remuneration policy. The Remuneration Committee does
not consult other employees when setting Executive Director remuneration.
Illustration of the Application of the Remuneration Policy
The charts above give an indication of the level of remuneration that would be received by each Executive Director in accordance with the
Directors’ remuneration policy (excluding share price movement).
0
200
400
600
800
1000
1200
The charts provide estimates of the potential future reward opportunities for each Executive Director, and the potential split between the
different elements of remuneration under three different performance scenarios: “Minimum”; “On target”; and “Maximum”.
The “On target” scenario has been calculated based on the 2018 approved budget and threshold vesting of normal LTIP awards.
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 and maximum vesting of normal LTIP awards under the plan. In order for Directors to achieve the
maximum bonus, profit before tax would have to reach £45.1 million in 2018.
The fixed element of remuneration includes base salary, benefits-in-kind and pension contributions. The benefits-in-kind are measured
according to their taxable value as follows:
Position
Name
Base salary
Benefits
Pension
Total fixed pay
Chief Executive Officer
Duncan Penny
£390,000
£2,956
£7,800
£400,756
Chief Financial Officer (appointed 31 October 2017)
Gavin Griggs
£280,000
£21,958
£8,400
£310,358
President, Corporate Development
Mike Laver
US$330,000
US$17,642
US$8,100
US$355,742
Executive Vice President, Asia
Andy Sng
S$250,000
S$76,663
S$17,167
S$343,830
59
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Report – Annual Report
Responsibilities of the Remuneration Committee
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. It is the responsibility of the Remuneration Committee to consider
the experience and value the individual Directors contribute to the Group; measure the performance of the Executive Directors and key
members of senior management and determine of their annual remuneration package.
Members of the Remuneration Committee
Polly Williams (Chair), Independent Non-Executive Director
Peter Bucher, Independent Non-Executive Director
Terry Twigger, Independent Non-Executive Director
Meetings of the Remuneration Committee
The Remuneration Committee met four times during 2017 with attendance on the dates as follows:
Date
6 March 2017
9 June 2017
6 October 2017
8 December 2017
Attendees
All
All except Peter Bucher
All
All
Peter Bucher was unable to attend the June meeting due to a prior commitment.
Performance Evaluation of the Remuneration Committee
During the year, the Remuneration Committee reviewed its performance as part of the Board’s evaluation process. The Remuneration
Committee considered it had adequate skills and experience to perform its responsibilities and, where considered appropriate, employs the
services of outside remuneration consultants. The Remuneration Committee used advisory services as outlined on page 68.
Remuneration for the Executive Directors
There are five main elements of the remuneration package for Executive Directors and senior management:
} Basic annual salary;
} Benefits-in-kind;
} Pension arrangements;
} Annual bonus; and
} Long-term share incentives.
The Company’s policy is that a significant proportion of the remuneration of the Executive Directors should be performance-related. As
described below, Executive Directors may earn an annual bonus together with the long-term benefits of participation in share award schemes.
The Remuneration Committee makes recommendations to the Board. No Director plays a part in any discussion regarding his or her
own remuneration.
Basic salary
Directors’ basic salaries are reviewed by the Remuneration Committee each year and when an individual changes position or responsibility.
Basic salaries for all Directors were reviewed against a benchmarking study that had been commissioned by the Remuneration Committee
at the end of the previous year. The companies used in the study were assessed for their suitability and relevance to the Company. No
changes were made to base salaries for the year commencing 1 January 2017.
Gavin Griggs was appointed CFO on 31 October 2017 with a base salary of £280,000.
60
Heading Benefits-in-kind
The Executive and Non-Executive Directors receive certain benefits-in-kind, principally life assurance and private medical insurance. In
addition, Gavin Griggs receives a car allowance and Andy Sng receives a housing allowance relating to his relocation to Shanghai where he
spends approximately half his time.
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 participants’ contribution to this plan, includes
Executive Directors, up to 3% of the Director’s salary and bonus.
Annual Bonuses
The Remuneration Committee establishes the profit thresholds that must be met for each financial year before a cash or share bonus is to
be paid. Account is also taken of the relative success of the different parts of the business for which the Executive Directors are responsible.
2017 performance targets for Executive Directors other than Andy Sng
Target
Adjusted profit before tax
Percentage of salary for Executive Directors
at different levels of performance
Duncan Penny
Gavin Griggs (appointed 31 October 2017)
Mike Laver
Jonathan Rhodes (resigned from Board 31 October 2017)
Weighting
Threshold
Target
Stretch / max
Actual
100%
£25.7m
£31.5m
£35.3m – £44.9m
£36.1m
£260,000
£47,744
£257,272
£140,000
0%
0%
0%
0%
60%
40%
30%
40%
100%*
100%
100%*
100%*
100%
72%
54%
72%
2017 performance target for Andy Sng – Executive Vice President, Asia
Target
Asia gross margin
Weighting
Threshold
Target
Stretch / max
Actual
100%
US$2.0m US$6.4m
US$22.9m US$6.8m
Percentage of salary paid for Andy Sng at different levels
of performance
£126,608
0%
21%
100%
22%
* To meet the 100% bonus pay out for each of these Executive Directors, the corresponding adjusted profit before tax target are as follows: Duncan Penny - £35.3 million, Mike Laver -
£44.9 million and Jonathan Rhodes - £40.1 million.
The 2017 annual bonus for Duncan Penny, Jonathan Rhodes and Mike Laver was based solely on the Group’s adjusted profit before tax.
The threshold for bonuses to start was £25.7 million with on-target performance set at £31.5 million, 10% ahead of adjusted profit before
tax achieved in 2016. The bonus was structured on a linear pro-rata basis. Gavin Griggs’ 2017 bonus was pro-rated to reflect his date of
joining of 31 October 2017.
In line with the Remuneration Policy, 50% of annual bonuses will be paid out and the remaining 50% will be awarded in shares vesting over
two years from 31 December 2017. The details of each Executive Director are shown in the table on page 65.
61
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Report – Annual Report
Long-Term Share Incentives
Details of all outstanding long-term incentive awards and deferred bonus awards held by Executive Directors are laid out later in this report.
Details of the terms and performance conditions applied to each round of awards are set out below.
Long-Term Incentive Plan
The Group operated the XP Power Limited Long-Term Incentive Plan (LTIP) as approved by Shareholders at the 2017 Annual General
Meeting. This replaced the Company’s Share Option Plan for equity awards to Executive Directors.
LTIP awards may be made in the form of conditional share awards, nil or nominal cost options or deferred cash. The LTIP will also provide
for awards to be structured as stock appreciation or phantom rights, which may be suitable for awards granted in overseas jurisdictions.
The vesting of these awards depends on two separate performance conditions over a three-year period as outlined below. 50% of the
award will vest three years after the grant date with the remaining 50% vesting 12 months later. Vesting at threshold performance levels is
25% of the maximum.
Up to 50% of the total Shares subject to the Award will vest dependent upon compound annual growth rates of adjusted Earnings Per
Share (EPS) over a three-year period.
Adjusted EPS performance
10% compound annual growth
5% compound annual growth
Below 5% compound annual growth
Vesting
100%
25%
No vesting
Vesting between the 5% and 10% adjusted EPS targets will be measured on a straight-line basis.
Up to 50% of the total Shares subject to the Award will vest dependent upon the achievement of the Company’s Total Shareholder Return
(“TSR”) measured against that of the FTSE 250 over the same three-year period.
TSR performance
75th percentile
Median (50th percentile)
Below the median
Vesting
100%
25%
No vesting
Vesting between the median and the 75th percentile will be measured on a straight-line basis.
On 30 May 2017, 39,400 nominal-priced options were awarded under this plan including to Executive Directors. The performance period for
the EPS and TSR condition is measured from 1 January 2017 to 31 December 2019.
On 1 November 2017, 8,000 nominal-priced options were awarded to Gavin Griggs under this plan. The performance period for the EPS
and TSR condition is measured from 1 January 2018 to 31 December 2020.
The detail of the LTIP awards by Executive Director is shown in the table on page 66.
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.
Some of the share options awarded to Executive Directors under this Plan have not vested. The share options granted in February 2016
vest 50% after three years and 50% after four years, subject to the performance condition being met. Vesting of these outstanding options
is based on Total Shareholder Return relative to the FTSE 350 Electronic and Electrical Equipment Sector.
No awards were due to vest in 2017.
At 31 December 2017, the total number of unvested share options in this scheme was 385,000. Their potential value, assuming 100% of
the awards vest using the closing share price of £34.30 on 31 December 2017, was £7,266,875.
The detail of historic Share Option Plan awards by Executive Director is shown in the table on page 66.
No further options are intended to be granted to Executive Directors or employees under this Plan.
62
Heading Performance Graph
The Company’s Total Shareholder Return performance compared with the FTSE 350 Electronic and Electrical Equipment Index.
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
1600
1400
1200
1000
800
600
400
200
0
F E B-16
A P R-16
J U N -16
A U G-16
O C T-16
F E B-17
A P R-17
J U N -17
A U G-17
O C T-17
D E C-17
XP Power
FTSE 350 Electronic and
Electrical Equipment
Deferred Payment Share Plan
The Group had 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 aligned 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. Executive Directors have no remaining share awards under this plan.
Chief Executive Officer Remuneration
The table below sets out the details of the Director undertaking the role of Chief Executive Officer.
£ Thousands
Base salary
Pension
Benefits
Annual
bonus
Total CEO
remuneration
2013
2014
2015
2016
2017
260
260
260
260
260
8
8
8
8
8
3
3
3
3
3
–
–
39
71
260
271
271
310
342
531
63
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Remuneration Report – Annual Report
i.
14.4
9.1
8.2
Total pay for
manufacturing
(£ millions)
58%
2015
2016
2017
Total pay
for sales,
administration
and R&D
(£ millions)
19.7
20% 2015
29.0
24.2
Total
employee pay
(£ millions)
43.4
33.3
27.9
30%
2016
2017
2015
2016
2017
Operating
income
(£ millions)
16%
28.0
25.6
32.5
Dividends
(£ millions)
14.0
12.9
12.0
9%
2015
2016
2017
2015
2016
2017
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 2017.
Percentage increase in remuneration in 2017
compared with 2016
Base salary
All taxable benefits
Annual bonus
Total
CEO
0%
0%
266%
55%
Chosen employee group Note 1
3%
3%
5%
4%
Note 1 - The chosen employee group for this comparison excludes Chinese employees where there has been significant salary inflation.
Non-Executive Directors
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
Terry Twigger
Polly Williams
Fee
£50,000
£40,000
£45,000
£40,000
Date of last review Effective date of last change
25 November 2016
25 November 2016
25 November 2016
25 November 2016
25 July 2014
1 January 2015
1 March 2016
1 January 2016
James Peters is the Chairman of the Board. Terry Twigger is the Senior Independent Non-Executive Director.
64
Heading i.
Aggregate Directors’ Remuneration
The total amounts for Directors’ remuneration were as follows:
£
Basic salaries
Benefits-in-kind
Annual bonus
Money purchase pension contributions
Non-Executive Director fees
Total remuneration
Directors’ Remuneration for 2017
Name of Director
£
Executive
Duncan Penny
Gavin Griggs
(appointed 31 October 2017)
Mike Laver
Andy Sng
Jonathan Rhodes
(resigned from Board 31 October 2017)
Non-Executive
Peter Bucher
James Peters
Terry Twigger
Polly Williams
Directors’ Remuneration for 2016
2017
831,624
66,234
561,706
29,383
177,393
2016
758,255
46,285
192,149
26,678
186,155
1,666,340
1,209,522
Salary
and fees
Annual
bonus
Pension
Benefits
2017
Total
260,000
260,000
7,800
3,322
531,122
47,744
257,272
126,608
33,704
139,356
27,535
1,400
6,315
9,668
3,631
13,754
43,104
86,479
416,697
206,915
140,000
101,111
4,200
2,423
247,734
40,000
50,000
45,000
40,000
–
–
–
–
–
–
–
–
–
2,393
–
–
40,000
52,393
45,000
40,000
Name of Director
£
Executive
Duncan Penny
Mike Laver
Andy Sng
Jonathan Rhodes
Non-Executive
Peter Bucher
John Dyson (chose not to stand for
re-election at last AGM)
James Peters
Terry Twigger
Polly Williams
Salary
and fees
Annual
bonus
Pension
Benefits
2016
Subtotal
Share
options*
2016
Total
260,000
239,491
118,764
140,000
40,000
10,000
50,000
44,167
40,000
71,601
48,122
20,749
51,677
7,800
5,770
8,908
4,200
–
–
–
–
–
–
–
–
–
–
2,594
12,276
29,237
2,178
–
–
1,988
–
–
341,995
305,659
177,658
198,055
40,000
10,000
51,988
44,167
40,000
496,328
496,328
132,354
132,354
–
–
–
–
–
–
838,323
801,987
310,012
330,409
40,000
10,000
51,988
44,167
40,000
*The value of the share options has been restated to reflect the number of shares that vested in that year. The value has been calculated by taking the market share price at the date of
vesting less the exercise price when the awards were made, multiplied by the number of shares that vested. The awards are subject to malus and clawback provisions.
65
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Report – Annual Report
In the year under review, the base salary of the Chief Executive Officer, Duncan Penny, and Andy Sng, Executive Vice President, Asia
were increased as described on page 67. There were no increases to the base salaries of the other Executive Directors. For all other staff
(excluding Chinese and Vietnamese manufacturing staff) the average increase was approximately 3%.
Directors’ Interests in Ordinary Shares of XP Power Limited
The Directors’ interests shown below do not include deferred bonus shares.
Executive
Mike Laver (a)
Duncan Penny (b)
Andy Sng (c)
Non-Executive
James Peters (d)
At
31 December
2017
At
1 January
2017
39,500
206,990
30,000
119,969
326,990
41,000
1,529,279
1,929,279
Executive Directors have a period of five years from 1 April 2016 (the date of approval) or from when they join the Board to build a minimum
shareholding equivalent to two years’ salary. Restricted shares awarded under the annual bonus plan can be included in this measure.
