Hello there. It is full year results time here at XP Power. I'm joined by the people who know all about this company, Gavin Griggs, CEO, and Oskar Zahn, welcome, CFO. It's been an interesting time, Gavin. Just talk me through. I think we're gonna use a bit of a sporting parlance.
The best way of describing it is definitely a year of two halves.
Yes.
The first half, as we said last time, was quite challenging. We were impacted by COVID shutdowns in China and global shortage of components. Actually, the second half was very strong, and revenue was up 35% ahead of the first half, which gives us confidence going forward.
The COVID situation was quite interesting, wasn't it? You know
Yeah.
It wasn't a total disaster there.
We had a lockdown in April, where we were locked down for 5 weeks, and the city of Kunshan, where our site is, was completely locked down. Things recovered, and through the year, we saw pretty stable performance. As China released the lockdown they had put in place, you know, we did see a big wave of COVID in our team members and in the city of Kunshan, but it quickly abated. It was incredible. At one stage, we had over 60% people positive, but post New Year, it was down to almost 0. That's been what we've seen since then.
Oh, well, that's good news anyway. Oskar, good news on the numbers or game of two halves there as well?
Likewise, game of two halves, as Gavin's described in the operational review, we experienced the same in the financials. The first half was pretty poor in terms of operational profitability, we saw a recovery in the second half. In terms of headline numbers at Constant Currency, we've had orders down to roughly 2% at GBP 362.9 million, revenue was up 13% for the full year at over GBP 290 million, which was very pleasing. Adjusted Operating Profit at GBP 42.9 million was down 12% at Constant Currency. Again, as we said, it's a year of two halves.
The second half of revenue, as Gavin said, was 35% up on the first half, but it was 39% up on the prior year, which is also very encouraging. Gross margins and operating margins were impacted by these two halves, and we saw a very pleasing second half in terms of profitability, almost double the first half. We exited the year in terms of gross margin at 42.6%, in the last quarter, even higher than that. That was very pleasing, and it gives us that positive momentum as we enter 2023.
Dividends?
Yes. We've proposed a 36 pence dividend for the fourth quarter. It's a full year of 94 pence. The board has the confidence that in the longer term that's the right level, and I'm sure the shareholders will be delighted.
I'll come back to you for your look ahead financially towards the end after we've talked about several other factors which including, Gavin, the marketplace. Where are we at the moment?
Yeah. As you know, we focus on three sectors, Industrial Technology, the Semiconductor industry, and Healthcare.
Let's start with industrial.
Industrial technology, that's a very well-diversified sector for us. Performance is holding up across all three regions, across North America, Asia, and Europe. I mean, it's a broad cross-section of accounts and no large individual programs. Even though we work with many of the blue chip industrial customers, there's nothing of significant size. What it is, it's about growing niches, innovation, and just ongoing momentum in that part of the market. It remains quite an exciting area.
Semiconductor's been interesting.
Semiconductors is always an interesting market. If you look ahead, semiconductors are the foundation of the digital economy, making them increasingly more strategically and economically important. You see it. Around the world, governments are incentivizing companies to invest in their own capacity in their own locality, and that's just driving demand for our products. You know, semiconductor industry is, was expected to be over GBP 600 billion in revenue in 2022, and is expected to be more than GBP 1 trillion by 2030.
Wow.
This is an important and exciting sector. We did see a slowdown in the quarter four in orders. That's continued in Q1, and that was as expected. What's different this time is the market is almost fragmented. You've got parts of the market, particularly Leading -Edge, you know, the things that go into your iPhones, products going, has slowed. The Trailing -Edge is actually holding up well. We're very well penetrated in Trailing -Edge as we are in Leading-E dge. Also we're more exposed to Deposition and Etch and logic than we are to memory. Actually, we think our performance in 2023, combined with our backlog, should be ahead of a lot of our competitors.
The third pillar?
Healthcare. That's another interesting area. Performance has been strong. Demand is definitely strong in this area. What's driving it? Well, operations are now back at pre-COVID-19 levels. We're back into infrastructure upgrades. What gets us excited is the innovation that goes on in this market and how we can help our customers on that innovation journey. Things like Robotic Surgery, things in the operating theater. The whole market is a very attractive area, and we expect to see good growth out of that part going forward.
It was good to see you getting excited. Oskar, you get excited about ESG, which is great, because this is very much part of, you know, serious companies' futures these days, isn't it?
Correct. As we've discussed previously, Nick, XP's DNA has a significant part of that is the sustainability. We have set an aspiration of being carbon neutral by 2040. How we've gone about it in the last 18 months or so has been signing up to the SBTi, sort of Science Based Targets initiative for a full assessment of our carbon footprint, and we've measured that across both the Scope 1, 2, and 3 in XP, which has been quite a task. Having signed up to the SBTI initiatives, we really hope that the stakeholders will have confidence we'll be able to deliver on those targets.
I'll come back to Gavin for his look ahead for 2023. On the numbers front, what can you say about the year ahead and maybe even a bit beyond that?
First of all, you know, we see the demand. We have a very large order book as we entered the year, we will continue to invest in the business. We've invested in capacity, in people, in systems and infrastructure. We started the year with an acquisition in Germany, two acquisitions in Germany, FuG and Guth, which have been a great addition to the XP family. We're also capacity, and we've started groundwork in Malaysia on a third Asian plant. That has resulted in higher debt, and we see we'll have to bring that down in the next 12 months or so. In terms of outlook, very positive. We entered the year, as we said, positive momentum in terms of earnings.
We do need to deliver on that backlog. That is key to the year with the uncertainty that Gavin's described. At this stage, there's positive momentum which we're pleased about.
Gavin, game of two halves. That half, second half is over. We're starting a fresh game now. What's the 2023 game going to hold?
We enter an uncertain 2023 globally. Everyone's questioning what people are seeing. For us, we have customer order backlog of over more than GBP 300 million. That's up from GBP 217 million at the beginning of 2022. That gives us great revenue coverage for 2023. Supply chain performance is critical. The component shortages are still challenging, but they have plateaued, and we're managing them a lot better. Semi-Fab, as I said, will be a down year, but given our backlog and mix, we should outperform the market. We should see a good improvement in the first half, but we are mindful of the ongoing uncertainty the world is facing. We remain confident in the medium-term prospects of the business.
Well, great to talk to you, and we've had so much sporting parlance here. We'll be back in the next half, so for the half-year results to see whether that is coming true or whether things improve or what. Gavin Griggs, Oskar Zahn, thank you as always for filling us in on the XP results. Thank you.
Thank you.