XP Power Limited (XPP) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our final results presentation for 2021. I'm pleased to be here with Oskar, our CFO. Just to note, the presentation will be available on our website and the recording of this webcast will be available on the website later today. Just turning to Page 2, the disclaimer. Before we start, I'd like to draw your attention to this. Covers the material we present in any statements we make including any forward-looking statements. Okay. Well, let's start with the group highlights. I'm pleased to say we've delivered a robust performance in 2021 in what has been a challenging environment. I think the performance reinforces that we are focused on the right market sectors and demonstrates our resilience and agility in the business. Looking at the highlights. With strong demand for our products, we received orders of GBP 343 million, up 43% in constant currency above 2020 levels, which also included a significant amount of COVID-19-related orders received in the prior year. The performance is driven by ongoing momentum in SemiFab sector and a strong recovery throughout the year in Industrial Technology and a lengthening of the lead times being the key drivers that we faced. Revenue was up 10% at constant currency. But it should be noted in the second half, we faced a number of challenges in the global supply chain that did hold back revenue in H2 and also gave us some temporary margin pressure. Despite this, constant currency operating profit grew 5%, which is a solid performance. Even more so when adjusting for the additional health care profit in 2020. We've continued to invest in the business. We're adding capacity and capability at all of our sites. We're investing in new product development and building out our supply chain and manufacturing teams. We're also investing in a third manufacturing site in Asia to support the future organic growth requirements of the business. And then in January, we announced the acquisition of 2 businesses in Southern Germany, increasing our scale and product portfolio in high voltage. So in summary, 2021 was a good year. We start 2022 with a clear focus on what we need to deliver in both the short- and medium-term and how we can -- and the growth potential for the group. And on that note, I'll hand over to Oskar to cover the financial details.

