Environmental Report

"We concluded that by far the biggest positive impact we can have on the environment is developing and promoting ever smaller products that waste less energy, consume less physical material and avoid the use of hazardous substances."

In 2009, XP set itself the bold goal of becoming the leader in environmental performance within the power converter industry. I am pleased to report further significant progress towards this objective during 2012.

Impact on the Environment

During the year, we conducted a detailed review of the impact of our activities on the environment. This review concluded that by far the biggest positive impact the Group can have on the environment is by developing and promoting ever smaller, high efficiency products that waste less energy, consume less physical material and avoid the use of hazardous substances. We made further strong progress with these efforts in 2012, shipping record volumes of our high efficiency green products in the year. In parallel, we continued to monitor and improve our own environmental performance, particularly the use of resources which cause greenhouse gas emissions, water usage and the use and disposal of hazardous substances. Further detail on the initiatives implemented across the year is provided below.

Environmental Considerations

We have ingrained environmental and sustainability awareness into XP Power's culture so that the environmental impact of our activities is considered at every stage of the product lifecycle. This awareness starts with the design of the product, sourcing components to ensure they do not contain non-permitted harmful substances or conflict minerals through manufacture, transportation, operation and finally to ease of recycling at the end of its use in service.

Uniquely Positioned

XP Power plays a pivotal role in the energy chain. The power conversion products we design and manufacture are the "bridge" between the electricity utility companies and the end user, converting the energy from the grid and providing it in a form that can be used by the electronic equipment in which it is specified. XP Power is therefore uniquely positioned to make a real contribution to energy efficiency and emission reduction and is leading the power conversion industry in terms of product efficiency.

Historically, electronic power conversion has been a notoriously inefficient process. The original linear transformers still in use today in some sectors, are typically less than 50% efficient with more than half the energy they convert being wasted as heat. XP Power does not operate in this area, specialising instead in modern "switching" techniques enabled by semiconductor technology. This allows power converters to be much smaller and more efficient. Modern power converters have typical efficiencies of 80%. While this is a major improvement over legacy products, XP Power is committed to developing technologies that further reduce energy wastage and have products which are up to 95% efficient.

Continuing to improve the efficiency of our products and educating our customers regarding the benefits of converters that consume and waste less resource is the biggest positive impact we can have on the environment. In 2012 we shipped a record £8.1 million (2011 - £5.0 million) high efficiency "green" XP Power products representing 9% (2011: 5%) of total revenue.

We estimate that the annual savings in CO2 emissions from these products versus a standard 80% efficiency product are a massive 6,500 tonnes. This annual saving will recur for the lifetime of the products in which they are used. We conservatively estimate the product lifetime as seven years. This would bring the estimated lifetime savings in this typical example to 45,500 tonnes of CO2, clearly illustrating the huge scale of the opportunity to reduce harmful emissions. This is just one year of shipments; the accumulative effect of many years of shipments of our green products is staggering.

XP Power and Efficient Energy Conversion

XP has increased the number of high efficiency and low stand-by power products in its ranges significantly in recent years, leading the industry in driving efficiency standards higher. (Stand-by power is the energy consumed by the power converter when the equipment it powers is idle and not operating.) We now offer a range of class-leading products which are up to 95% efficient.

Manufacturing

XP Power's manufacturing operations have continued to make great strides in reducing their environmental impact per unit of production. Our ISO14001 certified manufacturing facility in Kunshan, China, is equipped with the latest low energy lighting using efficient electronic ballasts. In addition, we have developed a novel way to recycle 50% of the power used in the burn-in testing of products. Computer control and capture of data from this equipment has allowed us to reduce burn-in times significantly saving even more energy and therefore reducing CO2 emissions.

Waste from our soldering processes is recycled on site, again reducing our impact on the environment and reducing our costs. We recycled 4,387kg of solder during the year. We also recycle our other waste products from paper and components through to the canteen food.

The performance and achievements of our Kunshan facility were developed further in the design of our new manufacturing facility in Vietnam.

