XP Power : Annual Financial Report

We provide our customers with solutions to power the world's critical systems.

2023 was a year of mixed fortunes. Good positions in attractive markets and improved supply chain performance supported a year of strong revenue growth. Any satisfaction with this growth and the progress on key strategic initiatives was tempered by challenges and required actions in the second half of the year. Difficult decisions were taken impacting our stakeholders but were in the long-term interest of the Company.

CHIEF EXECUTIVE OFFICER

We design and manufacture a diverse portfolio of power converters, with unrivalled customer service and support. Our enduring relationships are built on a reputation for quality.

Strategic progress in a challenging year:

Revenue growth was a robust 9% with strong growth in Industrial Technology and Healthcare, offset in part by a cyclical slowdown in Semiconductor Manufacturing Equipment. There was a slower order intake due to a normalisation after two years of unprecedented activity and the semiconductor slowdown. A Funding Plan was implemented to strengthen the balance sheet and manage the cost base, leading to a significant net debt reduction. Progress was made in key strategic areas - new product launches and growth in key areas; improved project bidding activity and growth in new business wins; supply chain performance improved and inventory reduced; and, Net Zero Transition Plan launched and significant reduction in emissions delivered.

CONTENTS

OVERVIEW

XP POWER AT A GLANCE CHAIR'S STATEMENT

FINANCIAL AND OPERATIONAL HIGHLIGHTS

REASONS TO INVEST

OUR PURPOSE, VISION, STRATEGY, VALUES AND CULTURE

STRATEGIC REPORT

OUR MARKETPLACE OUR BUSINESS MODEL OUR STRATEGY

SUSTAINABILITY REPORT AND TRANSITION PLAN CHIEF EXECUTIVE OFFICER'S REVIEW

KEY PERFORMANCE INDICATORS CHIEF FINANCIAL OFFICER'S REVIEW MANAGING OUR RISKS

VIABILITY STATEMENT SECTION 172(1) STATEMENT:

HOW WE ENGAGE WITH OUR STAKEHOLDERS OUR SUSTAINABILITY STRATEGY

1. SUSTAINABLE PRODUCTS
2. ENVIRONMENTAL LEADERSHIP
3. PEOPLE AND WORKPLACE
4. ETHICS AND COMPLIANCE TCFD REPORT

OUR GOVERNANCE

XP POWER AT A GLANCE

WHAT WE DO

We provide our customers with solutions to power the world's critical systems.

XP Power has moved up the value chain over the last 20 years from a specialist distributor, to designer, to power control systems design manufacturing.

Focusing on key sectors

SEMICONDUCTOR

MANUFACTURING EQUIPMENT

Examples of end-user products:

• Deposition

• Etch

• Ion implantation

• Lithography

• Wafer cleaning

• Test and inspection

HEALTHCARE

Examples of end-user products:

• Surgical tools

• Patient monitoring

• Imaging and diagnostics

• Clinical lab instruments

• Home healthcare

• Patient treatment

INDUSTRIAL TECHNOLOGY

Examples of end-user products:

• Analytical instrumentation

• Test and measurement

• Robotics

• Industrial printing

• Additive manufacturing

• Process control and automation

Power control systems are the essential hardware component in every piece of electrical equipment, converting power from the electricity grid into the right form for the equipment to function. We focus on sectors where power

is mission-critical, and failure is not an option, making us stand apart from others.

XP Power products will either power the electronics, in the case of our low-voltage products, or processes, in the case of our high-voltage and radio frequency (RF) power systems, in critical systems in the Healthcare, Industrial Technology or Semiconductor Manufacturing Equipment sectors.

How we differentiate

As one of the world's leading power converter solutions providers, we ensure that critical electrical and electronic equipment is powered as safely, reliably, and efficiently as possible.

Our customers provide mission-critical systems, servicing their relevant market sectors. Therefore, our products need to be reliable, resilient, and safe. We have built a product portfolio of over 250 product families that give us the broadest industry product offering.

Our global network provides a strong competitive advantage over our smaller competitors (who lack the scale and geographical reach to serve global customers), and our larger competitors (who lack the operational flexibility to provide the excellent service that customers seek).

As electronic device capabilities evolve, so too do system complexities. Instead of trying to deliver expensive, time-consuming power solutions from scratch, our engineers often transform existing portfolio products and technologies.

Our customers come to us because they know our solutions are of the highest quality, but also because they know we'll work together to overcome their specific and challenging power problems.

