XP Power Ltd.

Earnings Release • Jul 28, 2014

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XP POWER LTD - Half-yearly Report

PR Newswire

London, July 25

28 July 2014XP Power Limited ("XP" or "the Group")Interim Results for the six months ended 30 June 2014XP, a world leading developer and manufacturer of critical power control components for the electronics industry, today announces its interim results for the six-month period ended 30 June 2014. Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)HighlightsOrders £51.1m £49.9mRevenue £50.2m £49.0mTurnoverGross margin 49.8% 48.6%Operating margin 24.5% 21.6%Profit before tax £12.2m £10.4mProfit after tax £9.7m £8.0mDiluted earnings per share (see Note 9) 50.5p 41.8pInterim dividend per share (see Note 8) 25.0p 23.0pFurther market share gains deliver strong underlying improvements in revenuesand earningsOrder intake increased by 2% to £51.1 million (+9% in constant currency)Revenue increased by 2% to £50.2 million (+9% in constant currency)Gross margin increased to 49.8% (2013: 48.6%) due to higher factory loading atboth our Chinese and Vietnamese manufacturing facilitiesOwn-design XP product revenues increased by 9%, setting a new record, and nowrepresent 66% of total revenues (2013: 62%)New product introductions and the development of an industry leading in-housemanufacturing capability continue to generate new program wins to drive futuregrowth and market share gainsJames Peters, Chairman, commented:"While the markets for capital equipment that we serve remain subdued, we haveagain taken market share and delivered strong underlying growth in both ordersand revenues. Stronger margins, due to improved factory utilisation, combinedwith robust underlying revenue growth resulted in a 21% increase in earnings." "We anticipate growing revenues again in 2014, although this underlying growthis expected to be impacted by the translation effects of the US Dollar relativeto Sterling."Enquiries:XPPowerDuncan Penny, Chief Executive +44(0)7776 178 018Jonathan Rhodes, FinanceDirector +44(0)7500 944 614Citigate DeweRogerson +44(0)20 7638 9571Kevin Smith/Jos BienemanNote to editorsXP Power is a leading international provider of essential power controlsolutions. Power direct from the electricity grid is unsuitable for theequipment which it supplies. XP Power designs and manufactures powerconverters - components which convert power into the right form for ourindividual customers' needs, allowing their electronic equipment to function.XP Power supplies the healthcare, industrial and technology industries withthis mission critical equipment. Significant, long term investment intoresearch and development means that XP Power's products frequently offersignificantly improved functionality and efficiency.For further information, please visit www.xppower.com28 July 2014XP Power Limited ("XP" or "the Group")Interim Results for the six months ended 30 June 2014INTERIM STATEMENTOverviewWhile the underlying market for capital equipment remained somewhat tepidduring the period, the Group produced another robust performance in the firsthalf. Underlying order and revenue growth was strong and, when combined withhigher margins and cost control, produced diluted earnings per share of 50.5pence, up 21% from the same period a year ago. The execution of our strategycontinues to drive market share gains.Revenues increased by 2% over the prior year. The strength of Sterling versusthe US Dollar, the Group's principal trading currency, had a significanttranslation effect in the period, masking strong underlying revenue growth of9% in constant currency.Our new Vietnam magnetics manufacturing facility has benefited from furthervolume growth and is now contributing to margins. While the translation effectfrom the weaker US Dollar negatively impacts the revenue line it has acorresponding positive impact on cost of sales and the combination of these twofactors acts to increase the gross margin percentage. These factors, togetherwith better factory loading and an improved product mix, led to an increase ingross margin to 49.8% (2013: 48.6%).StrategyThe Group has applied a consistent strategy of moving up the value chain,powered by:Development of a strong pipeline of leading-edge productsProvision of industry-leading levels of service and supportTargeting new key accounts and increasing the penetration of existing keyaccountsAn established pipeline of new class-leading "Green" products which operate athigh efficiencyThe addition of a