Xp Power Ltd Stock

Good morning, everyone. Thank you for joining us today, whether in person or online. As usual, we'll start with the presentation before moving to Q&A. If you're watching online you can ask a written question by using the tool bar at the bottom of the webcast platform screen. Just select the question icon and you be able to type in the question, thank you.

I just wanted to cover the highlights, and then Matt will cover the financial details. I think the first point is we are seeing a strong recovery in each of our end markets. We believe our consistent strategy is showing clear benefits and the business is performing well. The market backdrop has improved significantly, but growth has been broad-based across all sectors and regions, with overall orders up 55% year-on-year.

Semi-fab is particularly strong, reflecting the early stages of a new investment cycle but the recovery is also evident more widely across the portfolio. We're seeing clear benefits of the strategy we've been implementing. The portfolio is now more focused and we are concentrating investment and commercial effort in areas where XP has strong market positions and the most attractive growth prospects. Operationally, we are scaling capacity to make sure we can meet demand while maintaining discipline on cost, quality and delivery. Our full year expectations remain unchanged and are well supported by the order book. The balance sheet remains robust, giving us the flexibility to support growth continue investing behind the strategy and manage the business with confidence. On that, I'll hand over to Matt to cover our financial performance, and I'll come and talk about operations.

Okay. Thank you, Gavin. Good morning, everyone. Let me take you through the numbers for the first half, starting with our key performance indicators. The standout feature of the first half was order intake, which reached GBP 167.2 million, up almost 55% on the prior period in constant currency with growth across all 3 sectors and all 3 regions. I'll come back to this shortly. Revenue of GBP 109.1 million was 2% higher in constant currency. This includes a headwind from the expiry of some U.S.-China export licenses as previously highlighted.

The clearest evidence of the progress we have made on efficiency and operational improvement is in the margin. Adjusted gross margin increased by 450 basis points to 45.9%, taking us back to the mid-40s range had initially been targeting. That margin improvement from a similar level of revenue drove adjusted operating profit up 23% in constant currency to GBP 8.6 million with adjusted operating margin up 360 basis points to 7.9%. Adjusted diluted EPS rose to 14.2p. Net debt closed the half at GBP 47.7 million with leverage of 1.3x. As expected, we invested during the first half to support expected growth in the second half. You'll also see we've changed the definition of our cash conversion measure, which I'll explain later.

Let's look at the income statement in more detail. Revenue reduced by 2% at actual exchange rates but grew by 2% in constant currency, with the difference being a currency headwind from the weaker U.S. dollar. Constant currency growth was slightly held back by the expiry at the end of last year of U.S. export licenses governing our RF sales into China. Absent this headwind that is, of course, beyond our control, revenue growth was in the mid-single digits. Gross margin increased by 450 basis points to 45.9%. This improvement came from multiple sources, the closure of our China factory at the end of last year, the full benefit of restructuring actions taken during the first half of 2025, product cost savings and improvements in price and sales mix, particularly in North America and Europe. This was -- there was also a modest currency benefit.

Operating expenses of 41.5% were only 1% higher than the prior period at actual exchange rates. On a constant currency basis, it was a 10% increase, driven by the reset of variable pay as group performance improves and by a change in the balance between capitalization and amortization of product development costs. Both were previously guided, and there is no increase in underlying overheads or indirect headcount. Collectively, this resulted in a GBP 3.8 million increase in operating profit to GBP 8.6 million, with the improvement in gross margin contributing significantly to this. Net financing expense reduced by 13% to GBP 3.5 million, reflecting lower interest rates and lower average borrowings. Note that we swapped most of our borrowings to a fixed rate of interest in the period.

The effective tax rate for the half was 20%, significantly better than in 2025 as guided. Together, this delivered adjusted diluted EPS of 14.2p, up from 0.4p. On a statutory basis, profit for the period was GBP 1.1 million compared to a loss of GBP 1.8 million a year ago. The adjusting items this half relate principally to the closure of our China factory and our decision to exit the RF market, together with the mark-to-market movement on our interest rate swaps and commissioning costs for our new Malaysia facility.

Order intake was undoubtedly the highlight of the period. At GBP 167.2 million, it was 55% higher than the comparative period and 48% higher sequentially in constant currency, with growth across every sector and every region. Encouragingly, momentum built as the half went on with Q2 stronger than Q1. As the bridge shows, the strongest growth came from semiconductor manufacturing equipment, up 116% as the industry enters a new wafer fabrication investment cycle, which is widely expected to be a multiyear expansion. Some customers placed orders earlier on longer lead times to secure supply in tightening conditions. This drove a record sector book-to-bill of 1.81. Just as important, we saw the end of destocking in our other 2 sectors with Industrial Technology orders up 22% and Healthcare up 25%. This gives us a broad and resilient base of growth rather than reliance on any single market. For the group as a whole, book-to-bill was strong at 1.53.

Now let's turn to revenue, which at GBP 109.1 million grew by 2% in constant currency year-on-year. This was in line with expectations and encouragingly grew sequentially from Q1 to Q2. We expect this trend to accelerate. Semi Fab and Industrial Technology both grew in constant currency with Industrial Technology up 9% and helped by strong demand from the distribution channel. Healthcare was 13% lower, reflecting the timing of revenue for specific programs in what is our smallest sector, but we expect growth to resume in the second half.

By region, both North America and Europe grew in constant currency, up 3% and 6%, respectively, with progress most evident from distribution customers. Asia were 11% lower, primarily reflecting our exit from the China semi market, though order intake was strong as we replaced those sales with new business elsewhere in the region. The strong order intake naturally expanded our order book, which grew by GBP 58 million in the period to GBP 174 million. This materially improves our visibility of full year revenue. The order book includes GBP 135 million of firm orders scheduled for delivery in the second half with further orders likely to come in. There is, therefore, sufficient demand to meet our full year expectations with the final outcome determined largely by the pace at which we can expand capacity to convert these -- those orders, and this is something that Gavin will pick up on later.

Turning to free cash flow. Adjusted EBITDA for the half was GBP 16.3 million, and we generated GBP 8.4 million of operating cash. The key difference versus the prior period was working capital. A year ago, we were actively reducing inventory. In this half, we invested in it, increasing raw materials and semi-finished goods to support second half deliveries. This is a good news story, reflecting improved -- sorry, reinvesting improved profit to underpin growth. On our new definition, which I'll explain on the framework slide in a moment, operating cash conversion in the half was 52%, reflecting the working capital investment I've just described. Net capital expenditure was GBP 10.1 million and included the majority of the remaining payments for the construction of our Malaysia facility plus some fit-out together with capacity expansion in Vietnam. The Malaysia build at a total cost of GBP 20 million was completed on budget. Net debt increased modestly by GBP 6.2 million to GBP 47.7 million and leverage rose slightly to 1.3x. Both were in line with our expectations, and we expect leverage to reduce by year-end.

This slide brings together the investment we made in the first half to support growth. Our firm order book supports revenue growth of at least 24% from GBP 109 million in the first half to GBP 135 million in the second. To deliver that, we increased inventory by 29% to GBP 73.8 million, focused on the critical high-use components needed to protect our production schedule, an increase, yes, but still well below previous levels, as you can see. We also invested GBP 2.7 million in production capacity in the first half, GBP 1.6 million in Vietnam and GBP 1.1 million in Malaysia with more to follow in the second half as we aim to increase our Asian manufacturing line capacity by around 75% versus the first half. Malaysia remains on track for the start of full production in Q4 and importantly, has ample space for further expansion as we need it. This is disciplined investment against visible demand overall.

This slide sets out our financial framework, the set of through-cycle targets against which we manage the business. Organic growth of around 10% and adjusted operating margin of around 20%, operating cash conversion of 85%, return on capital of 20% and leverage of 0 to 1x EBITDA. I want to highlight one change here. We have updated the way we measure operating cash conversion. Previously, we expressed it as operating cash flow as a percentage of operating profit with a target of 100%. We now measure it as a percentage of EBITDA, which brings us in line with our listed peers. And the equivalent through-cycle target is around 85%. This is a change in definition only. There is no change in our underlying ambition on cash generation.

More importantly, the first half gives us real confidence in this framework. The strength of our order intake underpins the organic growth target. Our materially improved gross margins with the benefit of operating leverage largely still to come, supports continued operating margin expansion. And we have a clear track record of converting profit into cash. We expect leverage to return to our target range in the near future, which in turn would allow us to reinstate a dividend.

Finally, some modeling guidance for 2026, all set at current currency rates. On revenue, our order book supports second half revenue of at least GBP 135 million and full year revenue, therefore, of at least GBP 244 million, subject to the prevailing tariffs, which could have some influence on revenue but not profit. As such, our full year expectations are unchanged. We expect a full year effective tax rate of between 20% and 25%, depending on the precise mix of profits by jurisdiction. Our cash -- on cash and the balance sheet, we expect total capital spend, including capitalized product development costs of between GBP 25 million and GBP 30 million, and we expect leverage to be approaching 1x by the year-end. That's it from me. I'll hand you back to Gavin.

Thanks, Matt. Before I provide an update on each of the sector performance, I'd like to just take a moment to say a reminder of our strategy and our delivery against it. We've continued to deliver on all elements of our strategy, and we're seeing the impacts as the market and XP returns to growth. Our focus remains on organic growth. We believe we have a market-leading product portfolio, which we have further enhanced in 2026 through new launches and customer-specific products. Customer engagement levels remain strong for our portfolio, and we remain confident we can deliver double-digit organic revenue growth across the cycle.

Our Technology Solutions teams continue to work closely with our customers to meet their most complex challenges. Our investment in our Silicon Valley site is enabling even more collaboration with customers in the critical North American marketplace and supporting their growth. This remains a key enabler of growth for XP going forward. As Matt said, we've continued to invest in our business and our supply chain to ensure we can meet our medium-term potential. The Malaysia facility is complete, and we expect first customer shipments in Q4.

And the sustainability agenda continues to be important to us. We are committed to making our operations as sustainable as possible, but also working with our customers, we are leveraging the product efficiency as a clear value proposition to engage customers and support their sustainability goals. So we remain confident in XP's medium- and long-term growth prospects beyond the current market recovery. Our focus is on markets with durable structural growth being the Semiconductor Manufacturing Equipment, Industrial Technology and Healthcare. These sectors are all supported by long-term trends, including automation, digitalization, electrification and the need -- and they all need increasingly reliable high-performance systems. We're also seeing a broad recovery across our end markets. Semiconductor customers are preparing for what we expect to be a multiyear investment cycle, while Healthcare and Industrial Tech customers are showing improving demand.

XP has used its focus on these sectors to build strong customer relationships, deepen engineering engagement and grow value and grow market share over time. We continue to win new designs and increase our content on customers platform where technical performance and reliability matter most. The investments we have made in our manufacturing footprint, engineering resources and commercial organization mean we are well positioned to support future growth and capture operational leverage as activity levels recover. Overall, this gives us confidence that XP can deliver sustainable organic growth and increase value over the long term.

Just want to talk about the power market for a few moments. Power is becoming a more important factor of overall system performance. Across semiconductor manufacturing, medical technology and analytical instrumentation, equipment is only becoming more complex, more automated and more data-driven. As a result, the power architecture is increasingly influences the accuracy, the stability and the reliability of the overall systems. So many customers are therefore moving away from standard products towards application-specific solutions for new designs. They need tighter performance tolerances, greater customization and closer integration into the equipment design.

We're also seeing demand for higher powered solutions, particularly in the semiconductor equipment space and advanced industrial applications, alongside growing requirements for precision and stability in healthcare and analytical systems. AI-related investment is reinforcing these trends by driving demand for more advanced semiconductor manufacturing capabilities and the supporting infrastructure around them. These trends raise the technical requirements placed on power supplies. That creates a more attractive environment for companies with deep engineering capability, application knowledge and close customer relationships. As you can see, XP's strategy aligns with these market changes. And our objective is not simply to participate in attractive markets, but to establish and extend leadership positions in the product categories where we compete.

