XP Power takes action to cut spending after profit warning

Electrical parts manufacturer XP Power, which disappointed the market earlier in the month after warning on profits due to weaker trading conditions, said it has taken "significant action" to cut costs and preserve cash.

On 2 October, the company said it was cutting its dividend with the full-year outlook below prior expectations as reduced demand led some customers to defer shipments into 2024, while the Chinese market was struggling.

Since then, it has embarked on a "significant and wide-ranging operating cost reduction programme", including job cuts and restrictions on non-discretionary spend which should amount to savings of £8-10m next year.

It is also planning to reduce inventory in the range of £10-20m over 2023 to 2025, review supplier payment terms and cut non-essential spending to "maintenance levels".

The company, which had warned it was close to its debt covenants, said it is now in "advanced and constructive discussions" with its lenders regarding future covenant requirements and other actions to strengthen the balance sheet.

Revenues in the third quarter were down 5% year-on-year at £75.1m, but operating profit was slightly ahead of the company's expectations due to a better September.

“We have made good progress over recent weeks with our cost mitigation plans to reduce the group’s leverage. These plans are already well progressed and discussions with our lending banks are on-track and productive," said chair Jamie Pike.

“Longer term, the board is confident that XP’s clear strategy leaves the group well positioned to grow ahead of its end markets, drive further market share gains, improve profitability and deliver strong cash generation.”

The stock, which has more than halved since the 2 October profit warning, was up 3.4% at 1,040p in early deals on Friday.