(a) Mike Laver sold 8,475 shares at a price of £24.95 on 24 April 2017 and a further 71,994 shares at a price of £24.00 on 20 June 2017.
Mike Laver previously participated in the deferred payment share scheme. As at 31 December 2017, there is no outstanding balance
owed.
(b) Duncan Penny sold 120,000 shares at a price of £24.00 on 20 June 2017.
(c) Andy Sng sold 11,000 shares at a price of £24.00 on 20 June 2017.
(d) James Peters sold 400,000 shares at a price of £24.00 on 20 June 2017.
In addition to the Directors’ interests in the ordinary shares of the Company, the following Directors have interests in share options, nominal-
priced options and deferred bonus shares:
Executive
Duncan Penny
Plan
Date of grant
Exercise
Price
Expiry date of
option
Share option plan 2012
10 October 2012
£9.46
10 October 2022
Share option plan 2012
23 February 2016
£15.425
23 February 2026
Deferred bonus plan 2016
17 March 2017
–
–
LTIP 2017
30 May 2017
£0.01
30 May 2022
Gavin Griggs (appointed
31 October 2017)
LTIP 2017
1 November 2017
£0.01
1 November 2022
Mike Laver
Share option plan 2012
10 October 2012
£9.46
10 October 2022
Share option plan 2012
23 February 2016
£15.425
23 February 2026
Deferred bonus plan 2016
17 March 2017
–
–
LTIP 2017
30 May 2017
£0.01
30 May 2022
Andy Sng
Share option plan 2012
10 October 2012
£9.46
10 October 2022
Share option plan 2012
23 February 2016
£15.425
23 February 2026
Deferred bonus plan 2016
17 March 2017
–
–
LTIP 2017
30 May 2017
£0.01
30 May 2022
At
31 December
2017
No. of
shares
At
1 January
2017
No. of
shares
60,750
50,000
1,776
6,000
8,000
60,750
25,000
1,191
3,000
–
10,000
514
2,000
60,750
50,000
–
–
–
60,750
25,000
–
–
16,200
10,000
–
–
Jonathan Rhodes
Share option plan 2012
10 October 2012
£9.46
10 October 2022
16,200
16,200
(resigned from Board
31 October 2017)
Share option plan 2012
23 February 2016
£15.425
23 February 2026
20,000
20,000
Deferred bonus plan 2016
17 March 2017
–
–
LTIP 2017
30 May 2017
£0.01
30 May 2022
1,282
2,000
–
–
66
Heading On 3 May 2017, Andy Sng exercised 16,200 options granted on 10 October 2012 at a price of £9.46.
The share options granted on 10 October 2012 vested four years after the award date.
The share options granted on 23 February 2016 vest 50% after three years and 50% after four years and are subject to the performance
criteria outlined in the Remuneration Policy on page 57.
The awards granted on 17 March relate to 50% of the bonus earned in the financial year 2016 and are deferred for two years after
31 December 2016.
The nominal-priced options awarded on 30 May 2017 and on 1 November 2017 vest 50% after three years and 50% after four years and
are subject to the performance criteria outlined in the Remuneration Policy on page 56.
The highest and lowest closing mid-market prices of the shares of XP Power Limited during 2017 were £36.20 and £17.30 per share
respectively. The closing mid-market price on 29 December 2017 was £34.30 per share.
Relative Importance of Spend on Pay
£ Millions
Distribution to Shareholders
Dividends1
Share buyback2
Group employment costs3
2017
2016
Change %
14.0
1.6
43.4
12.9
0.1
33.3
8%
1500%
30%
1
2
3
Refer to Financial Statements – Note 9 for more details.
Refer to Financial Statements – Note 24 for more details.
Group employment costs includes Directors’ remunerations. Refer to Financial Statements - Note 5 for more details.
Remuneration in 2018
Salary
The Remuneration Committee reviewed the basic salaries of the existing Executive Directors in June 2017 and determined to make a
number of changes effective 1 January 2018. The basic salary for the Chief Executive Officer which had remained unchanged at £260,000
since 2012, was increased effective 1 January 2018 to reflect the current scale and complexity of the Group. The basic salary for the
Executive Vice President, Asia, which had remained unchanged at Singapore $225,000 since 1 January 2008, was also increased. The
salaries of the other Executive Directors were left unchanged.
Executive
Duncan Penny
Gavin Griggs (appointed 31 October 2017)
Mike Laver
Andy Sng
Base salary
Date of last review
Effective date of last
increase
£390,000
£280,000
9 June 2017
1 January 2018
6 October 2017
31 October 2017
US$330,000
9 June 2017
1 January 2012
S$250,000
21 December 2017
1 January 2018
Jonathan Rhodes (resigned from Board on 31 October 2017)
£140,000
9 June 2017
1 July 2014
Executive Directors’ contracts of service, which include details of remuneration, will be available for inspection at the
Annual General Meeting.
Annual bonus
For 2018, the maximum bonus opportunity of the executive directors will again be capped at 100% of salary with on target pay-outs at 75%
for the CEO, 75% for CFO, 50% for the President, Corporate Development, and 50% for the Executive Vice President, Asia. Bonuses are
based on the Group’s adjusted profit before tax in respect of the CEO, CFO and President, Corporate Development and operating profit of
the Asia sales business in respect of the Executive Vice President, Asia. The Company’s targets are deemed sufficiently stretching to justify a
pay out at 75% of maximum for the CEO and CFO for on target performance.
The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation to the financial targets used for the
annual bonus, disclosing precise targets for the bonus plan in advance would not be in shareholders’ interests. The threshold targets for
bonus pay-outs in 2018 will be set at a level ahead of performance in 2017. Actual targets, performance achieved and awards made will be
published at the end of the performance periods so Shareholders can fully assess the basis of any pay-outs.
67
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Remuneration Report – Annual Report
Long-term incentive awards
2018
The Remuneration Committee expects to make further awards to Executive Directors under the 2017 LTIP during 2018. The precise
performance conditions attached to awards will be determined immediately before the awards are made and disclosed when the awards are
made and in the 2018 annual report.
Non-Executive remuneration
No changes were made to the fees of Non-Executive Directors for 2018.
Advice on Remuneration
During the year, h2glenfern Remuneration Advisory provided advice to the Company with respect to the Executive Directors’ remuneration.
Fees were charged on a cost incurred basis and totalled £10,400 in the year to 31 December 2017. h2glenfern Remuneration Advisory had
previously provided advice to the Company on remuneration and has no other connection with the Company.
h2glenfern Remuneration Advisory has confirmed that it has operated in accordance with the Code of Conduct of the Remuneration
Consultants’ Group in relation to Executive remuneration consulting in the United Kingdom. The Remuneration Committee has therefore
satisfied itself that all advice provided by h2glenfern was objective and independent.
Statement of Voting at the Annual General Meeting
The following table sets out actual voting in respect of the approval of the 2017 Remuneration Policy, the remuneration report and the
Long-Term Incentive Plan:
Approval of Remuneration Policy
Approval of Remuneration Report
Approval of the Long-Term Incentive Plan
Number of
votes cast in
favour
Percentage
of votes cast
for
Number of
votes cast
against
Percentage
of votes cast
against
14,034,082
13,161,504
14,036,112
96.2%
90.5%
96.2%
561,028
1,373,868
560,498
3.84%
9.45%
3.84%
Number
of votes
withheld
2,266
62,003
266
The Group is committed to on going Shareholders 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.
Whilst the voting at the last Annual General Meeting was mostly favourable, some areas of concern arose from low disclosure on annual
bonus targets and the disclosure of the potential value of share option awards made in the year.
The disclosure issues have been addressed in this report with improved detail on bonus awards. The Remuneration Committee
communicated with its major Shareholders in relation to the remuneration package of the CFO, the increase in the salary of the CEO and the
issues set out above in advance of the publication of this annual report.
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.
Statement of Shareholder Views
The Company has received views from Shareholders that James Peters was not considered independent by virtue of him previously holding
an executive position within the Company. James Peters is a major Shareholder and the Board considers that his interests would therefore
be strongly aligned with all Shareholders.
Approval
This report was approved by the Board of Directors on 1 March 2018.
68
Heading Other Governance and Statutory Disclosures
Directors
The Directors of the Company in office at the date of this report are as follows:
Peter Bucher
Gavin Griggs (appointed 31 October 2017)
Mike Laver
Duncan Penny
James Peters
Andy Sng
Terry Twigger
Polly Williams
All Directors will retire and being eligible offer themselves for re-election at the forthcoming Annual General Meeting on 6 April 2018.
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
Amount
2016 Comparative
10 July 2017
15.0 pence
12 October 2017
16.0 pence
11 January 2018
18.0 pence
20 April 2018
29.0 pence
14.0 pence
15.0 pence
16.0 pence
26.0 pence
78.0 pence
71.0 pence
We are proposing a final dividend of 29.0 pence per share which would be payable to members on the register on 16 March 2018 and will
be paid on 20 April 2018. This would make the total dividend for the year 78.0 pence (2016: 71.0 pence) which is an increase of 10%.
Audit Committee
The members of the Audit Committee at the end of the financial year were as follows:
Terry Twigger (Chair)
Peter Bucher
Polly Williams
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 Audit 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
2017 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
reappointment at the forthcoming Annual General Meeting of the Company.
Independent Auditor
The independent Auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept reappointment.
On behalf of the Directors
James Peters
Chairman
1 March 2018
Duncan Penny
Chief Executive Officer
69
GOVERNANCEXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP 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 77 to 128 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 2017 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
8 March 2017
James Peters
Non-Executive Chairman
1 March 2018
Duncan Penny
Chief Executive Officer
70
Heading
Independent Auditor’s Report
TO THE MEMBERS OF XP POWER LIMITED
Report on the Financial Statements
Our Opinion
In our opinion, the accompanying consolidated financial statements of XP Power Limited (the “Company”) and its subsidiary corporations
(“the Group”) and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Companies Act,
Chapter 50 (the “Act”) and International Financial Reporting Standards (“IFRS”) as adopted by the European Union, so as to give a true and
fair view of the consolidated financial position of the Group and the financial position of the Company as at 31 December 2017, and of the
consolidated financial performance, consolidated changes in equity and consolidated cash flows of the Group for the financial year ended
on that date.
What we have audited
The financial statements of the Company and the Group comprise:
} the consolidated statement of comprehensive income of the Group for the year ended 31 December 2017;
} the balance sheet of the Group as at 31 December 2017;
} the balance sheet of the Company as at 31 December 2017;
} the consolidated statement of changes in equity of the Group for the year then ended;
} the consolidated statement of cash flows of the Group for the year then ended; and
} the notes to the financial statements, including a summary of significant policies.
The basis for our opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are
further described in the What are we responsible for section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority’s Code of Professional Conduct
and Ethics for Public Accountants and Accounting Entities (“ACRA Code”) together with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the ACRA Code.
Our audit approach – overview
Materiality
Audit Scope
Key Audit
Matters
Materiality
The overall materiality which we have used to plan our work amounted to £1.45 million, which
represented 5% of profit before taxation.
Audit Scope
We performed an audit of the complete financial information and of significant financial statement
line items of significant reporting units which included operations based in North America, Europe
and Asia. This accounted for approximately 87% of Group revenues and 94% of Group assets.
Key Audit Matters
We identified the following key audit matters:
} Goodwill;
} Capitalised product development; and
} Business combination.
71
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Independent Auditor’s Report
TO THE MEMBERS OF XP POWER LIMITED
How we determined materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and
to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined that the benchmark of profit before taxation is appropriate as it reflects the Group’s
growth and investment plans. We believe this is a key measure used by Shareholders in assessing the performance of the Group.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £145,000 as well as
misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
How we tailored the audit scope
The Group operates across North America, Europe and Asia. In establishing the overall approach to the Group audit, we determined the
type of work that needed to be performed at the local operations by us, as the Group engagement team, or component auditors from
other PwC network firms operating under our instruction. Where the work was performed by component auditors, we determined the
level of involvement we needed to have in the audit work at those local operations to be able to conclude whether sufficient appropriate
audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. In the current year, the Group
engagement team visited the Group’s offices in North America.
We designed our audit of the Group by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where management made subjective judgements, for example in respect of significant accounting estimates, that
involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk
of management override of internal controls, including evaluating whether there was evidence of bias by the management that represented a
risk of material misstatement due to fraud.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
Having obtained sufficient appropriate audit evidence of the local operations, we performed audit procedures at the Group level over the
consolidation process, goodwill, capitalised product development, taxation and business combination.
What are the key audit matters
The matters that had the greatest effect on our audit for the year ended 31 December 2017, including the allocation of our resources and
effort, are identified as “Key Audit Matters” in the table below. We have also set out how we tailored our audit to address these specific areas
in order to provide an opinion on the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
72
Heading Key audit matters
Goodwill
Refer to page 52 (Report from the Chair of the Audit Committee),
page 90 (Critical accounting judgements and key sources of
estimation uncertainty – Impairment of Goodwill) and page 98 (Note
11 – Goodwill).
The Group has goodwill of £40.4 million at 31 December 2017
contained within three cash-generating units (“CGUs”) defined by
its geographical split – North America, Europe and Asia.
We focused on this area due to the relative size of the carrying
amount of goodwill, which represented 23% of total assets, and
because management’s assessment of the “value-in-use” of the
Group’s CGUs involves significant judgements about the future
results of the business and the discount rates applied to future
cash flow forecasts.
Key judgements about the future results of the business include:
revenue and profit growth rates, expected changes to overhead
costs as well as risks specific to the three geographical areas.
Capitalised product development
Refer to page 52 (Report from the Chair of the Audit Committee),
page 90 (Critical accounting judgements and key sources of
estimation uncertainty – Recoverability of Capitalised R&D) and
page 99 (Note 12 – Intangible assets).