Direction of the market favors XP because customers increasingly need application-specific solutions rather than standard products. Our product breadth, our technical expertise and application knowledge allows us to solve more complex customer problems and create differentiated value. A key strength of ours is our early engagement with customers in the design cycle. By working alongside their engineering teams, we can help shape the power architecture, reduce design complexity and position XP products deeply within their next-generation platforms.

Our global operating model is also important. Many of our customers operate across multiple regions and value a partner that can provide consistent engineering support, reliable product availability and technical expertise wherever they are developing or manufacturing equipment. The Silicon Valley Innovation Center strengthened this position by bringing us closer to the North American leading-edge customers and technology trends, particularly in the semiconductor, healthcare and advanced industrial systems markets. It supports much earlier engagement, sharper market insight and a stronger future product road map. Taken together, the strategy is clear. We are focusing XP on markets where power is becoming more critical and where our engineering capability, customer intimacy and global support can translate into sustained growth and stronger competitive positions.

Now let's focus on each of the target sectors in more detail, and let's start with semis. As I've said many times, semiconductor manufacturing equipment is one of XP's most attractive and strategically important markets, and it remains a key driver of our long-term growth strategy. The semiconductor industry is underpinned by structural trends, including AI, high-performance computing, advanced packaging and increasing digitalization across the global economy. All these trends required continued investment in semiconductor fabrication capacity and increased sophistication in the equipment. We're seeing clear signs of a very strong recovery. Customer activity levels are increasing, investment plans are strengthening and extending and order patterns are becoming more positive. We believe the sector has entered a multiyear investment cycle.

For XP, this is particularly significant because our products are designed into many of the most demanding applications within the semiconductor manufacturing equipment space. XP is exposed across all steps in the manufacturing process from lithography, deposition, etch, ion implant and inspection and with all the key equipment manufacturers.

So as semiconductor manufacturing process become more advanced, power is playing an increasingly critical role in overall system performance. Higher process precision, tighter tolerances and a greater automation level create increasing demand for sophisticated power solutions, moving the market towards high-value application-specific solutions. This trend is really positive for XP. We've established strong relationships with the leading manufacturers and have a proven track record of supporting complex applications where performance, reliability and technical expertise are essential. And this is what supported the 116% growth in orders. It's the market recovery supported by new business wins over the last few years.

We see opportunities not only from overall market growth, but through continued market share gains. Our engineering engagement, product road map and global customer support capabilities allow us to participate in new platforms and next-generation equipment programs as customers invest in their future technologies. Industrial Tech is another highly attractive market for XP Power and is an area we see significant long-term growth opportunities. The market is being driven by several powerful structural trends. Customers across a wide range of industries are investing in automation, digitalization and industrial electrification to improve productivity, efficiency and reliability. These trends continue to drive increasing demand for advanced electronic systems and importantly, for XP, increasingly sophisticated power solutions.

We're now seeing encouraging signs of recovery. Customer activity is improving, project pipelines are strengthening and demand levels are becoming more balanced across several end applications. So orders were up 21% in the first half, and we expect continued momentum going forward. Then turning to Healthcare. Healthcare is the final sector, but it still remains an attractive and strategically important market for XP, providing access to long product life cycles, high barriers to entry and resilient long-term growth drivers. The sector continues to benefit from structural trends, growing healthcare demand, aging populations, increased access to medical services and ongoing technology innovation are driving investment across a wide range of medical and life science applications.

As healthcare providers seek better patient outcomes and greater efficiency, equipment manufacturers are developing increasingly sophisticated diagnostic, analytical and treatment systems. This aligns well with XP's strength. We support a broad range of application, including diagnostic imaging, robotic surgery, patient monitoring and advanced medical devices. Healthcare tech is also becoming increasingly sophisticated. The equipment is becoming more precise, more connected and more data-intensive, placing greater demands on power systems. As these requirements increase, customers are increasingly seek partners who can provide application-specific solutions and engineering support through the product development life cycle.

This plays directly to XP's capabilities and engineering teams work closely with customers from the design stage onwards, helping develop power architectures that meet demanding technical, safety and regulatory requirements while supporting performance and reliability objectives. So for this area, orders were up 25% in the first half, reflecting the return to growth and the benefit of some recent customer wins.

I now wanted to talk about how we're going to deliver to our customers in the second half and through '27 going forward. And I also wanted to highlight what we've built over recent years. We've built a global manufacturing footprint that provides the scale, resilience and flexibility to support XP's long-term growth. Our operations are positioned for the opportunities we see emerging over the medium term. We've invested in strengthening our manufacturing network, improving efficiency, increasing resilience and creating the capacity required to support future growth. We've not simply added capacity. We've also optimized the manufacturing portfolio to improve operational performance through footprint rationalization, process improvements and investment in modern manufacturing capabilities. We've created a stronger and more scalable platform.

Key step has been the development of Malaysia facility. This represents a significant step change in manufacturing capability and provides substantial additional capacity to support what we believe will be a multiyear growth cycle across our core markets. The facility enhances our ability to scale efficiently while maintaining the quality and standards our customers expect. The investments made over recent years mean we are entering the next growth phase from a position of strength with the capacity to grow, the flexibility to adapt and the operational foundation needed to support customers as their own businesses expand.

One of the key lessons from the post-COVID supply chain disruption that we all experienced across our industry was that customers are placing an even greater value on reliability, resilience and continuity of supply. So in response, we have invested throughout our operations to ensure XP is positioned as a long-term partner. These investments have included expanding and upgrading manufacturing capacity, strengthening our supply chain capabilities, increasing operational flexibility and improving visibility of the global operations. Together, these initiatives have really enhanced both our resilience and our responsiveness. Our particular focus has been investing in capacity to support customer growth. This is not only the facilities and equipment, but also people.

And just to highlight this, during Q2, we've recruited and trained over 1,200 new staff in Vietnam. We've also invested in inventory, as Matt has outlined, to support the second half 2026 and 2027. These actions help reduce risk and improve our ability to respond to increasing customer requirements. Key point, XP has invested proactively to assure delivery, strengthen resilience and create the operational foundation required to support future growth. As demand continues to grow, we are well positioned to meet customer requirements while driving further improvements in our operational performance. So 2026 is a critical year for XP. The significant efforts and changes we've made to the business over recent years will result in improved performance as the markets recover and return to growth. So on this basis, I want to lay out our thinking for capital allocation as we look forward into the medium term.

As I've said, we currently remain focused on organic growth, and we'll continue to invest in capacity ahead of demand, driving productivity and automation in our operations and the new product agenda in high and low power products and in technology solutions, where we believe XP Power has a clear competitive advantage. As revenue grows, our debt level will reduce rapidly, and we will further delever the balance sheet. As we have said previously, we are committing to bringing leverage down to below 1x EBITDA and keeping it there across the cycle. When we are confident that leverage is structurally below 1x, we will look to reinstate our dividend and also consider additional shareholder returns and potentially M&A.

Finally, let me talk to the outlook. The market recovery is translating into stronger business momentum. Demand is improving across all our key sectors. Order intake is strengthening, and we enter the second half with greater confidence in the trajectory of the business. As a result, we believe XP is well positioned to deliver strong growth through the second half of 2026 and beyond. We spent the last past several years preparing the business for this next phase of growth. We've expanded capacity across our existing manufacturing network. The new Malaysia facility provides a significant step-up in capacity and capability giving us the capacity, flexibility and resilience to support customers through what we expect to be a multiyear growth cycle. We have a robust balance sheet, which provides financial resilience and the flexibility to continue investing in product development, capacity expansion and operational improvement while maintaining a disciplined approach to capital allocation.

Looking further ahead, we remain confident in the long-term opportunity for the business. As we stand today, we're encouraged by the quality of our growth opportunities. The pipeline of new business wins remain strong and customer engagement levels are only increasing. Alongside this, our product development road map is delivering new solutions that evolve that align closely with customer requirements and future technology trends. This is all built on long-standing customer relationships, which continue to create meaningful growth opportunities. Many of our customers are global leaders in their respective markets, and our deep engineering engagement positions as well to participate in future generations of their products and platforms.

So as a result, we believe XP is well positioned to deliver sustainable long-term growth, improve profitability and create significant value in the years ahead. So on that, we'd like to open up for questions. We'll start with questions in the room before taking questions online. For those in the room, please could you use the microphone and state your name and company before your questions for the benefit of joining -- those joining via the webcast. As a reminder if you're watching online, you can ask a written question by using the toolbar at the bottom of the webcast.

Tom Elgar from Deutsche Numis. Probably 2 areas just to touch on. So I think unsurprisingly, obviously, semi is very, very strong. So I think I just want to touch on that. I mean, clearly supportive of the market share gains that you guys have delivered. So I'd be interested to hear where were the key wins in your mind? Is this wallet share gains? Is this greenfield opportunities that you've won? And I guess, how much that sustainability of that outperformance? That's the first question.

Yes. So yes, we're very pleased with our semis performance. We work closely with a number of the key players in that market, and we are confident it's both new business and market recovery. And that new business is right across all of the steps in the process. So we've had wins in etch, deposition, ion implant, recently in inspection. And remember, those customers have -- when they're talking about new products, they're thinking 2030 out. So we're working very closely with them on where on what's coming. We've also -- one of our competitors in the high-voltage space had a business continuity issue earlier in Q1. And on the basis of that, we've gained additional share with some of our key customers.

And then just sort of leading on from that in terms of the lead times that you are seeing in terms of that segment. And I guess, Matt, you alluded to price as part of that as well. And obviously, the gross margin performance was very, very strong in the first half. So I guess touching on those bit where are lead times? And I guess, how are you approaching price in the context of that? And I guess, incrementally stronger for '27? Or have we already started to see that in H1?

Yes. So lead times in the sort of 5- to 6-month kind of region really, as I say, slightly extended during Q2. It's one of the reasons why the order intake was slightly stronger than we were expecting in Q2. Yes, price increases are coming through. Obviously, there's a price pass-through element that comes from tariffs. But if I just sort of put that to one side, underlying price increases did contribute to first half revenue. And I'd expect as we head into 2027, probably an increasing contribution as well.

David Farrell from Jefferies. A few questions from me, please. Just when you look at the order book cover for the second half of 2026, how does that compare to maybe the second half of 2025 and 2024?

Probably slightly greater overall. That being said, I mean, as we said in the announcement, there is still additional orders that can come in that are both booked and shipped that can add to the number. So one of the reasons why we say at least GBP 135 million in revenue for the second half. The only thing just to be mindful of is that the overall supply chain is probably -- or definitely is tighter than it was 12 months ago. So we're just mindful that there could be delays in the delivery of componentry, certainly as we get into Q4, and that could push some deliveries to the other side of our balance sheet date. So hence, why we just kept it at GBP 135 million for now.

Thank you for Slide 22, which was basically the capacity. I was surprised looking into '27 that most of the growth actually comes from Vietnam and not Malaysia ramping up. To what extent is that growth in Vietnam driven by the actions you're doing in the second half of 2026. So that growth is really just a kind of annualization of the factors in the second half of this year?

Yes, I think that's quite a fair point. I think take it as indicative. We still need to do the overall optimization. Remember, we have to get our Malaysia facility qualified with some of our key customers. And that pace of qualification will just would impact the ramps. The intent is very much when we're ready to balance the 2, but that's going to take a couple of years.

Final question. Industrial Technology, it's the area you got the lowest market share. It's the largest addressable market and therefore in dollar terms, it's growing the fastest year-on-year. Can you just kind of talk to a wider strategy there of how you can get your market share up in that market? Because it seems like that would be kind of relatively easy pickings for you in terms of focus as you think about expanding going forward.

