XP Power has enjoyed another excellent year, building our position in our chosen markets, expanding our product portfolio both through acquisition and organically and making significant progress towards the achievement of our vision of being the first-choice power solutions provider, delivering the ultimate experience to our customers and our people.

Duncan Penny

Chief Executive Officer

Review of our year

XP Power has enjoyed another excellent year, building our position in our chosen markets, expanding our product portfolio both through acquisition and organically and making significant progress towards the achievement of our vision of being the first choice power solutions provider, delivering the ultimate experience to our customers and our people.

The consistent execution of our strategy has led to another year of successive growth in order intake, revenue, adjusted operating profit and adjusted earnings per share. All market sectors showed revenue growth over 2017. The first half of 2018 saw extremely good growth from our semiconductor equipment manufacturing sector which then softened in the second half of the year, in line with wider market performance and in particular the fourth quarter as detailed in the Group's Trading Update on 14 January 2019. In contrast the industrial, healthcare and technology sectors all showed growth in the second half of 2018 versus the first half and remained robust in the fourth quarter.

Our design win pipeline was strong in 2018, boding well for continued future market share and revenue growth. We also 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 Glassman High Voltage in May 2018. This business gives XP Power an entry into the high voltage, high power market. We are one of the few companies in the world that can offer our customers a complete range of power solutions across voltage and power. This makes us an ideal partner to many of our target customers and greatly expands our value proposition.


All industry sectors and all geographies experienced revenue growth in 2018 over 2017 and, significantly, sequential growth in the second half of 2018 over the first half with the exception of the semiconductor equipment manufacturing sector.

The order performance was also strong, with order intake up 8% on a reported basis to £198.4 million (2017: £184.3 million). In constant currency this growth was 12% and on a like-for-like basis, excluding the Comdel and Glassman acquisitions growth was 5%. The resulting book-to-bill ratio was 1.02.

Overall revenues grew 17% to £195.1 million (2017: £166.8 million) on a reported basis. In constant currency the growth was 21% or 11% on a like-for-like basis, excluding the Comdel and Glassman acquisitions.

The average exchange rate for US Dollar to Sterling was 1.34 in 2018 versus 1.28 in 2017, representing a 5% strengthening. We discuss the impact of foreign exchange volatility in more detail in our Financial Review.

Marketplace: sector dynamics

Revenues from industrial customers grew 7% to £83.7 million (2017: £78.1 million) as the recovery in that sector continued into 2018. Revenues from industrial customers represents 43% (2017: 47%) of overall revenues but very few of these customers make it into our top 30 customer list due to the highly fragmented nature of this market. The applications in this sector are very diverse and include test and measurement equipment, displays, factory automation, smart grid and industrial printing; the areas that drove the 2018 growth included distribution, analytical instrumentation, defence and industrial printing. All items of industrial equipment that are electrically powered will require a power converter. The semiconductor manufacturing equipment sector has been an interesting area for XP Power. Revenues from these customers grew 60% to £47.4 million (2017: £29.7 million). Revenues from semiconductor manufacturing equipment sector customers represented 24% of overall revenues (2017: 18%). In the first half of 2018 we benefitted from a cyclical upswing in that sector which began in 2017, combined with strong market share gains and the revenues from the acquisition of Comdel and Glassman. Our expansion into high voltage and high power products, combined with our engineering services offering, has made us an attractive supplier to that industry. The new products we have allow us to service considerably more of the opportunities we see in this sector. The sector slowed significantly in the second half of 2018, as widely reported, and this impacted our fourth quarter order intake and revenues.

Despite the sector's 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), Artificial Intelligence (AI), autonomous vehicles and Big Data.

Revenues from healthcare customers grew 4% to £43.6 million (2017: £41.8 million) representing 22% of overall revenues (2017: 25%). Healthcare remains another attractive market for XP Power given the breadth of our medical product range and high level of customer service. These are demanding customers in terms of quality and reliability, and this means our value proposition is attractive to these customers. We provide mission-critical power solutions for numerous applications in the healthcare arena from patient contact applications, to diagnostic equipment such as MRI and ultrasound, through to laboratory equipment. There are special requirements and regulatory approvals regarding a medical power solution. Healthcare tends to be much less cyclical than the other sectors we address which adds resilience to our diversified business model.