Part of the Group’s strategy is to invest in research and
development to create new products. As at 31 December 2017,
the carrying value of product development costs capitalised as
an intangible asset is £16.0 million, of which £5.2 million was
capitalised in the current financial year.
We focused on the appropriateness of capitalisation of product
development costs due to the relative size of the carrying amount
of this intangible asset, which represented 9% of total assets, and
because significant judgement is involved in determining whether
the criteria to capitalise such product development costs, as set
out in IAS 38, have been fulfilled.
We also identified the useful lives of the capitalised product
development costs as an area involving significant judgement.
The carrying value of the capitalised product development costs is
heavily dependent on the useful lives of the developed products.
Management determined the useful lives of the developed
products based on the expected life cycle of these products,
taking into consideration expected customer demand and
technological innovation.
How did our audit address these
We assessed the appropriateness of management’s identification of
the Group’s CGUs and the process to test for goodwill impairment.
There were no significant issues noted.
We evaluated the suitability and appropriateness of the
impairment model as prepared by management and noted no
significant exceptions.
We assessed the reasonableness of the inputs used in the
derivation of the discount rates. We also focused on understanding
and challenging management’s plans for future growth for each
of the three CGUs. Forecasted growth in revenue and profits are
driven by constant innovation in the development of new product
families as well as the broadening of the customer base in the
three geographical areas. We benchmarked key market-related
assumptions in management’s forecasts such as revenue and
profit growth rates and changes in the overhead costs with relevant
economic and industry indicators and considered that such targets
as set by management were achievable. Sensitivity analyses were
also performed on the discount rates and growth rates. We agreed
with management that no impairment was required.
We assessed the appropriateness of capitalisation of product
development costs by ensuring compliance with the criteria to
capitalise product development costs as set out in IAS 38, and
challenged management through discussions and qualitative
reviews of the products’ feasibility. We also tested the accuracy
and allocation of capitalised material costs and labour costs.
Management was able to support the capitalisation of product
development costs.
In the assessment of the useful lives of the capitalised product
development costs, we performed a benchmarking exercise to
compare the useful lives of the capitalised product development
costs against other companies within the same industry. For
selected samples of developed products, we reviewed the actual
sales during the year to ensure that the capitalised development
costs are supported by demand. For products in development, we
noted the existence of customer demand for selected samples,
by perusing sales quotations and/or correspondences between
the customers and the Group. The useful lives as determined by
management are in line with that of the industry and consistent with
our understanding of the life cycle of the products.
73
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Independent Auditor’s Report
TO THE MEMBERS OF XP POWER LIMITED
Key audit matters
Business combination
Refer to page 52 (Report from the Chair of the Audit Committee),
page 99 (Note 12 – Intangible assets) and page 116 (Note 31 –
Business combination).
On 29 September 2017, the Group announced the acquisition of
the assets and business of Comdel, Inc (“Comdel”), a US-based
designer and manufacturer of radio frequency power supplies. The
final purchase consideration was US$25.2 million (£18.8 million).
Management assessed that the acquisition of Comdel qualifies as a
business combination by applying the definition in IFRS 3.
Management determined that the fair value of the net identifiable
assets acquired was US$20.0 million (£14.9 million) with US$9.3
million (£6.9 million) relating to intangible assets that arose from the
business combination. The valuation of the intangible assets was
performed as part of the Purchase Price Allocation.
We focused on the intangible assets arising from the business
combination as a significant area of judgement. The valuation
methodology, as well as the inputs and assumptions in the model,
will affect the fair value of the intangible assets.
The goodwill arising from the acquisition of Comdel of US$5.2
million (£3.9 million) is also highly dependent on the fair value of
the identifiable assets acquired and the liabilities assumed at the
acquisition date.
How did our audit address these
We reviewed management’s assessment that the acquisition of
Comdel should be accounted for as a business combination and
determined that it was appropriately performed in accordance with
the definition set out in IFRS 3.
We assessed the appropriateness of the identifiable assets
acquired and the liabilities assumed at the acquisition date by
reviewing the clauses laid out in the purchase agreement. We also
reviewed management’s procedure for determining the fair value
of the net identifiable assets acquired and noted no significant
exceptions.
We reviewed the appropriateness of recognition of the identified
intangible assets in accordance with IAS 38. We agreed with
management’s assessment that the intangible assets are separately
identifiable and the Group has control over the future economic
benefits flowing from the intangible assets.
We reviewed the useful lives of the identified intangible assets as
determined by management and consider them to be reasonable.
The valuation methodologies used for determining the fair values
of the identified intangible assets were also assessed to be
appropriate.
We focused on understanding and challenging management’s
inputs into the valuation model, which will have an impact on the
fair value of the intangible assets. We assessed the projected
future revenue growth and margins based not only on the
historical performance of Comdel, but also relevant economic and
industry indicators and considered such projections, as set by
management, to be reasonable.
We tested the calculation of the goodwill arising from the
acquisition of Comdel, being the difference between the total
purchase consideration and the fair value of the net identifiable
assets and noted that management’s computation was in line with
IFRS 3.
Also, the goodwill arising from the acquisition has been determined
by management to be part of the North American CGU (please
see key audit matter “Goodwill” on Page 73). We have assessed
management’s determination of the CGU and noted no significant
exceptions.
74
Heading Information other than the Financial Statements and Auditor’s Report thereon
Going concern
Under the UK Listing Rules (“Listing Rules”) we are required to review the Directors’ statement, set out on page 70, in relation to going
concern. We have nothing to report having performed our review.
The Directors’ assessment of the prospects of the Group
Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group, set out on page 31. Our review
was substantially less in scope than an audit and only consisted of making enquiries and considering the Directors’ process supporting
their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and
considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have
nothing to report having performed our review.
Corporate governance statement
Under the Listing Rules, we are required to review the part of the Corporate Governance Statement relating to eleven further provisions of
the UK Corporate Governance Code, set out in the “Accountability” section on pages 48 to 49. We have nothing to report having performed
our review.
Other information
Management is responsible for the other information. The other information comprises the “Overview” section set out on pages 1 to 7,
“Strategic Report” set out on pages 8 to 41, “Governance Report” set out on pages 42 to 70, and the “Financials” section on page 129 of
the Annual Report. Other information, as defined in this section, does not include matters that we are required to review and report on under
the Listing Rules, as described above.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities for the financial statements and the audit
What are Management and Directors responsible for
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of
the Act and IFRS 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 financial statements and to maintain
accountability of assets.
In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Directors are responsible for overseeing the Group’s financial reporting process.
What are we responsible for
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
75
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Independent Auditor’s Report
TO THE MEMBERS OF XP POWER LIMITED
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit.
We also:
} Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
} Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
} Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by management.
} Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
} Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
} Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the
consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s
report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that
a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
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.
The engagement partner on the audit resulting in this independent auditor’s report is Hans Koopmans.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore
1 March 2018
76
Heading Consolidated Statement of Comprehensive Income
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
£ Millions
Revenue
Cost of sales
Gross profit
Expenses
Distribution and marketing
Administrative
Research and development
Operating profit
Finance charge
Profit before income tax
Income tax expense
Profit after tax
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges
Exchange differences on translation of foreign operations
Other comprehensive (loss)/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
Note
4
2017
166.8
(89.2)
77.6
2016
129.8
(67.8)
62.0
(31.7)
(26.6)
7
6
8
24
24
24
24
(4.6)
(8.8)
32.5
(0.3)
32.2
(3.6)
28.6
(0.5)
(3.9)
(4.4)
24.2
28.3
0.3
28.6
23.9
0.3
24.2
(1.5)
(5.9)
28.0
(0.2)
27.8
(6.3)
21.5
0.2
8.8
9.0
30.5
21.3
0.2
21.5
30.3
0.2
30.5
Earnings per share attributable to equity holders of the Company (pence per share)
– Basic earnings per share
– Diluted earnings per share
10
10
148.3
146.0
112.0
111.2
The accompanying notes form an integral part of these financial statements.
77
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Consolidated Balance Sheet
AS AT 31 DECEMBER 2017
£ Millions
ASSETS
Current assets
Corporate tax recoverable
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
Accrued consideration
Borrowings
Derivative financial instruments
Total current liabilities
Non-current liabilities
Accrued consideration
Borrowings
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
Other reserve
Retained earnings
Non-controlling interests
TOTAL EQUITY
The accompanying notes form an integral part of these financial statements.
78
Note
2017
2016
8
15
16
17
18
22
11
12
13
23
26
8
19
20
21
22
20
21
23
24
24
24
24
24
24
24
2.9
15.0
37.8
23.8
3.8
0.2
83.5
40.4
23.5
22.5
1.4
0.3
88.1
171.6
3.5
21.4
–
–
0.2
25.1
1.4
24.0
4.2
29.6
54.7
116.9
27.2
0.2
0.4
(0.2)
(0.4)
(0.8)
89.6
116.0
0.9
116.9
–
9.2
32.2
21.5
2.4
0.4
65.7
37.7
15.3
19.1
0.4
0.7
73.2
138.9
3.3
16.1
0.5
5.5
0.4
25.8
1.5
–
4.7
6.2
32.0
106.9
27.2
0.2
(0.5)
0.3
3.5
–
75.4
106.1
0.8
106.9
Heading
Consolidated Statement of Changes in Equity
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Attributable to equity holders of the Company
Share
capital
Treasury
shares
Merger
reserve
Hedging
reserve
Translation
reserve
Other
reserve
Retained
earnings Total
Note
Non-
controlling
interests
Total
equity
0.2
0.1
(5.3)
(1.0)
0.3
(0.1)
0.3
–
27.2
–
–
–
–
–
–
–
–
–
–
27.2
(0.5)
0.2
–
–
–
–
–
–
1.0
(1.6)
1.5
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.3
–
–
–
–
–
–
–
–
–
8.8
3.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67.1
88.3
0.8
89.1
(0.1)
0.2
–
(0.1)
–
0.3
–
–
–
0.2
(0.1)
0.3
(12.9)
(12.9)
(0.2)
(13.1)
21.3
30.3
0.2
30.5
75.4 106.1
0.8
106.9
(0.1)
0.9
–
(1.6)
–
1.5
–
–
–
0.9
(1.6)
1.5
(14.0)
(14.0)
(0.2)
(14.2)
(0.8)
–
(0.8)
–
(0.8)
(0.5)
(3.9)
–
28.3
23.9
0.3
24.2
£ Millions
Balance at
1 January 2016
Sale of treasury shares
24
Purchase of treasury
shares
Employee share option
plan expenses, net
of tax
Dividends paid
Total comprehensive
income for the year
Balance at
31 December 2016
24
9
24
Sale of treasury shares
24
Purchase of treasury
shares
Employee share option
plan expenses, net
of tax
Dividends paid
Future acquisition of
non-controlling interest
Total comprehensive
income for the year
Balance at
31 December 2017
24
9
24
24
27.2
0.4
0.2
(0.2)
(0.4)
(0.8)
89.6 116.0
0.9
116.9
The accompanying notes form an integral part of these financial statements.
79
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Consolidated Statement of Cash Flows
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
£ Millions
Cash flows from operating activities
Profit after tax
Adjustments for:
– Income tax expense
– Amortisation and depreciation
– Finance charge
– Equity award charges, net of tax
– Fair value (gain)/loss of derivative financial instruments
– Unrealised currency translation (gain)/loss
Change in working capital, net of effects from acquisitions:
– Inventories
– Trade and other receivables
– Trade and other payables
– Provision for liabilities and other charges
Cash generated from operations
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of a business, net of cash acquired
Purchases and construction of property, plant and equipment
Capitalisation of research and development expenditure
Proceeds from disposal of property, plant and equipment
Repayment of ESOP loans
Payment for accrued consideration
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
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 provided by/(used in) financing activities
Net 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
2017
28.6
3.6
5.9
0.3
0.4
(0.5)
(2.9)
(2.5)
(1.6)
5.3
(0.8)
35.8
(0.8)
29.7
(18.2)
(4.9)
(5.2)
0.4
0.4
(0.5)
(28.0)
25.2
(5.4)
1.0
(1.6)
(0.2)
(14.0)
(0.2)
4.8
6.5
9.2
(0.7)
15.0
8
7
6
8
31
13
12
9
24
15
2016
21.5
6.3
4.6
0.2
0.3
0.2
5.0
(3.5)
(4.0)
1.5
(0.1)
32.0
(4.1)
27.9
–
(2.6)
(4.2)
0.1
–
–
(6.7)
–
(3.7)
0.3
(0.1)
(0.2)
(12.9)
(0.2)
(16.8)
4.4
4.3
0.5
9.2
Reconciliation of liabilities arising from financing activities
£ Millions
1 January
2017
Principal
and interest
payments
Proceeds
from
borrowings
Acquisition
Bank borrowings
5.5
(5.6)
25.2
–
Interest
expense
0.2
Foreign
exchange
movement
31 December
2017
(1.3)
24.0
The accompanying notes form an integral part of these financial statements.
Non-cash changes
80
Heading Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 XP Power Limited and its subsidiaries’ 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 and its subsidiaries (the “Group”) have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the European Union (IFRS 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 forms 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
There are no IFRS or International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that are effective for the first
time for the financial year beginning on 1 January 2017 that have a material impact on the Group.
ii. New standards and interpretations issued not yet adopted
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
IFRS 9 Financial Instruments is effective for accounting periods beginning on or after 1 January 2018 and replaces the existing
guidance in IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, impairment on financial assets and
new general hedge accounting requirements. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line
hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the “hedged
ratio” to be the same as the one management actually use for risk management purposes.
The Group has completed an initial impact assessment of IFRS 9 and determined that there will be no changes in the classification
and an insignificant change in the measurement of financial assets. The Group’s hedging arrangements will continue to qualify for
hedge accounting upon the adoption of IFRS 9.