Thank you, Gavin. Good morning. I am delighted to present with Gavin, our full year results for 2021. If we can perhaps move to Slide 5, please. As Gavin mentioned in his introductory remarks, we had a robust performance in a challenging environment. This slide shows a snapshot of the key financial metrics. Exchange rates have had a material negative impact on the financials, and therefore, I've shown all the changes at constant exchange rates. Gavin has already covered a number of these in his opening remarks. And so I'll just touch on those not covered. The results in book-to-bill was 1.43 with an order backlog of GBP 217 million as we enter 2022. The gross margin of 45.1% declined 210 basis points driven by temporary pressures mostly in quarter 4, as Gavin has mentioned. The adjusted operating profit of GBP 45.1 million increased 5% constant exchange rates at a margin of 18.8%. Good operating cash flow conversion at 111% despite investing in working capital to secure critical components to fill customer demand and net debt of GBP 24.6 million increased from the end of December 2020 and includes the impact from working capital as well as specific items. I will now expand on all of these items as we go through the presentation. If you could please move to the next slide, which is the summarized P&L. We delivered good growth -- revenue growth, primarily driven, as Gavin has mentioned, by SemiFab, and this is a pleasing performance, which underlines our strong long-term track record. We did, however, faced significant supply chain and operational challenges created by external factors outside of the control of the Group. This had a clear impact on gross margins; H1 margin was 46.6%, up on 2020 by 43.5% in H2. We see the H2 as the low point before returning to historical levels going forward. Specific items of GBP 15.4 million are significantly up on last year. Of this, GBP 10.1 million relates to a legal dispute with a noncustomer in North America. The balance of the GBP 15.4 million amortization of intangible assets and ERP implementation costs. Adjusted profit before tax of GBP 43.8 million was 7% higher at constant exchange rates. The tax charge has increased in line with our previous guidance. I will now move on to the orders and revenue by sector and region, starting with orders on Slide 7. As a reminder, we serve 3 distinct market sectors: Industrial Technology, which represents 38% of 2021 revenue; semiconductor manufacturing equipment, 39%; and Healthcare, 23%. This bridge shows the main movements in orders by sector as well as by region. Gavin in the business update section will present the various sector dynamics and the growth drivers that underpin XP Power's competitive strengths. The left-hand bridge shows the movement by sector, and the right-hand side by region. Looking at the sector movements, you can see SemiFab orders maintain strong momentum as we benefit from the significant investment in global capacity worldwide and market share gains with growth of 81%. Industrial Technology, which includes our distribution business, grew by 45% as demand recovered from the 2020 COVID-related lows and Healthcare orders declined by 5% as expected as demand for critical care products normalize, although we have seen a recovery in markets such as robotic surgery tools, dentistry and endoscopy. Turning to the movements by region. It's encouraging that all areas experienced growth over the prior period, in particular with Asia at plus 89% and Europe at up 28%. North America grew by 39% on 2020, which was a strong year, particularly in Healthcare. Turning to the next slide on revenue, Slide 8. Similarly, looking at revenues on Slide 8, the left-hand bridge shows the movement by sector, and the right-hand side by region. Looking at the sector movements, you can see SemiFab revenues increased by 46%, Industrial Technology by 3% and Healthcare declined by 15%. SemiFab sector remains an exciting and important area for XP with excellent long-term growth prospects. Growth has come from RF, radio frequency, high-voltage and high-power products but also our low -- voltage portfolio and engineering services. Industrial Technology recovery has principally been driven by high-growth niches, such as robotic analytical instruments, industrial printing, et cetera. Healthcare. Adjusting for the one-off impact in 2020 for COVID-19-related sales, we have delivered ongoing growth well above 2019 levels. This remains an attractive market for us given the long-term demand growth dynamics, the safety-critical nature of the products, the breadth of our portfolio and the high level of customer service required. Turning to the movements by region. It's pleasing that all areas experienced good growth over the prior period, with North America increasing by 8% with a particularly strong performance in the semiconductor manufacturing equipment sector. Europe growing 4% with strong Healthcare growth, offset by a decline in the Industrial Technology sector. And Asia revenue grew by a very pleasing 30% driven by the semiconductor manufacturing equipment and Healthcare demand. Asia revenues now contribute 13% of Group revenues. Turning now to the operating profit movements on Slide 9. Adjusted operating profit increased 5% at constant exchange rates, showing a long track record of improvement. However, our gross margin decreased as a result of cost pressures and supply and operational disruption, particularly in quarter 4, most of which we believe are temporary in nature. Freight costs rose, both the rates and mix chosen with more grades used in order to expedite needed deliveries to customers. This costs more money, but ensure continuity of supply. Increased labor pay rates during the Vietnam lockdown as we protected and rewarded our people. We also had lower manufacturing utilization in Vietnam during the lockdown, given the restrictions placed upon us. This and pay rates have now returned to normal. And finally, component shortages and pricing, which has required hard work and diligence from the team to keep production going in the toughest of times. While these factors combine to impact gross margins in the short-term, we maintain supply of product while we did our best to protect our people. Operating expenses increased versus the same period in 2020 as we continue to invest in headcount, particularly engineering, sales and supply chain. These investments to support our longer-term growth ambitions and Gavin will touch on them briefly in the next few slides. I would like to briefly discuss our cash flow on Slide 10, please. We continue to have a high cash conversion at 111% despite investing in working capital of the specific items of GBP 9.6 million, the majority relates to the legal costs in North America. Investments include replacement and growth capital expenditure as well as capitalized R&D and software. Net debt ended the period at 0.4x EBITDA. And post year-end, we completed the acquisition of FuG and Guth, which has seen net debt-to-EBITDA rise closer to 1x EBITDA. The final dividend of 36p per share reflects the confidence the Board has in the group's long-term prospects with a total dividend for the year at 94p. Finally, our cover of guidance on Slide 11. In a nutshell, the outlook is a tale of 2 halves. Demand is strong, supply chain remains challenged, and we see inflationary pressures as I'm sure you've read elsewhere. We are working hard to mitigate this through price rises and operational efficiencies. We, therefore, expect our full year outturn to be H2 weighted more so than historically. That said, we do expect to make good progress year-on-year organically, including the acquisitions we completed post year. And we will continue to invest in the business with a particular focus in 2022 on completing the ERP implementation, but also adding capacity with our third Asian site in Northwest Malaysia enhancing our existing sites and setting up new design facilities. This additional capacity is needed to meet our future growth plans. We'll continue to invest in product development with about GBP 10 million, expected to be capitalized given the high degree of certainty of future cash flows. We expect to see cost inflation in labor, material costs and logistics offset by pricing and cost savings. To give you an estimation of what we see here in terms of cost inflation; labor inflation at around 6%, material component costs, a net 3% increase. On logistics, we see a continuation of what we saw from the second half of 2021, more airfreight than sea freight, increasing overall cost to XP. We're working hard to mitigate these increases by sales price increases already announced in Q3. There's a slight mismatch and lag here as the price increase announced then was only for new orders received from Q3 onwards. We will look at potentially more increases during this year. Cost savings and operational efficiencies will also help offset some of these increases and recovering logistics costs where possible, should help offset these inflationary costs. We believe the margin impacts in H2 last year are temporary and not structural, which as a early result, we expect the revenue will be H2 weighted as production continues to be ramped up to meet the strong demand we are seeing. We're also assuming an improvement in working capital in the latter part of the year. And finally, we expect the effective tax rate of -- between 17% and 20% for 2022, similarly to 2021. On that note, I'll hand back to Gavin.

