TIDMXAR
RNS Number : 5545T
Xaar PLC
21 March 2019
Xaar plc
2018 FULL YEAR RESULTS
Xaar plc ("Xaar", "the Group" or "the Company"), the inkjet
printing technology Group headquartered in Cambridge, UK, today
announces its full year results for the 12 months ended 31 December
2018.
Summary of results for the year to 31 December 2018:
Adjusted(1) IFRS
2018 2017 2018 2017
----------- ---------- ----------- ----------
Revenue GBP63.5m GBP100.1m GBP63.5m GBP100.1m
----------- ---------- ----------- ----------
Gross Profit GBP24.4m GBP47.0m GBP24.4m GBP47.0m
----------- ---------- ----------- ----------
Gross Margin % 38.5% 47.0% 38.5% 47.0%
----------- ---------- ----------- ----------
Gross R&D investment(2) GBP15.0m GBP18.1m GBP15.0m GBP18.1m
----------- ---------- ----------- ----------
Net R&D investment(2) GBP14.7m GBP12.3m GBP14.7m GBP12.3m
----------- ---------- ----------- ----------
Operating Margin
% (18.7%) 17.8% (23.8%) 12.1%
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(Loss)/profit (GBP11.7m) GBP18.0m (GBP14.9m) GBP12.3m
before tax
----------- ---------- ----------- ----------
Diluted Earnings
per share (9.7p) 20.7p (16.0p) 14.0p
----------- ---------- ----------- ----------
Net Cash(3) at GBP27.9m GBP44.7m GBP27.9m GBP44.7m
year end
----------- ---------- ----------- ----------
Dividend per share 1.0p 10.2p 1.0p 10.2p
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1 - Excluding the impact of share-based payment charges,
exchange differences relating to intra-group transactions, research
and development expenditure credit and restructuring and investment
expenses, as reconciled in note 2
2 - Net R&D investment excludes the capitalised costs of the
High Speed Sintering development programme (and P4 (Thin Film)
technology platform in 2017), and includes the amortisation cost of
P4 (Thin Film) technology platform, as required under International
Financial Reporting Standards (IAS 38)
3 - Net cash includes cash, cash equivalents and treasury
deposits
Financial highlights
-- Revenue in line with December update, but pretax losses
affected by additional inventory and debtors provisions totalling
GBP7.0 million.
-- Revenue in 2018 was GBP63.5 million, GBP52.4 million
excluding licence royalties. This represents a decline in revenue
of 37% year on year, largely driven by a decline in our Ceramics
business.
-- Gross margin of 38.5% (2017: 47.0%) was adversely impacted by
the aggressive 58% decline in revenues from the Industrial segment,
a reduction in revenues from licensees of GBP5.3 million and a
one-off provision for slow moving inventory of GBP2.5 million.
-- Adjusted operating loss margin was (18.7%) (2017: profit
margin of 17.8%). In addition to the gross margin decline, this
incorporates the impact of higher net Research and Development
(R&D) investment following cessation of the capitalisation of
the P4 (Thin Film) platform in July 2017 and a provision on past
due debtors of GBP4.5 million.
-- Net cash at 31 December 2018 was GBP27.9 million (2017:
GBP44.7 million), reflecting continued investment in our Thin Film
platform and High Speed Sintering 3D printer technology, and the
working capital build due to slower new product sell through.
Strategic and operational highlights
-- Three Business unit structure implemented.
-- Revenue streams more diversified; 79% derived from new
products and businesses introduced in the last 3 years.
-- Strategic review of Printhead business highlights preferred way forward.
-- Xaar 5601 Thin Film printhead being integrated and evaluated
by more than 20 OEMs across packaging, commercial, textiles and
décor segments. Three OEMs have announced publicly (Windmöller
& Holscher, Neos and KELENN Technology).
-- Formation of Xaar 3D Limited announced in July, the joint
investment with Stratasys. First Beta High Speed Sintering printer
placed in December 2018.
-- EPS signed a distribution agreement with Machines Dubuit to
distribute exclusively its product portfolio in North America.
Doug Edwards, Chief Executive Officer, commented:
"We are making progress in transforming Xaar into a more
diversified and customer centric organisation. Challenges clearly
remain across our Printhead business. Following the review
conducted in 2018, it has become increasingly clear that in order
to realise the full potential of our Thin Film portfolio, we
require strategic investment partners to help us achieve the
necessary scale.