XP Power's Vietnam Facility - The Most Environmentally Friendly Facility in the Industry

Our new Vietnamese manufacturing facility is now complete and production commenced in the first quarter of 2012. This facility meets the demanding Gold Plus rating of the BCA Green Mark requirements, the leading standard set by the Singapore Building and Construction Authority for non-residential buildings in tropical climates. This covers not only the energy efficiency of the building but also water efficiency, environmental protection, indoor environmental quality and other green features and innovations.

A photovoltaic solar panel array helps provide power to the facility and rain water is collected for use within "grey water" systems in the building.

High efficiency air conditioning systems have been deployed and energy saved through an efficient building envelope.

We are proud that this is not only the most environmentally friendly building in our industry but also the first BCA Green Mark certified facility in Vietnam.

Targets and performance

We have set ourselves a target of reducing our CO2 emissions per unit of revenue by 5% per annum over the next five years. This aim aligns us with the Chinese Government's target of reducing carbon emissions per unit of GDP by 40% to 45% between 2005 and 2020. We measure our CO2 emissions in accordance with the Green House Gas (GHG) Protocol and our metrics include scope 1 and scope 2 emissions. The attached graph shows the three month moving average of CO2 emissions per unit of revenue at our Kunshan facility.

XP Power's average CO2 emissions per unit revenue improved by 4% from 2011 to 2012. We have seen a 39% reduction in this metric since we starting measuring CO2 emissions per unit revenue in 2009. Consequently, the Group is tracking ahead of its CO2 reduction target. The additional environmental features built into our new Vietnamese facility will underpin a further improvement in the current year and beyond.

Carbon Disclosure Project

XP Power is pleased to participate and disclose its environmental data to the Carbon Disclosure Project. The full data set provided to the Carbon Disclosure Project is publically available on the Carbon Disclosure Project website at www.cdproject.net.

Harmful Substances

European legislation on the Reduction of Hazardous Substances (RoHS) came into effect in 2005. This legislation limited the levels of certain substances in products, including lead. Although the legislation is applicable only to products sold in Europe, XP Power took the decision to make all of the products it designs and manufactures compliant. This is not only good for the environment but also good for our business.

Water

XP Power does not use water within its manufacturing processes and is therefore a low-level water user but we are mindful we have an important role to play to ensure our water usage is minimized, the use of alternative sources of water such as rainwater is maximized and that any waste-water is not contaminated. XP Power's new facility in Vietnam leads the way with an on-site water capture and recycling system supplying "grey water" to the building's plumbing systems.

Our Water Policy is to:

• Employ best practices to maximize the efficient use of water and minimize pollution and waste.
• Regularly review and report on the water use of our facilities and activities.
• Commit to continuous improvement in responsible water management through identifying objectives and setting measurable goals.
• Involve and educate employees, contractors and customers in our water use programs.
• Engage with suppliers to encourage their participation in responsible water management best practices.
• Disengage with any suppliers who may be found to be negligent or non-compliant with responsible water management and who do not aggressively implement corrective actions.

We used 12 million litres of water in our main facilities around the world in 2012. Given water is not used in XP Power's manufacturing processes and we are a low-level user we do not set targets for water use.

Electronic Industry Citizenship Coalition (EICC)

The Electronic Industry Citizenship Coalition (EICC) is an industry organisation of leading electronics manufacturers which promotes an industry Code of Conduct for global electronics supply chains to improve working and environmental conditions. It represents the highest recognised standard for our industry dealing with environmental and corporate social responsibility issues. The Code of Conduct not only addresses environmental issues but also the treatment of employees and their wellbeing, health and safety and business ethics.

XP Power achieved Full Membership of the EICC in March 2011. We have adopted the EICC Code of Conduct and have been working with our key suppliers to ensure they too are compliant with the Code.

We have been actively engaged with the EICC and have representation on the EICC's Environmental Sustainability Working Group and associated Water and Training sub-groups.

FTSE4Good

In September 2011, the progress XP Power is making on environmental matters was recognised when the Company was selected for inclusion in the FTSE4Good Index.

The FTSE4Good Index is a tool to help responsible investors identify and objectively measure the performance of companies that meet globally recognised corporate responsibility standards.

