XP Power Limited (XPP) Earnings Call Transcript & Summary

Semiconductor has been interesting.

Semiconductors is always an interesting market. If you look ahead, semiconductors are the foundation of the digital economy, making them increasingly lot more strategically and economically important. You see it around the world, governments are incentivizing companies to invest in their own capacity, in their own locality and that's just driving demand for our products. Semiconductor Industries was expected to be over GBP 600 billion in revenue in 2022 and is expected to be more than GBP 1 trillion by 2030. This is an important and exciting sector. We did see a start to see a slowdown in the quarter 4 in orders, and that's continued in Q1, and that was as expected. But what's different this time is the market is very -- is almost fragmented, you've got parts of the market, particularly leading edge, the things that go into your iPhones, products has slowed. But the trailing edge is actually holding up well. We're very well penetrated in trailing edge as we are in leading edge, but also we're more exposed to deposition and edge and logic than we are to memory. So actually, we think our performance in 2023, combined with our backlog, should be ahead of a lot of our competitors.

And the third pillar?

Health care. That's another interesting area. Performance has been strong. Demand is definitely strong in this area. What's driving it? Well, operations are now back at pre-COVID-19 levels. We're back into infrastructure upgrades. And what gets us excited is the innovation that goes on in this market and how we can help our customers on that innovation journey. Things like robotic surgery, things in the operating theater. The whole market is a very attractive area, and we expect to see good growth out of that part going forward.

It was good to see you getting excited. Oskar, you get excited about ESG, which is great because this is very much part of serious companies futures these days, isn't it?

Correct. And as you -- as we've discussed previously, [ Nick ] we -- XP's DNA is, as you have -- the significant part of that is the sustainability. And we have set an aspiration of being carbon neutral by 2040. How we've done gone about it in the last 18 months or so has been signing up to the SBTI sort of science-based target initiatives for a full assessment of our carbon footprint, and we've measured that across both the Scope 1, 2 and 3 in XP, which has been quite a task. Having signed up to the SPT initiatives, we really hope that the stakeholders will have confidence we'll be able to deliver on those targets.

I'll come back to Gavin for his look ahead for 2023. But on the numbers front, what can you say about the year ahead and maybe even a bit beyond that?

Well, first of all, we see the demand. We have a very large order book as we entered the year, but we will continue to invest in the business. So we've invested in capacity, in people, in systems and infrastructure. We started the year with an acquisition in Germany -- 2 acquisitions in Germany, FuG and Guth, which have been a great addition to the XP family. But we're also capacity, and we've started groundwork in Malaysia on our third Asian plant. That has resulted in higher debt, and we see we'll have to bring that down in the next 12 months or so. But in terms of outlook, it's very, very positive. We entered the year, as we said, positive momentum in terms of earnings. We do need to deliver on that backlog. That is key to the year with the uncertainty that Gavin's described but at this stage, there's positive momentum, which we're pleased about.

Gavin game of 2 halves, that half -- second half is over, we're starting a fresh game now. What's the 2023 game going to hold?

We entered an uncertain 2023 globally, everyone's questioning what people are seeing. But for us, we have customer order backlog of more than GBP 300 million. That's up from GBP 217 million at the beginning of 2022. That gives us great revenue coverage for 2023. Supply chain performance is critical. The component shortages are still challenging, but they have plateaued and we're managing them a lot better. Semi-fab as I said, will be a down year. But given our backlog and mix, we should outperform the market. We should see a good improvement in the first half, but we are mindful of the ongoing uncertainty the world is facing. But we remain confident in the medium-term prospects of the business.

Well, great to talk to you. And we've had so much sporting parlance here, but we'll be back in the next half, so for the half year results to see whether that is coming through or whether things improve or what. But Gavin Griggs, Oskar Zahn, thank you, as always, for filling us in on the XP results. Thank you.