Thanks, Oskar. If we start on Slide 13. I just want to start by recapping our strategy. I know many of you know this, but it's pleasing for us to show clear progress in all areas in 2021. We will know key focus is on growth, both organic and complementary and organic growth, and we've delivered on both of these in the past 12 months and are confident this is set to continue. We focus on customers where we add value and win a higher share of their available business by expanding our product portfolio and growing with them. We had our supply chain challenge in 2021, but doing the best for our customers has been a key priority, and we believe we have performed well in a very challenging environment. As talked about, we continue to invest in the business in building supply chain resilience, an ever more critical consideration for our customers. We're building capacity for the future and focusing on driving efficiency to offset the inflation levels we're seeing. We'll continue to invest to ensure we can support or maintain our growth trajectory and offset the inflationary pressures. The acquisitions of FuG and Guth in January 2022 at exciting new products, new customers and technology in the attractive high-voltage area. And we are excited about the value not only we can bring to them, but what they bring to XP and how they can accelerate our technology road map. Points I'd make, and I make it every time, we've consistently applied this strategy over many years. We've tweaked it occasionally but it's -- but we've enabled for this strategy and able to consistently deliver growth ahead of the market, and we believe we're in a strong position to deliver our ambitions in the medium-term. Turning to the next slide. I wanted to recap on our growth drivers. So the strategy has enabled us to become a leading pure-play power business. And we are then in a position to capitalize on the growth we are seeing in the market which we believe is coming from 3 key trends that are driving our sectors. Firstly, the rapid increase in electronic devices. Nearly all electronic devices need a power conversion unit and with more and more being critical devices, this, in turn, drives our demand. Pace of innovation, a key driver for us, and that pace is only accelerating. It's very broad-based across all 3 of our sectors, and we are seeing it in all regions. And finally, the investment in capacity to build semiconductors, which in turn drives demand for our customers and then in turn for XP, and we see that continuing going forward. Second trend, is the digital transformation that almost every sector is going through. Everything is becoming smarter. We're seeing digitalization of nearly every industry vertical that we operate in, and that's only continuing with drivers like artificial intelligence, machine learning, the explosion of data and networking, electric vehicles, 5G, and they're all going to help continue to drive secular demand for our customers' products and consequently ours. At most, our customers power climate is becoming increasingly more complex and sophisticated, which again drives demand for our products and the solutions we offer. Finally, the third trend is the long-term demand for Healthcare. We all know the global population is growing and aging, and that's driving investment in healthcare infrastructure. But we're also seeing exciting advances and innovation in many areas in medical technology and we're partnering with many of the winning customers in those areas, all require highly reliable power solutions to ensure 24/7 safe operation and high levels of connectivity. Since these 3 trends that will drive our growth, and they play to our competitive strengths, our proven ability to partner with our customers and with their increasing complexity means our engineering services teams are becoming increasingly valued by them. This also combined with the increased legislation and demand for high efficiency drives further demand in the short to medium-term. Turning to the next slide. Let's look at the longer-term revenue performance. I've used this chart before, they just highlight what we think attractive growth looks like. If you look at the revenue performance in 2015, we delivered top line compound growth, 12%. With Semi, up 43% across the cycle, Healthcare up 10%; and Industrial Technology, up 3%. So this has been very much impacted by COVID-19 orders in 2020, which converted to revenue at a lower level in 2021, compounded by the component shortages. This is one area where we've seen most shortages. So it's why the order demand in Industrial Technology is significantly higher. So we believe our business model has the potential to deliver circa 10% organic growth across the cycle in the medium-term. There will always be tailwinds and headwinds with both 2020 -- '20 and '21 being no different, and we'll see some of those in 2022. But there is clear evidence that the strong demand for our -- strong customer demand for our products, our ongoing pipeline means we can maintain this performance over the medium-term. What were we seeing in sectors, to Slide 16. I just want to outline the sector dynamics we're seeing and how the -- and then the next slide, how they change over the last 3 years. One common issue, as we all know, is that supply constraints and ongoing headwind. The key point is underlying demand is stronger than we have delivered and the overall supply chain, be it our supply chain or our supplier supply chain has limited our ability to meet our customers' true needs in 2021. So take a look at the sectors in turn. Industrial Technology definitely picked up with demand now well above 2019 levels and showing good momentum after the downturn in 2020. As you know, it's a diverse sector with the growth in recent years coming from analytical instruments, test and measurement, process control and industrial printing, None of the typical industrial sectors that people talk to. Also in here, we have a high service level distributors, which have performed exceptionally well over the last 2 years as customers have looked to source inventory from other sources and these customers prefers DigiKey mouse [ up ] in the U.S. and Premier Farnell in Europe have been able to support them through the inventory they hold. This is a key channel for us where we see further opportunities to grow revenue, to drive penetration in the mid-tier and with smaller customers who we don't service directly. Overall, we see good further growth potential within this sector with further levels of innovation and in Industry 4.0 helping to accelerate the growth trajectory we have seen over recent years. The semiconductors industry witnessed strong growth in 2021 with Wafer Fabrication Equipment, WFE, spending increasing by circa 40% and we believe that 2022 with another year of strong growth with WFE spending could reach $100 billion or more, which is another 10% to 15% growth. Market commentators see semiconductors revenues growing low double digits year-on-year. But as they're becoming more -- as more complexity is driving this, they are becoming more highly capital intensive, sparing WFE growth ahead of semiconductor growth. For XP, we've seen growth across all parts of the sector in Deposition, in Etch, in Ion implantation and Metrology inspection, and we see further underlying demand in 2022. Finally, Healthcare. But despite the revenue decline versus 2020, we've seen an exception -- where we saw an exceptional level of revenue linked to critical care and respiratory products, 2021 has been much more focused on more innovation and normal areas. So surgical equipment, including robotics, has been a strong driver of growth and -- and that maintained a significant growth opportunity for XP. Precision Healthcare and diagnostic technology, both in hospitals and remote have also been things we're starting to see more and more discussions with customer and demand building. So Healthcare remains an attractive market for us and we believe our position comes from a position of strength with these customers. If you turn to the next slide. I just wanted to try and bring out a bit of the dynamics by section that we've seen from 2019 through 2021. And it's sort of trying to highlight where -- what are the factors I've just been talking about. So if you look at it initially by year, you can see the half-on-half recovery in 2019, then in H1 2020, the impact of the Healthcare COVID orders. And then the order momentum we've seen through H2 2020 to H1 2021 and H2 2021 as well to strong order momentum. And if you look by sector, Industrial Technology, you saw the reduction in orders in 2020, then the strong recovery I've been talking about in 2021, the continued momentum of SemiFab across all 3 years, if you remember, it started its recovery in H2 2019, and that momentum is only continuing. And then the step-up in Healthcare in H1 2020 and then the recovery and momentum build in 2021. So just trying to give a bit more color. So though -- through 2021, we've not seen any material evidence of double stocking or over-ordering. So we started 2022 with GBP 217 million in firm order backlog and good momentum has continued into Q1 with a book-to-bill still above 1. That's the trends we're seeing. And so we're seeing -- what we're seeing is long-term structural growth for our business. So if you turn to Page 18, I want to talk about how we're building our global platform to support that future growth. As I said, the supply -- on the supply side, there's been disruptions from COVID-19 related issues, but that we believe will recede as [ Omicron ] recedes. We've seen component and logistical constraints and they continue to challenge us. And you've probably seen this reflected in near-term guidance across the industry. However, the long-term drivers of demands remain strong. And we expect growth will continue to be robust. So we are building capacity to accommodate the higher structural growth of our customers. So in 2021, we've expanded capacity in all our production sites across low voltage, high voltage and in RF. We've added RF production capacity and capability to our Kunshan facility in China. And we've continued the expansion of our value-add production in Vietnam to support the demand driven for the North America business. We got to the point we are now adding a third Asian production facility likely to be in Northwest Malaysia. We chose this area after an extensive global review of locations, considering many aspects, including supply considerations being cost and availability of skilled labor, proximity to our key customers, supply flexibility and both sustainability and geo-political risks. Facility will be built in 2022 and 2023 and very much based on the proven Vietnam site design. We're using the same manufacturer builder that we used to Vietnam and it will be designed to supply all of our portfolio to ensure we can further enhance our supply chain resilience. We've also been investing in [indiscernible] centers globally. And are now establishing a new engineering support center in the Philippines to further fuel growth as we enter the next phase of our development. Go to the next slide. I just wanted to touch on FuG and Guth. So as you know, in January 2022, we acquired these 2 business in Southern Germany. They further enhance our high-voltage offering from both the product portfolio and a technology offering. Combined revenue in 2021 was about EUR 18 million with an EBITDA of around EUR 4.5 million, meaning the EUR 39 million we paid represents good value at 8.7x EBITDA, and we are very confident they will bring significant value to XP Power in the medium-term. They're focused on new areas for XP in both the SemiFab and industrial sectors. So it's existing sectors, but new areas in those sectors, bringing further opportunities in both existing and new customers. Product set is highly complementary to our existing high-voltage portfolio, bringing both high-precision products with FuG and heavy-duty products with Guth. They bring new technologies and capabilities to XP, enhancing our existing skill sets. One other thing that is encouraging, they have a very small direct sales team focused predominantly on Germany and then use a network of subscale global distributors to support the rest of the world. That brings a significant