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018)
IFRS 15 Revenue from Contracts with Customers is effective for accounting periods beginning on or after 1 January 2018 and
establishes a comprehensive framework for determining whether, how much and when revenue is recognised. Based on an initial
assessment of the adoption of IFRS 15, the Group quantified the impact as a de minimis (circa 0.02%) reduction of the total revenue
as a result of the timing of the recognition of early payment discounts and volume rebate. This results in a de minimis timing impact on
operating profit (less than 0.1%). On this basis, the Group does not believe it to be likely that there will be a significant impact on its
consolidated financial statements.
81
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2. Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
(b) Changes in accounting policy and disclosures (continued)
ii. New standards and interpretations issued not yet adopted (continued)
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019)
IFRS 16 Leases is effective for accounting periods beginning on or after 1 January 2019. There will be changes to the Group’s net
assets due to bringing the right of use asset relating to operating leases onto the balance sheet, and to the Group’s profit before tax
as a result of the change in the treatment of the interest implicit in the lease and associated depreciation rather than the straight-line
recognition of operating lease costs as they are currently recognised. The quantification of these changes and other effects on the
Group is currently being assessed. The Group does not consider that any other standards, amendments or interpretations issued by
the IASB, but not yet applicable, will have a significant impact on the financial statements.
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 remeasured. 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 statement of comprehensive income, except when deferred in other currency translation reserve as qualifying
cash flow 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.
(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. The Group has elected to treat goodwill and fair value
adjustments arising on the acquisitions before the date of transition to IFRS as Pound Sterling denominated assets and liabilities
converted using the exchange rates at the dates of acquisition.
82
Heading 2. Summary of significant accounting policies (continued)
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. The Group recognises revenue when the amount of revenue and related cost can be reliably measured, it is probable that the
collectability of the related receivables is reasonably assured and when the specific criteria for each of the Group’s activities are met as
follows:
(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 control. The Group controls an entity when
the Group is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. 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.
(b) Transactions with non-controlling interests
Non-controlling interests comprise the portion of a subsidiary’s net results of operations and its net assets, which is attributable to the
interests that are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated
statement of comprehensive income, statement of changes in equity, and balance sheet. Total comprehensive income is attributed to
the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having
a deficit balance.
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases of shares
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 statement of comprehensive income. 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 statement of comprehensive income.
83
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2. Summary of significant accounting policies (continued)
Inventories
2.5
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.
2.6 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. All other repairs and maintenance are
charged to the statement of comprehensive income 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 statement of comprehensive income 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 are determined as the difference between the sale proceeds less cost
to sell and the carrying amount of the asset, and are recognised in the statement of comprehensive income.
Intangible assets
2.7
(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 acquiree over the fair value of the Group’s share of identifiable net assets acquired, is recorded as
goodwill.
Goodwill is tested annually for impairment and whenever there is an indication that the goodwill may be impaired. Goodwill is 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.
84
Heading 2. Summary of significant accounting policies (continued)
2.7 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 four and seven
years depending on the exact nature of the project undertaken. Amortisation commences when the product is ready and available for
use.
(c) Other intangible assets
Other intangible assets that are acquired by the Group are initially recognised at cost. The cost of intangible assets acquired in a
business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less
any accumulated amortisation. Amortisation is recognised in the statement of comprehensive income on a straight-line basis over the
estimated useful lives, which vary between two and ten years, of the intangible assets.
2.8 Impairment of non-financial assets
(a) Goodwill
Goodwill recognised separately as an intangible asset is tested for impairment annually and whenever there is indication that the
goodwill may be impaired.
For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating units (“CGU”) expected
to benefit from synergies arising from the business combination.
An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the
CGU. The recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and value-in-use.
The total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the
other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill is recognised as an expense and is not reversed in a subsequent period.
(b)
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Assets that are subject to amortisation and depreciation 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.
2.9 Fair value estimation of financial assets and liabilities
The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and
derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the
current bid prices; the appropriate quoted market prices used for financial liabilities are the current asking prices.
The fair values of currency forwards are determined using actively quoted forward exchange rates.
The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts.
85
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2. Summary of significant accounting policies (continued)
2.10 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 statement of comprehensive income. Loans and
receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the effective
interest method.
(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 statement of comprehensive income.
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 statement of comprehensive income.
(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.
2.11 Trade and other payables
Trade payables are obligations to pay for goods and services 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.
2.12 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 statement of comprehensive income when the changes arise.
86
Heading 2. Summary of significant accounting policies (continued)
2.13 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 statement of
comprehensive income 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 drawdown 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.
Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months
after the balance sheet date, in which case they are presented as non-current liabilities.
2.14 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 statement of
comprehensive income on a straight-line basis over the period of the lease.
2.15 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.
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
statement of comprehensive income.
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 is recognised when the forecasted transaction is ultimately recognised in the statement of
comprehensive income. 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 statement of comprehensive income immediately.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of these derivative instruments are
recognised immediately in the statement of comprehensive income.
Amounts accumulated in equity are reclassified to the statement of comprehensive income 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.
87
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2. Summary of significant accounting policies (continued)
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 statement
of comprehensive income 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.
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 statement of comprehensive income, 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.
As the timing of the tax deduction and the recognition of the employee share option expense differs, FRS 12 requires the recognition
of the related deferred tax asset if the deferred tax asset recognition criteria are met. For an equity-settled share-based payment, if the
cumulative amount of tax deduction exceeds the tax effect of the related cumulative remuneration expense at the reporting date, the
excess of the associated deferred tax shall be recognised directly in equity. All taxes related to cash-settled share-based payments
shall be recognised in profit or loss.
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. 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 statement of comprehensive income, with a corresponding adjustment to the treasury share 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 reissued to the employees.
88
Heading 2. Summary of significant accounting policies (continued)
2.19 Defined contribution plans
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 statement of comprehensive income 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 reissued.
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 reissued pursuant to the employee share option scheme, the cost of treasury shares
is reversed from the treasury share reserve and the realised gain or loss on sale or reissue, net of any directly attributable incremental
transaction costs and related income tax, is recognised in the retained earnings of the Company.
Other reserve comprises future transactions with the non-controlling interest. The amount that may become payable under the
agreement is initially recognised at the present value of the redemption amount within liabilities with a corresponding charge directly to
equity. The liability is subsequently accreted through finance charges up to the redemption amount that is payable at the date at which
the agreement first becomes exercisable.
2.22 Dividend distribution
Dividend distributions to the Company’s Shareholders are recognised when the dividends are approved for payment or, in the case of
interim dividends, when paid.
2.23 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.
89
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 £5.2 million (2016: £4.2 million) of development costs were capitalised, bringing the total amount of development costs
capitalised as intangible assets as at 31 December 2017 to £16.0 million (2016: £14.2 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 will be removed from the balance sheet and charged to the statement of comprehensive income.
(b)
Impairment of Goodwill
The Group tests annually for impairment of goodwill, or more frequently if there are indications that goodwill might be impaired.
An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the
CGU. The recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and value-in-use.
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 2017 was £41.0 million (2016: £37.7 million) with no impairment adjustment required
for 2017.
Management assessed that there are no realistic foreseeable changes that will result in impairment loss on the goodwill allocated to
the North America, Europe and Asia operating segments.
(c) Estimation of future accrued consideration payments
As at the balance sheet date, the Group has recorded an estimated future payment related to the acquisition of the final 10.1% of
Powersolve Electronics Limited. The Group will acquire the remaining 10.1% of Powersolve Electronics Limited in early 2022. When
discounted to present value, the total of these payments is estimated at £0.6 million and that amount is reflected on the balance sheet.
Since the final payment will be dependent on the actual financial performance of the business, an estimate is required to approximate
future business conditions. Refer to Note 20 for more details.
As at the balance sheet date, the Group has recorded an estimated future payment related to the acquisition of additional 30.0% of
Hanpower Co., Ltd. The Group will acquire 15.0% of Hanpower Co., Ltd in early 2020 and the remaining 15.0% in early 2025. When
discounted to present value, the total of these payments is estimated at £0.9 million and that amount is reflected on the balance sheet.
Since the final payment will be dependent on the actual financial performance of the business, an estimate is required to approximate
future business conditions. Refer to Note 20 for more details.
90
Heading 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: North America, Europe and Asia. 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, derivative financial instruments and exclude tax assets.
Segment liabilities comprise trade and other current liabilities, derivative financial instruments, borrowings, accrued 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 2017 and prior year
comparatives is as follows:
£ Millions
Revenue
Europe
North America
Asia
Total revenue
The Group operates in the following regions and countries:
£ Millions
North America
United Kingdom
Singapore
Germany
Switzerland
France
Other countries
Total revenue
The majority of North America’s revenue is generated from the United States of America.
2017
2016
57.5
94.4
14.9
166.8
2017
94.4
28.7
12.1
13.3
3.2
4.1
11.0
166.8
49.4
68.6
11.8
129.8
2016
68.6
24.0
10.1
11.4
3.8
3.4
8.5
129.8
91
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
4. Segmental reporting (continued)
Reconciliation of segment results to profit after tax:
£ Millions
Europe
North America
Asia
Segment results
Research and development
Finance charge
Corporate cost from operating segment
Profit before income tax
Income tax expense
Profit after tax
2017
14.6
27.6
5.9
48.1
(8.8)
(0.3)
(6.8)
32.2
(3.6)
28.6
2016
11.6
21.6
3.5
36.7
(5.9)
(0.2)
(2.8)
27.8
(6.3)
21.5
£ Millions
Other Information
Capital additions
Depreciation
Intangible assets additions
Amortisation
Balance sheet
Goodwill
Other non-current assets
Inventories
Trade receivables
Cash
Other current assets
Derivative financial instruments
Year to 31 December 2017
Year to 31 December 2016
Europe
North
America
Asia
Total
Europe
North
America
Asia
Total
0.7
0.6
0.4
–
9.8
3.6
1.5
7.6
3.3
0.8
–
4.1
0.7
8.6
1.8
29.0
21.0
12.9
13.4
5.2
0.5
–
3.0
1.5
3.1
1.3
1.6
21.7
23.4
2.8
6.5
2.5
0.2
7.8
2.8
12.1
3.1
40.4
46.3
37.8
23.8
15.0
3.8
0.2
1.0
0.4
0.4
–
9.9
3.5
1.6
7.9
3.3
0.8
–
0.4
0.5
1.5
1.5
25.6
11.6
9.9
9.2
1.2
0.6
–
1.2
1.3
2.3
0.9
2.2
20.0
20.7
4.4
4.7
1.0
0.4
2.6
2.2
4.2
2.4
37.7
35.1
32.2
21.5
9.2
2.4
0.4
Segment assets
26.6
82.0
58.7
167.3
27.0
58.1
53.4
138.5
4.3
171.6
(21.4)
(24.0)
(0.2)
(1.4)
–
–
–
–
–
–
(5.3)
(24.0)
–
–
(13.4)
–
(0.2)
(0.8)
(2.7)
–
–
(0.6)
(3.3)
(3.1)
(5.5)
–
–
(10.9)
–
(0.4)
(0.8)
(2.1)
–
–
(1.2)
(3.3)
(29.3)
(14.4)
(47.0)
(8.6)
(12.1)
(24.0)
–
–
–
(7.7)
(54.7)
–
–
–
(8.0)
(32.0)
0.4
138.9
(16.1)
(5.5)
(0.4)
(2.0)
Unallocated deferred income tax
and current income tax
Consolidated total assets
Trade and other payables
Borrowings
Derivative financial instruments
Accrued consideration
Segment liabilities
Unallocated deferred and current
income tax
Consolidated total liabilities
92
Heading 4. Segmental reporting (continued)
Analysis by class of customer
The revenue by class of customer is as follows:
£ Millions
Technology
Industrial
Healthcare
Total
Year to 31 December 2017
Year to 31 December 2016
Europe
North
America
Asia
Total
Europe
7.7
33.7
16.1
57.5
39.2
24.2
31.0
94.4
3.3
7.7
3.9
50.2
65.6
51.0
14.9
166.8
7.1
29.6
12.7
49.4
North
America
21.4
23.7
23.5
68.6
Asia
3.6
6.5
1.7
Total
32.1
59.8
37.9
11.8
129.8
There is no individual external customer that represents 11% (2016: 7%) or more of the Group’s total revenue. Revenues of £17.0
million (2016: £9.3 million) are derived from a single external customer. These revenues are attributable to the technology segment.
Non-current assets, other than deferred income tax assets, by countries:
£ Millions
North America
United Kingdom
Singapore
Germany
Switzerland
France
Other countries
Total non-current assets
2017
50.0
4.7
12.0
0.3
3.6
0.2
15.9
86.7
2016
37.2
4.6
10.5
0.3
3.6
0.2
16.4
72.8
93
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
4. Segmental reporting (continued)
Reconciliation of adjusted measures
The Group presents adjusted operating profit, adjusted EBITDA and adjusted profit before tax by making adjustments for costs and
profits which management believes to be significant by virtue of their size, nature or incidence or which have a distortive effect on
current year earnings. Such items may include, but are not limited to, costs associated with business combinations, gains and losses
on the disposal of businesses, fair value movements, exceptional operating costs, and amortisation of intangible assets arising on
business combinations. Exceptional operating costs include reorganisation costs, acquisition related charges and similar items of a
significant and a non-recurring nature.
The Group discloses adjusted EBITDA, being adjusted operating profit before depreciation of property, plant and equipment and
amortisation of intangible assets. Adjusted EBITDA is broadly used by analysts, rating agencies, investors and the Group’s banks as
part of their assessment of the Group’s performance. A reconciliation of adjusted EBITDA from operating profit is shown below.
In addition, the Group presents an adjusted profit after tax measure by making adjustments for certain tax charges and credits which
management believe to be significant by virtue of their size, nature or incidence or which have a distortive effect.