The long term opportunities remain for our new Printhead
products, particularly Thin Film, and in our new business areas of
3D Printing and Product Print Systems."
CONTACTS
Xaar plc
Doug Edwards, Chief Executive Officer Today: 020-7353-4200
Shomit Kenkare, Chief Financial Officer Thereafter: 01223-423663
www.xaar.com
Tulchan Communications
James Macey White
David Ison
Hollie Ralston 020-7353-4200
Chairman's Report
2018 has given us several advances, but overshadowed by some key
performance gaps.
The year has been a difficult one for Xaar, with continued
decline in our Ceramics related sales, a drop of over GBP20 million
this year, and integration issues slowing down our Thin Film
product, the Xaar 1201, which aims to re-establish Xaar in the
Chinese wide-format graphic market.
These factors have been the major causes of weak financial
performance which masks the positive developments in a number of
other areas of our business.
In our Thin Film technology, the Xaar 5601 printhead has
advanced to the point of now being adopted by several OEMs for
integration into their new printer platforms. Relationships with
Windmöller & Holscher, Neos and KELENN Technology have been
announced and further OEMs are working with the Xaar 5601, which
gives encouragement to the prospects of substantial revenues
building over the next few years from this technology.
In our Bulk piezo printhead business, where the impact of
declining Ceramic revenues is felt, we have taken a series of cost
reduction actions to bring capacity down to the visible level of
demand. Some advances were made in Packaging application markets
and the potential for upside from the digitisation of markets such
as printing direct to containers and laminate decoration remains,
albeit on unpredictable timing.
Our 3D Printing business attracted a significant investment and
shareholding from a global leader in additive manufacturing,
Stratasys, based in the US and Israel. We look forward to further
developments on distribution arrangements and manufacturing
partners as we meet milestones for placing prototype printers with
customers in 2019.
In Q1 2018 we received the second instalment of royalty buyout
from Seiko Instruments Inc. (SII) which now leaves our licence
income at a low level.
Plainly our trading performance and working capital build up has
impacted our cash balances, but, at GBP27.9 million year end cash,
we remain well funded, although unable to recommend dividend
payments to shareholders while we make losses.
We announced a strategic review of our printhead business in
September 2018 and this has yielded several useful conclusions,
covered in the Chief Executive Officer's report, among which was
the strong achievements which Xaar has made in the past decade when
set against far larger companies with greater resources.
Xaar has a portfolio of innovative and competitive products,
with the printhead range now supplemented by bespoke product
printers through our EPS company in Vermont, US, also with the
prospect of 3D printers in the market for the first time in 2019.
Whilst we are disappointed with the slower than expected adoption
of some of our new printhead products, we are confident that the
transformation we are undergoing will lead us to become a more
diversified and customer-centric organisation, with an appropriate
balance between established and developing technologies. We remain
focused on delivering the benefits of our strong portfolio and
technology advantages to shareholders.
The need to reduce costs and to deliver innovative products to
the market has once again placed a heavy set of demands on our
staff, which have been met with continued skill and determination.
I would like to thank our employees for their hard work and
dedication throughout 2018.
Changes to the Board during the year are set out below:
-- On 14 November 2018, Lily Liu, Chief Financial Officer and
Company Secretary left the Company to take up a position elsewhere.
We were delighted to appoint Shomit Kenkare as her successor as
Chief Financial Officer, who had previously joined Xaar as Head of
Corporate Development;
-- As previously announced, Ted Wiggans, our Chief Operations
Officer, retired from the Group on 9 August 2018.
Robin Williams
Chairman
Chief Executive Officer's Report
Overview
Three years ago Xaar was a business reliant upon a single
technology with strong dependence upon sale of a single printhead
product to the Ceramics market. Addressing this vulnerability and
improving the sustainability and predictability of our business was
at the core of our strategy to diversify and to get closer to end
customers by becoming an OEM ourselves in two carefully selected
areas. These two areas, 3D Printing and Product Print Systems which
we have further strengthened during the year, now represent two of
our three business units.