opportunity for us to expand with XP, for the XP sales teams and with our distribution network. The FuG there, both their area in semiconductor brings lithography or electron-beam lithography to us, an area we don't touch. And they have no exposure to Ion implantation, Etch or Deposition, so it's a completely new area in Semi for us. They also bring things like electron-beam inspection, which is microscopy in industrial, so another new area. Guth, their main focus is on e-beam [ wet ] welding, another new area for us. So as I said, we're excited about the value they bring and the value they can add to XP. One chart I repeated. So this was -- go to Slide 20. I've used this chart in the past. And I just wanted to add how FuG and Guth complement our addressable market. So the green is our existing high-voltage portfolio that we acquired through Glassman and then have complemented it through organic development since then. You can see the dark blue, which is FuG, which extends our limits of voltage and power and also enhances our lower power range. They use complementary technologies. So they use -- for insulation, they use encapsulation or potting while the Glassman products in the existing portfolio, predominantly usually the air. So this brings new areas of applications for us. Guth is the mid-gray box. These are very much heavy-duty power products using oil [ bars ] for insulation, again, a new technology for XP. Overall, this expands our addressable market in the high voltage area by circa GBP 200 million, taking the addressable market of about GBP 700 million. However, we already focused on about GBP 500 million of this because the balance is in the unattractive commodity x-ray market. Okay. I could turn pages again. We want to try and bring our products to life. And in July 2021 at the interim results, we started a series of customer case studies that we want to continue. The first one was in Healthcare, and I wanted to cover a recent win in Industrial Technology. This is with a customer, EFI, a global company focused on digital imaging and printing products. The parent company is headquartered in California. However, they have operations across the globe, which operate independently when it comes to product development and engineering design. This application is a large-format printer utilizing UV LED lighting for the curing of ink is actually in Spain. What they -- what we took out was our -- what about HPT products, which is a highly configurable 5-kilowatt digital high-power product platform was identified a solution that would work for them. We engaged to support specific design needs that involves modifications to configuration and a minor electrical change that was made to be support their unique needs. And the solution worked very, very well. Why do we win? We had a simple, cost-effective solution that provided them with complete scalability from many different system configurations. They were able to run from a 3-phase impact input with no neutral. And the other piece that we often talk about the thing, it was our speed of response and technical support through the design-in process that they've really valued. In addition to this project, we've been able to use it as a reference within EFI, and we are now working with the sister company in the U.S. using this as the reference point. And now we're further expanding to the rest of the EFI through the various global challenge. So it's a great example of how we've entered a customer. We've got a -- through our design in process we've won and then we expand within that customer. And let's see how it grows. But we've had the first 3 or 4 orders already, and we look to expand that through 2022 and 2023. Just briefly, I wanted to touch on the ESG strategy. Sustainability has always been at the heart of XP Power, and this has been there for many years, and we've made further progress in 2021. We relaunched our sustainability focus and stepped up training to raise our internal capability to support the next stage of our strategy. It was really pleasing to be recognized by our of our key customers, ASM International, and they awarded their Supplier and Sustainability Award to XP. And they stated that XP Power had exemplified actions and results in sustainability over many years. So it is great to be recognized. Other carriers, Oskar mentioned it, we maintained safety and well-being of our employees during the lockdown operations in Vietnam. This was a key priority to us because it was very difficult circumstance they were operating in. We reported on TCFD for the first time, and we shipped XP green-powered products, resulting in a minimum lifetime CO2 emissions savings for our customers' customers of 128,000 tonnes. This is important to me and all of XP, and we will accelerate our actions in 2022 and beyond with a strong starting position that we see there's a lot more to do here. And then finally, the outlook. We entered the year with a record order book, driven by strong momentum in semiconductor manufacturing equipment segment, exciting developments driving industrial technology and momentum in Healthcare ahead of pre-COVID-19 levels. We're exposed sectors benefiting from long-term global megatrends. We're confident in the future growth and demand for our products, and we're investing -- expecting our business to deliver on this growth, adding capacity for our long-term future. But in the short-term, we do see continued inflationary pressures and component disruptions. We are proactively managing these, and we expect them to ease during H1 2022. XP is a values-based business, which aligns naturally with the ESG principles, and they are a key part of our strategy going forward. While we're optimistic regarding the opportunities we are seeing, the temporary headwinds will temper our short-term performance. But longer-term, we are very well positioned and excited about what we can achieve. On that note, I'd like to turn to Q&A, and I'd like to [ add ] just one point. The timing of the legal case in the U.S., which is due to the in-court on the 14th of March means, I can't answer any questions about that issue. But happy to cover anything else.