Our customers

As original equipment manufacturers, our customers can be characterised as having expertise in their field, whether with healthcare devices, fast-growing industrial technologies or semiconductor equipment manufacturing, but do not, generally, have deep in-house power conversion expertise.

We however, do, and assist our customers to design-in a suitable power supply from our extensive product range that meet customer cost and technical requirements. Technical requirements often involve helping customers to meet equipment safety standards for their industry, such as relevant medical or electrical standards, as well as electromagnetic compatibility (conducted and radiated electrical noise).

We pride ourselves on our customer focus, providing rapid response to their technical issues, solving power problems and helping them get to market as fast as possible.

READ MORE ABOUT OUR CUSTOMERS ON

PAGES 17-19

XP POWER AT A GLANCE CONTINUED

OUR GLOBAL REACH

The power of our global reach

Our global reach and target sectors help mitigate market volatility. Our network of sales, engineering and manufacturing provides us with the flexibility of a global organisation and the ability to partner with customers locally.

Our market sectors

North America

The North American network consists of 11 sales offices, design centres and production facilities in Massachusetts, New Jersey and Southern California, and an engineering solutions group in Silicon Valley. This network provides major customers local, face-to-face support and rapid response times.

£184.5m

OF TOTAL REVENUE

+11%1 COMPARED TO FY 22

Europe

The European network consists of nine direct sales offices and an effective distribution network. In addition, Germany and the UK house engineering solutions centres, and, since January 2022,

the German design and production facilities of

FuG Elektronik GmbH and Guth High Voltage GmbH. We have operational flexibility to provide high quality, rapid services due to this good coverage. We maintain a small UK production facility for customer modifications.

£97.8m

OF TOTAL REVENUE

+13%1 COMPARED TO FY 22

Asia

Operating from Singapore, we have four direct sales offices, where we also manage a network of seven distributors serving the region. To complement our customer offering, we have design engineering solutions capability in Singapore and South Korea. We have production facilities in China and Vietnam, with a third being built in Malaysia to serve customers globally.

£34.1m

OF TOTAL REVENUE

-6%1 COMPARED TO FY 22

Semiconductor Manufacturing Equipment

From wearable technology that monitors real-time patient health, to in-vehicle devices that can help regulate dangerous driving habits, semiconductors are everywhere, and their applications are transforming the way we live - connected devices are becoming increasingly prevalent.

We're one of few worldwide companies able to provide the complete power solutions spectrum that semiconductor equipment manufacturers demand.

Healthcare

We're an attractive healthcare partner as our engineers understand the nuanced power needs of a wide range of medical applications required in healthcare environments, from operating theatres to intensive care units.

We are one of the world's largest providers of medical power conversion products, with a portfolio that's capable of meeting the specific high safety standards understandably demanded in the sector.

We're helping our customers usher in a new generation of increasingly connected, effective medical devices.

Industrial Technology

We focus on power solutions for sectors with high-growth potential. Our engineers envision how future industrial technologies need to be powered and deliver solutions that enable them to come to market today.

From additive manufacturing and robotics, to smart grid infrastructure, our power converters are helping facilitate a digital future.

Key:

CHAIR'S STATEMENT

2023 was a year in which the Group faced unexpected challenges but delivered some encouraging progress in key strategic areas.

JAMIE PIKE

CHAIR

Strategic progress in a challenging year

The Group entered 2023 with elevated borrowing due to various one-off factors, including payment of damages in respect of the Comet legal case and investment in inventory to maintain customer service levels during the period of exceptional supply chain disruption in 2022. Strong cash generation has been a hallmark of the Group's historic performance and the Board expected borrowings to reduce during the year. However, an industry-wide slowdown in the Semiconductor Manufacturing Equipment market, combined with the Group's extra spending on key capex projects, made this challenging. In October the Board acted to safeguard the Group's balance sheet position by implementing a funding plan, which included cost and capex reductions, suspension of

the dividend, an issuance of new shares and the renegotiation of our banking facilities. Suspension of the dividend was not a decision the Board took lightly, but it was appropriate in the circumstances. In combination, this materially reduced our borrowing and leverage by year-end. The Board's priority is to further reduce net debt leverage into the Group's previously stated range of 1-2x Adjusted EBITDA and then in the longer- term operate in the 0-1x range.

The disappointing end to the year masked some more encouraging signs. Growth for the year as a whole was healthy. We saw double-digit growth within the Healthcare and Industrial Technology sectors, aided by an improved supply chain performance which allowed backlog to be delivered. Demand from the Semiconductor Manufacturing Equipment sector moderated

as the year progressed, after two very strong years, albeit with some sub-sectors showing continued strength.