Yes. I mean it is an important sector for us. And generally, it's the largest sector. It's built up of lots and lots of smaller projects. Once you get certain scale, the -- often the customer will go to a contract manufacturer and do it specifically. So we'll do the development, but it almost feels it caps out. So we have a lot of customers and projects at the $0.5 million to $1 million level. And we have -- and it's very, very widely spread. Also, we put our distribution accounts in here. They're growing very, very strongly. So -- and that's predominantly in industrial tech. So the high service level, the DigiKeys, the RS ones are all growing strongly. We also, in Europe, about 2, 3 years ago, we looked at a way of accessing the mid-tier, the smaller customers who we don't support, and we do that through a partner who does design and work. And that is proving to be a very, very successful program that we're looking at expanding in the other geographies. So we're confident that we can maintain or grow that market share in industrial tech.

Lydia Kenny, Investec. Firstly, there's been a lot of news about the Chinese semi equipment manufacturer. Can you maybe give us some idea of how you overlap or if you don't at all?

We don't. We don't support -- we pulled out of supplying the Chinese semiconductor market. The licenses that we had on RF have expired. Also, a number of the key customers we are working with were put on to the entity list by the U.S., which require a license, which was very unlikely to be granted. So we've focused on other areas rather than the Chinese semiconductor customers. We supply them indirectly through some of our key customers do supply them directly, but we don't.

Comet case, it seems like the appeals -- the appeal of the appeal timeline has now passed.

Yes. So we have very positive about the result of the appeal. There was then a 2-week period where the other side could ask for the appeal to be reheard. That has now expired. And we expect the case to be remanded back down to the District Court today, and then we'll see where it goes.

A question from the kind of online portal. It's from Tom Fraine at Shore Capital. An excellent question related to Astrodyne. What are your thoughts on the acquisition of Astrodyne by TE Connectivity for 5.5x sales multiple? How would you compare Astrodyne to XP Power, which has a much lower EV sales in the current share price? Do you expect more acquisitions in your space in the short term given the market backdrop?

Yes. We've known and I know Astrodyne very well. They're a good business, predominantly U.S.-based. I think TE said they expect about $250 million of revenue this year, of which it's 60% semi and about 25% industrial and medical and about 15% defense. They are slightly different to us because they have about 1/3 of their business is filters, which a lot of power supplies, but they're a good business. And the multiple paid, I think, is clearly interesting when you compare it to our share price. I mean they are coming in at [ 1.4 ] on what we believe is a circa 20x EBITDA multiple. We know it was -- we know the owners, Tinicum put it up through a process. So we know there are other parties involved. Whether that leads to further consolidation, I can't comment.

That's the only question online.

Okay. Well, thanks very much, everyone, for joining. Just to reiterate, we believe XP is now and is well positioned to deliver sustainable long-term growth, further improve our profitability and create value in the years ahead. Thank you.

Good morning, everyone. Thank you for joining us today whether in person or online. [Operator Instructions] So at the start of 2025, we expected end markets to be soft, which proved to be the case, especially in the first half. Encouragingly, we started to see the level of customer order intake improve across our end markets as the year progressed. Our revenue for the year declined, we saw 7% growth in the second half relative to the first half of the year. We also delivered an improvement in profitability where the decisive actions were taken to manage costs as revenues decreased led to a step-up in the operating profit from GBP 4.8 million in the first half of the year to GBP 12.5 million in the second half.

We also saw continued strong cash conversion, building on the progress from 2024. By focusing on what we can control, such as supply chain costs and manufacturing efficiency, we've improved gross margins further, whilst also setting up the business to be more profitable as the end markets recover. During the year, we also made some structural changes to our portfolio, announcing the exit from the RF market to allow us to focus -- have greater focus on the low- and high-voltage markets where we have significantly stronger market position and financial returns. Further, we have continued to invest in innovation and infrastructure, and we're excited about our new business pipeline and the ability to meet greater volumes.

On that, I will hand over to Matt to cover our financial performance and I'll come back to a strategic update.

Okay. Thank you, Gavin. Good morning, everyone. So let's start our normal starting -- move to our normal starting point, which is the full year KPIs. So order intake for the year was GBP 225.9 million. That was up 28% in constant currency, with the growth rate remaining consistently strong throughout the year. Growth was also broadly based across all 3 market sectors, which was pleasing to see. Revenue was GBP 230.1 million, the year-on-year decline of 11% reported at the half year, narrowed to 4% by the end of the year as our top line gradually improved as the year progressed. Indeed, we returned to modest year-on-year growth -- constant currency growth in the second half as the rate of customer destocking eased and as extra U.S. tariffs were recovered.

Adjusted gross margin expanded by 170 basis points to 42.7% being able to expand our gross margin in a year of revenue decline, not only protected our profitability in the short term, but underlines why we are confident of returning to the mid-40s range as revenue recovers. At interim, we committed to expanding our adjusted operating profit in the second half through internal actions, and this was delivered as planned leaving full year operating profit at GBP 17.3 million, in line with expectations. I have a slide showing this progress later. We maintained our cash discipline, achieving strong operating cash conversion of 225%. Operating cash generation over the last 2 years has totaled over GBP 100 million, contributing significantly to balance sheet resilience. Net debt closed the year at GBP 41.5 million or 1.2x EBITDA.

So let's review the income statement in more detail. As I mentioned, full year revenue reduced by 4% in constant currency and by a further 3% due to currency movements, particularly due to a weaker U.S. dollar. We saw a significant step-up in order intake as we entered the year, which was -- which indicated that our revenue would stabilize, if not return to modest growth as the year progressed. This is indeed what happened. I have a slide showing the H1-H2 split of revenue later. However, the strength of the recovery was inevitably impacted by unexpected developments in global trade in H1. As reported at interim, we therefore took some mitigating cost reduction actions at the time to keep our performance on track. These actions helped to expand our gross margin by 170 basis points to 42.7% for the year.

Operating expenses increased by 6% to GBP 80.9 million, with the increase driven by nondiscretionary items. Discretionary costs remained under tight control, as I will show you later. Finance costs reduced with lower borrowings and a lower Fed funds rate to GBP 7.8 million, and tax came in towards the top end of our expected range and with a higher effective tax rate, which simply reflects lower group profits, which naturally increase the risk of unrelieved tax losses arising in individual jurisdictions. We have worked hard to mitigate the impact of this in the year. And we remain confident that the effective tax rate will reduce back down towards the low 20s range as profits recover. All of this resulted in adjusted EPS of 22.5p, nearly all of which arose in the second half.

Turning to order intake. The top graph shows the appreciable step-up in quarterly order intake as we entered 2025 as I mentioned earlier. The improved level of order intake was maintained throughout the year. We ended the year strongly, particularly in constant currency terms. The bottom graph shows the sectors in which the step-up occurred. Growth was strongest within the industrial technology and health care sectors as customers prepared to end their destocking activities. Orders from the semiconductor manufacturing equipment sector grew by 10% with intake strengthening from H1 to H2 amid growing signs of a semi market recovery.

Turning to revenue. You can see in the top graph how the step-up in order intake help to underpin and then gradually expand quarterly revenue. It also expanded by the pass-through of tariffs, which increased as the year progressed. The overall impact was 12% growth in revenue from H1 to H2 in constant currency. Year-on-year growth by sector is shown in the bottom graph. Sales to semi customers reduced by 7% but this was against a very tough comparative that benefited from backlog clearance within our high voltage, high power or HVHP business, sector growth outside of HVHP was healthy at 8% and weighted towards H2, which is encouraging. As announced a year ago, U.S. export rule changes prevent us from serving China semi customers upon the expiry of existing licenses. Sales to these customers totaled GBP 6.2 million in 2025 and will not continue in 2026.

Sales to industrial technology customers reduced by 5%, which was the product of reduced sales to OEM customers who continue to destock, but increased sales to distributors whose destocking is nearer completion, particularly in the U.S. The pace of destocking by OEM customers did slow in H2. Sales to health care customers grew slightly despite continued destocking in the first half as we benefited from strong innovation-driven demand from U.S. medical technology customers. Our gross margin performance was one of the highlights of the year and the drivers of it are shown at the top. 2025 was a year of revenue decline, and therefore, reduced utilization of factory overheads. This reduced our gross margin by 40 basis points, but this will, of course, reverse as revenues recover.

The transfer and optimization of production volumes within the group gave us the opportunity to reduce supply chain overheads in our facilities in China and on the U.S. East Coast. We also continue to deliver strong sourcing and manufacturing efficiency savings. Collectively, this added 210 basis points to our margin and was key to expanding our margins year-on-year. Operating expenses increased by GBP 4.7 million to GBP 8.9 million for the year. The first 3 bars of the waterfall show how nondiscretionary costs contributed materially to this Foreign exchange movements added GBP 0.6 million, less of a headwind than we saw in H1, thanks to steps taken to reduce FX volatility as promised at interim. Accounting entries related to capitalization and amortization of product development added GBP 2.6 million.

Note that the amount that we actually spent on product development remained largely unchanged. The 2 bars on the right-hand side show how we have managed discretionary costs. Inflation added GBP 2.8 million to the cost base, which cost efficiencies helped to self-fund as shown. The actions underpinning this were disclosed at interim. The action set out on the previous slide, combined with a gradual improvement in activity levels drove a significant unexpected improvement in profit between H1 and H2, as shown here. Revenue grew by GBP 8.3 million sequentially or 12% in constant currency, with increased tariff recovery contributing roughly half of this.

Gross margins expanded by 250 basis points to 43.9%. Operating expenses reduced by 3% to GBP 39.8 million as cost reductions took effect and FX headwinds eased. Collectively, this increased H2 operating profit to GBP 12.5 million, which is a much better run rate with which to enter 2026.

Turning to cash flow. We turned GBP 17.3 million of operating profit into nearly GBP 39 million of operating cash. The key contributor to this was inventory management with inventory reducing by 20% to GBP 57 million. It is now optimized to current activity levels and therefore, should be expected to increase from here as markets recover. Gross CapEx spent on physical assets totaled GBP 7.3 million, of which GBP 6.3 million was spent on the construction of Malaysia. Construction is now complete and a final payment for the building of GBP 7 million will be paid in H1 2026. We applied for and received U.S. chips a funding of GBP 1.5 million for our new Silicon Valley Innovation Center. The strong operating cash generation in March share placing helped to reduce leverage from 2.3x to 1.2x EBITDA in the year, which is a resilient position as we enter 2026.

Some quick comments on 2026 modeling assumptions. We expect to grow our profits in 2026 with progress weighted towards H2. There are 2 reasons for this. Firstly, we will see a headwind in H1 as the expiry of export licenses means no further sales to China semi customers, as I mentioned earlier. Secondly, we expect a tailwind in H2 as markets recover particularly from the wider semi market. We expect operating expenses to grow by circa 5%, including 2% from normalized variable pay as performance improves. We expect the group's effective tax rate to reduce to circa 25%. But as I mentioned earlier, the rate is quite sensitive to profit levels.

Cash conversion will remain above 100% and total CapEx spend should be around GBP 20 million, including product development, which includes final payments for the Malaysia building plus initial fit out.

That's it for the numbers. Now it's back to Gavin.

Thanks, Matt. Before I provide an update on each of our end markets, let me start with a reminder of our strategy. So I just want to take a couple of minutes on our strategy and how the consistent application of it positions XP for a strong future. We've continued to deliver on all elements of our strategy as we and our competitors have navigated the challenges of recent years. Our focus remains on organic growth. We have a market-leading portfolio which we have further enhanced in 2025 through new product launches and customer-specific products.

Customer engagement levels remain strong for our portfolio, and we remain confident we can deliver double-digit organic growth across the cycle. Our Technology Solutions teams continue to work closely with our customers to meet their most complex needs and strengthen already strong relationships. Our recently opened customer innovation center in Silicon Valley is enabling even more collaboration in the critical North American marketplace. This facility has unrivaled capabilities in our marketplace. We continue to invest in our business in our business and our supply chain to ensure we can deliver on our medium-term potential.