In July we announced the formation of Xaar 3D Limited, a joint
investment with Stratasys, a market leader in additive
manufacturing, to develop 3D printing solutions based on High Speed
Sintering technologies. Xaar holds 85% of the shares with Stratasys
holding 15%. In addition Stratasys has been granted the option to
increase its ownership up to 30%.
In Product Print Systems we have partnered with Machines Dubuit
of Paris, France to distribute exclusively their product portfolio
in North America through EPS. Their portfolio is complementary to
that of EPS, focussing on the conversion of the analogue screen
printing process to digital, whereas EPS targets the conversion of
pad printing to digital.
Disappointingly, these positive developments are set against
challenges in our printhead business with a significant decline in
our legacy Ceramics business and the slower than anticipated ramp
of our new Xaar 1201 Thin Film printhead, which was launched to
re-establish Xaar in the Wide-format graphic market, mainly in
China. This Ceramics printhead revenue decline overshadowing the
new product growth of our Xaar 1003U, Xaar 2001, Xaar 501 and Xaar
502 printheads in the emerging digital market applications of
packaging, coding & marking, décor, architectural glass
decoration and direct-to-shape/product printing along with the
progress we have made with our Xaar 5601 Thin Film printhead.
Our Xaar 5601 Thin Film product is ground breaking and a
phenomenal achievement for a company of our size. Now in the hands
of multiple OEMs across commercial, packaging and textile printing.
Three of the OEMs, Windmöller & Holscher, KELENN Technology and
Neos announcing publicly their choice of Xaar 5601 for their next
generation digital presses and printers.
Business Unit Performance
Printheads
Segments
It has been an extremely challenging year for our Printhead
business with revenue declining by GBP36.3 million (42%) year over
year. The lion's share of the decline, GBP26.6 million, being in
Ceramics and associated royalties. The largest contributor in the
Printhead business despite the decline in Ceramics continues to be
the Industrial segment with revenues of GBP17.6 million (59%
decline versus 2017).
The Packaging segment, now the second largest behind Industrial,
grew by 16% and at GBP16.6 million now represents one third of the
total Printhead business revenues. This growth was primarily in
Coding & Marking and Direct-to-shape sectors.
Sales in Graphic Arts declined by 65% or GBP8.3 million largely
due to the printer integration issues experienced with our Xaar
1201 printhead in China.
Revenues from Royalties were GBP11.1 million (2017 : GBP16.4
million) and in line with expectations having entered into a GBP20
million agreement for a fully paid up licence from Seiko
Instruments Inc. (SII) in November 2017.
Bulk Piezo
From a product standpoint we have seen growth in our Xaar 501,
Xaar 502, Xaar 318 and Xaar 2001 Bulk piezo printheads across
packaging, décor, coding & marking and direct-to-shape
printing. However, this growth in new products doesn't mitigate the
significant decline in our Xaar 1003 Ceramics printhead of over
GBP20 million.The replacement market, for which the Xaar 1003
printhead was designed, has experienced significant pricing
pressure and has not proven to be as robust as we anticipated as
new printer installs have often been preferred. Our Xaar 2001
printhead although gaining traction, still only represents roughly
10% of all new printer installs. We continue to rightsize the Bulk
business and it remains cash and earnings positive despite the
Ceramics decline.
Thin Film Piezo
We have two Thin Film product offerings; Xaar 1201 and Xaar 5601
both utilising the same wafer fab for the production of actuators.
Not only did we see a market requirement for the Xaar 1201 product
in Wide-format graphics but anticipated volumes of this product
formed an important part of the early purchase commitment necessary
to secure supply of actuators for the Xaar 5601.
Unfortunately we have experienced integration and quality issues
with our Xaar 1201 product which, although now behind us, resulted
in a much slower than anticipated ramp of this product. This in
turn has led to inventory build which we expect to reduce as
shipments of the Xaar 1201 increase.
We have experienced delays in the introduction of our Xaar 5601
Thin Film printhead as we moved through the initial production
process, but with these teething issues dealt with, it is now being
integrated into the next generation of printers and presses of five
major OEMs and is under evaluation currently with more than a
further twenty across all major print segments.
Strategic Review
As a result of the challenges in our Printhead business we
announced back in September a strategic review of more extensive
partnership options. In the last six months we explored a number of
structural options with third parties supported by advisors, which
have not so far produced any proposals which can be recommended to
shareholders. We continue to believe that closer alignment with a
strategic partner or partners is key to gaining the necessary scale
for sustainable and predictable growth in this business. Nowhere is
this more important than in the area of Thin Film technology where
scale is an essential ingredient for success.