We continue to enjoy leading positions in attractive markets with structural growth characteristics. They have underpinned our historic revenue growth, which has averaged 12% p.a. over the last ten years, and I am confident they will continue to do so for the longer term.

We successfully protected our gross margins from input cost inflation which continued to work its way through our supply chain in 2023. Our ability to pass through inflation underlines the strength of our brands and our market position.

Our growth in 2023 was weighted toward higher power and more technologically sophisticated products, which, in line with our strategy, are becoming an increasingly important part of our portfolio. We deepened our relationships with key customers by cross-selling them a wider range of products and have a growing pipeline of new products and customer projects to drive long-term growth. We also delivered a record level of new business wins which will support our growth in the medium-term. Our supply chain performance improved notably, with both delivery lead times and inventory levels reducing materially. We made solid progress with the transfer of production from facilities in the West to Asia, with more to come in 2024. While we were forced to re-locate two key sites within the USA in early 2024, both moves are now complete and will help to support our long-term growth. The Group extended its customer reach in Europe by entering into a continent-wide agreement with a leading distributor. We also delivered against our recently launched Sustainability Strategy and invested in

our people.

Whilst the second half of the year was challenging, I remain focused on, and excited by, our long-term growth opportunities, which I believe we are well positioned to seize.

Our Board

I was honoured to succeed James Peters as Chair in April 2023. I would like to take this opportunity to thank James for an immeasurable contribution to the Group over his 35 years of service and as founder.

After a detailed search process as set out in the Nomination Committee Report, Matt Webb was appointed as the Group's Chief Financial Officer in September 2023. Whilst still relatively new to his role, Matt has contributed significantly, and I have no doubt will continue to do so. I would like to thank David Stibbs for fulfilling the CFO role on an interim basis whilst the search process was completed, and I am delighted he remains with us.

I am continually impressed by the skill, experience and enthusiasm of members of the XP team, which only increases my confidence in our long-term prospects and potential.

Our People and Our Values

The success of any organisation is dependent on its culture and the people and talent within it. The Board engages regularly with the Executive Leadership Team and colleagues throughout the Group to ensure we are continuing to identify and develop our key people and bring new talent and capabilities into the business to help underpin our growth ambitions.

As previously announced, the Group restructured its cost base in the second half of the year in response to weakening demand. Restructuring actions were taken promptly to safeguard the future progress of the Group, whilst dealing compassionately and openly with those impacted. I would like to thank our employees for all their hard work throughout the year,

but particularly for their support and forbearance whilst the restructuring plan was implemented.

As I travel across the Group, I am continually impressed by the skill, experience and enthusiasm of members of the XP team, which only increases my confidence in our long-term prospects and potential.

JAMIE PIKE

CHAIR

4 March 2024

READ MORE ABOUT OUR

BUSINESS STRATEGY ON

PAGES 22-23

READ MORE ABOUT

OUR SUSTAINABILITY

STRATEGY ON

PAGES 26-33

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Financial highlights

REASONS TO INVEST

Despite the challenges faced in 2023, we remain confident in our ability to deliver sustainable profitable growth and to create long-term value for all stakeholders. We have a clear ESG framework and strategy, and our talented workforce help us develop the right products and capability to achieve financial success.

01

02

2023

2022

2021

2020

2019

208.82023

362.9 2022

343.4 2021

258.02020

214.92019

316.4 2023

290.42022

240.32021

233.32020

199.92019

26.6

38.0

43.8

44.3

32.3

Sustained organic growth

A growing penetration of global, blue-chip customers has enabled sustained organic growth and provides exposure to high-growth markets.

Global supply chain operations

Our robust supply chain operations have a global footprint giving us flexible manufacturing capacity and the ability to engineer close to our customers.

DIVIDEND PER SHARE (p)

75p

03

04

2023

2022 (30.2)

2021

2020

2019

11.22023

2022

28.42021

35.7 2020

24.02019

81.8

160.1

176.3

198.4

141.4

Attractive margins and cash generation

More attractive operating margins and lower capital investment requirements than many manufacturing industries enable us to deliver strong free cash flows.

READ OUR CHIEF FINANCIAL OFFICER'S REVIEW ON

PAGES 44-50

Capital structure policy

Our financial framework is based on a leverage of 1.0-2.0x in the near term, reducing to 0-1.0x in the medium-term, allowing for a progressive dividend, and continued investment in capability and capacity.