In 2025, we opened a new design center in Manila and the Malaysia manufacturing facility build is complete, ready for commissioning in 2026, and we expect the first volume to be shipped in the beginning of the second half of 2026. Users continue to demand more efficient power conversion solutions. And our ability to deliver this is a key pillar of our strategy. We recognize it's critical nature for both our customers and their customers alike while persisting industry-wide destocking headwinds have made the last few years difficult, we have not lost sight of our long-term growth potential. We have deep and enduring relationships with our customers across our 3 target sectors, which all have attractive long-term structural growth profiles. Our products are designed into their market-leading solutions, meaning when our customers grow, so will we.

As many of you have read in some of our customers' recent results, the semi sector is expected to improve significantly during 2026, 2027 and beyond. We are preparing to support this demand and are increasing our inventory levels of critical components based on their commitments. Looking at Healthcare and Industrial Tech sectors. Customer inventory levels are clearly approaching normalized levels, and we are seeing increased order momentum, particularly in the industrial tech sector. Across all 3 sectors, we have continued to make share gains. These have been masked by soft underlying markets and deepen -- we've also continued to deepen our relationships with our key customers. By opening the new site in Malaysia, combined with Vietnam, we will have the manufacturing capacity and scalability to ensure we are able to meet demand as it comes through.

Lastly, thanks to our leading R&D capabilities alongside the design nature of our portfolio, there's a clear competitive moat for the whole portfolio.

Now let's focus on each of the target sectors in more detail. Starting with the semis. Okay. This sector remains a great opportunity for us. There are a small number of key customers with whom we have strong relationships, and they have large growth ambitions. Products for this sector are complex. We have long life cycles, leading to strong customer lock-in, high barriers to entry and good levels of recurring revenue. These products play a crucial role in a sector that is important in the broader technology and economic landscape with the increasing use of AI and demand for electronic devices driving this.

As our customers' customers attempt to meet this market demand, they are signaling their intention to substantially increase CapEx, and this is starting through the supply chain start to flow through the supply chain to our customers. This is driving forecasts for the wafer fabrication equipment to be up 10% to 20% in 2026 as fabs are built out and equipment installed to support the demand for advanced logic and memory. We're starting to see an increase in orders from our customers for both existing and new projects, which is encouraging. And we expect this to improve throughout 2026 into 2027 and beyond.

We've also had a number of recent project wins with both existing and new customers that will drive further share gains. We are confident we are confident we will continue this trend, allowing us to grow ahead of the WFE market over the medium term as the market fully recovers. So Industrial Tech. In 2025, Industrial Tech contributed 38% of the group's revenue, and it's where our distribution customers sit. The sector continues to evolve. Customers require devices that have high power density are more energy efficient and have even smarter digital controls, all while being more reliable. This increase in complexity and need for connectivity often requires customized or bespoke products. We are one of the few suppliers in the market who is able to meet these requirements and shorten the time for -- to market for our customers. And it's these type of conditions where XP thrive.

While we have faced destocking in this sector, industry levels are now approaching normalized levels and order recovery is underway, with 2025 orders up 34%. We remain confident that our market will grow at circa 5% to 7% per annum over the medium term, and we will be able to grow ahead of this as we continue to gain share.

Now turning to Healthcare. The aging global population and constant innovation in the medical technology sector remains catalysts for the long-term growth. While reliability is important in the other 2 sectors, in Healthcare, it is especially paramount. Converters cannot fail. They must meet the most stringent safety and regulatory standards. We are known in the sector for supporting innovation. We're helping to facilitate the latest technology breakthroughs where power is a key differentiator. For example, in post-field ablation used for cardiac patients, we are helping customers develop solutions to new levels of control and repeatability. In recent years, we have seen prolonged destocking post COVID.

We now believe channel inventory levels are approaching normalized levels, so the market is primed for growth and underlying demand remains strong. We're beginning to see evidence of this as our order intake was 48% higher in 2024. Going forward, we expect demand to continue to grow with the sector returning to growth of between 5% to 7% per annum, with XP continuing to gain share. So I'm talking about the market recovering, what will we see as the market recovers. So over recent years, as we've continued to invest in developing new products and technology solutions, putting a resilient, scalable infrastructure and world-class efficient customer service across our global supply chain.

The results of these instruments is that when the market recovers, we are very well positioned to take advantage as customers trust to reliably deliver the products and services they require. At XP, we are set up to operate in niches where products are highly complex, where collaboration and extensive expertise is critical. Customer demand is trending in favor of more sophisticated solutions rather than less differentiated products, further benefiting XP. Once designed in, our products won't be replaced and as customer product life cycles increase, so will the revenue annuity FX. This is across the entire portfolio from low voltage to high voltage, so given our customers' products are complex, our low-voltage product portfolio exhibits the same level of designed in nature as our more complex, medium- and high-voltage products.

Further, by investing in innovation hubs like the one in Silicon Valley, we've been able to get closer than ever to our customers, building trust and helping them develop even more complicated products. This allows us to increase customer penetration, selling more of the XP portfolio than we were previously able to. And by having sites across the world, we are able to meet demand where it is needed.

Now I want to turn to our product portfolio and the progress we've made. So for XP to be successful, we have to continually strive to make sure our products are market leading. This is a never-ending process. as customers' requirements constantly involve. This year, we launched 24 new innovative products with wide-ranging applications. Alongside meeting demands for higher power density and precision, we've designed many of our products with a fully digital architecture. The FLXPro is a good example of where we have implemented this. This fully digital power supply gives customers access to control and monitor the power supply at market-leading levels of power density. While we believe our portfolio is already market leading, our engineers continue to focus on innovation to ensure we remain at the forefront of the industry, protecting XP's long-term growth potential.

So as announced in January 2026, we will exit the RF market after the U.S. export controls announced in late 2024, substantially reduced its financial contribution. This left us with a division that had lower margins and returns in the group average. We believe this decision is in the best strategic interest of both XP and our customers as it enables us to focus on product categories where we have stronger market positions and can have a greater level of product innovation. When determining the best way to exit this market, we engage with our principal customers to ensure these relationships are protected.

The result is we have agreed to exit the market over the next 3 or so years, and we will fulfill their significant final delivery requirements. We also announced in January that we've completed the construction of the manufacturing site in Malaysia and closed the site of Kunshan, China. This is well-timed in view of the expected market improvement with Malaysia providing XP enhanced capability to service the critical U.S. market. While we still have capacity in our other sites, once operational, the Malaysia site can be ramped up in line with and helping us to ensure we are fully prepared.

I just want to cover -- finish on sustainability. So within sustainability within our operations and products remains at the center of everything XP do. During the year, we've continued to make progress with our sustainability agenda. I'm pleased to announce we reached a major milestone during the year, where our lost time incident rate dropped to 0. This is down the team's hard work and dedication to ensuring the safety of themselves and their colleagues across all of our sites. We've made progress to reduce our carbon footprint with all our EU sites now powered by renewable energy.

And finally, our engineers continue to develop products, which are more power efficient, and we're using more environmentally friendly packaging, where possible to help customers reduce their environmental impact. So when we look back on 2025, we took decisive actions with both the short and long term in mind. As we look to 2026, following the expiry of existing export licenses to Chinese semi customers, there will be a modest revenue headwind in the first half, but with improving underlying demand, we expect progress for the full year with a good tailwind in the second half. Overall, while we remain mindful of the ever-evolving geopolitical conditions, our new business pipeline and product development is strong. We have enduring relationships with our customers, and we have a well-invested in structure. This gives us confidence that as the end markets recover, we will benefit significantly.

With that, I'd like to thank you all for joining, and I'd open the session up to questions.

Tom Elgar from Deutsche Numis, a couple from me. I think the first one is just on the cash flow. Clearly, you've executed really well over the last couple of years on the cash side. So I guess now with the orders turning strongly and the growth is coming through a couple of evolutions there to, what could working capital, given where we are. Could you sort of give us a flavor of where the kind of operating window is if we get strong growth for the second half of the year in terms of where we could see that in the second half on the first half?

And then the second question, with Malaysia, very, very close to coming online and also the sort of statements around tariff influence within the revenue line, how should we thinking drop-through this year given the kind of mix within that and bringing that capacity online?

Okay. Cash side. So obviously, as you say, a fairly strong performance over the last couple of years. There was some buffer inventory that we built up during COVID in the aftermath of COVID relevant supply chain constraints that we faced that we've now removed. So we're now back to more normal working capital movements from here. You could think of -- and I would just say that I set out what overall normal cash flow would look like in a seminar. So I'd refer you back to that. But in the near term, I would say you can think of it as a working capital to sales ratio of roughly 30% going forward.

In terms of drop-through, so I would say that if you build that into components, so firstly, the overheads, we've specifically guided to the overhead growth that we expect in 2026 of 5%. In terms of the gross margin drop through, you could think of it as us having a fixed overhead base within cost of sales of roughly GBP 18 million today. And if you have that, you can then work out the drop-through from there.

Lydia Kenny here from Investec. On the gross margin, you have outlined, I guess, sort of target previously. That looks quite achievable given what happened in H2. But as, I guess, volumes ramp, how should we think about the progression and what costs should maybe be coming back in?

I will give you the same answer as I just gave. So the only element that you need to think about is that, as I say, the fixed element within cost of sales at roughly GBP 18 million. That would obviously give you a drop-through rate, which is greater than our current gross margin performance, and therefore, growth is gross margin expanding. You can work it out from there. And the greater the growth, the greater the gross margin expansion. And that's not to say that growth is our only source of gross margin improvement. There is clearly more that we can still do within sourcing savings, manufacturing efficiency gains, et cetera. So that should continue to come through.

There may well be some inflation within the mix, too, I think, given what's going on in the world. So we're mindful of that. And in the past, obviously, inflation we've been pretty successful in finding a home for, I'll put it that way. So yes, so I think overall, we're happy with the second half performance in particular. And for that reason, we're confident that mid-40s would be we should rightly expect.

One more on, I guess, the new product launches we had in '25. How should we think about it for 26 and innovation as well?

The innovation pipeline still remains strong, and we expect to carry on with the same momentum that we've got. Remember that because of the design in nature, they can often take a couple of years to transform to revenue and then grow from there. But towards -- we've got -- we believe we've got strong momentum ahead in new products that are coming out that are very, very relevant to the market and are actually market leading in a number of areas. So we're quite confident.

Tom Rands from Berenberg. Three questions, if I may, [ start ] them individually, just to help you. First one is just can you expand on the enhanced capability of Malaysia that you referenced in the -- versus the kind of the Chinese site? Is that in terms of revenue and capability?

Well, the first main advantage is it's a purpose-built self-designed power factory. We inherited Kunshan from a joint venture in Fortune Source. The team are very, very good. We believe because the location and the dynamics in Malaysia, we can get a very strong team in Malaysia. The second advantage is we can supply the U.S. We haven't been able to supply the U.S. for many of our U.S. customers would not accept products made in China.

Okay. Second one was just on the market share numbers you gave in semicon, only 4% and maybe I'm being a bit harsh, but that sounds quite low. Is there scope? How has that progressed through the cycle? Obviously, you've been down in a couple of years. But -- and what scope is there to potentially increase that over the longer term?

So the share is sometimes misleading. It's not the most widely followed market. And often the person who does the work finds more market. So you can grow ahead of the market, but your share can reduce, believe it or not, because they find more market. In semi, there's definite potential to gain market share in -- there are numerous power suppliers on to -- on existing tools and on new tools. And so there's opportunities you get designed in earlier, the core processing to be -- get more and more of it. So we are confident we are gaining share and confident we'll grow ahead of the WFE market going forward.

Can I just add one point to that. So I think the 4% would be -- would include RF. So therefore, RF, we have a 1% share. So the bit of the business we're carrying on with has a significantly higher share, 8%.