manufacturing capability, enhancing its value proposition tocustomers by greater control of the manufacturing processAn increased proportion of high margin own designed/manufactured productswithin its revenue mixOur value proposition to customers is to reduce their overall costs of design,manufacture and operation. We achieve this by providing excellent salesengineering support and producing new products that consume less power, take upless space and reduce installation times, and which are highly reliable inservice.Trading and Financial ReviewXP Power supplies power control solutions to original equipment manufacturers("OEMs") who supply the healthcare, industrial and technology markets with highvalue, high reliability products. The increasing importance of energyefficiency for environmental, reliability and economic reasons; the necessityfor ever smaller products; the accelerating rate of technological change; andthe increasing proliferation of electronic equipment, have all set a strongfoundation for medium term growth in demand for XP Power's products.Revenue grew to £50.2 million in the six months to 30 June 2014 compared to £49.0 million in the same period a year ago. This 2% increase has beensignificantly affected by the weakness of the US Dollar compared to Sterling.When adjusting to constant currency the underlying growth is 9% in the firsthalf of the year, which we believe clearly demonstrates the Group's success incontinuing to steadily take market share.Order intake of £51.1 million in the first half showed similar strength growing2% over the same period a year ago. The order intake was also significantlyimpacted by the foreign exchange translation impact discussed above and afteradjusting to constant currency the growth was 9%.Revenues in Europe were £21.7 million (2013: £22.1 million) down 2%; those inNorth America were £24.6 million (2013 £23.7 million), up 4% despite the strongtranslation headwind, and those in Asia were £3.9 million (2013: £3.2 million),up 22% again despite the translation effect. As we sell to Original EquipmentManufacturers who in turn sell to their end customers, it is difficult toaccurately assess whether this geographic split is representative of theultimate end destination of our equipment. However, we believe a significantproportion of the equipment we sell into the industrial sector is likely to endup in emerging markets.Revenues split by sector also reflected the foreign exchange translationheadwinds described above. Revenues from healthcare grew 6% to £15.3 million(2013: £14.5 million) as new program wins from larger accounts where we havegained approved or preferred supplier status began to enter production.Industrial also benefited from new program wins and grew 6% to £24.8 million(2013: £23.5 million). The technology sector proved to be the most challenging;having shown some recovery in the second half of 2013, technology revenuesdeclined by 8% in the period to £10.1 million (2013: £11.0 million). In termsof overall revenue for the first half of 2014, healthcare represented 31%(2013: 30%), industrial 49% (2013: 48%) and technology 20% (2013: 22%).Our customer base continues to be highly diversified with the largest customeraccounting for only 5% of revenue, spread over 100 different programs/partnumbers.MarginsWe continue to generate industry leading margins. Gross margin in the firsthalf of 2014 increased to 49.8% (2013: 48.6%), driven by improved factoryloading at both our Chinese and Vietnamese manufacturing facilities. We expectto start production of our first power supplies in Vietnam in the second halfof this year which will incur some start-up costs but we do not expect these tobe material.Operating expenses were £12.7 million (2013: £13.3 million). Again there is asignificant translation effect from the weakening of the US Dollar versusSterling which we estimate reduced operating expenses by some £0.3 million. Theremainder of the decrease came from tight cost control and timing of thecapitalisation of product development expenses. Gross product development spendwas £2.6 million (2013: £2.8 million), £1.2 million of which was capitalised(2013: £1.0 million), and £0.7 million amortised (2013: £0.6 million).Despite the sluggish end-market conditions we continue to achieve excellentoperating margins of 24.5% (2013: 21.6%) highlighting the strength of ourbusiness model. We expect further improvement in this metric when marketconditions improve.Financial PositionHigher gross and operating margins and modest