The Group uses these adjusted measures to evaluate performance and as a method to provide shareholders with clear and consistent
reporting. See below for a reconciliation of operating profit to adjusted EBITDA and adjusted operating profit, a reconciliation of profit
before tax to adjusted profit before tax and a reconciliation of profit after tax to adjusted profit after tax.
i. A reconciliation of operating profit to adjusted Earnings Before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) is as follows:
£ Millions
Operating Profit
Amortisation of intangible assets
Depreciation
EBITDA
Adjusted for:
Acquisition costs
Adjusted EBITDA
ii. A reconciliation of operating profit to adjusted operating profit is as follows:
£ Millions
Operating Profit
Adjusted for:
Acquisition costs
Amortisation of intangible assets
Adjusted Operating Profit
iii. A reconciliation of profit before income tax to adjusted profit before tax is as follows:
£ Millions
Profit before income tax (“PBT”)
Adjusted for:
Acquisition costs
Amortisation of intangible assets
Adjusted PBT
94
2017
32.5
3.1
2.8
38.4
3.3
41.7
2017
32.5
3.3
0.6
3.9
36.4
2017
32.2
3.3
0.6
3.9
36.1
2016
28.0
2.4
2.2
32.6
0.4
33.0
2016
28.0
0.4
0.4
0.8
28.8
2016
27.8
0.4
0.4
0.8
28.6
Heading 4. Segmental reporting (continued)
iv. A reconciliation of profit after tax to adjusted profit after tax is as follows:
£ Millions
Profit after tax (“PAT”)
Adjusted for:
Acquisition costs
Amortisation of intangible assets
Non-recurring tax benefits1
Adjusted PAT
2017
28.6
3.3
0.6
(3.7)
0.2
28.8
1 Adjusted for tax on exceptional expense for both completed and aborted acquisitions of £1.1 million (2016: nil), one-off tax adjustment of £1.3 million
(2016: nil) and tax effect of change in US federal tax of £1.3 million (2016: nil).
5. Employee compensation (including Directors)
£ Millions
Wages and salaries
Employers’ contribution to defined contribution plans
Share option expense
Total
For further information regarding Directors’ remuneration, refer to the Directors’ Remuneration Report.
6. Finance charge
£ Millions
Interest expense on bank loans and overdrafts
Unwinding of discount on accrued consideration (Note 20)
Total
7. Expenses by nature
£ Millions
Profit after tax is after charging:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Employee compensation (Note 5)
Foreign exchange gain
Gain/(Loss) on foreign exchange forwards
Purchases of inventories
Changes in inventories
Fees payable to the Group’s Auditor for the audit of the Group’s accounts
Tax fees payable to other firms for services provided to the Group
Rent/lease expense
Finance charge
Other charges
Total
Fees payable to the Group’s Auditor for non-audit services is nil (2016: 8.1%) of their total audit fees.
2016
21.5
0.4
0.4
–
0.8
22.3
2016
28.2
4.8
0.3
33.3
2016
0.1
0.1
0.2
2017
36.8
6.2
0.4
43.4
2017
0.2
0.1
0.3
2017
2016
3.1
2.8
43.4
–
0.2
80.3
(5.5)
0.4
0.2
1.6
0.3
7.8
2.4
2.2
33.3
(0.1)
(0.5)
62.2
(3.5)
0.3
0.1
1.5
0.2
3.9
134.6
102.0
95
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
7. Expenses by nature (continued)
Included in the above is net research and development expenditure as follows:
£ Millions
Gross research and development expenditure
Development expenditure capitalised
Amortisation of development expenditure capitalised
Net research and development expenditure
8.
Income taxes
£ Millions
Singapore corporation tax
– current year
– over-provision in prior financial year
Overseas corporation tax
– current year
– over-provision in prior financial year
Current income tax
Deferred income tax
– current year
– adjustment in respect of prior year
– change in tax rate
Income tax expense
2017
11.5
(5.2)
2.5
8.8
2016
8.1
(4.2)
2.0
5.9
2017
2016
3.1
(1.5)
2.6
(0.4)
3.8
1.1
–
(1.3)
3.6
2.6
(0.1)
3.5
(0.2)
5.8
0.6
(0.1)
–
6.3
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions at the balance sheet date.
During the financial year, the United States of America (“USA”) Government announced changes to the USA tax laws, which reduces
the federal tax rate to 21% with effect from financial year 2018. The deferred tax expense for the financial year ended 31 December
2017 has taken into consideration the change in the federal tax rate which resulted in a reduction of deferred tax liability by £1.3
million.
Upon finalisation of the financial year 2014, 2015 and 2016 Singapore tax assessment, there is an approximate tax credit of £1.3
million to be recoverable from the Singapore tax authority.
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% (2016: 17%)
Tax incentives
Higher rates of overseas corporation tax
Deduction for gain on employee share options
Adjustment in respect of prior year
Change in tax rate
Income tax expense
2017
32.2
5.5
(0.9)
2.0
0.2
(1.9)
(1.3)
3.6
2016
27.8
4.7
(0.4)
2.4
–
(0.4)
–
6.3
96
Heading 8.
Income taxes (continued)
Movement in corporate tax recoverable:
£ Millions
At 1 January
Over-provision in prior financial year
Income tax paid in excess
At 31 December
Movement in current income tax liabilities:
£ Millions
At 1 January
Currency translation differences
Income tax paid
Income tax payable
– current year
– prior year
At 31 December
2017
2016
–
1.5
1.4
2.9
2017
(3.3)
0.4
4.7
(5.7)
0.4
(3.5)
–
–
–
–
2016
(1.2)
(0.4)
4.1
(6.1)
0.3
(3.3)
There is no (2016: nil) tax (charge)/credit relating to components of other comprehensive income.
Aggregate deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but
directly debited or credited to equity:
£ Millions
Deferred tax asset – share option plan expenses
Total
9. Dividends
Amounts recognised as distributions to equity holders in the period:
2017
1.1
1.1
2016
–
–
Prior year third quarter dividend paid
Prior year final dividend paid
First quarter dividend paid
Second quarter dividend paid
Total
* Dividends in respect of 2016 (71.0p).
^ Dividends in respect of 2017 (78.0p).
2017
2016
Pence per
share
£ Millions
Pence per
share
£ Millions
16.0*
26.0*
15.0^
16.0^
73.0
3.0
5.0
2.9
3.1
14.0
15.0
24.0
14.0*
15.0*
68.0
2.8
4.6
2.6
2.9
12.9
The third quarter dividend of 18.0 pence per share was paid on 11 January 2018. The proposed final dividend of 29.0 pence per
share for the year ended 31 December 2017 is subject to approval by Shareholders at the Annual General Meeting scheduled for
6 April 2018 and has not been included as a liability in these financial statements. It is proposed that the final dividend be paid on
20 April 2018 to members on the register as at 16 March 2018.
97
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 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
Diluted adjusted*
* Reconciliation to compute the diluted adjusted earnings per share from operations is as per below:
£ Millions
Earnings for the purposes of basic and diluted earnings per share
(profit attributable to equity holders of the Company)
Amortisation of intangible assets
Acquisition costs
Non-recurring tax benefits
11. Goodwill
£ Millions
Cost
At 1 January
Accrued consideration (Note 20)
Recognised on acquisition of business
Foreign currency translation
At 31 December
Accumulated impairment loss
At 31 December
Carrying amount
At 31 December
Goodwill arises on the consolidation of business/subsidiary undertakings.
98
2017
2016
28.3
28.3
19,082
306
21.3
21.3
19,015
147
19,388
19,162
148.3p
146.0p
147.0p
112.0p
111.2p
115.3p
2017
2016
28.3
0.6
3.3
(3.7)
28.5
21.3
0.4
0.4
–
22.1
2017
2016
37.7
(0.2)
3.9
(1.0)
40.4
–
35.9
0.5
–
1.3
37.7
–
40.4
37.7
Heading
11. Goodwill (continued)
As at the balance sheet date, the Group has recorded an estimated future payment related to the acquisition of the final 10.1% of
Powersolve Electronics Limited. The Group will acquire the remaining 10.1% of Powersolve Electronics Limited in early 2022. When
discounted to present value, the total of this payment is estimated at £0.6 million and that amount is reflected on the balance sheet.
Since the final payment will be dependent on the actual financial performance of the business, an estimate is required to approximate
future business conditions. A change in accrued consideration of £0.2 million in 2017 was due to a decrease in the forecast earnings.
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 5.5% was used for 2017 and for 2016, the rate was 5.7%).
The Group prepares cash flow forecasts derived from the most recent financial results and takes into account industry growth forecasts
for five years and estimates cash flows based on these forecasts assuming no growth after five years. 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
2017 was £40.4 million (2016: £37.7 million) with no impairment adjustment required for 2017 (2016: no impairment).
For the purpose of the impairment test, the Group has adopted what it believes to be reasonable Earnings Before Interest, Tax,
Depreciation, Amortisation assumptions for the period from 1 January 2017 to 31 December 2021. 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.
12. Intangible assets
£ Millions
Cost
At 1 January 2016
Additions
Foreign currency translation
31 December 2016
Additions
Acquisition of business
Foreign currency translation
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
Foreign currency translation
31 December 2016
Charge for the year
Foreign currency translation
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
Development
costs
Trademarks
Technology
Customer
relationships
Customer
contracts
Total
19.3
4.2
1.5
25.0
5.2
–
(1.2)
29.0
8.3
2.0
0.5
10.8
2.5
(0.3)
13.0
16.0
14.2
1.0
–
–
1.0
–
–
–
1.0
1.0
–
–
1.0
–
(0.1)
0.9
0.1
–
0.6
–
0.1
0.7
–
1.7
–
2.4
–
0.1
–
0.1
0.1
–
0.2
2.2
0.6
0.6
–
0.1
0.7
–
4.9
(0.1)
5.5
–
0.2
–
0.2
0.4
(0.1)
0.5
5.0
0.5
0.1
–
–
0.1
–
0.3
–
0.4
–
0.1
–
0.1
0.1
–
0.2
0.2
–
21.6
4.2
1.7
27.5
5.2
6.9
(1.3)
38.3
9.3
2.4
0.5
12.2
3.1
(0.5)
14.8
23.5
15.3
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.
99
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
13. Property, plant and equipment
Freehold
land
Leasehold
land and
buildings
Buildings
Plant and
equipment
Motor
vehicles
Building
improvements
Projects
under
development
£ Millions
Cost
At 1 January 2016
Additions
Disposals
Transfer
Foreign currency
translation
At 31 December
2016
Acquisition of business
Additions
Disposals
Transfer
Foreign currency
translation
At 31 December
2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
Foreign currency
translation
At 31 December
2016
Charge for the year
Disposals
Foreign currency
translation
At 31 December
2017
0.5
–
–
–
0.1
0.6
0.2
–
(0.2)
–
–
8.8
0.2
–
–
1.5
10.5
–
–
–
–
(0.4)
0.6
10.1
–
–
–
–
–
–
–
–
–
1.2
0.2
–
0.3
1.7
0.3
–
0.1
2.1
8.0
8.8
15.4
1.4
(0.3)
0.6
2.6
19.7
0.3
3.5
(0.3)
0.7
0.8
0.2
(0.4)
–
–
0.6
–
0.1
–
–
2.2
0.2
–
–
0.3
2.7
2.0
0.5
–
–
Total
29.6
2.6
(0.7)
–
0.1
0.6
–
(0.6)
–
4.9
0.1
–
0.8
–
(0.7)
36.4
2.8
4.9
(0.7)
–
(1.2)
(0.1)
(0.3)
–
(2.0)
22.7
0.6
10.0
1.6
(0.3)
1.6
12.9
2.0
(0.3)
(0.7)
13.9
8.8
6.8
0.4
0.1
(0.3)
–
0.2
0.1
–
–
0.3
0.3
0.4
4.9
1.7
0.2
–
0.2
2.1
0.3
–
(0.3)
2.1
2.8
0.6
0.2
41.4
–
–
–
–
–
–
–
–
–
0.2
0.1
13.5
2.2
(0.6)
2.2
17.3
2.8
(0.3)
(0.9)
18.9
22.5
19.1
1.8
–
–
–
0.4
2.2
0.3
–
(0.2)
–
–
2.3
0.2
0.1
–
0.1
0.4
0.1
–
–
0.5
1.8
1.8
Carrying amount
At 31 December 2017
At 31 December 2016
0.6
0.6
The Group has entered into agreements to lease land and buildings ranging from 35 years to 999 years.
100
Heading 14. Subsidiaries
Details of principal subsidiaries as at 31 December 2017, all of which are consolidated, are as follows:
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
Place of
incorporation/
ownership (or
registration)
and operation
Switzerland
USA
UK
Denmark
Germany
Norway
France
Sweden
Powersolve Electronics Limited*
UK
XP Power (Shanghai) Co., Limited
China
XP Power Srl
XP Power (Hong Kong) Limited
Italy
HK
XP Power Singapore Holdings Pte
Limited
Singapore
XP Power (Vietnam) Co., Limited
Vietnam
XP Power Singapore Manufacturing
Pte. Ltd.
Singapore
XP Power (Israel) Ltd
XP Power Japan K.K.
Israel
Japan
Hanpower Co., Ltd
South Korea
Proportion of
Ownership
2017
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
Proportion of
Ownership
2016
(%) Statutory Auditor of subsidiaries
100 Karpf Treuhand & Revisions AG
100 Exempted to be audited by local statutory law
100 PricewaterhouseCoopers LLP
100 Bierholm
100 Exempted to be audited by local statutory law
100 BDO AS
100 Deloitte
100 Rodl & Partner Nordic AB
100 PricewaterhouseCoopers LLP
100 Shanghai Jahwa CPAs
100 Exempted to be audited by local statutory law
100 PricewaterhouseCoopers Limited
100 PricewaterhouseCoopers LLP
100 PricewaterhouseCoopers (Vietnam) Limited
100 PricewaterhouseCoopers LLP
100 Ernst and Young Solutions LLP
100 Exempted to be audited by local statutory law
51 Exempted to be audited by local statutory law
* The legal shareholding and the proportion of voting power held is 89.9% (2016: 84%). Refer to Note 20.