Great. Very clear. On the whole normalization of everything back to pre-COVID levels, there's one glaring thing that's not normalized yet, dividends. What are your thoughts on when you could reintroduce a dividend given everything is getting back to kind of pre- COVID?

I think that is a policy and approach that we will consider during 2026 and come back to the market on as we get closer to distributions.

Andrew Humphrey at Peel Hunt. Just wanted to think about '26 a bit in terms of end markets and kind of how we perform relative to those. If I look at where sort of Street numbers are today, it looks to me as though we're baking in about 7% organic growth for the group. Clearly, RF exit in China looks like a couple of points headwind to that. So for continuing business, maybe 9% or thereabouts. As I tick through the kind of divisional indicators that you've given in the presentation today, wafer fab equipment growing 10%, 20%, somewhere in that range you're expecting to do well within that.

So clearly, some way above the group average. The other 2 markets, Industrial Technology, Healthcare, we're talking about kind of 5% to 7% through cycle growth, probably a bit worse, a bit better second half. Overall, maybe we come out in that range. Is that sort of the right way to think about it overall?

I think it is, except for the fact that probably the growth in the semi is going to be a bit second half weighted. So we won't see a full year's worth of that increase in 2026. And that obviously is a significant delta for 2026 as a whole, given how strongly we expect the market to grow.

So just to clarify that, so even RF exit, which clearly is first half or impacts first half more than second half, semis is more second half weighted.

Second half -- you can expect semi to be second half weighted. Yes, in terms of revenue, absolutely.

And that's widely guided by the industry as a whole from talking to our customers, that's what they're expecting. There's a lot of excitement in the market in anticipation. And I think it's becoming ever increasing, but it's definitely -- you see it's going to be Q2, Q3, Q4.

David Farrell from Jefferies. Just sticking to the theme of WFE. Can you just remind us what the lead time visibility you have with your customers is in that end market? And I know it's shortened. So kind of how confident are you around the timing of that pick up? What other indications are they giving you?

So there's lead time and then there's indications. So the actual lead time we operate to in broadly in the semi market is probably 10 to 12 weeks. But if they can give us longer indications, they will, and that's exactly what they're doing. They want -- there's a real push to make sure they can capture all the revenue they can. So they're giving as much guidance and probably some ways too much guidance about what's coming. So we're getting -- we get a relatively good picture. There's been some issues in the -- there's been a problem with one of our competitors who had -- unfortunately had a fire in one of their facilities.

That's caused quite a bit of distortion because they suddenly have to redesign other companies in, but then that gives you such an opportunity if you can help them -- help customers in this time of challenge, you give a long-term benefit, and that's what we're trying to do.

My second question is on Malaysia. I'm sure it's not a straightforward thing ramping up a new facility in the new country. So what are the kind of key milestones and key risks there as we look through '26?

The key milestones, we expect to start production in the beginning of the second half. So at the moment, we're -- EVP, spoke to me, he's there this morning, actually doing fine. We've got people joining as of today, and they're starting to ramp up. They're in Vietnam next week just to see -- this is what you're going to be doing. So the key developments, the SAP system needs to be completed, which should be relatively straightforward as it's almost a copy paste. We are already ordering inventory. We're ordering equipment to be delivered. We will expect to be doing samples in Q3. So some customers will want to approve the site. Others will just approve it as is XP. So we expect to have the first revenue beginning of Q4.

And just to add one thing is that from the point of view of our existing Vietnam facility, it is -- there is some additional capacity that we will this year as well to that site. With that additional capacity, the site itself will be running at about 50%, 55% utilization. So Malaysia is not -- it's not essential to the delivery of our revenue number in the year that we're currently in. It obviously, clearly is beyond that strategically.

Tom Rands from Berenberg. Just a follow up on that. Is there any equipment in China as that closes down, that is still kind of relevant that could be shipped over to Malaysia?

Already shipped. Yes. So some of the newer test equipment, other things we put in has already -- has been -- has already left China, left before the Lunar New Year and is expected in March.

Likewise, the inventory.

Okay. Well, on that note, thanks, everyone, for joining us, and we look forward to talking to you in the summer.

Good afternoon, everyone, and thank you for joining us today at what is the first of the XP Power investor seminars.

My name is Gavin Griggs, I'm Chief Executive Officer of XP. And over the next hour, we'd like to share our strategy, why we win and progress we've made in delivering critical power solutions to the world's most demanding sectors. We'll then take your questions.

Upfront, I want to acknowledge that over the last 2 to 3 years, our performance has been somewhat disappointing, driven by the market destocking -- market stocking and subsequent destocking. Our competitors in the same markets have faced exactly the same challenges and delivered broadly similar performance.

Our focus over that period has been on controlling the controllables and making XP a better business. And that is what I believe we have done, and we are now ready to capitalize on the gradual market recovery we see coming in the next few years.

Let me begin by introducing our leadership team and speakers for today. Matt Webb, our Chief Financial Officer. He joined us in September 2023 and brings over 25 years international finance experience. Matt has been a great business partner for me, allowing me to focus on the operations, people, customers and product development.

We then have Jay Warner, our EVP for North America, who leads our go-to-market strategy and key customer relationships. He's a bundle of energy and has been the driving force of our North American business over the last 25 years, building our enduring customer relationships.

And finally, Peter Blyth, who's our EVP for Global Products and Marketing. He's responsible for product innovation and marketing across the business. He spent most of his working life at XP and brings a wealth of knowledge and experience that helps us tick.

Also present are Board members, Jamie Pike, our Non-Exec Chair; and Daniel Shook, who was recently appointed as Non-Executive Director following a successful executive career.

The structure of today is as follows. We're going to cover an overview of the group, then our markets, our product portfolio, some case studies to bring -- to help bring to life what we do and then conclude with our financial framework.

We've not included all aspects of our business today, given we only have an hour, but we focused on what we consider to be the key drivers of our value. We'll close with Q&A and drinks and give you a chance to engage directly with the leadership team.

Okay. So what do we do? XP is at the heart of electricity generation, transmission and consumption. We design and manufacture power converters that simply transform electricity into reliable, usable forms for critical applications. Our products support everything from semiconductor manufacturing and health care to industrial technology, where reliable power is critical.

I don't want to dwell on this slide, but it's a useful reminder of where the group has come from and where we are today. XP was founded in 1988 in the U.K. and now operates across the globe from 7 manufacturing sites and has a total of 23 facilities. We have over 2,500 employees serving over 2,500 customers across the globe. We -- our focus accounts are around 400, but our reach, including the distribution channels, is much, much larger. While our market share is relatively small, we are one of the market leaders in what remains a fragmented market. And over time, our TAM has grown as we expanded our product portfolio.

So we turn to our addressable market. Addressable market is large, with critical power solutions being a total of about $6.5 billion sector within the broader $35 billion to $40 billion power supply market. We focus on 3 large and growing sectors. Each of these require and value power as it's key to their processes or their delivery. They are left to right, the Semiconductor Manufacturing Equipment, where our customers design, build and supply the tools to support the rapidly growing semiconductor market, which is expected to reach circa $1 trillion by 2030. To support that, the market for the manufacturing equipment is expected to grow faster than the end market.

Industrial Technology, an end market valued at circa $550 billion, we focus on areas where power plays a critical role, areas like smart power management, test and measurement and analytical instruments.

And then Health Care, fast-moving end market of around $800 billion, where the megatrends of the aging global population, combined with innovation in medical devices and treatment technologies are the key drivers of growth.

We're well diversified by region and sector. North America, Europe and Asia, all contribute to our growth, but we have a particular strength in North America, given our reputation with the customer set.

From a sector basis, you can see the diversification at the global level. At a regional level, it is somewhat different with semi being a larger part of our North America business on the back of over 20 years of being very successful in this sector.

Jay, our leader of our North America region, will talk to you what has driven our success and growth in both North America and the key sectors later in the presentation.

I want to cover this slide in a couple of bit more detail just to talk about our strategy, key point how our consistent application of this positions XP for a strong future.

We've continued to deliver on all elements of our strategy over the last few years as we and our competitors have navigated the challenges of -- but we feel we have made further progress across the board.

Our focus is organic growth. We have a market-leading product portfolio, which we have further enhanced over recent years through new product launches and customer-specific products.

Customer interest levels remain strong for the portfolio, and we remain confident we can deliver double-digit organic growth across the cycle. We're focused on working closely with our customers where we bring our extensive specialist knowledge to solve their power problems. We build on strong relationships, and this will drive growth over the medium term and further expand our share of wallet by delivering solutions to their needs.

We've continued to invest in our business and our supply chain to ensure we can deliver on our medium-term potential. In recent years, we've opened our customer innovation center in Silicon Valley, close to many of our key customers, and we believe a key differentiator for us that will support growth. In 2025, we've opened a new design center in Manila. And the Malaysia facility is on track to be built completed by the end of the year, ready for commissioning in 2026. This site will support growth and business resilience way out into the 2030s.

Our people are key to our strategy. Improving the skills of existing teams while adding the right talent in key areas is critical. Whilst we have reduced overheads in recent years, we have ensured we have protected the key capabilities that are critical for our success.

Sustainability has been a key part of our strategy for many years. Improving the efficiency of power conversion has a meaningful impact on our customers' performance and today is a commercial imperative. Delivering this in a sustainable way is important to XP and our efforts have been recognized globally by our key customers. The key point I'd make is we've consistently applied this strategy, and this has enabled us to deliver growth ahead of the market, and we believe we remain in a strong position to deliver our ambitions in the medium to longer term.

So the main theme of today is why XP wins. This page is really our investment case and it's a focal point for us. We believe it's hard to replicate and a few others have it in the industry, which creates a real value irrespective of the part of the cycle we are in.

So what are the key parts? So we've talked to the key parts throughout this presentation, and we aim to showcase examples of where we've made progress.

So as I said, we have a clear and consistent strategy. We focus on attractive growing end markets. We have a broad and high-performing product offering, and deep enduring customer relationships. The designed-in nature of our products provides an annuity revenue with a deep competitive moat.

We offer customers market-leading technology solutions supplied from our well-invested operations with scalable capacity. This gives us attractive through-cycle financial framework. And all this is brought together by an experienced talent -- both experienced talent and empowering culture.

As I said, we'll cover each of the elements of our investment case today with the exception of our supply chain and our approach to sustainability, which we included in the appendix.

Okay. Let me turn to each market in turn, and then I'll hand it over to the team to go into more detail. Let's start with the Semiconductor Manufacturing Equipment sector. This is a highly specialized and strategically important sector in the broader technology landscape.

Forecasts suggest AI, data, et cetera, will drive the end market to over $1 trillion by 2030. This suggests a 7% to 10% market growth. And as I said, the WFE market, semiconductor equipment should grow ahead of that. This -- and we think the customer concentrate -- sorry, the customer concentration is relatively tight, and we have long-established relationships with many of the key players and a growing profile in many of the others.

Our products for this market are complex, have a long qualification, but equally long -- much longer life cycle, leading to strong customer lock-in, high barriers to entry and good levels of recurring revenue with an average best year value for each project of $650,000.

This market remains a great opportunity for XP, and we are well positioned with a leading number of small players -- sorry, leading small number of players where we're seeing a step-up in new projects across the differing processes as the demand increases for our technology solutions.

We remain confident that we can take share and grow ahead of the end market over the medium term as the market fully recovers.

Next, the Industrial Technology market. This is a very diverse sector for us. It's a strategically important segment in the value -- global technology value chain. Latest forecasts suggest the market will grow 5% to 7% over the medium term for a market for us, which is already $3 billion per annum today.

Within Industrial Tech, we also include the high service level distributors like the DigiKeys, Mousers, RS and Premier Farnells. The order intake from these distributors who are typically good bellwethers for the wider market, has grown strongly recently as end customer demand is picking up.