capital requirements haveresulted in continued strong cash flow and a reduction in net debt. Net debtreduced significantly to £1.5 million at 30 June 2014 compared to £8.5 millionat 30 June 2013. Using the exchange rates prevailing at 30 June 2013, net debtat 30 June 2014 would have been £1.8 million.Product DevelopmentNew products are fundamental to our revenue growth. The broader our productoffering, the more opportunity we have to increase revenues by expanding ouravailable market. As expected, the significant number of new product familiesintroduced over the last three years is yet to have a material impact on ourrevenues, given the time lag from launch to them entering production. This isdue to the lengthy design-in cycles required by customers to qualify the powerconverter in their equipment and then gain the necessary safety agencyapprovals.We launched 13 new product families in the first half of 2014 (2013: 17).Response from customers to these new launches has been very encouraging. Theproducts launched include some flagship convection cooled products andultra-high efficiency units for high performance applications, as well somevery cost competitive mainstream products suitable for multiple applications.Our design teams are focusing on developing new products that reduce powerwastage, reduce heat, consume less raw material and incorporate low stand-bypower operation.With larger customers continuing to reduce the number of vendors they dealwith, XP Power's broad product offering, excellent global engineering support,in-house manufacturing capability and industry-leading environmentalcredentials leave the Group well-placed to secure further preferred supplieragreements.ManufacturingXP Power's move into manufacturing in 2006 has been instrumental in enabling the Group to win approved and preferred supplier status with new Blue Chip customers, who demand that their suppliers have complete control over their supply chain and product manufacture to ensure the highest levels of quality.In June 2009, production commenced at our first manufacturing facility at Kunshan, close to Shanghai, China. The facility, which is certified under the ISO14001 Environmental Management Standard, delivers manufacturing capabilities which match or exceed the best of our competitors. The number of customer audits from key accounts has steadily increased over recent years and all of these audits have been successful.Our Vietnamese manufacturing facility, located in Ho Chi Minh City, beganproduction of its first magnetic components during March 2012 and is currentlyproducing approximately half of the monthly requirement for magnetic componentsat our Chinese factory. The quality of the Vietnamese output has been verypleasing, surpassing that of our third party suppliers of similar components.Producing our own magnetic components in Vietnam is helping us mitigate thecontinued rise of Chinese labour costs and the appreciation of the ChineseRenminbi. In addition, extending vertical integration to the critical magneticcomponents used in power converters is seen as an additional value propositionby many of our customers, notably in the healthcare and high reliabilityindustrial sectors.Following the successful scale-up of magnetics production in Vietnam, we expectto begin manufacturing power supplies at the factory during the second half,establishing the facility as the second full manufacturing site for the Group.DividendSince April 2010 the Company has been making quarterly dividend payments. Ourstrong cash flow and confidence in the Group's prospects have enabled us toincrease total dividends for the first half by 9% to 25.0 pence per share(2013: 23.0 pence per share).The first quarter dividend payment of 12 pence per share was made on 10 July2014. The second quarter dividend of 13 pence per share will be paid on 10October 2014 to shareholders on the register at 5 September 2014.Dividend growth over the past ten years has exceeded a compound average growthrate of 15%.Environmental Impact and "Green XP Power" productsXP Power has placed improved environmental performance at the heart of itsoperations both in terms of minimising the impact its activities have on theenvironment and, as importantly, in its product development strategy. Thesepractices and initiatives not only resonate with our customers and employees;they also make significant commercial sense as countries legislate to reducepower wastage, improve recyclability of manufactured goods and ban the use ofharmful chemicals.We