In digital print worldwide,Thin Film looks to be the winning
technology from a cost, quality and performance standpoint. Based
on its performance and ability to jet aqueous inks there is a
strong belief that Thin Film will be chosen where possible over
solvent inks. This is confirmed by the fact that most of the major
printing companies are either investing directly or through
partnership in Thin Film solutions and as a result there is a
wealth of intellectual property in this field.
An additional challenge with Thin Film is that the core
component of the printhead is a silicon MEMS actuator which
requires a wafer fab for its production. Not only is this type of
plant a significant investment for our suppliers, but major volumes
are required to make it economically viable. Partnership is
therefore critical to provide the necessary scale.
Xaar is now nine years into its Thin Film investment. We have
explored a variety of partnership options starting with the one we
announced in 2016 with Ricoh. This partnership, providing valuable
IP coverage and wafer fab volume consolidation, has been a core
component of our strategy. It is this type of partnership, in
conjunction with the large number of OEMs working with our 5601 for
integration into their next generation machines across a wide range
of applications, that provides strong evidence of the potential for
Xaar's Thin Film product and technology.
However, we recognise that we are some years away from reaching
meaningful volumes in Thin Film and in order to continue to fund
this activity at the level which will enable Xaar to realise the
full potential value of our portfolio, we are seeking, in addition
to licensing arrangements, strategic investment.
The conclusion of the review we have engaged in is that deeper
partnerships of this type would bring the necessary scale for long
term sustainability. We have entered into early discussions with
relevant industry parties on a range of potential structures for
our Thin Film business.
3D Printing
We announced the formation of Xaar 3D Limited in July. Stratasys
invested $4 million for a 15% shareholding, with an option to
invest further to increase its ownership up to 30%.
Stratasys will brand and take to market Xaar 3D's High Speed
Sintering printer. The first printer was installed at a customer in
Denmark in December 2018, and so far feedback has been positive. A
further five printers have been produced and are running up to
twelve hours a day building parts at our facility in Copenhagen,
Denmark. Once the printer design is frozen at mid 2019, production
will move to our contract manufacturer, one of the largest in the
world with annual revenues in excess of $20 billion.
We have a proven technology, strong management team, a powerful
go-to-market partner and strategic investor, with an exciting
market opportunity ahead of us.
Product Print Systems
Revenue in the Product Print Systems business remained flat year
over year.
In our digital product portfolio, we have seen a shift in our
pipeline to higher value solutions. These higher value customised
integrations are more complex and do take longer to achieve
customer sign off and hence revenue recognition.
Although our focus is on the digital conversion of the analogue
pad printing process, it is worth noting that pad printing is
stable and our installed base of printers continues to drive ink
and service annuities.
Despite our partnerships with Comec Italia and Machines Dubuit,
EPS continues to be a US focused business. There remains a
consolidation and digital conversion opportunity in this $3.5
billion pad printing market (source: Smithers pira). We have an
acquisition target shortlist, but our priority has been to address
our Printhead business challenges before pursuing.
People
Over the past three years we have significantly reduced
headcount in our Printhead business in line with the revenue
decline. Headcount in our Printhead business has reduced by 42% in
the last 3 years, including a reduction of over 100 in 2018. This
has been largely in the manufacturing area and focused on the Bulk
printhead business. Clearly this is a challenging environment for
our printhead employees.
Meanwhile we have been investing in Thin Film, the 3D Printing
and Product Print Systems businesses.
I would like to thank our staff for their efforts, particularly
in the Printhead business where we are dealing with a challenging
business situation.
Brexit
The Group operates globally and may be affected by Brexit
developments, which could provide a number of challenges for Xaar.
The Group is continuously monitoring events and putting mitigating
actions in place. One of the greatest challenges continues to be
concerning EU workers and migration. Trading with our EU customers
could be more complex. Any actual or perceived barriers to free
trade are an obvious area of concern for us. As a result of Brexit,
the Group is exposed to potential currency fluctuations, although
not significant. Brexit and trade barriers continue to be an
integral part of the Group's ongoing risk management and review
process, for which solutions to address the risks identified are
explored and implemented. Although there is still uncertainty
surrounding the outcome of Brexit, we do not expect the direct
consequences of Brexit to have a material impact on the Group.