15. Cash and cash equivalents
£ Millions
Cash at bank and on hand
Short-term bank deposits
Total
2017
14.4
0.6
15.0
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)
Cash and cash equivalents per consolidated cash flow statement
2017
15.0
15.0
2016
8.4
0.8
9.2
2016
9.2
9.2
101
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
15. Cash and cash equivalents (continued)
Reconciliation of changes in cash and cash equivalents to movements in net cash/(debt)
£ Millions
Net increase in cash and cash equivalents
Proceeds from borrowings
Repayment of borrowings
Effects of currency translation – Cash and cash equivalents
Effects of currency translation – Loan and borrowings
Movement in net (debt)/cash
Net cash/(debt) at start of year
Net (debt)/cash at end of year
Reconciliation to free cash flow
£ Millions
Net cash inflow from operating activities
Purchases and construction of the property, plant and equipment
Research and development expenditure capitalised
Interest paid
Free cash flow
Reconciliation of cash and cash equivalents to balance sheet
£ Millions
Cash and cash equivalents per consolidated cash flow statement
Less: Bank loan
– current (Note 21)
– non-current (Note 21)
Net (debt)/cash at end of year
2017
6.5
(25.2)
5.4
(0.7)
1.3
(12.7)
3.7
(9.0)
2017
29.7
(4.9)
(5.2)
(0.2)
19.4
2017
15.0
–
(24.0)
(9.0)
2016
4.4
–
3.7
0.5
(1.2)
7.4
(3.7)
3.7
2016
27.9
(2.6)
(4.2)
(0.2)
20.9
2016
9.2
(5.5)
–
3.7
102
Heading 15. Cash and cash equivalents (continued)
Acquisition of business
On 29 September 2017, the Group acquired a 100% assets and business of Comdel Inc. ("XP Comdel"). The principal activity of
XP Comdel is to provide Radio Frequency (RF) power supplies to the semiconductor, thin film, photovoltaics, and induction heating
industries.
Details of the consideration paid, the assets acquired and liabilities assumed and the effects on the cash flows of the Group, at the
acquisition date, are as follows:
£ Millions
(a) Purchase consideration
Cash paid
Consideration payable
Total purchase consideration
Consideration transferred for the business
(b) Effect on cash flows of the Group
Cash paid (as above)
Less: cash and cash equivalents in business acquired
Cash outflow on acquisition
(c) Assets acquired and liabilities assumed
Cash and cash equivalents
Property, plant and equipment
Technology, Customers’ Relationships, Contracts and Brand
Inventories
Trade and other receivables
Total assets
Total net assets
Add: Goodwill
Consideration transferred for the business
Please refer to Note 31 for the effects of business combination on the cash flows of the Group.
16. Inventories
£ Millions
Goods for resale
Raw materials
Work-in-progress
Total
2017
16.7
18.9
2.2
37.8
The cost of inventories recognised as an expense and included in “cost of sales” amounts to £89.2 million (2016: £67.8 million).
17. Trade receivables
£ Millions
Trade receivables
Total
2017
23.8
23.8
18.2
0.6
18.8
18.8
18.2
–
18.2
–
2.8
6.9
3.1
2.1
14.9
14.9
3.9
18.8
2016
19.0
12.1
1.1
32.2
2016
21.5
21.5
The average credit period taken on sales of goods is 52 days (2016: 60 days). No interest is charged on the outstanding receivables
balance. The carrying amounts of trade receivables approximate their fair values.
103
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
18. Other current assets
£ Millions
Other receivables and prepayments
Total
19. Total current liabilities
£ Millions
Current income tax liabilities
Trade and other payables
Accrued consideration (Note 20)
Borrowings (Note 21)
Derivative financial instruments
Total
2017
3.8
3.8
2017
3.5
21.4
–
–
0.2
25.1
2016
2.4
2.4
2016
3.3
16.1
0.5
5.5
0.4
25.8
Trade 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. Accrued consideration
£ Millions
At 1 January
Movement in provision during the year
Payment
Adjustment for unwinding of discount rate
At 31 December
Current portion of accrued consideration
Non-current portion of accrued consideration
Total
2017
2016
2.0
(0.2)
(0.5)
0.1
1.4
–
1.4
1.4
1.5
0.4
–
0.1
2.0
0.5
1.5
2.0
The Group owns 89.9% (2016: 84.0%) of the shares of Powersolve Electronics Limited (“Powersolve”) and entered into an amended
agreement on 29 October 2016 to purchase the remaining 10.1% of the shares in 2022. The Group owns 51% (2016: 51%) of the
shares of Hanpower Co, Ltd (“Hanpower”) and entered into an agreement on 20 May 2015 to purchase an additional 15.0% of the
shares in 2020 and another 15.0% of the shares in 2025.
The commitment to purchase the remaining ownership interests has been accounted for as accrued consideration and is calculated
based on the expected future payment which will be based on a predefined multiple of the average earnings for three years.
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 for Powersolve. For Hanpower, the amount that is payable under the agreement is initially
recognised at the present value of the redemption amount within liabilities with a corresponding charge directly to equity. The liability
is subsequently accreted through finance charges up to the redemption amount that is payable in 2020 and 2025. As a result of the
purchase commitment and the amount of control XP Power Limited exerts over both subsidiaries, their results are fully consolidated in the
Group. Dividends are attributed to the non-controlling interests based on their respective interests in the subsidiaries.
104
Heading 21. Borrowings
The borrowings are repayable as follows:
£ Millions
On demand or within one year
In the second year
In the third year
In the fourth year
Total
The carrying amounts of the Group’s borrowings are denominated in the following currency:
£ Millions
Bank loans
Total
Undrawn borrowing facilities
£ Millions
Expiring within one year
Expiring beyond one year
Total
The average interest rates paid were as follows:
This is in style marked up on go-proof...think it should be in body text
£ Millions
Bank overdrafts
Bank loans
2017
–
–
–
24.0
24.0
2017
USD
24.0
24.0
2016
5.5
–
–
–
5.5
2016
USD
5.5
5.5
2017
2016
–
5.4
5.4
2017
1.8%
2.1%
–
–
–
2016
1.9%
1.6%
The fair value of the Group’s bank loans and overdrafts approximates their book value.
The other principal features of the Group’s borrowings are as follows:
(1) The Group had a term loan facility of US$12.0 million (£8.0 million) with Bank of Scotland on 20 November 2015. The facility was
repayable in equal quarterly instalments of US$1.7 million which commenced in June 2016 and the Group has repaid the balance
of the term loan in September 2017. The term loan was priced at LIBOR plus a margin of 0.95% (2016: priced at LIBOR plus a
margin of 0.95%).
(2) The Group has entered into a new revolving credit facility of US$40.0 million with a US$20.0 million additional accordion option
with HSBC and Fifth Third Bank on 27 September 2017. The facility has no fixed repayment terms until maturity. The revolving
loan is priced at LIBOR plus a margin of 1% for the utilisation facility and a margin of 0.4% for the unutilised facility.
(3) Management assessed all loan covenants have been complied with as at 31 December 2017.
105
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 2017, the total notional amount of outstanding currency forward contracts that the Group has committed is £7.3 million (2016: £5.8
million). These contracts are to hedge against exchange rate movements on future sales and qualify for hedge accounting.
December 2017
£ Millions
Forward foreign exchange contracts
Current portion
Total
December 2016
£ Millions
Forward foreign exchange contracts
Current portion
Total
(b) Do not qualify for hedge accounting
Contract
notional
amount
Fair value
(liability)
7.3
7.3
7.3
(0.2)
(0.2)
(0.2)
Contract
notional
amount
Fair value
asset
5.8
5.8
5.8
0.4
0.4
0.4
Certain currency forward contracts were taken up to protect against exchange rate movements on future purchases of goods. These
contracts do not qualify for hedge accounting.
The total notional amount and fair value asset/(liability) of these forward contracts are as follows:
December 2017
£ Millions
Forward foreign exchange contracts
Current portion
Total
December 2016
£ Millions
Forward foreign exchange contracts
Current portion
Total
Assets
Liabilities
Contract
notional
amount
Fair value
asset
Contract
notional
amount
Fair value
(liability)
5.9
5.9
5.9
0.2
0.2
0.2
0.5
0.5
0.5
–
–
–
Assets
Liabilities
Contract
notional
amount
Fair value
asset
Contract
notional
amount
Fair value
(liability)
0.4
0.4
0.4
–
–
–
5.3
5.3
5.3
(0.4)
(0.4)
(0.4)
106
Heading 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
(0.7)
0.1
(0.1)
(0.7)
–
–
–
(0.7)
(1.3)
–
(0.2)
(1.5)
0.6
–
0.1
(0.8)
0.4
–
–
0.4
(0.1)
1.1
–
1.4
(2.9)
(0.6)
(0.2)
(3.7)
0.1
–
0.2
(3.4)
1.0
–
0.2
1.2
(0.4)
–
(0.1)
0.7
Total
(3.5)
(0.5)
(0.3)
(4.3)
0.2
1.1
0.2
(2.8)
£ Millions
At 1 January 2016
Charge to statement of
comprehensive income
Foreign currency translation
At 31 December 2016
Charge to statement of
comprehensive income
Charge to equity
Foreign currency translation
At 31 December 2017
£ Millions
Deferred tax assets
– To be recovered after more than 12 months
Deferred tax liabilities
– To be settled 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 (2016: 19,242,296)
2017
2016
1.4
1.4
(4.2)
(4.2)
(2.8)
0.4
0.4
(4.7)
(4.7)
(4.3)
2017
27.2
2016
27.2
As at 31 December 2017, the Group’s Employee Share Ownership Plan (ESOP) held 134,540 (2016: 193,720) shares carrying a value
of £1,788,783 (2016: £1,211,696) 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, net of tax
Balance at 31 December
2017
0.2
2016
0.2
2017
2016
(0.5)
1.0
(1.6)
1.5
0.4
(1.0)
0.3
(0.1)
0.3
(0.5)
107
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
24. Share capital and reserves (continued)
Hedging reserve
£ Millions
Balance at 1 January
Fair value (loss)/gain
Balance at 31 December
Translation reserve
£ Millions
Balance at 1 January
Exchange differences on translation of foreign operations
Balance at 31 December
Other reserve
£ Millions
Balance at 1 January
Future acquisition of non-controlling interest
Balance at 31 December
2017
0.3
(0.5)
(0.2)
2017
3.5
(3.9)
(0.4)
2016
0.1
0.2
0.3
2016
(5.3)
8.8
3.5
2017
2016
–
(0.8)
(0.8)
–
–
–
The Group has an agreement with the non-controlling Shareholders of its Hanpower Co. Ltd (“Hanpower”) subsidiary to purchase an
additional 15.0% of the shares in 2020 and another 15.0% of the shares in 2025.
Retained earnings
£ Millions
Balance at 1 January
Dividend paid
Profit for the year
Loss on treasury shares
Balance at 31 December
2017
75.4
(14.0)
28.3
(0.1)
89.6
2016
67.1
(12.9)
21.3
(0.1)
75.4
Non-controlling interests
The non-controlling Shareholders are entitled to their share of any dividend declared. £0.2 million was paid to Powersolve and
Hanpower non-controlling Shareholders in 2017. The balance payable for 2017 is £nil (2016: £0.1 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
2017
2016
1.6
5.2
0.9
7.7
1.6
3.7
0.5
5.8
Operating lease payments represent rentals payable by the Group for certain of its office properties and warehouses.
The Group has entered into a contract for the construction of a factory in Vietnam for a consideration of £2.7 million.
108
Heading 26. ESOP loan to employees
£ Millions
ESOP loan to employees
Total
2017
0.3
0.3
2016
0.7
0.7
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. Defined contribution plans
The total cost recognised is £6.2 million (2016: £4.8 million) for the Group.
In the USA, the Group operates a defined contribution “401K Plan”. The Group must contribute an amount matching the employees’
contribution of up to 3% of the employees’ total earnings. The total cost charged to the statement of comprehensive income of £3.6
million (2016: £2.5 million) represents the Group’s “matching” contribution.
In the United Kingdom and Europe, the Group operates defined contribution pension schemes for its employees with contributions
amounting to £1.5 million (2016: £1.3 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 statement of comprehensive income
in the period to which the contributions relate. The total cost charged to the statement of comprehensive income was £1.1 million
(2016: £1.0 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.
As at 31 December 2017, the Company’s Employee Share Ownership Plan provided no interest-free loans to Directors
(2016: £0.1 million to 1 Director) for the deferred payment share scheme. The detailed information is provided for in the Directors’
Remuneration Report on pages 60 to 68.
The remuneration of the Directors of the Group who are considered to be key management 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 pages 60 to 68.
£ Millions
Short-term employee benefits
Post-employment benefits
Total Directors’ remuneration
* Balances are less than £100,000.
29. Share-based payments
2017
1.7
*
1.7
2016
1.2
*
1.2
Share Option Plans
Options have been granted under the Company’s Approved Share Option Schemes. The number of shares outstanding, subscription
prices and exercise periods are as follows:
Number of shares
–
183,550
385,000
568,550
Exercise Price
(pence)
507
946
Grant Date
Expiry Date
26 April 2007*
26 April 2017
10 October 2012*
10 October 2022
1,543
23 February 2016*
23 February 2026
* Approved option schemes, vesting in four equal annual instalments from the exercisable date.
109
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
29. Share-based payments (continued)
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year
2017
2016
Weighted
average
exercise
price
(pence)
1,278
–
1,543
883
1,350
946
Number
of share
options
687,650
–
(9,000)
(110,100)
568,550
183,550
Weighted
average
exercise
price
(pence)
877
1,543
1,101
535
1,278
920
Number
of share
options
408,850
418,000
(88,550)
(50,650)
687,650
292,650
The weighted average share price at the date of exercise for the share options exercised during the period was £25.68 (2016: £16.83).