have developed a class leading portfolio of green products with efficienciesup to 95% and many of these products also have low stand-by power (a feature toreduce the power consumed while the end equipment is not operational but instand-by mode). We now apply our own "Green XP Power" logo to the products wedesignate ultra-high efficiency. During the first half of 2014, 17% of ourrevenues were generated by "Green XP Power" products compared to 11% in 2013,6% in 2012 and 5% in 2011. At present, the uptake of these products bycustomers is primarily driven by their improved reliability and the ability todispense with mechanical fans to dissipate waste heat, rather than the factthat they consume less energy in operation. However, we expect this to changeas lower energy consumption becomes a higher priority to end users of capitalequipment and more legislation is introduced.Board ChangesOn 30 June 2014 Larry Tracey retired from the board, with James Peters(previously Deputy Chairman) becoming Chairman. Larry made an outstandingcontribution to the Company over a fourteen year period, in both executive andnon-executive capacities overseeing its transition from a distributor of thirdparty products to a designer and manufacturer of its own market-leading rangeof power supplies. He leaves with our thanks and best wishes for a happyretirement.OutlookWhile global capital goods markets remain subdued overall, our order intakeremains encouraging and we believe that we continue to take market share. Weexpect to grow revenues in 2014, although this underlying growth is expected tobe impacted by the currency translation effects discussed above. Predictingthe likely performance of the US Dollar relative to Sterling in the comingperiod is difficult but the high proportion of our costs that are alsoDollar-denominated will mitigate the impact on earnings.A broad, up to date product portfolio and the development of an industryleading in-house manufacturing capability are at the core of our strategy and,when combined with excellent service and support, are leading to continued newprogram wins which should drive our future growth. This greater penetration ofa Blue Chip customer base and significant design win success bode well for thefuture of XP.XP Power LimitedConsolidated Statement of Comprehensive IncomeFor the six months ended 30 June 2014£ Millions Note Six months Six months ended ended 30 June 30 June 2014 2013 (Unaudited) (Unaudited)Revenue 5 50.2 49.0Cost of sales 6 (25.2) (25.2)Gross profit 25.0 23.8Operating expenses 6 (12.7) (13.3)Other operating income 6 - 0.1Operating profit 12.3 10.6Finance cost 6 (0.1) (0.2) 5Profit before income tax 12.2 10.4Income tax expense 7 (2.4) (2.3)Profit after income tax 9.8 8.1Other comprehensive income:Fair value gains on cash flow 0.3 0.1hedgesExchange differences on translationof foreign operations (0.8) 1.3Other comprehensive income, net of (0.5) 1.4taxTotal comprehensive income 9.3 9.5Profit attributable to:- owners of the parent 9.7 8.0- non-controlling interest 0.1 0.1 9.8 8.1Total comprehensive incomeattributable to:- owners of the parent 9.2 9.4- non-controlling interest 0.1 0.1 9.3 9.5Earnings per share attributable to Pence per Pence perowners of the parent Share ShareBasic 9 51.1 42.1Diluted 9 50.5 41.8XP Power LimitedConsolidated Balance SheetAt 30 June 2014£ Millions Note At 30 At 31 At 30 June 2014 December June 2013 2013 (Unaudited) (Unaudited)AssetsCurrent assetsCash and cash equivalents 11 5.6 5.0 4.2Trade receivables 14.7 15.4 16.1Other current assets 1.2 1.4 1.0Inventories 22.6 20.4 20.5Total current assets 44.1 42.2 41.8Non-current assetsProperty, plant and equipment 12.5 12.7 13.8Goodwill 30.6 30.6 30.6Intangible assets 10 9.0 8.5 8.0ESOP loans to employees 1.0 1.0 1.1Deferred income tax assets 0.5 0.5 0.3Total non-current assets 53.6 53.3 53.8Total assets 97.7 95.5 95.6LiabilitiesCurrent liabilitiesTrade and other payables 13.4 12.7 12.5Current income tax liabilities 1.2 1.1 1.4Derivative financial instruments - 0.1 0.3Borrowings 12 7.1 8.5 6.8Total current liabilities 21.7 22.4 21.0Non-current liabilitiesBorrowings 12 - - 5.9Deferred income tax liabilities 2.1 2.0 1.8Provision for deferred contingent consideration 1.7 1.7 1.5Total non-current liabilities 3.8 3.7 9.2Total liabilities 25.5 26.1 30.2NET ASSETS 72.2 69.4 65.4Capital and reserves attributable to equity holders of theCompanyShare capital 27.2 27.2 27.2Merger reserve 0.2 0.2 0.2Treasury shares (1.2) (1.0) (1.0)Hedging reserve - (0.3) (0.1)Translation