[Operator Instructions] First question comes from the line of Michael Tyndall from HSBC.

A couple of questions for me, if I can. Just the first one on the margin outlook. If I look at Slide 9 and try and back out what happened in the second half, it looks like volume was negative and margin was negative. I'm curious to know how much of that is going to reverse now that Vietnam is back up and running to speed. Curious about the margin negative to what degree that is all of those frictional costs or whether or not it's mix because Semi was super strong. And then the second question is just around the order book itself. I'm curious to know what the duration of it looks like versus history because it's very, very sizable in terms of its relationship to your revenues. I'm also curious to know about pricing within the order book given that, that duration is growing. And obviously, prices are moving for the underlying components.

Oskar, do you want to take the first part, and then I'll take the second part.

Sure. Good question, Mike. So of course, Slide 9 is the full year. So it's a slightly different picture if you look at the H1 and H2. In terms of the volume, the orders that we've outlined, we've shown growth coming from all sectors, which is what's encouraging. So in terms of mix, we don't expect significant changes in 2022. But in terms of the volume, clearly, in quarter 3 and 4, particularly quarter 4, with the Vietnam lockdown, we were operating the Vietnam factory at well below 50% for quite some time. And that we do not expect to repeat and hence, the volume impact coming through into next year. We expect the benefits of that. And then if you recall, the price increase that we put in place in quarter 3 was for orders only from then onwards. So we, therefore, expect the price benefits to only really improve our margins at the back end of the year. But as production starts to ramp up as the capacity that Gavin has talked about starts to kick in, which is in the latter part of the year, we will see that ramp up in operational leverage in the second half of the year. But in first half of the year in terms of margin, the inflationary items that we've talked about with component shortages, the logistics costs, we expect that to continue for a while before it ramps down to our more sustainable in our view, the mix in freight, for example, more like 60-40 instead of what we've been seeing in the last few months of the year as we try to continue the supply with our customers. So hopefully, that answered your question in terms of margin.