The options outstanding at 31 December 2017 had a weighted average exercise price of £13.50 (2016: £12.78), and a weighted
average remaining contractual life of 7.1 years.
For options granted in 2016, the Group has taken a charge of £0.2 million (2016: £0.2 million). The fair value of options was
determined using the Black–Scholes Model with a share price of £15.425 and a weighted average exercise price of £15.425, standard
deviation of expected share returns of 0.292, and an annual risk free interest rate of 0.28%.
For options granted in 2012, which vested in the current financial year, the Group has taken a charge of £Nil million (2016:
£0.1 million). 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 0.276, 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 the Company’s
share price over the last year.
Long-Term Incentive Plan (“LTIP”)
The Group has introduced a LTIP scheme to replace the Share Option Plan. Under the scheme, conditional awards of share options
are made to the scheme participants at nil or nominal cost options or deferred cash.
Number of shares
39,400
2,250
8,000
49,650
Exercise Price
(pence)
1
1
1
Grant Date
Expiry Date
30 May 2017
30 May 2022
12 October 2017
12 October 2022
01 November 2017
01 November 2022
110
Heading
29. Share-based payments (continued)
At the vesting date, the share award will either vest, in full or in part, or lapse depending on the outcome of the performance
conditions. The performance conditions of the awards made in 2017 are based on the growth in Earnings Per Share (“EPS”) and the
Total Shareholder Return (“TSR”) of the Group measured against that of the FTSE 250 over the Performance Period. For LTIP granted
in 2017, the Group has taken a charge of £0.1 million. The fair value of the equity-settled LTIP options was calculated at the grant date
using the Monte Carlo model and the Black–Scholes model based on the assumptions below.
Options granted
Fair value at grant date
Assumption used:
Share price
Exercise price
Expected volatility
Expected option life
Expected dividend yield
Risk free interest rate
LTIP
2017
49,650
£17.13
£26.77
£0.01
27.69%
3 years
3.75%
0.99%
Volatility was estimated based on the historical volatility of the shares over a three year period prior to grant date.
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year
2017
Number of
LTIP
Options
Weighted
average
exercise
price (pence)
–
49,650
–
–
49,650
–
–
1
–
–
1
–
50% of the share awards will vest after the third year and the remaining 50% of the share awards will vest after the fourth year. Upon
vesting, employees will receive one share for each vested share award.
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 buyback
as well as the issue of new debt or the redemption of existing debt.
111
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
30. Financial risk management (continued)
(b) Currency risk
The Group operates in North America, Europe and Asia 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
At 31 December 2017
Financial assets
Cash and cash equivalents
Trade receivables
Other current assets
ESOP loan to employees
Subtotal
Financial liabilities
Borrowings
Trade and other payables
Other financial liabilities
Subtotal
Net financial assets/(liabilities)
Add: Firm commitments and highly probable
forecast transactions in foreign currency
Currency forwards
Currency profile excluding non-financial
assets and liabilities
Less: Financial assets/(liabilities) denominated in
the respective entities’ functional currencies
Currency exposure of financial assets
GBP
EUR
USD
Others
Total
0.8
1.6
1.4
0.3
4.1
–
(2.4)
(0.6)
(3.0)
1.1
–
5.9
7.0
1.0
6.0
0.8
2.3
0.1
–
3.2
–
(0.7)
–
(0.7)
2.5
10.9
(7.8)
5.6
1.9
3.7
11.5
19.6
2.1
–
33.2
(24.0)
(17.7)
(0.8)
(42.5)
(9.3)
–
–
(9.3)
(15.0)
5.7
1.9
0.3
0.2
–
2.4
–
(0.6)
–
(0.6)
1.8
–
–
1.8
1.4
0.4
15.0
23.8
3.8
0.3
42.9
(24.0)
(21.4)
(1.4)
(46.8)
(3.9)
10.9
(1.9)
5.1
(10.7)
15.8
112
Heading
30. Financial risk management (continued)
(b) Currency risk (continued)
£ Millions
At 31 December 2016
Financial assets
Cash and cash equivalents
Trade receivables
Other current assets
ESOP loan to employees
Subtotal
Financial liabilities
Borrowings
Trade and other payables
Other financial liabilities
Subtotal
Net financial assets
Add: Firm commitments and highly probable forecast
transactions in foreign currency
Currency forwards
Currency profile excluding non-financial assets
and liabilities
Less: Financial assets/(liabilities) denominated in the
respective entities’ functional currencies
Currency exposure of financial assets/(liabilities)
GBP
EUR
USD
Others
Total
1.1
1.8
0.9
0.7
4.5
–
(1.3)
(1.2)
(2.5)
2.0
–
5.3
7.3
1.8
5.5
0.5
2.0
–
–
2.5
–
(0.6)
–
(0.6)
1.9
8.7
(6.2)
4.4
1.7
2.7
5.6
17.2
1.3
–
24.1
(5.5)
(13.7)
–
(19.2)
4.9
–
–
4.9
(0.5)
5.4
2.0
0.5
0.2
–
2.7
–
(0.5)
(0.8)
(1.3)
1.4
–
–
1.4
1.9
(0.5)
9.2
21.5
2.4
0.7
33.8
(5.5)
(16.1)
(2.0)
(23.6)
10.2
8.7
(0.9)
18.0
4.9
13.1
If the US Dollar and Euro change against Sterling by 7% and 8% respectively (2016: US Dollar 10%, Euro 10%) with all other variables,
including tax rates, being held constant, the effects arising from the net financial asset/(liability) position will be as follows:
£ Millions
Group
EUR against GBP
— strengthened
— weakened
USD against GBP
— strengthened
— weakened
2017
Profit after tax
2016
Profit after tax
0.3
(0.3)
0.4
(0.4)
0.2
(0.2)
0.4
(0.4)
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 US Dollars. If the average interest rates on these
borrowings increased/decreased by 0.5% (2016: 0.5%) with all other variables, including tax rates, being held constant, the profit after
tax will be lower/higher by £123,000 (2016: £30,000) as a result of higher/lower interest expense on these borrowings.
113
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 individual
trade receivable represented more than 11% (2016: 7%) of the total trade receivables balance.
The credit risk for trade receivables, which are all with non-related parties, by geographical area is as follows:
£ Millions
By geographical areas
Europe
North America
Asia
2017
2016
7.6
13.4
2.8
23.8
7.9
9.2
4.4
21.5
Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings assigned by international
credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially with companies with a good collection
track record with the Group.
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
2017
2016
6.5
0.6
0.3
7.4
5.7
0.5
0.3
6.5
The carrying amount of trade receivables individually determined to be impaired and the movement in the related allowance for
impairment are as follows:
2017
2016
0.9
(0.5)
0.4
(0.4)
(0.2)
–
0.1
(0.5)
0.7
(0.4)
0.3
(0.3)
(0.1)
0.1
(0.1)
(0.4)
£ Millions
Gross amount
Less: Allowance for impairment
Beginning of financial year
Allowance made
Allowance utilised
Foreign currency translation
End of the financial year
114
Heading 30. Financial risk management (continued)
(e) Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash, the availability of funding through an adequate amount of
committed credit facilities (Note 21) and the ability to close out market positions at a short notice. At the balance sheet date, assets
held by the Group and the Company for managing liquidity risk included cash and short-term deposits as disclosed in Note 15.
The table below analyses the maturity profile of the Group’s 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 2017
Trade and other payables
Accrued consideration
Borrowings
Total
£ Millions
Group
At 31 December 2016
Trade and other payables
Accrued consideration
Borrowings
Total
Less than
1 year
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
21.4
–
–
21.4
–
–
–
–
–
1.0
24.0
25.0
–
0.4
–
0.4
Less than
1 year
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
16.1
0.5
5.5
22.1
–
–
–
–
–
1.2
–
1.2
–
0.3
–
0.3
Total
21.4
1.4
24.0
46.8
Total
16.1
2.0
5.5
23.6
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 2017.
2017
£ Millions
Assets
Derivative financial instruments
Liabilities
Derivative financial instruments
Level 1
Level 2
Level 3
Total
–
–
0.2
(0.2)
–
–
0.2
(0.2)
115
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Consolidated Financial Statements
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
30. Financial risk management (continued)
(f) Fair value measurements (continued)
2016
£ Millions
Assets
Derivative financial instruments
Liabilities
Derivative financial instruments
Level 1
Level 2
Level 3
Total
–
–
0.4
(0.4)
–
–
0.4
(0.4)
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
The Group has no financial instruments subject to enforceable master netting arrangements.
31. Business combination
On 29 September 2017, the Group acquired 100% assets and business of Comdel Inc. (“XP Comdel”). The principal activity of
XP Comdel is to provide Radio Frequency (RF) power supplies to the semiconductor, thin film, photovoltaics, and induction heating
industries.
Details of the consideration paid, the assets acquired and liabilities assumed, and the effects on the cash flows of the Group, at the
acquisition date, are as follows:
(a) Purchase consideration
Cash paid
Consideration payable
Total purchase consideration
Consideration transferred for the business
(b) Effect on cash flows of the Group
Cash paid (as above)
Less: cash and cash equivalents in subsidiary acquired
Cash outflow on acquisition
(c)
Identifiable assets acquired and liabilities assumed
Property, plant and equipment (Note 13)
Technology, Customers’ Relationships,
Contracts and Brand (included in intangibles – Note 12)
Inventories
Trade receivables
Total assets
Total identifiable net assets
Add: Goodwill (Note 11)
Consideration transferred for the business
116
£ Millions
18.2
0.6
18.8
18.8
18.2
–
18.2
Fair value recognised on acquisition (final)
2017
£ Millions
2.8
6.9
3.1
2.1
14.9
14.9
3.9
18.8
Heading (d)
31. Business combination (continued)
Acquisition-related costs
Acquisition-related costs of £0.2 million are included in “administrative expenses” in the consolidated statement of
comprehensive income and in operating cash flows in the consolidated statement of cash flows for the year ended
31 December 2017.
(e)
(f)
(g)
(h)
Acquired receivables
The fair value of trade receivables is £2.1 million. The gross contractual amount for trade receivables due is £2.2 million, of
which £0.1 million is expected to be uncollectible.
Final fair values
The fair value of the acquired identifiable intangible assets of £6.9 million (brand, technology, customers’ relationships and
contracts) has been determined.
Goodwill
The goodwill of £3.9 million arising from the acquisition is attributable to the distribution network in America and the synergies
expected to arise from the economies of scale in combining the operations of the Group with those of XP Comdel.
Revenue and profit contribution
The acquired business contributed revenue of £4.1 million and net profit of £0.7 million to the Group from the period from
29 September 2017 to 31 December 2017. Had XP Comdel been consolidated from 1 January 2017, consolidated revenue
and consolidated profit before tax for the year ended 31 December 2017 would have been £177.2 million and £31.7 million
respectively.
32. Other information
These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of XP Power Limited on
1 March 2018.
117
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Company Balance Sheet
AS AT 31 DECEMBER 2017
£’000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Derivative financial instruments
Inventories
Corporation tax recoverable
Total current assets
Non-current assets
Investments in subsidiaries
Property, plant and equipment
Intangible assets
Long-term receivable
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current income tax liabilities
Derivative financial instruments
Total current liabilities
Non-current liability
Deferred income tax liabilities
Total non-current liability
Total liabilities
NET ASSETS
EQUITY
Share capital
Treasury shares
Hedging reserve
Translation reserve
Retained earnings
TOTAL EQUITY
118
Note
2017
2016
4
5
6
7
8
14
3
9
10
13
12
14
7
11
15
15
15
15
15
4,633
20,963
1,092
154
10,434
1,291
38,567
3,211
20,885
549
362
10,564
–
35,571
29,786
29,786
2,299
7,564
6,713
46,362
84,929
21,210
3,146
248
24,604
1,419
1,419
26,023
58,906
2,072
5,946
7,273
45,077
80,648
19,357
3,060
414
22,831
1,136
1,136
23,967
56,681
29,786
29,786
5
(239)
3,364
25,990
58,906
–
332
5,442
21,121
56,681
Heading
Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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
At 31 December
2017
2016
29,786
29,786
29,786
29,786
Name of Subsidiary
XP Power Plc
XP Power Singapore Holdings Pte
Limited
Place of incorporation/
Ownership (or
registration) and
operation
Proportion of
Ownership %
2017
Proportion of
Ownership %
2016
Auditor of Subsidiaries
UK
Singapore
100
100
100
PricewaterhouseCoopers LLP
100
PricewaterhouseCoopers LLP
4. Cash and cash equivalents
£’000
Cash at bank
Total
2017
4,633
4,633
2016
3,211
3,211
The Company’s cash at bank is denominated in the following currencies:
GBP
£’000
USD
£’000
EUR
£’000
SGD
£’000
JPY
£’000
SEK
£’000
DKK
£’000
NOK
£’000
TOTAL
£’000
At 31 December 2017
Cash at bank
81
4,079
208
253
–
–
12
–
4,633
GBP
£’000
USD
£’000
EUR
£’000
SGD
£’000
JPY
£’000
SEK
£’000
DKK
£’000
NOK
£’000
TOTAL
£’000
At 31 December 2016
Cash at bank
138
2,753
122
115
3
–
–
80
3,211
119
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP
Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
5. Trade and other receivables
£’000
Trade receivables
Trade receivables from related parties
Total
2017
2,520
18,443
20,963
2016
3,996
16,889
20,885
The average credit period taken on sales of goods is 41 days (2016: 67 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.
6. Other current assets
£’000
Deposit
Other receivables and prepayments
Total
2017
61
1,031
1,092
2016
68
481
549
7. Derivative financial instruments
The total notional amount of outstanding currency forward contracts that the Company has committed is £7.3 million (2016:
£5.8 million). These contracts are to hedge against exchange movements on future sales and qualify for hedge accounting.