Revenues from technology customers grew 19% to £20.4 million (2017: £17.2 million) representing 11% of overall revenues (2017: 10%). Typical applications in technology include areas such as broadcast, high-end communications such as satellite and telecom base stations, and high-end computing. These programmes are often quite large but generally have much shorter lifetimes than the seven to eight years which are typical in the other market sectors.

Marketplace: North America

North America revenues were US$159.5 million in 2018 (2017: US$121.3 million), an increase of 31%. The increase was 13% after excluding the revenues from the acquisitions of Comdel of US$19.7 million (2017: US$5.4 million) and Glassman of US$8.8 million (2017: US$nil). North America represented 61% of overall revenues (2017: 57%).

The North America business particularly benefitted from growth in the semiconductor equipment manufacturing sector but all sectors grew year-on-year.

Order intake in North America was US$158.1 million (2017: US$139.2 million), an increase of 14% resulting in a book-to-bill ratio of 0.99. The increase was 2% after excluding the order intake from the Comdel acquisition of US$14.6 million (2017: US$7.7 million) and Glassman of US$9.4 million (2017: US$nil). Comdel had exceptionally strong order intake in the fourth quarter of 2017 as semiconductor manufacturing equipment makers placed orders for delivery throughout 2018.

Marketplace: tariffs and trade wars

The Section 301 tariffs which the USA Government has imposed upon Chinese sourced products has a mixed impact on XP Power. From 24 September 2018 a 10% tariff has been imposed on power converters imported from China where XP Power has a manufacturing facility. There are proposals to increase this to 25% if there is not a satisfactory outcome to USA/China trade negotiations. Where possible we have been recovering some of these tariffs from customers where we are able. However, XP Power's facility in Vietnam has presented a notable opportunity over many of our competitors who largely manufacture in China as Vietnam is not caught by these new tariffs. We have been moving the lower power products from China to Vietnam and the Section 301 tariffs development has caused us to accelerate this process. We are fortunate to be bringing our second Vietnam facility on stream in the second quarter of 2019 which we expect will give us a competitive advantage in respect of the USA tariff situation.

All industries and geographies experienced growth in 2018

Marketplace: Europe

Our European business grew by 6% to £61.1 million (2017: £57.5 million). All sectors grew year-on-year, but Healthcare showed the strongest growth due to a number of larger medical programmes entering production from some of our larger customers. The semiconductor manufacturing equipment business in Europe is currently insignificant.

Europe represented 31% of overall revenues (2017: 34%).

Order intake in Europe was £64.6 million (2017: £61.5 million), an increase of 5% resulting in a book to bill ratio of 1.06.

Marketplace: Asia

Asia revenues were US$19.9 million in 2018 (2017: US$19.0 million), an increase of 5% with the strongest growth in industrial and declines in healthcare and technology as programmes went end of life. Asia represented 8% of overall revenues (2017: 9%).

Order intake in Asia was US$21.4 million (2017: US$19.0 million), an increase of 13% resulting in a book to bill ratio of 1.08.

Supply chain

As previously announced, during the first half of 2018 we started to see significant tightening of the supply chain for certain electronic components which resulted in increased lead times and component cost inflation. In response, we went into the market to secure supplies of critical components, at prices beyond our standard costs, in order to ensure we could continue to meet our lead times to customers. Lead times for certain components increased dramatically, in some cases lead times moved from 12 to 52 weeks. The result of these lead time extensions meant we have had to increase our safety inventories significantly. The higher prices we had to pay for components were a drag on gross margins in the second half of 2018 which were offset by other cost savings and favourable product mix.

Recently, the supply of certain components such as multi-layer ceramic capacitors and chip type resistors has started to improve but many of the active power semiconductor devices we use remain on long lead times. We will continue to proactively manage our inventory to ensure continuity of supply but expect the levels to reduce in 2019 and 2020 as lead times reduce.

