A power converter is an essential hardware component required in every piece of electrical equipment. The task of the component is to convert the relatively high voltage alternating current from the mains supply into stable low voltage direct current which is required by all electronic equipment. The power converter is also a safety critical component in any system as it protects the user of the equipment from the potentially lethal mains supply.
XP's power converter solutions are typically designed-in to the end products of major Original Equipment Manufacturers (OEM's). The Group has a highly diversified customer base of over 3,500 customers, including 94% of the S&P 500 equipment manufacturers. The list contains many well-known blue chip companies but confidentiality restrictions prevent us from naming them.
XP is a supplier to manufacturers of capital equipment in the worldwide Industrial, (circa 45% of sales) Healthcare (circa 30% sales) and Technology (circa 25% of sales) markets. The group has no direct exposure to the consumer electronics sector.
Once designed in to a customer program, XP has a revenue annuity over the life cycle of the customer's product which is typically 7 years and sometimes longer depending on the particular application and industry sector.
XP operates from 29 locations in Europe, North America and Asia. Revenues are approximately split North America 50%, Europe 42% and Asia 8%. However, it is worth noting that this reflects the location of our customers rather than their final end-user markets. Our view is that because we are selling into a wide variety of industrial applications, a significant proportion of our products end up in emerging markets.
In the last full financial year we estimate our market share of the power converter market was approximately 6% overall; 11% in Europe, 8% in North America and 1% in Asia.
Our proposition to our customers is to reduce their costs of manufacture and operation. We achieve this by producing new products that consume less power, take up less space, reduce installation times and which are highly reliable in service. These factors add up to enable them to gain a competitive advantage.
The increasing importance of energy efficiency for environmental, reliability and economic reasons; the necessity for ever smaller products; the accelerating rate of technological change; and the increasing proliferation of electronic equipment, all set a strong foundation for medium term growth in demand for XP Power's products.
XP has a long-established strategy of investing in its own product development and manufacturing capabilities to build a market leading product portfolio. The development of an industry leading in-house manufacturing capability and vertical integration is at the heart of this strategy and is leading to multiple new program wins which are driving our growth in market share.
Our major OEM customers require that their suppliers have complete control over the production process to guarantee product quality. These customers will only work with "preferred" or "approved" suppliers whose production facilities have met stringent quality control criteria. XP's manufacturing facility has an excellent track record in this respect and the decision in 2006 to move into manufacturing has opened up many new revenue opportunities that were previously unavailable to the Group.
XP has a very well diversified customer base with no single customer accounting for more than 5% of revenues so the risk from the loss of an individual customer is minimal. The principle risks relate to disruption to our supply chain or to a major supplier.
Like our customer base the competitive landscape is also diverse and the key competitors also vary according to the end market sector. XP Power considers its larger competitors to be Artesyn (formerly Emerson), Cosel, Power-One, SL Industries and TDK-Lambda, all of which have a worldwide capability. In addition there are a large number of much smaller suppliers in the industry who generally serve only their local market.
We have the largest and best trained direct sales force in the industry. Our larger competitors are generally not as close to the customer as they often sell through distribution and reps. Therefore we are in a much better position to deliver genuine value to our customers. We also have a much larger standard product portfolio than our competitors which gives us an advantage when customers are choosing preferred suppliers as we are more likely to have a standard product that will work in their application. Finally our smaller size and flexibility allows us to provide excellent service. In summary: Knowledge, Speed and Flexibility set XP apart from its competitors.
XP Power has set its self the goal of the being the leader in our industry in addressing the effect we have on the environment. We have placed environmental performance at the heart of our operations both in terms of minimising the impact its activities have on the environment and in its product development strategy. These practices and initiatives not only resonate with our customers and employees; they also make significant commercial sense as countries legislate to reduce power wastage, improve recyclability of manufactured goods and ban the use of harmful chemicals.
XP's successful application to become a Full Member of the Electronic Industry Citizenship Coalition reflects the major progress achieved by the Group in enhancing the energy efficiency of its power converters in recent years and its ongoing commitment to improving its environmental performance. The group's new production facility in Vietnam is the most energy efficient power converter factory anywhere in the world.
Yes, dividends are paid on a quarterly basis, dependent on the performance of the business in the relevant period. We have a progressive dividend policy and the profitability and cash generative nature of our business model means we have increased the dividend every year since 2002.