reserve (8.8) (8.0) (6.4)Retained earnings 54.7 51.1 45.2 72.1 69.2 65.1Non-controlling interest 0.1 0.2 0.3Total equity 72.2 69.4 65.4XP Power LimitedConsolidated Statement of Changes in EquityFor the six months ended 30 June 2014 (Unaudited)£ Millions Attributable to equity holders of the company Share Treasury Merger Hedging Translation Retained Total Non-controlling Total capital shares reserve reserve reserve earnings interest EquityBalance at 1 January2013 27.2 (1.2) 0.2 (0.2) (7.7) 42.8 61.1 0.2 61.3Sale of treasuryshares - 0.1 - - - (0.1) - - -Employee share optionplan expenses - 0.1 - - - - 0.1 - 0.1Dividends paid - - - - - (5.5) (5.5) - (5.5)Total comprehensiveincome for the period - - - 0.1 1.3 8.0 9.4 0.1 9.5Balance at 30 June2013 27.2 (1.0) 0.2 (0.1) (6.4) 45.2 65.1 0.3 65.4Balance at 1 January2014 27.2 (1.0) 0.2 (0.3) (8.0) 51.1 69.2 0.2 69.4Saleof treasuryshares - 0.1 - - - - 0.1 - 0.1Purchase of treasuryshares - (0.4) - - - - (0.4) - (0.4)Employee share optionplan expenses - 0.1 - - - - 0.1 - 0.1Dividends paid - - - - - (6.1) (6.1) (0.2) (6.3)Total comprehensiveincome for the period - - - 0.3 (0.8) 9.7 9.2 0.1 9.3Balance at 30 June2014 27.2 (1.2) 0.2 - (8.8) 54.7 72.1 0.1 72.2XP Power LimitedConsolidated Statement of Cash FlowsFor the six months ended 30 June 2014£ Millions Note Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Cash flows from operating activitiesTotal profit 9.8 8.1Adjustments forIncome tax expense 2.4 2.3Amortisation and depreciation 1.4 1.3Finance cost 0.1 0.2Loss on fair valuation of derivative financial instrumentsESOP expenses 0.1 0.2 0.1 0.1Unrealised currency translation (gain)/losses (0.6) 0.6Change in the working capitalInventories (2.2) (0.7)Trade and other receivables 0.9 (1.7)Trade and other payables 0.7 1.4Income tax paid (2.3) (2.5)Net cash provided by operating activities 11 10.4 9.3Cash flows from investing activitiesPurchases and construction of property, plant and equipment (0.9) (0.5)Research and development expenditure capitalised 6 (1.2) (1.0)ESOP loan repaid 0.1 0.1Net cash used in investing activities (2.0) (1.4)Cash flows from financing activitiesRepayment of borrowings (2.0) (1.2)Sale of treasury shares by ESOP 0.1 0.1Interest paid (0.1) (0.2)Dividends paid to equity holders of the Company (6.1) (5.5)Dividends paid to non-controlling interest (0.2) - Net cash used in financing activities (8.3) (6.8)Net increase in cash and cash equivalents 0.1 1.1Cash and cash equivalents at start of period 3.8 0.5Effects of currency translation on cash and cash equivalents (0.1) (0.2)Cash and cash equivalents at the end of the period 11 3.8 1.4Reconciliation of changes in cash and cash equivalents to movements in net debtNet increase in cash and cash equivalents 0.1 1.1Repayment of borrowings 2.0 1.2Effects on currency translation (0.1) (0.2)Movement in net debt 2.0 2.1Net debt at start of period (3.5) (10.6)Net debt at end of period (1.5) (8.5)XP Power LimitedNotes to the Interim Results for the six months ended 30 June 2014General information XP Power Limited (the "Company") is listed on the London Stock Exchange and incorporated and domiciled in Singapore. The address of its registered office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par Technocentre, Singapore 149598. The nature of the Group's operations and its principal activities is to provide power supply solutions to the electronics industry. These condensed consolidated interim financial statements are presented in Pounds Sterling (GBP).Basis of preparation The condensed consolidated interim financial statements for the period ended 30 June 2014 have been prepared in accordance with the Listing Rules of the Financial Services Authority and with IAS 34, Interim Financial Reporting as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2013 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.Going ConcernThe directors, after making enquiries, are of the view, as at the time ofapproving the financial statements, that there is a reasonable expectation thatthe Group will have adequate resources to continue operating for theforeseeable future and therefore the going concern basis has been adopted inpreparing these financial statements.Accounting policies The condensed consolidated interim financial statements have been prepared under the historical cost convention except for the fair value of derivatives in accordance with IFRS 9, "Financial Instruments". The same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial statements as were applied in the presentation of the Group's financial statements for the year ended 31 December 2013.Segmented analysis The Group operates substantially in one class of business, the provision of power control solutions to the electronics industry. Analysis of total Group operating profit, total assets, revenue and total group profit before taxation by geographical region is set out below.