Yes. Just to add to that, Mike. Where it's sea versus airfreight, if it's the customer pushing that choice, then we would look to recover that from the customer. So about circa 50% of the airfreight impact we do recover from the customer as a surcharge rather than as a systemic pricing. your question about order book, historically, if you go back to 2019, we'd have probably said to you that we had 4 or 5 months visibility, but that was very mixed. And you'd have some customers, particularly Healthcare, which have put a full year frame order, so you'd have 12 months visibility. Others where just the nature of them, we would operate with almost a 1-month visibility. What we've seen is we've been pushing it, and a lot of our customers have been pushing it because they want to be able to secure the medium-term supply chain. So as component lead times gone out, we've gone to our customers telling them our lead time has gone out, and we need greater visibility. So I'd have said -- I think we've said in the announcement, we've got about 80% of consensus revenue covered for 2022. Our orders are still dynamic. So some customers still have very short lead times. Others are giving us orders into the end of 2022 and beyond. The point I'd make is the firm orders, they're noncancelable because we need to procure inventory ahead of these. So it's when they take them not if they take them. So that's what gives us our confidence we can invest and also build inventory on the back of them. On price dynamic, I think Oskar touched on it. We put prices up in September. So that would be on new orders taken from September. So there is a lag and the benefit that will bring. And if we see some of the temporary spikes in component inflation, that will settle. If we see them becoming more structural, we'll pass on a further increase.

But just to follow up. So the orders you have on your book, the component cost that you've got within that order book, is that basically your risk at this point?

Yes. But we've procured a lot of the inventory already. It's more spot issues that use -- and there, we can talk about different spot things we've seen, but they're generally -- it's spot pricing that drives it rather than structural at the moment. That's why we're confident it's temporary.

The next question comes from the line of Kevin Fogarty from Numis.

A couple really, I guess, sort of slightly related to that, I guess. Just in terms of your ability to convert the order book, I know you started out from a very strong position here. But I guess, relative to the pace at which you've converted in the past, what do the kind of supply chain and logistics conditions kind of due to your ability to convert that order? And just sort of point to clarity, just in terms of the margin, did I sort of hear, Oskar, you talked about kind of margin kind of ramping down -- continuing to kind of ramp down in H1 before you sort of come back in H2. Is that sort of the feeling there? And just in terms of if you can give us any feel for how this has impacted your kind of expectations this year?

Okay. Why don't I just answer those just to speed. So converting orders to revenue, the lead time has gone up from out that we are offering just because of the way component lead time has changed. But we're still absolutely confident we can convert those orders to revenue. And we are building capacity. So Vietnam capacity goes up by about 50% in April with new machinery going in and new resources joining. The key point post that is then on logistics lead time and that becomes a real trade-off. Vietnam to the West Coast of the U.S., if you go by boat, it's about sea freight,[indiscernible] Semi goes about 60 days lead time. If you go by air, it's about 14 days. So that becomes that trade-off. The cost is 5x more to put it on [indiscernible] and the CO2 is 100x more. So it becomes a real challenge. But if we -- if it's to meet customer demand and the customers need it, then we'll put it on air freight. Just to give you a bit of context in -- we normally run about 65% of our business goes on sea, 35% goes on air. In Q4, as it was more than reversed. So more than 65% went by air just because of the Vietnam slowdown. So that's why we're confident to it. On the margin ramp down in H1, I don't think there's a round down. I think what you'll see is you're still going to have the logistics pressures in both in price and in some on mix of sea versus air, but you won't have a repeat of the Vietnam costs where just we were giving people triple pay to be on site. So -- and that was added up to quite a reasonable amount of money in -- from July to the end of October. So that won't repeat, but there are other structural price pressures that, again, they're temporary. So I think it's going to be consistent through H1 and recover and then back up in H2.

Okay. Okay. Okay. So I guess sort of just to the pushing, are we saying consistent on Q4 or consistent with H2 last year?

It will improve over. It would be in line with -- probably in line or ahead of H2 last year. But it's really just how quickly things recover, and that is somewhat out of our control. When we do -- I mean we wrote the storm in H1 2021, probably better than a lot of the market. I think in H2, we're in line with how the market saw it. I think it's the overall inventories in the -- has now -- have been depleted significantly. So you are offered about how you can procure directly from the infilions, the intels in the world and those types of things. But it's equally less field things. I mean I said recently, we had a Fab that we're using a lot of our high-voltage products that move from 10 weeks lead time to 52 weeks lead time with no notice. So things like that, you just can't -- I described it as like playing Whac-A-Mole. You just don't know. You can't predict it, things like that and make it very difficult to forecast with true confidence because you never know what else is going to happen.

Sure. Okay. Okay. And any thoughts you're obviously kind of more cautious kind of outlook this year just in terms of where your expectations might be or how they've changed?