Summary and outlook
We are making progress in transforming Xaar into a more
diversified and customer centric organisation.
Challenges clearly remain in our Printhead business and are
taking a number of mitigating actions to address these. Our
strategic review has highlighted the prefered way forward,
including seeking strategic investment partners for our Thin Film
activities and we are focused in 2019 on bringing this process to a
conclusion.
The opportunities that this process can bring, combined with the
prospects that exist for our new Printhead products, both Bulk and
Thin Film, and in our new business areas of 3D Printing and Product
Print Systems, combine to make an exciting future for Xaar, even
with some risks plainly in view. We remain determined to deliver
these benefits to our shareholders.
Doug Edwards
Chief Executive Officer
Chief Financial Officer's Report
2018 has been a tough year for the Group. Revenue for the year
was GBP63.5 million, GBP52.4 million excluding licence royalties,
which represents a decline of 37% year on year. Adjusted operating
loss margin of (18.7%) (2017: profit margin of 17.8%) incorporates
the gross margin impact from the decline in revenues, the impact of
higher net Research and Development (R&D) investment, and
additional provisions for slow moving inventory and past due
debtors of GBP7.0 million. Net cash at 31 December 2018 reduced to
GBP27.9 million (including treasury deposits of GBP3.3 million; net
cash at 31 December 2017: GBP44.7 million, including treasury
deposits of GBP0.8 million), reflecting continued investment in our
Thin Film platform and High Speed Sintering 3D printer technology,
and the working capital build due to slower new product sell
through.
Revenue
The Group achieved total revenue for the year of GBP63.5 million
(2017: GBP100.1 million) representing a 37% decrease.
Printhead
The GBP36.3 million decline in revenues by segment is covered in
detail in the Chief Executive Officer's report.
By region, Asia was the hardest hit region, largely comprising
of China, where revenue declined by GBP31.2 million. The balance of
the decline was in the EMEA region and was partially offset by
growth in the Americas.
GBP million 2018 2017 Change
EMEA 22.7 29.7 -24%
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Asia 19.8 50.9 -61%
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Americas 7.3 5.4 +35%
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Total 49.8 86.1 -42%
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Product Print Systems
Revenues in the Product Print Systems business were GBP13.7
million (2017: GBP14.0 million). This business is predominantly US
Dollar denominated and revenues were flat in local currency terms,
negated at Group level by the impact of currency fluctuations.
3D Printing
This business remained in a pre-revenue phase of development
throughout 2018. We made our first Beta unit printer placement in
December 2018 and expect to report first product revenues during
2019.
Group
As a supplier of technology to OEM partners, our geographic
sales split reflects where our OEMs are located, which is not
necessarily the end-user location.
In 2018 Europe, Middle East and Africa (EMEA) was the Company's
largest sales region. Revenues from EMEA accounted for GBP22.8
million (2017: GBP29.8 million), representing 36% of the Group's
revenue. The decline was due to the drop in volume in the
Industrial segment led by the Ceramics sector, partially offset by
the traction we have gained in the Packaging segment, principally
in Décor applications.
The Americas, with a total revenue of GBP21.0 million (2017:
GBP19.4 million), grew 8% and now represents 33% of the Group's
revenue. Much of the growth in the Americas came from the Coding
& Marking sector within the Packaging segment.
Sales to Asia amounted to GBP19.8 million (2017: GBP50.9
million), representing 31% of the Group's revenue. This significant
reduction is mainly due to the loss of volume in the Ceramics
sector, lower than expected volumes in the Wide-format graphics and
Textiles sectors, and the expected decline of licensing income.