Key driver of technology of growth in this area is innovation by our customers. Our customers' applications are becoming increasingly more complicated and connected. And our focus has been making our products digital to support our customers' requirements.

Within Industrial Tech, we focus on subsectors with good long-term growth potentials and attractive niches. Typical applications in the areas are such as robotics, analytical instruments, test and measurement, additive printing, but with the average project size much smaller than the other 2 sectors.

Finally, the Health Care sector. This is a long-term growth opportunity for XP, and the growth in the end market is driven by the megatrends of aging global population and innovation in medical technology. Customers demand the highest level of precision, safety and regulatory compliance. The power converter is integral to many solutions and customers see XP as a key partner.

We have a reputation. The market remains strong, and our customers are seeing good levels of demand. So the underlying -- so underlying demand, which we are seeing is far greater than the -- the underlying demand, which we're seeing is growing at 5% to 7% in the medium term, has been masked by destocking in recent years.

We have a strong reputation for supporting innovation in this sector, and we are seeing ongoing infrastructure upgrades and innovation for new areas in many -- in new areas such as pulsed field ablation, robotic surgery, advanced diagnostic and the innovative use of technology for patient treatment.

Supporting these areas not only requires innovative, reliable power solutions, but a supplier who can be a power technology partner for the customer.

On that, let me pass it over to Pete to go into our product offering and to go deeper into the sectors we focus on.

Thanks, Gavin. I'm going to go a bit deeper now on our product offering, our customer relationships, and I'm going to show you how our annuity model works. But before we do that, let's take a look at some of the dynamics in the target markets that Gavin talked about.

Whilst the 3 markets we focus on are quite different, they all share a similarity. Our customers are OEMs who make instruments or equipment, which they sell year after year to a different range of end users. And as you will see, this is fundamental to our annuity business model.

So let's start with semiconductor manufacturing. This is a critical high-precision industry rapidly developing to support latest chip innovations. The market is made up of equipment makers who are our customers and fabs who are our customers' customer.

Each of these groups is made up of a small number of large companies who work together to develop new chips by collaborating on process recipes and tailoring capabilities and equipment. It is a fast-paced environment with lots of innovation, and our customers demand high levels of support and high-quality customized products.

Being able to deliver prototypes quickly and support a ramp to high-volume manufacturing is essential to being successful in this market. The example of power supply products shown are a high-voltage electrostatic chuck known as e-chuck and a high-voltage electron beam power supply known as e-beam power supply.

Now let's look at the health care market. This is a very different market, but no less critical. The criticality here, though, is all about patient safety and efficacy. Our customers here are medical device manufacturers covering a wide array of different applications such as diagnostic imaging, robotic surgery, infusion pumps, ventilators and oncology equipment. Our customers sell their equipment to hospitals, clinics, and there is a growing trend for portable home health care devices. Innovation is driven by our customers having to find better and more innovative ways to diagnose and treat patients.

The market consists of hundreds of different OEMs, but is dominated by a few large ones, many of whom are our customers. There are also a large number of start-ups focused on developing innovative solutions. It is a heavily regulated market where safe and reliable operation of a medical device is paramount.

The power supply is a critical component in the system as it isolates main voltages from users and patients as well as providing critical power for diagnostics and treatments. As there is a range -- a diverse range of medical devices, we also need to have a broad range of products that we can tailor to suit different applications. The example shown in the pictures is an AC-DC power supply that's used to power a pulsed field ablation system and a multi-output intelligent power supply used to power an imaging system.

The last area we will look at is Industrial Technology. This covers a broad range of subsectors with many different applications. I can't cover all of these today, so I'm going to focus on 3 areas. Analytical instruments, specialist manufacturing and general equipment.

In analytical instruments, our customers make products used for material analysis in a range of end applications. One such application that we are focused on is mass spectrometry. Here, the instruments are used in airports, food and beverage production and pharmaceutical manufacturing. The instruments rely on highly precise and stable high voltages generated by very specific power supplies. Examples are shown in the picture.

The specialist manufacturing area covers applications such as electron beam welding, ultraviolet or UV curing and additive manufacturing. One such end use for e-beam welding is in the manufacturing of jet engines where turbine blades are attached using this process. So this is a very critical application. All of these applications require precision programmable voltages that provide the user with the ability to control their process. The example shown here is a 5-kilowatt programmable power supply that's used in UV curing and a custom high-voltage power supply that's used in e-beam or electron beam welding.

The general equipment, which is the last area, covers a diverse range of applications such as digital projectors used in cinemas to professional catering equipment used in restaurants. All of these applications require efficient and reliable power supplies that can handle different operating conditions such as a wide operating temperature range.

As you can see, we have great experience, a strong market position, and we understand the challenges our customers face during their product development. This enables us to provide the right solutions, which in turn enables our customers' success. Doing this time after time is actually really difficult. So this is one of our key differentiators.

Now let's look at our product portfolio. If you look at this chart, you can see power on the y-axis and voltage on the x-axis. The voltage we're talking about here is DC or direct current. The dividing line between high and low voltage is 100 volts DC and between high and low power is 1 kilowatt or 1 kW.

In the bottom left, we have low-voltage, low-power. This is approximately 50% of our revenue and is where XP started. We offer hundreds of different standard and modified standard products here from external power supplies, such as the type you have to power your laptop to onboard converters and to what's called embedded power. Input voltages here are either single-phase mains or DC from things like batteries or renewable energy.

Due to the broad range of application the products can be used in, volumes in this area tend to be the highest. And we also see most competition here. The average selling price or ASP is $50.

If we stick with low voltage, let's look at high power, top left. This is approximately 10% of revenue. Here, there are less competitors, and it's a more complex area. Products here tend to have a lot of functionality, which means they add a lot of value to our customers as can be seen from the higher ASP. As the power increases, products use different input voltages with the highest power products using what's called 3-phase mains.

Now let's look at high voltage. High-voltage, low-power or HVLP in the bottom right, are typically printed circuit board mount products that take a low-voltage DC and convert it to a high-voltage DC. Typical uses for these products are things like radiation detectors, creating electrostatic fields, setting up bias voltages and charging capacitors. Whilst the power is low, the applications are critical, such as the electrostatic chuck I mentioned earlier.

The last area to look at is high-voltage, high-power or HVHP. This is a very specialist area and many solutions here are customized. We can provide products here with hundreds of kilowatts of power and hundreds of kilovolts of voltage. These are typically used for accelerating ions or electrons, and they're used in material science and high-energy physics.

A big area for us here is ion beam applications that are used in semiconductor manufacturing for changing material properties such as ion implant and for electron beam microscopes that are used to see down to nanometers in semiconductor inspection and metrology tools. There are very few players here. And with the product forming an integral part of the customer system, the ASPs tend to be high.

So hopefully, you've now got a good overview of the markets and the products that we cover. So let's take a look at how we got here today.

Back in 2015, we were a low-voltage business. We were operating in the low-voltage, low-power quadrant, which gave us a TAM of approximately $2.4 billion. What we saw, we could use this base that we had created in low-voltage, low-power to expand into other areas and get the growth that we needed.

With our expanded portfolio, we can now grow our share of wallet by cross-selling within the same customer base. So what did we do? Well, we wanted to stay in power as we knew many of our customers already used higher voltages and higher powers. So the natural choice for us was to go up in voltage and power.

We entered the high-voltage market through acquisition as this was the quickest and lowest risk way to enter this market. Through this process, we acquired knowledge and capability in HV engineering or high-voltage engineering, which then ultimately enabled us to design our own products. For low-voltage, high-power, this was close to what we already knew. So developing products ourselves was seen here as low risk.

In 2015, we acquired a company called EMCO, which actually took us into the high-voltage, low-power space. This gave us access to the onboard high-voltage products and allowed us to enter the e-chuck PSU market that I talked about earlier. We consolidated this with Comdel in 2017 and then entered the high-voltage, high-power market with Glassman in 2018.

The most recent acquisitions we've made have expanded the types of products and know-how we have, which has enabled us to tackle a wider range of applications. Our portfolio now enables us to offer high voltages to 500 kilovolts or 500,000 volts and high powers to 600 kilowatts as well as high voltage with low noise and high precision. We are now one of only a handful of companies who can tackle all high-voltage applications.

In the low-voltage area, through understanding the needs of our customers, we developed a range of digital programmable high-power products. This now allows us to power more process-related and critical applications. It also gives us a foundational platform to build all of the high-power solutions off of.

Over the last 10 years, our R&D spend has grown fairly consistently at approximately 15% CAGR per year. This has been driven by the growth of our business, especially where we've added know-how and capability through acquisition.

As we've expanded our product offering and moved into critical applications, we have needed to add specific skills in high-voltage, digital high-power and software to support our customers and stay competitive in the market. Today, we have 4 R&D teams in the U.S.A., 2 in Germany, 1 in Singapore and 1 in the Philippines. These are multi-discipline teams with specialist skills in high-voltage engineering, digital power and communications. The teams collaborate to deliver different types of products.

To create value for our customers and be competitive, we strive to make sure our products have some or all of the key attributes shown on the top right. The trend in power is for products to get smaller, which in turn drives power densities up, resulting in efficiencies needing to increase. This, in turn, drives the need to develop new circuits using different materials and devices such as silicon carbide and gallium nitride. As we play in critical markets, product quality and reliability are a must.

We also need to tailor our products to specific customer requirements and deliver prototypes quickly. So our philosophy is to design platforms with flexibility built in. This means we are not designing products for customers from the ground up, but building on existing platforms and technology.

Controller monitoring of power supplies is a developing area, especially where the process -- where we're powering the process. Here, the power supply forms a central part of the control system, so the customer wants data to know what is going on and have the ability to make adjustments, which ultimately affects their process.

Depending on the end application, some customers require high levels of precision on the power supply, especially when measurement is critical, such as in mass spectrometry or tools for inspecting chips. To enable many of these attributes, we have employed digital architectures in our products. This advancement means that power supplies now have embedded firmware as well as external graphical user interfaces. 15 years ago, this wasn't the case.

Let me take you back to 2009. In this year, we launched the fleXPower XM10, which is shown on the left -- right-hand side of the screen. This was an analog product with limited control and monitoring. It was a good product, though.

In 2015, we launched the nanofleX. So this was smaller than the XM10, but still bigger than the new product what I'm going to talk about in a minute. This year, we have launched a brand-new product, the FLXPro. This is roughly two -- this is roughly half the size of the XM10. It's a fully digital power supply that gives customers access to control, monitoring and configure various parameters as well as providing high-value features like event capture and password protection to comply with the up-and-coming EU Cybersecurity Act. It's a class-leading product and an example of how power supplies have evolved over the years.

We believe that the FLXPro sets a benchmark for configurable power supplies, and we've had some very positive feedback from customers and electronics industry press.

Now I'm going to talk to you about how our annuity revenue model works. As I mentioned earlier, one of the attractive things about the markets we target is that they give us an annuity. This is because our customers sell the same equipment to their markets for many years and the cost of changing the power supply is very high.

What we have to do is get designed into their products to enjoy this annuity. So our sales team are focused on designing in and winning programs with these customers.

Let me take you through the process. Step 1, our sales team would identify a project and through a process of qualification with the customer, would decide on the best solution.

Once that's decided, in step 2, they would move to quotation stage where they submit a quote to the customer.

Step 3, which we call sample and it is the longest stage, so if the customer is happy with the quote, they will either buy a product from us on the low-power stuff, we will give them a free of charge sample. And this is where the customer starts to test and evaluate our products. It's an iterative step, and it can be very long depending on the application that the customer is designing. Close cooperation with us and our engineers is very critical in this stage.

Once the customer has gone through this step, they enter what we call the approval step. This step is where the customer would go through their compliance, covering things like safety, electrical noise, software and a whole range of other standards. And this is where we would provide expert support to help them achieve compliance and get their product on the market.