£ Millions Six months ended Six months ended 30 June 2014 (Unaudited) 30 June 2013 (Unaudited)RevenueAsia 3.9 3.2Europe 21.7 22.1North America 24.6 23.7Total revenue 50.2 49.0Segmented analysis (continued)£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Total assetsAsia 28.8 30.1Europe 24.7 26.0North America 43.7 39.2Segment assets 97.2 95.3Unallocated deferred 0.5 0.3taxTotal assets 97.7 95.6 Reconciliation of segment results to profit after tax:£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Asia 1.1 0.1Europe 4.3 3.8North America 6.5 6.0Segment result 11.9 9.9Corporate recovery from 1.0 1.2operating segmentResearch and development cost (0.6) (0.5)Finance income and cost (0.1) (0.2)Profit before income tax 12.2 10.4Tax (2.4) (2.3)Profit after income tax 9.8 8.1 The Group's three business segments operate in the following countries:£ Millions Six months ended Six months ended 30 June 2014 (Unaudited) 30 June 2013 (Unaudited)RevenueUnited States 24.6 23.7United Kingdom 11.6 11.9Singapore 3.9 3.2Germany 4.4 4.6Switzerland 1.7 1.9Other countries 4.0 3.7Total revenue 50.2 49.0Expenses by nature£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Profit for the period is after charging/(crediting):Amortisation of intangible assets 0.7 0.6Depreciation of property, plant and equipment 0.7 0.7Foreign exchange loss 0.2 0.2Foreign exchange (gains) on forward contracts (0.1) (0.2)Purchase of inventories 19.8 23.3Changes in inventories 2.2 0.7Fees paid to auditors: - Audit 0.2 0.2 - Other services - tax 0.1 0.1All other charges 14.2 13.0Total 38.0 38.6Included in the above is net research and development expenditure as follows:£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Gross research and development expenditure 2.6 2.8Development expenditure capitalised (1.2) (1.0)Amortisation of development expenditure 0.7 0.6capitalisedNet research and development expenditure 2.1 2.4Taxation Income tax expense is recognised based on management's best estimate of the weighted average annual income tax expected for the full financial year. The estimated effective annual tax rate used for 2014 is 20% (2013: 22%).£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Singapore 0.7 0.6Other overseas taxation 1.7 1.7Total taxation 2.4 2.3Dividends Amounts recognised as distributions to equity holders of the Company in the period: Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Pence per share £ Millions Pence per share £ MillionsPrior year 3rd quarter dividend 13.0 2.5 12.0 2.3paidPrior year final dividend paid 19.0 3.6 17.0 3.2Total 32.0 6.1 29.0 5.5The dividends paid recognised in the interim financial statements relate to the third quarter and final dividends for 2013.The first quarterly dividend of 12 pence per share was paid on 10 July 2014. A second quarterly dividend of 13 pence per share (2013: 12 pence) will be paid on 10 October 2014 to shareholders on the register at 5 September 2014.Earnings per share Earnings per share attributable to equity holders of the company arise from continuing operations as follows:£ Millions Six months Six months ended ended 30 June 30 June 2014 2013 (Unaudited) (Unaudited)EarningsEarnings for the purposes of basic and diluted earningsper share (profit for the period attributable to equityshareholders of the company) 9.7 8.0Earnings for adjusted earnings per share 9.7 8.0Number of shares '000 '000Weighted average number of shares for the purposes of basicearnings per share (thousands) 19,000 18,993Effect of potentially dilutive share options (thousands) 209 136Weighted average number of shares for the purposes of dilutiveearnings per share (thousands) 19,209 19,129Earnings per share from operationsBasic 51.1p 42.1pDiluted 50.5p 41.8pDiluted adjusted 50.5p 41.8pIntangible assetsIntangible assets comprises development expenditure capitalised when it meets the criteria laid out in IAS 38, "Intangible Assets", trademarks and non-contractual customer relationships.Cash and cash equivalentsFor the purpose of presenting the consolidated cash flow statement, theconsolidated cash and cash equivalents comprise the