Profitability
The Group reported an IFRS operating loss of GBP15.1 million and
an adjusted operating loss of GBP11.9 million, which excludes the
impact of the items listed in the reconciliation in note 2. The
overall adjusted operating margin in 2018 was (18.7%) (2017:
17.8%). This decline in profitability of GBP29.7 million is due to
a combination of factors:
1. A 37% reduction in revenues resulting in a GBP22.6 million
reduction in Gross profit. The key drivers for this reduction
are:
a. Decline in the Industrial and Graphics segments revenues,
which carry a much higher margin profile than most of rest of the
portfolio, partially offset by growth in revenues in the Packaging
segment
b. Reduction in licence income of GBP5.3 million
c. As a result of the delays associated with OEM products in the
Wide-format graphics sector in China, the Group has significantly
increased its inventory levels. While we have no specific
indication of permanent impairment of these balances, we have made
prudent provisions of GBP2.5 million to reflect the uncertainties
associated with sell through of these products.
d. Lower absorption of factory costs as a result of the overall
reduction in volumes, partially offset by headcount and fixed
overhead reductions at our Huntingdon factory
2. Increase in R&D by GBP2.4 million due to:
a. Further reduction in gross spend of GBP3.1 million, primarily
as a result of maturity of the Bulk printhead technology and
transfer of the integration and applications department to Sales
and Marketing to aid customers with post launch installation.
b. This reduction in gross spend is offset by an overall
decrease of GBP4.6 million in capitalised development expenditure;
GBP1.0 million increase in 3D capitalisation, and GBP5.6 million
reduction in capitalisation of the P4 Thin Film technology, which
we ceased capitalising and commenced amortisation in August 2017.
As a result the year on year amortisation expense increased by
GBP0.9 million.
GBP million 2018 2017 Change
Gross spend 15.0 18.1 -3.1
------ ------ -------
Capitalisation (1.9) (6.5) +4.6
------ ------ -------
Amortisation 1.6 0.7 +0.9
------ ------ -------
Net spend 14.7 12.3 +2.4
------ ------ -------
3. Increase in Sales and Marketing expenses of GBP1.2 million
primarily due to the transfer of the integration and applications
department, previously reported in R&D, to help customers with
post launch installation.
4. General and Administrative expenses and impairment losses on
financial assets increased overall by GBP3.5 million, driven
primarily by the delays associated with OEM products in the
Wide-format graphics and Textiles sectors in China as described in
point 1c. above, and provisions taken. The Group had to provide
extended credit terms to debtors that resulted in increased working
capital. While we have no specific indication of permanent
impairment of these debtor balances, we have made prudent one-off
provisions totalling GBP4.5 million to reflect the uncertainties
associated with recovery of the debt. Partially offsetting these
increases is a favourable foreign exchange movement of GBP1.2
million.
Adjusted loss before tax of GBP11.7 million was recorded for
2018 (2017: profit of GBP18.0 million). Loss before tax as reported
under IFRS was GBP14.9 million (2017: profit before tax of GBP12.3
million).
The tax credit on adjusted loss before tax was GBP4.2 million
(2017: charge of GBP1.9 million), representing an effective tax
rate of 36% (2017: 10%), impacted by the reduction in the deferred
tax asset relating to share options and the significant R&D
expenditure credit in the year. The tax credit on IFRS loss before
tax was GBP2.6 million (2017: charge of GBP1.4 million)
representing an effective tax rate of 17% (2017: 11%). The rise in
effective tax rate is a consequence of the loss before tax position
in 2018, compared to a profit before tax position in 2017.
Effective from 1 January 2018 the US corporate income tax rate
reduced from 35% to 21%. This did not have a significant effect on
the Group's tax rate for 2018 and is not expected to have a
significant impact in the short term either.
Adjusted loss after tax for 2018 was GBP7.5 million (2017:
profit after tax of GBP16.1 million) and adjusted diluted earnings
per share was (9.7) pence (2017: 20.7 pence).
Financial position
The Group ended the year with a net cash position of GBP27.9
million, but carried working capital that are at excessive levels.
One of our key financial priorities for 2019 is to unwind working
capital to levels commensurate with the size of the business.
We continue to keep our capital expenditure at low levels with
the majority of our spend being capitalised development costs
associated with our 3D Printing business. We saw a reduction in our
property, plant and equipment expenditure in the year of GBP2.5
million (45%) and a reduction in our capitalised development
expenditure in the year of GBP4.6 million (71%).
Operating cash outflow, before movements in working capital, was
GBP8.7 million (2017: inflow of GBP25.2 million). The change in
working capital during the year represented a net cash outflow of
GBP0.7 million. Receivables decreased GBP9.4 million and inventory
increased by GBP12.8 million reflecting delays in revenues from our
Xaar 1201 printhead. This working capital impact was however offset
by a significant reduction in capital expenditure for the Group.