Once this is done, the customer will then approve our product and they will use -- say they will use it, and it will add it to their bill of materials. This means we are now approved.

The last step is when the customer launches their product to market. And this is when we would receive production orders for our products. And this is where the project would stay in production for a long period of time, and this is where we get the repeat business year after year.

The average time for this design-in process is 18 to 24 months. We will be longer for some and shorter for others, depending on the complexity of the customer's product and our product. The level of repeat business we get depends on how successful the customer is in their market. So to mitigate this, we aim to get designed into as many projects in a single customer as possible or at a product level, getting designed into as many projects from as many different customers as possible.

The charts on the right give an example of this. The chart at the bottom shows sales to a single customer, which is made up of multiple projects and products that stay in production for a long time and drives the revenue build year after year. The top chart is a product perspective, and it tells a similar story. Here, we're designing the product into multiple customers, but the same thing happens.

The fleXPower, which I talked about earlier and is our most successful product, which I spoke about, is one of the most -- as you can see, the revenue builds over the years. Like most of our products, the fleXPower is a family covering different powers and voltages. And this is how our annuity model works.

I'm now going to hand over to Jay, who's going to try and bring this to life.

Thank you, Pete. It's an honor to be here today and be able to provide some deeper insight specifically to our business in North America. For those of you who don't know me, which are most of you, my name is Jay Warner. I've been with the business for 25 years. I'm based out of our headquarters in Northern California, Silicon Valley.

And I'm really honored and proud to be part of this amazing journey from distributor to world-class designer and manufacturer of the broadest and the freshest power conversion technology in the world.

I'm responsible for the North America business and specifically responsible for the revenue growth and our Advanced Systems Engineering Group. So today, I'd like to give you a closer peek inside XP as a technology solutions business.

Customers are no longer just buying power supplies. They're evolving, and we are evolving into a process power side of the business, essentially powering their IP and what makes their products different from their competitor. This requires digital capabilities that are not available in conventional power supplies.

Integrated hardware and software is critical. This trend from North America customers in semiconductor manufacturing equipment and health care sectors is expanding into other markets and regions.

Our customers, they're seeking technical solutions from long-term partners who understand their engineering and their operational challenges. So an in-depth understanding of end-user applications is a must. And this is a key strength of our Advanced Engineering Group, where customer-centric partnerships really develop, they're not transactional engagements, right? This cross-functional global team collaboration in order to accelerate time to market.

As far as I see it and the way I explain it, we're not designing power supplies. We're designing sensors, sensors that provide the necessary power conversion for safe, reliable power, but also using the power supply as an EKG of sort to monitor, detect the current state of the device, provide diagnostics, proactively respond to changes in behavior and virtually communicate to change the function of the power supply with a touch of a button.

So on the bottom right-hand corner, you can see a very basic illustration of an Advanced Systems Engineering product. Customers are looking for a full power system solution.

To put it simply, you can see 3 of the large blocks there, they're 5,000-watt HPT power supplies. They're mounted in a customer-specific enclosure with input and output controls, communications via custom interface boards, resulting in a turnkey plug-and-play solution for the customer. XP is one of the very few companies in the world that can provide this capability.

Opened on January 1, 2024, the XP Power Silicon Valley Innovation Center, located in San Jose, California, has market-leading capability and resource. This is home to our Advanced Systems Engineering team. 40-plus multidiscipline engineers, firmware, electrical, mechanical, product management team, all dedicated and experienced in customer-specific designs.

The innovation center has a 10,000-square foot state-of-the-art engineering lab, a 5,500-square foot new product introduction, NPI prototype and production floor. We have 80 staff in assembly, test, planning, quality, NPI supply chain with extensive high-power and high-voltage test capability.

The center was designed for a seamless transfer of NPI to our high-value manufacturing, HVM production in Asia. The test equipment in San Jose matches the same exact test equipment at our HVM factories in Asia.

We also have a 35,000-square foot warehouse that serves as a major advantage as we are essentially a stocking manufacturer to provide the same levels of service that a distributor would, when needed, for specific customer requirements or markets.

And lastly, we have an on-site service center to rapidly respond to root cause and corrective actions on spot. Silicon Valley Innovation Center, it is. It's driving the ultimate experience for our people and our customers with a first time right approach to quality and performance. Our technical resource advantage, all under one roof. It's a major reason why we win.

As pictured in the 2 upper right-hand corners, right pictures, you'll find our 3-meter anechoic chamber for radiated emissions, the outside on the left, the inside on the right.

On the bottom, you'll find the regulatory compliance, EMC. This gives us extensive in-house capabilities, including radiated emissions testing, one of the biggest challenges when designing in power conversion products into the end customer application.

In the bottom left is our reliability lab. This is our in-house lab with environmental and vibration testing capabilities. We have multiple HALT chambers for us to perform highly accelerated life testing, HALT, and HASS chambers for highly accelerated stress screening. We also have drop test shipment.

The center has an actual customer etch plasma chamber. We use that to simulate the impact of plasma on our products while we're in development.

Not shown is our mechanical R&D shop. This is where we can perform fast turnaround of custom components using our 3D printing capabilities, CNC machining, laser cutting and engraving. Historically, before the innovation center, we needed to outsource these services, and it would take resource, delays and added cost.

With the implemented lessons learned, following many years of moving up the value chain and vertically penetrating our largest semi-fab, health care and industrial customers, thus far, we've achieved some outstanding reviews.

We dramatically improve the customer experience with our dedicated multidisciplinary team. The Advanced Systems Engineering team, they run autonomous from our global standard product teams. However, they serve as a vital adjunct between the standard product teams and our customers.

Our philosophy is pretty simple, fast to solve, fast to prototype, fast to high-volume manufacturing. Fast to solve. We have an in-depth experience in semi-fab and health care-specific applications. We are in very close proximity to many of our customers' design centers, which facilitate interactions and collaboration through the entire development process.

Fast to prototype. We develop and remotely operate digital workbenches. This gives us a world-class follow-the-sun process via our Advanced Systems Engineering team in the Philippines, essentially working on projects around the clock.

Fast to high-volume manufacturing. Sustaining engineering activities to support Silicon Valley to Asia production transfers and ongoing production support.

The end result is customer focus. We start with the user experience, then work backward to integrate the technology. This approach, it's essential for creating lasting impact in large-scale success. We believe that we must start with the customer experience and work backwards to the technology, not the other way around.

This approach has enabled us to climb the value chain from controls and signals to powering the customers' process, powering their IP.

Occurring on just about a daily basis, I added some pictures of customer collaboration visits to the innovation center.

On the left and the right, you will see customers coming in. They're in our facility 2, 3 times a week. In the middle, it's vice versa. It's our customers invite us to their facilities to get a user experience on their products.

Thank you. Thank you for the opportunity to share more about our business. It was an absolute pleasure. At this point, I'll turn it over to Matt to discuss the numbers.

Okay. Thank you, Jay. So now let's turn to more familiar territory for most of you, namely our financial framework. And you'll be pleased to know that none of my slides require any of your GCSE physics.

So if you're familiar with XP, you'll be familiar with this table. We -- it summarizes our through-cycle financial performance. We see ourselves as a high-growth, high-margin and high-returning industrial, with strong cash generation, which the metrics reflect.

Why are we so confident that we can hit these metrics? Well, I'll explain why slides. But before I do that, there is, of course, a simple answer, and that is that we achieved them consistently for years prior to the pandemic and in the highly unusual but temporary evolution of the marketplace since.

As you can see, for the 10 years from 2010 to 2019, our average performance was at or above our ambition across the board. So to achieve this level of performance does not require the achievement of something new. It requires the reestablishment of something that we used to consistently deliver.

We are not reaching these levels today, except for cash generation, which has been consistently strong over the last couple of years. But this is not because we or our markets have changed fundamentally since 2019. It is because we are emerging from a highly unusual simultaneous down cycle in all 3 market sectors that has been experienced by all market participants.

I will explain why we believe we can return to our financial framework in normal market conditions over the next few slides, starting with our organic growth ambition.

Okay. So we aim for through-cycle organic growth of 10%. We expect this because we play in the right markets, and we have the means to outgrow them. As shown on the left, we see the general power supply market as growing GDP+ due to increasing electricity use, which all requires conversion, particularly to support the proliferation of electronic devices. We see critical power as growing GDP++ supported by long-term megatrends. Market selection gives us most of the growth that we need, averaging 7%.

As shown on the right, we expect market outperformance to add a further 3%. And I've listed the 3 main drivers of this on the slide, which form 3 of the strategic pillars set out by Gavin earlier.

Pete talked about the impact of broadening and infilling the product portfolio earlier through M&A and organic product development. So I won't spend more time on this now, but there is more organic infilling that we can still do.

I will spend time on the other 2 drivers, namely key accounts and growing share of wallet. We believe that we can continue to grow our share of wallet with existing customers. As shown on the left, we cover the majority of our target market with the customers we already have and our share of the power supply spend of our customers is still relatively low.

Getting a foot in the door with customers is the toughest step to take, particularly in this industry where reputations are critically important. Our foot is already in. We can achieve most of our growth ambition by fully leveraging the long-standing relationships we already have.

I mentioned that our growth strategy targets key accounts. There are 30 of them. They are selected for their size, growth potential and fit with our high-touch tailored approach.

You can see how important these customers are to our future, accounting for roughly 1/3 of our addressable market and half of our current revenue. We have 7% of their business today. One way to get more is to sell the full breadth of our current portfolio to them. As you can see on the right, we do this with 6 of the 30 today. We can do more, therefore, with the remaining 24.

We explained earlier that nearly all of our revenue growth -- sorry, revenue comes from the sale of power supplies into a defined customer project. If we win the project, we are designed into the customer's equipment and can expect annuity-type revenue for the lifetime of the customer's product, which averages 7 years.

Our revenue from the project typically follows a bell curve as the customer's product goes through early life, peak demand and in the end, withdraw from the market. We call the peak best year value. Our sales funnel is the sum of best year value for all live projects, namely those that we have won and the customer's product is still in the market.

New project wins increase the funnel. Withdrawals obviously reduce the funnel. If the funnel is growing, new project wins exceed project withdrawals, which should lead to revenue growth over time.

The chart on the left shows that the funnel has grown by 12% per annum since 2019, supporting our organic growth ambition.

Clearly, margin improvement is a key focus for us right now. At present, our operating margin at the market trough is mid-single digit. We aim for through-cycle adjusted operating margin of circa 20%. Our progress back to 20% is dependent upon 2 factors, increasing our gross margin to at least 45% and continued tight control of overheads.

Gross margin improvement will come from 3 main sources, operating leverage, mix enhancement and supply chain enhancement, as shown in bottom left.

Regarding operating leverage, we have well-invested manufacturing facilities with spare capacity, leveraging the fixed cost of these facilities as demand returns to mid-cycle should add margin as shown. We expect our mix to get richer as time progresses, particularly from increased sales of technology solutions, which command a higher margin.

Regarding supply chain enhancement, we have a global manufacturing footprint. The model is for low-cost mass production in Asia with some responsive short-run production in the West. Optimizing how we use this network will improve our margins.

Our sourcing and lean manufacturing methods get better every year, and this should continue to contribute to margin improvement over time. Collectively, we are confident that these levers will drive higher margin as demand improves.

I thought it might be helpful to give you an illustration of how I view our cash generation model. Fundamentally, our sources of advantage are our intangibles, namely our people, our customer relationships and our technical know-how.

Our focus on intangibles naturally means we have a relatively light capital model. Our bricks and mortar are generally not costly in aggregate and our production process is light. Our products can be made to order and not held in stock. Our light capital model means with operating margin at target, we should achieve a 10% free cash flow margin in normal circumstances.