READ OUR CHIEF FINANCIAL OFFICER'S REVIEW ON

PAGES 44-50

Operational highlights

Progress in key strategic areas

05

Long-term customer relationships

06

Focus on sustainability

READ MORE ABOUT OUR PERFORMANCE ON

PAGES 34-39

• Sustainability: Net Zero Transition Plan launched, targets approved by SBTi, significant reduction in emissions
• FuG business, acquired in
  2022, is performing well with clear growth potential

Once our power converters are approved for use in our customer's end equipment, XP Power receives revenue annuity for the lifetime of the customer's equipment, which is typically seven years.

We aim to lead the industry on sustainability, by reducing energy consumption, prioritising our people, and enhancing our product design process. We aim to reach net zero by 2040.

OUR PURPOSE, VISION, STRATEGY, VALUES AND CULTURE

Our purpose underpins everything we do and links our vision and values with our strategy.

We link our purpose, vision, strategy, values, and culture to clearly communicate to our colleagues and drive our business forward.

Our purpose

Why we exist

We power the world's critical systems.

Being a purpose-led business

We add genuine customer value, helping them get to market quickly with complete power solutions.

Our people understand how we create customer value.

Our vision

Where we want to be:

To be the first-choice power solutions provider, delivering the ultimate experience for our customers and our people.

Our purpose

Our strategy

How we will deliver our vision:

We have a well-articulated strategy that we have continued to refine and consistently execute over time.

Our sustainability strategy

Our sustainability strategy focuses on some of the most business material issues, ensuring that the value we create is for the long term.

Our core values

Our fundamental beliefs for continued success:

Our core values of Integrity, Knowledge, Flexibility, Speed and Customer Focus are our DNA and are fundamental to our success.

Ourcorevalues

IntegrityKnowledge Flexibility

Our culture

OUR MARKETPLACE

GROWING OUR ADDRESSABLE MARKETS

THE MARKET SECTORS WE SERVE

US$ billion

Estimated market

We operate in a highly diverse market with a great opportunity to grow market share.

Our products serve markets in multiple sectors across our three geographic regions.

Low voltage

3.7

Process power

2.8

Total

Overview

Our end markets can be broken down to the low-voltage market, powering electronic systems, and the high-voltage and radio frequency (RF) market, which powers processes such as plasma generation or some sort of particle acceleration

High voltage

US$0.7 billion

Total market value

6.5

XP Power

Estimated market

Low voltage

8.8%

Process power

2.4%

or ionisation.

The fragmented nature of the market means we have numerous competitors, dependent on the product type, end application or geographic location with no competitor having a dominant share. We have strong relationships with the leading customers in higher growth market niches, which allows us to continue to grow our market share. This is particularly true in process power where our share is currently low.

Overview

High voltage is an attractive market where, since acquiring the product range, we are finding new opportunities.

Our response

Our sales force is finding attractive opportunities in our existing customer base in Semiconductor Manufacturing Equipment, research, additive manufacturing, and healthcare applications for these products.

The Semiconductor Manufacturing Equipment market softened during 2023 due to a market-wide cyclical downturn. However, we still see this as an attractive long-term growth sector as semiconductor device demand is driven by multiple factors such as pace of innovation, global shortage of semiconductors driving investment in capacity, artificial intelligence, big data, smart technology, and autonomous vehicles.

XP Power market overview

We are one of few worldwide companies that can offer the whole spectrum of power and voltage products required for

The Industrial Technology market is the most diversified of all our markets. There are no large individual programmes even though we are dealing with many blue-chip industrial customers.

XP Power market overview

We focus on fast growing niches in this market, such as robotics, test and measurement, 3D printing and additive manufacturing, smart grid, and analytical instruments.

Performance this year

Sales to the Industrial Technology market

We have a broad medical power converter offering with full traceability of components and high-qualityin-house manufacturing.

XP Power market overview

Healthcare remains an attractive market for us, given the long-term demand growth dynamics and the safety critical nature of products. Our broad medical product range and high level of customer service make our value proposition very attractive.

Performance this year

Activity levels in Healthcare recovered significantly in 2023, resulting in strong

Total

6.1%

Source: Microtech

Low voltage

US$3.7 billion

Total market value

RF Power

US$2.1 billion

Total market value

semiconductor manufacture and have the capability to combine these into a complete power solution. This is particularly important to our customers as the latest generation of devices become more capital intensive to manufacture as they become multi-layered, and dimensions continue to shrink.

continued to grow through 2023. Increased manufacturing output allowed us to clear order backlog and restock the sales channel.

revenue growth. Order intake slowed as the year progressed with some customers reporting excess inventories as the year ended.