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, semiconductor manufacturing equipment, 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 an attractive customer proposition. We are now one of very few power solutions providers who can supply our target customers with a complete portfolio of products from low to high power and low to high voltage, including RF power. This, combined with our engineering services offering, where we take standard products and tailor them to provide complete plug and play power systems, makes us a compelling business partner.

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 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.

In addition to 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 RF power at high power levels and more recently with Glassman, which provides very high power at very high voltage.

We are building a broad and compelling product offering which will make us an increasingly attractive partner for leading companies in the industrial, healthcare, semiconductor manufacturing equipment and technology sectors to choose to power their mission-critical applications.

We are building a broad and compelling product offering

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. We constantly challenge and refine our strategy, as we have done again in 2018.

Our strategy can be summarised as follows:

  • Develop a market-leading range of competitive products, organically and through selective acquisitions;
  • Target accounts where we can add value;
  • Increase vertical penetration of target accounts;
  • Build a Global Supply Chain which balances high efficiency with market leading customer responsiveness;
  • 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. We also continue to see revenues from our own-designed/ manufactured products grow at a faster rate than those from other products.

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 £155.3 million in the year (2017: £127.4 million), representing 80% of revenue (2017: 76%).

We expect further improvement in the mix of own-designed products in 2019. 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 Glassman HV

On 25 May 2018 XP Power acquired the business and assets of Glassman High Voltage, a designer and manufacturer of high voltage, high power, power converters. The acquisition also included the purchase of Glassman's small European sales business.

Glassman's products and engineering capabilities have enhanced the Group

Total consideration of US$47.5 million (£35.7 million) was paid in cash on completion. The acquisition was on a debt and cash free basis and was funded with a US$45.0 million extension of the Group's existing revolving credit facility.

We share several customers with Glassman and while there is no direct overlap in product lines, the power supply solutions of the two companies are highly complementary. Glassman's products and engineering capabilities have enhanced the Group's ability to implement its strategy of winning a greater share of business from its largest customers by achieving wider vertical penetration of key accounts.

The business is being integrated into the Group well, and we are already finding exciting new opportunities for these products in our existing and new customers. As well as a product offering suitable for an array of applications used by some of XP Power's existing customer base, Glassman has also brought a number of new customers to the Group.

We are building a broad and compelling product offering which will make us an increasingly attractive partner for leading companies in the industrial, healthcare, semiconductor manufacturing equipment and technology sectors to choose to power their mission-critical applications.


In October 2017 we commenced construction of a second manufacturing facility in Vietnam on our existing site near Ho Chi Minh City. Construction of this second facility is now complete and we expect to begin production during the second quarter of 2019. In terms of end revenues, our existing manufacturing capacity in China and Vietnam I is $170 million. Vietnam II conservatively adds an additional $130 million of capacity bringing our total Asia manufacturing capacity up to $300 million.

This additional capacity is necessary to accommodate our growth trajectory. It also gives us the opportunity to transfer the production of more products from China to Vietnam, thereby saving the costs of the Section 301 Tariffs currently imposed on Chinese goods by the authorities in the USA. We believe this will give us a competitive cost advantage over many of our competitors with Chinese based manufacturing.

Our end objective is to have the flexibility to be able to build all products in either China or Vietnam to provide flexibility and robust business continuity planning.

Engineering solutions

As well as expanding our product offerings, 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. 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 adds significant value to the customer and we are seeing increasing demand for these services.

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 2018. We released 27 new product families in 2018 (2017: 27) and 20 (2017: 19) of these can be classified as "Green XP Power" products having ultra-high efficiency and/or low standby power.

27 NEW

product families

One example is a high efficiency 4,500 watt product which has a variable, rather than fixed output voltage, that can be adjusted via a digital control. This is an example of moving up the power and complexity level, producing more sophisticated products which can communicate directly with the customer's system.

Duncan Penny

Chief Executive Officer