The final part of the framework I want to cover is return on capital. Our operating margin and ROCE ambitions are both circa 20%. This means we need to maintain a capital turnover of 1. In other words, we can have capital employed of up to GBP 230 million to support revenue of GBP 230 million. The good news is that, as you can see at the bottom, we are pretty much achieving that ratio today and growth will only make it better. So as our operating margin returns to 20%, we are confident that our ROCE will do so also.

A quick word on capital allocation. We invest in the business first. With a free cash flow margin of 10%, there should be ample cash for dividends, and we look forward to reinstating them once our leverage is well progressed to our target of 0 to 1x EBITDA.

Once we are within that range, we then have the option to return any excess cash to shareholders or invest in M&A, albeit I would highlight that M&A is not required to deliver our strategy, but could be an accelerant. So that's it for me.

I'll hand you back to Gavin for the wrap-up and Q&A.

Thanks, Matt. So what we try to cover is why does XP win. Our view, we have a well-proven strategy. We offer market-leading technology solutions to the winning customers in attractive end markets. We have broad, high-performing product offering to support our many customers, and this brings the annuity-esque revenue with strong barriers to entry.

We are becoming increasingly a technology solutions business, driving market-leading customer solutions. We deliver this through our well-invested operations and scalable capacity, and we expect our financial framework to deliver attractive returns through the cycle. And this is delivered by our talented team with a can-do customer-centric attitude.

On that, I'd like to open the session to Q&A. [Operator Instructions] If the guys can come up, I hope you are. Please direct the questions to myself, and then I'll direct to the team to give the answer. Okay. Questions?

So a few questions from me, mainly just kind of clarifying some points you mentioned. So the first, the semiconductor market reaching $1 trillion. Could you kind of give us an idea of the pipeline? And I guess, given the context you've given us that it takes 18 months -- 18 to 24 months, should we be thinking about the recovery kind of picking up a bit stronger in the next 3 to 4 years? So that's the first one.

Okay. Let me take one for clarity. The $1 trillion is the end semiconductor market, which is expected to be $1 trillion by 2030. Bank of America came out with 2027. Semiconductor market as a whole has been growing double digits for the last 18 -- since the beginning of January 2024. We supply the WFE market, wafer fabrication equipment, that to deliver to $1 trillion or circa 10% will have to grow faster than that end market. So we do expect the market to pick up from where it is today. Yes, the trend is very much up to the right. It won't be a straight line. I can tell you that much.

Great. The next one again is kind of on market size. The pulsed field ablation, it said it was just approved, FDA approved. So the details you've given to us on the market size there, is that just the U.S.? Or is that globally? And if it's globally, does that mean -- or if it's not globe, if it's just the U.S., does that mean there's a much larger opportunity in the future?

Do you want to cover that, Jay?

Sure. The PFA market is a brand-new market, and we were very proactive at identifying that market and getting in with the leader. We won that business. I shared with you the vertical integration part of it, where we have 8 converters, 2 AC to DC, 2 DC to DC but we weren't done there, right? Once we won that, you got to target who are all the competitors. So we're very good at that. And we've done it. We're talking and we're excited about the opportunity.

Okay. Great. One more on, again, a bit of clarity. You mentioned memory and logic exposure in the semi market, both at very different points of the cycle. But could you kind of give us an idea as to which one you're more exposed to at the moment?

Again, Jay, do you want to answer that?

It's an interesting question. I hear that question a lot. And to me, it doesn't matter so much. I control what we can control. And what we control is to be on the right tools for all markets. When they go, they go. You just want to be on it when they go.

David Farrell from Jefferies. Two questions. Thank you for the presentation in terms of why you win. But could you explain why you lose when you do lose? What are the factors there?

And then just trying to break down the 10% organic revenue growth a different way. If you go back to Slide 16 and 17, you got 50% of your revenue growing in a market which I work out is growing at less than 2% over the last decade. What are the other areas outside of -- what are your growth rate assumptions outside of low-voltage, low-power to get you to that 10%?

Do you want to cover why we lose, Jay?

I don't want to cover why that -- cover that. Next question. You can't win everything. And our core values, our value proposition is speed, agility, flexibility. We are built for speed, and that is how you lose if you're not fast enough. In most cases, first on a tool or on an application wins. So those moments when we lose, it's because we didn't get out fast enough, in most cases.

Do you want to?

Yes. So just in respect of the implied 2%. I mean just keep in mind, David, that we've had, not only us, but the entire industry has seen destocking over the last few years. So the growth you've seen is net of that destocking phase. If you looked a couple of years ago, the market size would have been a lot bigger and the growth rate overall would have been much more consistent with the long-term growth that we're quoting.

Tom Elgar at Deutsche Numis. I think just the one question from me. I think thinking about the through-cycle growth model, just the 10% organic growth target here, just trying to collate this to what is the most impactful use of your capital. So if we're talking about the annuity model that you have here, is it quoting? Is it the design engineering? Is it the account execs to grow wallet share, see those projects earlier. You've emphasized the importance of speed.

So I guess as a central team, deploying growth capital into your business, ensuring that you can drive up win rates, et cetera, outperform the markets as you guys have emphasized, just think about taking that annuity model that you guys have talked about and actually applying the capital decisions that you're making to accelerate that.

The area we can invest in most that would accelerate most is customer-facing engineers but you still need the supporting infrastructure team behind it. So you still need engineers developing the platforms that the customer-focused engineers will then use to deploy with the customer solutions.

So it's almost, behind Jay's team, there's another team that do the development of product supply. And that -- those 2 areas, customer-facing engineers and those engineers are our most critical resources. That's where we want to invest. But you have to invest gradually to expand the overall delivery mechanism.

Just to add to that, I mean, just to reinforce that point, I mean, obviously, that was the -- one of the key areas that we did not take any cost out of effectively at all over the last couple of years that recognizes how important that is to achieving new objectives and converting them.

It's Adam from Montanaro here. I guess the first one was you talked a bit about the evolution in terms of customization, more complexity, more solutions-based products. Can you talk about what that means for sort of ASP going forward? And I guess how that feeds into the model?

Could you cover that, Jay?

Sure. I guess I would explain that as more of a value priced type solution. More and more of our customers, the ones we're focusing on, they just don't want a power supply, right? They want something fully turnkey. When you give them that type of service and you give them a turnkey, one part number, you add a lot of value because you reduce their overall BOM, what they have to be responsible for, the end-to-end fulfillment from supply chain to quality.

And then when you're essentially an extension of their engineering team. That's how close we are in the types of relationships that we have with our customers, and they see real value in that. And that, in turn, helps with the ASP.

Okay. And in terms of those are the sort of 3 segments, would you be able to rank how you see your competitive strength across the 3?

Again, Jay?

Equal, when it's all said and done. The most complex is semiconductor manufacturing equipment. Next, health care, then industrial, but it could flip on its head if it's the right industrial customer. So it all depends on the customer and the application really.

Last one. You gave us some helpful market share data. Could you maybe just talk about how that has been trending? And there is obviously an implicit assumption of market share gains. Is that -- do you have evidence to support that effectively?

Yes. The challenge with the market share is there's very few people who actually track the overall power supply market. And the people we use essentially find more market. So we outgrow the market and have consistently, but they find more market to cover.

So we're -- our point is we're relatively small. There's plenty to go at, and there isn't really a challenge. But we do implicitly expect to see market share gains in all 3 regions in the 3 sectors. And Pete, anything you'd add on that?

No, not really.

Tom Fraine from Shore Capital. Just a follow-up to that one. How fragmented are your markets? You've got 5% share in 2 of them and 10% in 1. Is that a leading share or close to leading share? If not, what would the leader have in each of these markets?

Do you want to cover that, Pete?

Yes, it's a good question. As we -- as Gavin showed in terms of the markets, the semiconductor is tens of customers to hundreds in health care to thousands. So the health care industry -- not -- sorry, the industrial industry is the most fragmented. It's probably the easiest one for people to access. So we probably have -- we don't have a leading share in that area. But as we go into the smaller, more consolidated areas like health care and semi, those are where we have more of a leading share in those markets.

I think I'd add, remember, we're focusing on the critical parts of those marketplaces. So it's not the -- in health care, it's the critical end of where it is. So where we compete, there is less competitors. In the more generic part of the market, there's many more, in industrial and health care, particularly, but semi is a lot fewer.

Okay. And just on the customer concentration risk in the semicon equipment market, have you got a record of basically losing any customers or you've been quite solid with them? Obviously, with rating and stuff, what was the largest customer in that market as a percentage of your group revenue actually?

Largest customer is in group revenue is just under 20%, but we've been with that customer for over 20 years, and it's in -- we're designed into over 200 programs across many, many different divisions of that business.

So while you have a customer concentration, it's not really -- it's multiple things. And you don't -- we continue to work with that customer and we're working very well. So I don't see it as a big concern. I see it -- more see it as an opportunity to grow more with them actually.

Scott Cagehin from Investec. And clearly, that customer is the customer that gave you $420 million of revenue over the last 11 years then.

Just the question I have is, in terms of the market share gain, it seems like the opportunity here is getting your 6 customers up to 10 maybe of the top 30 to buy an extra product line. Is that how you think about the market share gains? Or is it new customers? And having 30 customers as 50% when one of them is 20%, is that the opportunity just to increase your penetration? I know it's one of the pillars you set out, but is that where most of it will come from?

Scott, it's an illustration. I mean it's wrong to think of us. We -- our only aim here is to grow share of existing customers, and we're not interested in new customers, obviously not. So all I was trying to do was illustrate one key area for revenue growth going forward. And one element of share gain would be selling additional types of products to existing customers. So I mean, it is an important aspect, but there are other aspects to how we can grow with customers.

And sort of following on from that, if it takes you sort of 18 to 24 months to get designed in and how far -- how many of them are you on at the moment to get that to 6 customers up high, are you in progress quite strongly.

Yes. Well, obviously, I highlighted the growth of our funnel. I mean that growth is carrying on, right? So that does show that we are -- and the growth that we're seeing is faster than the overall market. So that does show that our penetration with those customers is growing over time. So the pipeline supports continued growth.

One final question.

You've got Melvin here from Sterling. My question is around medical. And since you've taken the pulsed field example, are we supplying to all 2 or 3 FDA-approved players?

Jay, do you want to do PFA?

Not sure I really want to answer that.

Roughly?

So I will say -- I'll say there's people listening, right? I'll say that we have good, strong solid relationships with all companies in PFA.

Okay. And then I'm going to change the subject quickly. In terms of pricing, you mentioned to one of the questions that speed is of essence, and I get it totally. But at the end of the day, we are talking to customers that are disproportionately larger to us. So where does price come into that equation? I mean they all want high quality, fast, et cetera. But where -- what percentage of the bids we are losing on price specifically?

Do you want to take it, Jay?

When it comes to price, our strategy is not to call on the customers or the applications where price is a concern. If price is a concern, most likely will not be a target customer for us. They need to see and recognize the value that XP brings, which is a special value, and we have a unique business.

And my last quick one was coming to 1.5 hours, we haven't used the word tariff once. So we've got to get to that really.

Yes, I think on that note, we're...

How much of it has been -- because obviously, if everyone increases or has to increase their prices, then we are not at a disadvantage. But if some players can get away by using their domestic. So just wanted to get your views there, Jay.

Yes. I mean very few people use their domestic supply into the U.S. I mean pretty much everyone in the industry is importing into the U.S. from somewhere else. Our somewhere else is obviously mostly Vietnam. The Vietnam tariff rate is one of the lowest. So we don't see it. It has not played out as a competitive disadvantage to us. If anything, relative to some others, it's a bit of an advantage. And certainly, we've been successful in passing through where we have to the tariff.

Obviously, we do as much as we possibly can not to pass it through, not to import into the U.S., deliver directly to elsewhere. There's a lot of mitigation we put in place, but where we have to pass it through, we've been successful.

On that, I would like to finish. Thank you all for joining. Please stay with us and answer -- I'm happy to answer further questions and talk through our product set we have at the back of the room. So thanks very much.