Consultants and XP Power management estimates

Overview

The low-voltage market principally powers electronic systems and is highly fragmented globally.

Our response

Our broad, easily modified, up-to-date product portfolio combined with our engineering capability allow us to provide effective solutions to diverse application ranges.

Overview

The RF Power market is substantial and has attractive growth prospects. The semiconductor equipment manufacturers are significant users of this product but it is also used in healthcare and applications involving dielectric and induction heating.

Our response

The RF Power market presents an exciting opportunity for us to grow our revenues with customers who already value our service and support.

Performance this year

Our sales to this market declined by 10% in the year, but there were pockets of continued strength, particularly in high-voltage,high-power applications.

GROWTH DRIVERS AND MARKET CHALLENGES

We see many opportunities to expand our addressable market and customer base.

Healthcare

A global population that is both increasing and ageing, coupled with diagnostic technology advances and innovations in patient treatments, is driving the demand for more

Proliferation of electronic devices

Electronic devices are becoming increasingly pervasive in our lives as new technologies develop. This trend is accelerating, driven by multiple factors such as pace of innovation,

Connectivity and industrial revolution 4.0

Customers' applications are becoming more complicated and increasingly more connected, enabling the industrial revolution 4.0. Demand for communication between the customers'

North America is a significant power electronics market with many large customers, particularly in Healthcare and Semiconductor Manufacturing Equipment.

Market overview

In general, our North American customers are the most innovative and fast moving. We see this particularly in Healthcare. North America is also the de facto leader in Semiconductor Manufacturing Equipment - a sector we consider having strong long-term growth prospects for XP Power.

Performance this year

North America delivered double-digit sales growth in 2023. There was strong growth within the Healthcare sector, whilst sales to the semiconductor market normalised after two strong years.

The European market is much more fragmented than North America or Asia, as it contains numerous smaller Industrial Technology companies, as well as several larger Healthcare companies.

Market overview

Our European customers are principally involved in Industrial Technology with some Healthcare, but very little Semiconductor Manufacturing Equipment. It is our most diverse market.

Performance this year

Europe produced strong growth in all three market sectors.

FuG and Guth delivered record sales in 2023 and they are being supported by the wider XP sales team to increase their global reach.

Although Asia is a large market, much of it is unavailable to XP Power, as many customers value cost over service and support.

Nevertheless, there are several significant niches where our proposition is compelling. Asia's up-and-coming Semiconductor Manufacturing Equipment market is particularly attractive.

Market overview

Markets in Asia are generally growing faster than in North America and significantly faster than in Europe. Although many applications are not attractive to us, there are many attractive areas that we can service with our more complex high-power and high-voltage products.

Performance this year

Asia sales declined in total compared to 2022, largely due to reduced demand from the Asian Semiconductor Manufacturing Equipment market, which was largely due to permitting issues experienced by one Chinese customer.

sophisticated healthcare devices. This makes healthcare an excellent investment sector.

The customers making this equipment value our proposition as they demand ultimate quality, reliability, and support. COVID-19 brought into focus that, generally, the healthcare infrastructure is inadequate in today's world.

How we are responding

We have the broadest, most up-to-date range of medically approved power converters in our industry and are the world's leading provider of healthcare power conversion products.

generative AI, big data, smart technology, AR/VR autonomous vehicles and electric vehicles.

These technologies all run on semiconductors, which are in high demand and drive investment in capacity to make them. This results in the demand for semiconductor manufacturing equipment, which is a key area of focus for us.

How we are responding

We have the broadest range of standard products in our industry, which are designed to be easily modified to power the customer's specific application. Many of our products are suitable to power semiconductor manufacturing equipment processes and electronics, and these customers value our engineering services proposition.

applications and power conversion solutions are rapidly expanding.

Power supplies are increasingly part of the customer ecosystem, with increased connectivity of the power converter to the customer's equipment.

How we are responding

Our Engineering Services Groups are providing complete power solutions, including connectivity to and from the customer's application, using firmware and software and, where required, internet connection.

Link to

Strategy Risks 3, 4, 9

Key:

Develop a market-leading range of

competitive products

Target accounts where we can add value

Vertical penetration of focus accounts

Build a global supply chain that balances

high efficiency with market-leading customer responsiveness

Lead our industry on environmental matters

Make selective acquisitions