Hello, and welcome to XP Power. It is interim results, six-monthly report. Joining me now are the people who can put us right in the picture on how XP Power has been doing. From the company perspective, Gavin Griggs, the CEO, and also David Stibbs from the financial aspect, who is interim CFO. Gavin, first of all, talk us through the headlines over the last six months.
We've had a good six months. Revenue performance up 30% year-on-year, so strong performance there, and it's across all three sectors we focus on. All three sectors, double-digit growth, so very pleased with that performance. Ended the half with an order book of GBP 250 million, so strong order book gives us good coverage for the rest of the year. Orders, as expected and as previously communicated, were below revenue, and a book-to-bill of 0.72, and it's just been this supply chain has been normalizing across Europe and across the rest of the world, so its customers are being more comfortable with the supply chain, not having to take so much orders in, and then we've had the well-documented semiconductor market correction that has impacted demand, but it's the short-term issues.
On the investment front, you've, you've been making some investments. We'll perhaps talk about that in a, in a bit more detail in a moment, but give us the top line there.
Yeah, we've been investing in our future. We see a very strong future for us, and we're investing in a new facility in Malaysia, so a new manufacturing facility in a region called Perak in Malaysia. That is on time and on budget and will be handed over to us in June 2024. We're also investing in two new design centers in the U.S., one in Silicon Valley, focused on our customers, and one in Southern California, focused on longer term new product development.
Okay. Now, David's with us at the moment, who's been with you for some time as, as group financial officer, but you're going to be having a new CFO fairly soon as well.
Yeah, new CFO joins early September, gentleman by the name of Matt Webb, who's joining us from Luceco.
Okay. Before he arrives, David, it's your job to put us in the picture on the financial front, starting maybe with margins, et cetera.
Yep, of course. Gross margin increased by 160 basis points in the half, up to 41.8%. We benefited from, from a few things, so there was some stabilization in the supply chain that Gavin's alluded to, which enabled us to, to have better operational leverage during the first half, and, and our prior year price increase is also starting to, to come through and feed into the numbers. It's expected that we'll increase further into the second half and, and for gross margin to recover to more like historic levels over the medium term, and by the medium term, we probably mean more like 2025. From an adjusted operating profit perspective, $21.8 million profit in the first half, which was a margin of 13.6%.
That was 36% higher on a constant currency basis and 45% higher than last year as reported. There's still a level of disruption caused by availability of key components, but we are seeing improvement.
Talk to us about net debt and EBITDA, that wonderful phrase.
From a net debt perspective, we ended at GBP 148.4 million, which is broadly as expected, and was a modest reduction from where we were at 2022 year end. It reflects our improved profitability, but also the start of the unwind of working capital, which is expected to continue through 2023 and 2024, particularly as our inventory levels start to decrease. It was, of course, offset by the CapEx that Gavin has talked about, particularly in Malaysia and the USA, as we start to invest behind our exciting long-term growth possibilities, and we also made payments of dividends related to 2022, and increased finance payments in half.
Our net debt to EBITDA leverage, reduced to 2.3x , which is down from 2.7x at the year end. We continue to expect progress towards, 2x by the year end.
Dividend, you just kind of mentioned it there, but what, what dividend?
Yep, we've declared dividend of GBP 0.37 for the first half, which is unchanged year-on-year from, from last year.
I'll talk you through some of the full year expectations in a moment. Back to you, Gavin. How do you feel about that financial performance?
As I said, it was a solid, solid half performance, and that was on the back of a solid second half last year. We've had four quarters of good performance, it just gives us some good encouragement going forward. Our strategy's working, we're delivering to our customers, I think things are, things are getting better. We've working against some challenges, the supply chain performance has improved, there's still issues within it, so it's not, we're not completely through it, as you can see by our performance, things are getting better.
Whip us around the globe now, 'cause you're very much a global operation.
Yeah.
Just talk us through some of the headlines in the different parts of the world where you operate.
North America, good growth in all parts of their business, in semiconductor industry, in the industrial tech, and in healthcare, and they're having ongoing new wins in all parts of that business. We're very encouraged by North America. Europe, things are improving, mixed between different countries. Strong performance in Germany, slightly weaker in the U.K. We have signed a new distributor who will come to market in the second half, and that's increasing our feet on the ground. Asia, we have had challenges in Asia. China semiconductor industry has slowed down considerably as the sanctions and controls the U.S. has put on, in place have impacted them. Medium term, we're still very positive about it, but it's going through some challenges at the moment.
Germany, just talk me through the operation, operation there, 'cause we visited there recently, and it certainly looks to be a very impressive facility?
Yeah. We've got three sites, key sites in Germany. We, the Bremen facility, which has always been our low voltage hub, and then the two businesses we acquired in southern Germany, at the beginning of 2022. There's FUG and Guth. FUG, just outside Munich, has been performing very well. That's a high precision, high voltage, high power business in many interesting applications. There's a lot of investment in that site. There's a lot of customers talking to us about new innovation we can do, and it's really cutting-edge stuff in the high voltage area.
Of course, Gavin, you can't talk about a serious company these days without mentioning ESG.
Yeah, ESG, as you know, has been part of our DNA for many, many years, and we've made further progress in 2023. We've signed up to the Science-Based Targets initiative, and also today, we've also published our first transition plan, which is our route and what we're gonna do to be Net Zero by 2040.
... Back to you, David. Let's, I know you're, you're obviously restricted within stock exchange regulations, but, before the new CFO arrives, let's hear from you on looking ahead for the next six months, or even a year. What can people expect in the financials?
Well, I, I think, as we've said, we're really pleased with where the first half has come out. It's broadly in line with our expectations, I think as we look forward to the full year, our expectations remain, remain largely unchanged. We've guided to, to a modest second half waiting, I think we would, we would stick with that for the full year.
Great! Gavin, final look ahead, what can people expect to see going forward? Hopefully, a sort of, as you said, an easing up in some of these supply problems.
Yeah, I think the medium terms, we're very, very excited about the opportunity ahead of us. All three sectors are very attractive to us. There's the All driven by a number of mega trends that we're seeing. There's the growth in electrical usage. All products now need a power converter. There's the whole digital transformation of the globe, and then the long-term trends in healthcare. All benefit XP Power's, you know, medium-term future, and so we're very positive about it.
AI, is that a?
AI is a big trend, big trend where a lot of the products we supply customers who've, who've made chips, who they will benefit from AI, so indirectly, we will directly benefit from it. Yeah, so there's a... There's other exciting trends in there: electric vehicles, the Internet of Things, big data. All of these trends just drive demand for semiconductors, and then, in turn, for the equipment that makes the semiconductors, which is what the customers we supply.
Hopefully they won't replace us anyway. Gavin, David, thank you very much. That's the six-month interim report, financial report, and also the general look at the company from XP Power.