Sparks - XP Power

XP Power’s FY24 trading update confirmed that it closed the year with adjusted operating profit within the range of analyst expectations, despite falling short at the revenue level. Q424 revenue of £60.0m was 26% lower y-o-y (22% lower in constant currency (cc)) and essentially flat quarter-on-quarter, reflecting the work down of backlog through the course of the year. FY24 revenue of £247.3m was 22% lower y-o-y (20% lower in cc) and 4% below the consensus forecast of £258.6m. In its October 2024 Q3 trading update, the company had flagged that while orders from the semiconductor manufacturing equipment sector had improved, orders from the healthcare and industrial technology sectors were flattish quarter-on-quarter, reflecting a longer-than-expected period of customer destocking. In Q424, order intake declined 8% q-o-q and 7% y-o-y (2% cc) to £44.9m. While destocking continued in the industrial and healthcare sectors, orders grew sequentially, but orders from the semiconductor manufacturing equipment sector declined quarter-on-quarter as demand for high voltage, high power products began to normalise after a period of strong demand. Additionally, demand from Asia has weakened, reflecting macroeconomic conditions and hesitancy in ordering ahead of changes to global trade policies. Book-to-bill for Q424 was 0.75x and for FY24 0.73x, with the backlog at the end of the year at £122.3m (down 37% y-o-y). The company made good progress in reducing its debt, with net debt at year-end of £93.5m, down 5% q-o-q and 17% y-o-y, with gearing estimated to be c 2.3x at year-end.

Management noted that it sees channel inventory moving closer to equilibrium and improving underlying conditions in the semiconductor industry but highlighted increased headwinds in Asia. It expects FY25 performance to be weighted to the second half. While the company met profit expectations in FY24, we would expect to see modest downgrades to FY25 forecasts reflecting the weaker order intake in Q424 and uncertainty from Asia.