I think -- I just want to be Earlier, I said H1 is about recovery and H2 is about delivery. I'm confident we'll have much more capacity in H2 to support customer demand. And I'm confident that that's going to -- and as we demonstrated in H2 2020, when a supply chain runs hot, we get significant over recovery and that will benefit our operations P&L, which we designed to break even, but it will run at a profit. So I -- if we can get through -- if we can start building momentum in H1, we're confident we can deliver in H2 to what level. We'll probably give better guidance in the summer.

Okay. No, understood. It's fluid at the moment, but okay, that's helpful.

The events of the last few days haven't really helped us on some of this as well. So I can't blame that hence there is an element of caution.

The next question comes from the line of Thomas Rands from Investec.

3 questions, maybe 4, if I've got time. First one is kind of a high-level question around the SemiFab kind of cycle and almost looking beyond the kind of current shortages and given your increased exposure, your comments around the 59 Fabs and the $300 billion of WFE kind of CapEx over the next 5 years. How do you see what your customers are saying, what you're seeing, the kind of cyclicality of the SemiFab cycle over the next kind of 3 or 4 years from an industry point of view and also from an XP point of view, what you can do to maybe offset some of that cyclicality given the commentary you're making is very positive on the medium-term? That's the first one.

Okay. So our customers are just talking growth across the board in 2022 and into 2023. And they're very much looking at -- they see their supply base as their limiting factor, almost as we see our supply base is that limiting factor. And they are talking to us about burst capacity. They're talking to us about underwriting inventory procurement. They're talking about everything about making sure they can deliver. And that's really where they -- and they're giving us -- one of them particularly is giving us indicative forecast into -- to the end of 2023. Just so we're clear, of what they're talking about. And if you read any of their announcements, they're all talking about being held back by the supply chain and you see some of them even talking about power and the different customers. They're actually working very closely with them. It is -- and it's actually quite -- it's moved to a much more of a partnership relationship than it used to be perhaps because they realize they're very dependent on us as we are on them. So as to cyclicality, you can read market reports that will say it's no longer cyclical. Our mindset is that it is cyclical. We would get -- where we would be able to flex is direct labor, the design-in processes and design-in cycles continue irrelevant of the cyclicality. And if -- and we're working with the customers on design-ins for 2025 at the moment. So it's a long -- that's the longer-term play. What would we expect? Well, I'd point to the last downturn and say the peaks trough was a lot shallower and the length of it was a lot shorter. And given the number of factors that are driving demand, I tend to agree with that piece that it will -- if and when there is another downturn, it will be shorter and it will be shallower.

Great. Very detailed and very encouraging. Second question is just on component supply. It feels like from your commentary that supply is stabilizing. Are there any key components that you're still struggling to get or the lead times have pushed out further or pricing remains elevated levels?

What's there and which is it? It's -- it does this trend. As I said, the [ investDescription ] is playing Whac-A-Mole. And it's interesting how we had a Texas instrument chip that we were on shortage for then suddenly 600 popped up on Mouser, one of our distributors, so we snap them up. We've got -- we're actively -- we've got a list of XP Vietnam -- well Asia, it's about 70 different components that we're actively screening the market. We tend to really target our preferred suppliers because there is some -- on the word, non-legitimate products out there. So if we ever buy from a nonpreferred supplier, we would have to do testing to make test for authenticity and reliability. Also, we're very conscious about the age of some of these components. So if you think our product could be in the market for 10 years, if you're buying aged products that have been in the market that are 5 years in production, you -- what's the reliability of a chip in 12, 13, 14 years' time. So you do have to be very selective, and we will not compromise quality to meet those demands. And that's part of some of the challenges. Does that cover...

That's very good. And 2 very quick questions, if I may. Just a clarification on the Malaysian kind of size and scope of that new third site. You mentioned similar size to Vietnam and $150 million to $200 million. I was thinking a bit now with its 1 and 2 elements that was $150 million each, could the new Malaysia site be up to $300 million? Or are you being cautious with the $150 million to $200 million?

We're cautious in our operation supply chain, we are even more cautious. Vietnam, if you remember over the few years, the capacity just seemed to increase as we did more. It's not a fixed science because it depends on a bit on the mix of products. I think the $150 million to $200 million is the target that's easily achievable and beatable but it's a case of filling it.