For inclusion, eligible companies must meet criteria in the following categories:

• - Working towards environmental sustainability;
• - Up-holding and supporting universal human rights;
• - Ensuring good supply chain labour standards;
• - Countering bribery; and
• - Mitigating and adapting to climate change.

Social responsibility

Employee relations

Our people are our most important asset and we make great efforts to ensure an environment of open communication with frequent employee meetings providing opportunities for two-way communication between management and staff. In addition, XP Power's factories have employee committees which provide a more formal mechanism for staff to feed back issues and ideas to management. These meetings have proved to be excellent forums for promoting environmental awareness with employees suggesting many excellent ideas to improve environmental performance.

XP Power's workforce is also free to join unions and we have formal policies in place to ensure staff are treated fairly and have equal opportunities.

All main sites have environmental representatives who champion environmental awareness and share best practices and ideas across the Company. They meet regularly to assess progress and these meetings are chaired by the Chief Executive. Feedback from these meetings is also shared with the Environmental Committee.

Diversity

XP Power operates in a global market and recognises its talented and diverse workforce as a key competitive advantage. Our business success is a reflection of the quality and skill of our people and the Group is committed to seeking out and retaining the finest talent to ensure top performance.

Diversity benefits individuals, teams, our company as a whole and our customers. We recognise that each employee brings their own unique capabilities, experiences and characteristics to their work and we value diversity at all levels of the company.

XP Power believes in treating all people with respect and dignity. We strive to create and foster a supportive and understanding environment in which all individuals realise their maximum potential within the company regardless of their differences. We are committed to employing the best people to do the best job possible and we recognise the importance of reflecting the diversity of our customers and markets in our workforce.

Our diversity encompasses differences in ethnicity, gender, language, age, sexual orientation, religion, socio-economic status, physical and mental ability, thinking styles, experience and education. We believe that the wide array of perspectives that result from such diversity promotes innovation and business success. Diversity makes us more creative, flexible, productive and competitive.

Charitable activities

Our employees around the world have continued to engage with the communities in which we operate. As well as providing open days for school students, we have this year donated XP Power educational electronics kits to local primary schools in Asia, Europe and North America to encourage an interest in technology and electronics.

Two XP Power Environmental Committee members, David Hempleman-Adams and Dr. Lynne Summers spent nearly four weeks in Antarctica in November and December, 2012, supporting two worthy charities, "Walking with the Wounded" and "Alzheimers Research UK". In a group of ten including the four times Olympic Gold medallist, Sir Matthew Pinsent, they helped successfully lead three soldiers from the Royal Dragoon Guards who had themselves been wounded whilst working in Afghanistan to ski the last two degrees to the South Pole (120 nautical miles).

We do not make any charitable donations to political parties.

Business ethics

We are committed to upholding the highest standard of business ethics and are committed to complying with all laws and regulations. Our code of ethics is incorporated into our sustainability manual which is publically available through our website www. xppower.com. This includes public policies on business integrity, bribery and corruption, protection of intellectual property, fair business practices and responsible sourcing, including conflict minerals and privacy.

Whistle Blowing

XP Power has a formal "Whistle Blowing" policy to allow employees to raise issues of concern secure in the knowledge that they will be taken seriously and there will be no adverse repercussions where they have acted in good faith.

Non-compliance, prosecutions, fines, accidents

The Company was not subject to any noncompliance prosecutions, fines or accidents, on any matter relating to environmental, health and safety or labour law infringements in any country during 2012.

Next Steps

XP Power will continue to lead the industry in addressing the effect its activities have on the environment and on the communities in which we operate. We will achieve this by:

• Continuing to lead the field in the development of high efficiency power conversion technology and encouraging more of our customers to select these types of converters for their projects; and
• Challenging, encouraging and helping to educate our work force, customers and suppliers to adopt practices that reduce energy and resource consumption and protect our planet from pollution and its people from exploitation.

I am confident that these initiatives will not only benefit the environment but will help us and our customers to grow our respective businesses and increase the value of our Group.

 

David Hempleman-Adams
Chairman
Environmental Committee