following:£ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited)Cash and bank balances 5.6 4.2Less: Bank overdrafts (1.8) (2.8)Cash and cash equivalents per consolidated cash flowstatement 3.8 1.4Reconciliation to free cash flow:Net cash inflow from operating activities 10.4 9.3Development expenses capitalised (1.2) (1.0)Finance cost (0.1) (0.2)Free cash flow 9.1 8.1Borrowings, bank loans and overdraft£ Millions 30 June 2014 31 December 2013 30 June 2013 (Unaudited) (Unaudited)Non-Current - - 5.9Current 7.1 8.5 6.8Total 7.1 8.5 12.7Currency ImpactWe report in Pounds Sterling (GBP) but have significant revenues and costs aswell as assets and liabilities that are denominated in United States Dollars(USD). The table below sets out the prevailing exchange rates in the periodsreported. First half First half % 30 June 31 December 30 June 2014 2013 2014 2013 2013 Change Average Average Period end Period end Period endUSD/ 1.67 1.54 8.4% 1.69 1.64 1.52GBPEUR/ 1.21 1.18 2.5% 1.25 1.19 1.17GBPApproximately 75% of the Group's revenues are invoiced in USD so the change inthe USD to GBP exchange rate has a significant effect on reported revenue inGBP. However, as the majority of our cost of goods sold and operating expensesare also denominated in USD the change in profit before tax with the USD to GBPexchange rate is relatively minor. The impact of changes in the key exchangerates from the first half of 2013 to the first half of 2014 are summarised asfollows:£ Millions USD EURImpact on revenues (2.8) (0.1)Impact on profit before tax (0.7) -Impact on net debt 0.5 -Risks and uncertaintiesLike many other international businesses the Group is exposed to a number ofrisks and uncertainties which might have a material effect on its financialperformance. These include:Fluctuations in foreign currencyThe Group has an exposure to foreign currency fluctuations. This could lead tomaterial adverse movements in reported earnings.Dependence on key personnelThe future success of the Group is substantially dependent on the continuedservices and continuing contributions of its Directors, senior management andother key personnel.Loss of key customers/suppliersThe Group is dependent on retaining its key customers and suppliers. However,for the six months ended 30 June 2014, no one customer accounted for more than5% of revenue.Shortage, non-availability or technical fault with regard to key electroniccomponentsThe Group is reliant on the supply, availability and reliability of keyelectronic components. If there is a shortage, non availability or technicalfault with any of the key electronic components this may impair the Group'sability to operate its business efficiently and lead to potential disruption toits operations and revenues.Fluctuations of revenues, expenses and operating resultsThe revenues, expenses and operating results of the Group could varysignificantly from period to period as a result of a variety of factors, someof which are outside its control.Information Technology SystemsThe business of the Group relies to a significant extent on informationtechnology systems used in the daily operations of its operating subsidiaries.Any failure or impairment of those systems or any inability to transfer dataonto any new systems introduced could cause a loss of business and/or damage tothe reputation of the Group together with significant remedial costs.Risks relating to taxation of the GroupThe Group is exposed to corporation tax payable in many jurisdictions. Theeffective tax rate of the Group is affected by where its profits fallgeographically. The Group effective tax rate could therefore fluctuate overtime. This could have an impact on earnings and potentially its share price.Further, the Group's tax position includes judgments about past and futureevents and relies on estimates and assumptions.Directors' responsibility statement The interim results were approved by the board of directors on 28 July 2014.The directors confirm that to the best of their knowledge that:This unaudited interim results has been prepared in accordance with IAS 34 "Interim Reporting" as adopted by the European Union; andThe interim results includes a fair view of the information required by DTR 4.2.7 (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) and DTR 4.2.8 (disclosure of related party transactions and changes therein).The directors of XP Power Limited are as listed in the Company's 2013 Annual Report. On 30 June 2014 Larry Tracey retired from the board, with James Peters (previously Deputy Chairman) becoming Chairman.