Total cash outflow relating to intangible and tangible assets was
GBP4.5 million in the year (2017: GBP12.0 million), including
GBP1.9 million (2017: GBP6.5 million) of capitalised development
expenditure. Dividends accounted for GBP6.0 million (2017: GBP7.7
million) of all cash outflows.
Intangibles
Intangible assets excluding goodwill were GBP32.8 million at 31
December 2018 (2017: GBP32.7 million). These assets are largely
associated with the Thin Film development project which was
capitalised between 2014 and 2017. Amortisation of this project
commenced in August 2017 after the design was frozen and
development kits were made available for sale. We are amortising
this technology platform over a 20 year period. In addition, GBP1.9
million (2017: GBP0.9 million) was capitalised relating to the
development of a new 3D Printer technology platform.
Treasury and currency management
Cash and liquidity profile of the Group are being managed
carefully. With a more diversified business model as well as
sourcing from strategic partners across the globe, the Group has
increased exposure to foreign exchange risk, in particular to the
US Dollar and Japanese Yen. As much as possible, we match our
billing currencies to our settlement currency to achieve a natural
hedge.
Dividend
In 2014 we announced a sustainable and progressive dividend
policy which took into account the Group's future prospects, its
underlying profitability and the future cash requirements of the
business at the time. The 37% decline in revenue in 2018 resulting
in an adjusted loss before tax of GBP11.7 million, alongside the
pending outcome of the strategic review, has led the Board to
revisit this policy. In addition, the joint investment in 3D
announced in July with Stratasys has committed both parties to fund
commercialisation of those products. As a result, the Board will
not be recommending the payment of a final dividend for 2018 at the
forthcoming Annual General Meeting (AGM), giving a total dividend
for the year of 1.0 pence per share (2017: 10.2 pence). An interim
dividend of 1.0 pence per share was paid during the year (2017: 3.4
pence).
The Board will continue to keep the dividend policy under
review.
Shomit Kenkare
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2018
2018 2017
Notes GBP'000 GBP'000
--------------------------------------------- ------ --------- ---------
Revenue 63,534 100,142
Cost of sales (39,085) (53,097)
--------------------------------------------- ------ --------- ---------
Gross profit 24,449 47,045
Research and development expenses (14,682) (12,318)
Research and development expenditure credit 1,737 411
Sales and marketing expenses (9,071) (7,860)
General and administrative expenses (7,512) (12,610)
Impairment losses on financial assets (4,681) (17)
Restructuring and investment expenses (5,337) (2,553)
--------------------------------------------- ------ --------- ---------
Operating (loss)/profit (15,097) 12,098
Investment income 170 192
(Loss)/profit before tax (14,927) 12,290
Tax 2,589 (1,358)
--------------------------------------------- ------ --------- ---------
(Loss)/profit for the year (12,338) 10,932
--------------------------------------------- ------ --------- ---------
Attributable to:
Owners of the Company (12,276) 10,932
Non-controlling interests (62) -
--------------------------------------------- ------ --------- ---------
(12,338) 10,932
--------------------------------------------- ------ --------- ---------
Earnings per share
Basic 3 (16.0p) 14.3p
Diluted 3 (16.0p) 14.0p
--------------------------------------------- ------ --------- ---------
Dividends paid in the year amounted to GBP6,009,000 (2017:
GBP7,728,000).