As at 31 December 2017, the fair value (liability)/asset of the currency forward contracts recognised under a hedging reserve is
(£239,000) (2016: £332,000) (Note 15).
Contract
notional
amount
7,313
7,313
Contract
notional
amount
5,818
5,818
Fair value
liability
(239)
(239)
Fair value
asset
332
332
December 2017
£’000
Current portion
Total
December 2016
£‘000
Current portion
Total
120
Heading 7. Derivative financial instruments (continued)
Certain currency forward contracts were taken up to protect against exchange movements on future sales. These contracts did not
qualify for hedge accounting.
December 2017
£’000
Current portion
Total
December 2016
£’000
Current portion
Total
8.
Inventories
£’000
Goods for resale
Assets
Liabilities
Contract
notional
amount
5,900
5,900
Fair Value
asset
154
154
Contract
notional
amount
532
532
Fair Value
(liability)
(9)
(9)
Assets
Liabilities
Contract
notional
amount
422
422
Fair Value
asset
30
30
Contract
notional
amount
5,300
5,300
Fair Value
(liability)
(414)
(414)
2017
10,434
2016
10,564
121
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
9. Property, plant and equipment
Freehold
land
Building
Plant and
equipment
Motor
vehicles
Building
improvements
1,558
1,404
195
–
–
41
236
–
–
(19)
217
–
–
–
–
–
–
–
–
–
–
–
331
1,889
–
–
(146)
1,743
334
51
–
77
462
55
–
(38)
479
217
236
1,264
1,427
52
(215)
281
1,522
557
(45)
(139)
1,895
1,045
127
(215)
212
1,169
132
(45)
(94)
1,162
733
353
10
40
–
7
57
–
(12)
(4)
41
10
1
–
2
13
9
(12)
(1)
9
32
44
364
12
–
78
454
55
–
(38)
471
364
1
–
77
442
11
–
(35)
418
53
12
Total
3,531
104
(215)
738
4,158
612
(57)
(346)
4,367
1,753
180
(215)
368
2,086
207
(57)
(168)
2,068
2,299
2,072
£’000
Cost
At 1 January 2016
Additions
Disposals
Foreign currency translation
At 31 December 2016
Additions
Disposals
Foreign currency translation
At 31 December 2017
Depreciation
At 1 January 2016
Additions
Disposals
Foreign currency translation
At 31 December 2016
Additions
Disposals
Foreign currency translation
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
122
Heading 10. Intangible assets
£’000
Cost
Balance at 1 January
Additions
Foreign currency translation
Balance at 31 December
Amortisation
Balance at 1 January
Additions
Foreign currency translation
Balance at 31 December
Carrying amount
Balance at 31 December
2017
2016
9,139
3,491
(861)
11,769
3,193
1,321
(309)
4,205
5,059
2,697
1,383
9,139
1,765
930
498
3,193
7,564
5,946
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 2016
Charge to statement of comprehensive income
Exchange difference
At 31 December 2016
Charge to statement of comprehensive income
Exchange difference
At 31 December 2017
£’000
Deferred tax liabilities – to be settled after more than 12 months
Total
Accelerated
tax
depreciation
Capitalised
development
costs
Other
temporary
differences
(74)
14
(15)
(75)
(71)
4
(550)
(296)
(150)
(996)
(343)
67
(142)
(1,272)
(42)
(13)
(10)
(65)
53
7
(5)
2017
(1,419)
(1,419)
Total
(666)
(295)
(175)
(1,136)
(361)
78
(1,419)
2016
(1,136)
(1,136)
123
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
12. Trade and other payables
£’000
Trade payables and other creditors
Amount payable to related parties
Total
2017
5,579
15,631
21,210
2016
4,843
14,514
19,357
Trade and other payables 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% – 2.0% above LIBOR. The borrowing is repayable upon demand.
13. Long-term receivable
£’000
Loans to related parties
Total
Loan to XP Power Vietnam bears interest at LIBOR plus 1.5% – 2.0% per annum.
Loan to XP Power (Israel) Ltd bears interest at LIBOR plus 1.5% per annum.
14. Corporate tax recoverable/Current income tax liabilities
Movement in corporate tax recoverable:
£’000
At 1 January
Income tax paid in excess
At 31 December
Movement in current income tax liabilities:
£’000
At 1 January
Currency translation differences
Income tax paid
Current year tax expense
Over-provision in prior financial year
At 31 December
15. Share capital and reserves
Share capital
£‘000
Allotted and fully paid 19,242,296 ordinary shares
Treasury shares
£’000
Balance at 1 January
Share option expense
Balance at 31 December
124
2017
6,713
6,713
2016
7,273
7,273
2017
-
1,291
1,291
2017
3,060
(315)
(2,552)
3,085
(132)
3,146
2016
-
-
-
2016
1,857
483
(1,796)
2,592
(76)
3,060
2017
29,786
2016
29,786
2017
2016
–
5
5
–
–
–
Heading 15. Share capital and reserves (continued)
Hedging reserve
£’000
Balance at 1 January
Fair value (loss)/gain
Balance at 31 December
Translation reserve
£’000
Balance at 1 January
Exchange differences on translation
Balance at 31 December
Retained earnings
£’000
Balance at 1 January
Dividends paid
Profit for the year
Balance at 31 December
2017
332
(571)
(239)
2017
5,442
(2,078)
3,364
2017
21,121
(13,921)
18,790
25,990
2016
157
175
332
2016
1,513
3,929
5,442
2016
18,654
(12,919)
15,386
21,121
16. 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 15.
(b) Currency risk
The Company operates in North America, Europe and Asia 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.
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.
125
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
16. Financial risk management (continued)
(b) Currency risk (continued)
The Company’s currency exposure based on the information provided to key management is as follows:
At 31 December 2017
£’000
Financial assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Long-term receivables
Subtotal
Financial liabilities
Trade and other payables
Subtotal
Net financial (liabilities)/assets
Add: Firm commitments and highly probable
forecast transactions in foreign currency
Currency forwards
Currency profile excluding non-financial
assets and liabilities
Less: Financial assets denominated in the entity’s
functional currencies
Currency exposure of financial assets
At 31 December 2016
£’000
Financial assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Long-term receivables
Subtotal
Financial liabilities
Trade and other payables
Subtotal
Net financial (liabilities)/assets
Add: Firm commitments and highly probable
forecast transactions in foreign currency
Currency forwards
Currency profile excluding non-financial
assets and liabilities
Less: Financial assets denominated in the entity’s
functional currency
Currency exposure of financial assets
126
GBP
EUR
USD
Others
Total
81
393
745
–
208
964
28
–
1,219
1,200
4,079
19,459
200
6,713
30,451
(14,729)
(14,729)
15,722
–
–
14
14
1,214
10,935
(7,844)
4,305
15,722
–
4,305
15,722
–
(6,311)
(6,311)
(5,092)
–
5,900
808
–
808
265
147
119
–
531
(184)
(184)
347
–
–
347
–
347
4,633
20,963
1,092
6,713
33,401
(21,210)
(21,210)
12,191
10,935
(1,944)
21,182
15,722
5,460
GBP
EUR
USD
Others
Total
138
1,812
314
–
2,264
(4,716)
(4,716)
(2,452)
–
5,300
122
1,234
(87)
–
1,269
93
93
1,362
8,687
(6,240)
2,753
17,556
206
7,273
27,788
(14,593)
(14,593)
13,195
–
–
2,848
3,809
13,195
–
2,848
–
3,809
13,195
–
198
283
116
–
597
(141)
(141)
456
–
–
456
–
456
3,211
20,885
549
7,273
31,918
(19,357)
(19,357)
12,561
8,687
(940)
20,308
13,195
7,113
Heading
16. Financial risk management (continued)
(c) Interest rate risk
The Company borrows from subsidiaries at an interest rate of 1.5% - 2.0% above LIBOR.
If the average interest rates on these borrowings increased/decreased by 0.5% (2016: 0.5%) with all other variables, including tax
rates, being held constant, the profit before tax will be lower/higher by £20,183 (2016: £21,372) as a result of higher/lower interest
expense on these borrowings.
(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. Trade receivables are
neither past due nor impaired are substantially companies with a good collection track record with the Company.
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 2017
Trade and other payables
Total
£‘000
At 31 December 2016
Trade and other payables
Total
Less than
1 year
21,210
21,210
Less than
1 year
19,357
19,357
Between
1 and 2
years
Between
2 and 5 years
Over
5 years
–
–
–
–
–
–
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
–
–
–
–
–
–
Total
21,210
21,210
Total
19,357
19,357
The Company manages the liquidity risk by maintaining sufficient cash and bank facilities to enable it to meet its normal operating
commitments.
The Company has issued a multilateral guarantee to HSBC and Fifth Third Bank for the revolving credit facility entered into by the
Group. The revolving credit facility amounts to US$40 million with a US$20 million additional accordion option and have a tenure of
four years from the loan agreement date, 27 September 2017, with a potential one year extension.
(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 measured at fair value at 31 December 2017:
£‘000
2017
Assets
Derivative financial instruments
Liabilities
Derivative financial instruments
Level 1
Level 2
Level 3
Total
–
–
154
(248)
–
–
154
(248)
127
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP Notes to the Company Balance Sheet
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
16. Financial risk management (continued)
(f) Fair value measurements (continued)
£’000
2016
Assets
Derivative financial instruments
Liabilities
Derivative financial instruments
Level 1
Level 2
Level 3
Total
–
–
362
(414)
–
–
362
(414)
(g) Offsetting financial assets and financial liabilities
(i) Financial assets
The Company has the following financial instruments subject to enforceable master netting arrangements or similar agreements 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
1,592
1,592
152
152
(168)
(168)
(9)
(9)
Net amounts
– financial
assets
presented in
the balance
sheet
1,424
1,424
143
143
Financial
assets /
liabilities
17,019
17,019
16,746
16,746
Financial
collateral
received
Net amount
–
–
–
–
18,443
18,443
16,889
16,889
£’000
At 31 December 2017
Trade receivables
Total
At 31 December 2016
Trade receivables
Total
(ii) Financial liabilities
The Company has the following financial instruments subject to enforceable master netting arrangements or similar agreements 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
(168)
(168)
(9)
(9)
168
168
9
9
–
–
–
–
Financial
assets /
liabilities
(15,631)
(15,631)
(14,514)
(14,514)
Financial
collateral
pledged
Net amount
–
–
–
–
(15,631)
(15,631)
(14,514)
(14,514)
£’000
At 31 December 2017
Trade payables
Total
At 31 December 2016
Trade payables
Total
128
Heading 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)
2017
£ Millions
2016
£ Millions
2015
£ Millions
2014
£ Millions
2013
£ Millions
166.8
32.5
32.2
88.1
83.5
(25.1)
(29.6)
116.9
116.0
0.9
116.9
148.3
146.0
147.0
129.8
28.0
27.8
73.2
65.7
(25.8)
(6.2)
106.9
106.1
0.8
106.9
112.0
111.2
115.3
109.7
25.6
25.4
65.4
53.5
(19.8)
(10.0)
89.1
88.3
0.8
89.1
103.7
102.8
104.3
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
3,626.0
1,725.0
78.0
1,845.0
1,410.0
71.0
1,750.0
1,375.0
66.0
1,798.0
1,340.0
61.0
1,630.0
972.0
55.0
129
FINANCIALSXP Power Annual Report & Accounts for the year ended 31 December 2017 stock code: XPP XP Power Limited Advisers
Company Brokers
Investec
2 Gresham Street
London
EC2V 7QP
United Kingdom
Principal Bankers
HSBC Bank plc
Level 7
Thames Tower
Station Road
Reading
Solicitors
Osborne Clarke
2 Temple Back East
Temple Quay
Bristol
BS1 6EG
United Kingdom
Registrars
Link Asset Services
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
7 Straits View
Marina One, East Tower, Level 12
Singapore 018936
130
Heading Introduction
OUR PURPOSE
We provide our customers in the Healthcare, Industrial and Technology
sectors with solutions to power their critical systems and get their
products to market in the shortest possible time.
Electronic equipment cannot operate directly from the electricity
provided by the mains supply which is a relatively high voltage
alternating current. All electronic equipment requires a stable, direct
current in order to operate. Our electronic power converters are
designed-in to our customers’ end equipment, often with the aid of our
engineering expertise, to provide this stable direct current. These power
solutions also provide the vital safety barrier between the potentially
lethal mains supply and the user of the end equipment.
Our target customers provide vital equipment where the cost of
downtime or implications of failure are significant.
We power the world’s critical systems.
OUR VISION
To be the first choice power solutions provider delivering the ultimate
experience for our customers and our people.
OUR CORE VALUES
Our core values of INTEGRITY, KNOWLEDGE, FLEXIBILITY, SPEED and
CUSTOMER FOCUS are our DNA and are fundamental to our success.
CUSTOMER
FOCUS
KNOWLEDGE
FLEXIBILITY
SPEED
CUSTOMER
CUSTOMER
CUSTOMER
INTEGRITY
FOCUS
FOCUS
FOCUS
KNOWLEDGE
KNOWLEDGE
KNOWLEDGE
FLEXIBILITY
FLEXIBILITY
FLEXIBILITY
SPEED
SPEED
SPEED
CUSTOMER
INTEGRITY
INTEGRITY
INTEGRITY
FOCUS
KNOWLEDGE
FLEXIBILITY
SPEED
INTEGRITY
Printed on Cocoon Silk 60.
A recycled paper containing 60% recycled waste and 40% 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)
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XP POWER LIMITED
401 COMMONWEALTH DRIVE
HAW PAR TECHNOCENTRE
LOBBY B #02-02
SINGAPORE 149598
T: +65 6411 6900
F: +65 6479 6305
XP POWER
ANNUAL REPORT & ACCOUNTS
for the year ended 31 December 2017
stock code: XPP