All activities relate to continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
2018 2017
GBP'000 GBP'000
-------------------------------------------------- --------- --------
(Loss)/profit for the year attributable to
shareholders (12,338) 10,932
-------------------------------------------------- --------- --------
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on retranslation of net
investment 202 (721)
Tax charge on share options (41) (20)
Other comprehensive income/(loss) for the year 161 (741)
-------------------------------------------------- --------- --------
Total comprehensive (loss)/income for the year (12,177) 10,191
-------------------------------------------------- --------- --------
Total comprehensive (loss)/income attributable
to:
Owners of the Company (12,113) 10,191
Non-controlling interests (64) -
-------------------------------------------------- --------- --------
(12,177) 10,191
-------------------------------------------------- --------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Non-current assets
Goodwill 5,522 5,212
Other intangible assets 32,796 32,678
Property, plant and equipment 28,044 33,471
Receivables - 858
66,362 72,219
---------------------------------------------- --------- ---------
Current assets
Inventories 32,142 19,119
Trade and other receivables 21,398 30,303
Current tax asset 5,142 3,412
Treasury deposits 3,277 753
Cash and cash equivalents 24,669 43,944
86,628 97,531
---------------------------------------------- --------- ---------
Total assets 152,990 169,750
---------------------------------------------- --------- ---------
Current liabilities
Trade and other payables (18,958) (16,583)
Other financial liabilities (33) (30)
Provisions (499) (1,911)
Derivative financial instruments (643) -
---------------------------------------------- --------- ---------
(20,133) (18,524)
---------------------------------------------- --------- ---------
Net current assets 66,495 79,007
---------------------------------------------- --------- ---------
Non-current liabilities
Deferred tax liabilities (870) (3,905)
Other financial liabilities (103) (137)
---------------------------------------------- --------- ---------
Total non-current liabilities (973) (4,042)
---------------------------------------------- --------- ---------
Total liabilities (21,106) (22,566)
---------------------------------------------- --------- ---------
Net assets 131,884 147,184
---------------------------------------------- --------- ---------
Equity
Share capital 7,833 7,833
Share premium 29,328 29,317
Own shares (3,113) (3,642)
Other reserves 15,144 14,638
Translation reserve 817 613
Retained earnings 79,675 98,425
---------------------------------------------- --------- ---------
Equity attributable to owners of the Company 129,684 147,184
---------------------------------------------- --------- ---------
Non-controlling interests 2,200 -
---------------------------------------------- --------- ---------
Total equity 131,884 147,184
---------------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2018
Share Share Own Other Translation Retained Non-controlling Total
capital premium shares reserves reserve earnings Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
Balance at 1
January 2017 7,778 27,854 (3,642) 11,891 807 95,768 140,456 - 140,456
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
Profit for the
year - - - - - 10,932 10,932 - 10,932
Tax on items
taken directly
to equity - - - - - (20) (20) - (20)
Exchange
differences on
retranslation
of net
investment - - - - (194) (527) (721) - (721)
---------------- ---------
Total
comprehensive
income
for the year - - - - (194) 10,385 10,191 - 10,191
Issue of share
capital 55 1,463 - - - - 1,518 - 1,518
Dividends - - - - - (7,728) (7,728) - (7,728)
Credit to equity
for
equity-settled
share-based
payments - - - 2,747 - - 2,747 - 2,747
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
Balance at 1
January 2018 7,833 29,317 (3,642) 14,638 613 98,425 147,184 - 147,184
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
(Loss)/profit
for the year - - - - - (12,276) (12,276) (62) (12,338)
Tax on items
taken directly
to equity - - - - - (41) (41) - (41)
Exchange
differences on
retranslation
of net
investment - - - - 204 - 204 (2) 202
---------------- ---------
Total
comprehensive
income/(loss)
for the year - - - - 204 (12,317) (12,113) (64) (12,177)
Issue of share
capital - 11 - - - - 11 - 11
Own shares sold
in the year - - 529 - - (424) 105 - 105
Dividends - - - - - (6,009) (6,009) - (6,009)
Credit to equity
for
equity-settled
share-based
payments - - - 506 - - 506 - 506
Adjustment
arising from
change
in
non-controlling
interest - - - - - - - 2,264 2,264
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
Balance at 31
December 2018 7,833 29,328 (3,113) 15,144 817 79,675 129,684 2,200 131,884
----------------- -------- -------- -------- --------- ------------ --------- --------- ---------------- ---------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2018
2018 2017
Notes GBP'000 GBP'000
------------------------------------------------ ------ --------- ---------
Net cash from operating activities 4 (9,862) 12,473
------------------------------------------------ ------ --------- ---------
Investing activities
Investment income 171 190
Treasury amounts deposited (2,524) (753)
Redemption of investment - 1,000
Purchases of property, plant and equipment (2,790) (5,517)
Proceeds on disposal of property, plant 584 -
and equipment
Expenditure on software (160) (19)
Expenditure on licences (177) -
Expenditure on capitalised product development (1,915) (6,451)
------------------------------------------------ ------ --------- ---------
Net cash used in investing activities (6,811) (11,550)
------------------------------------------------ ------ --------- ---------
Financing activities
Dividends paid (6,009) (7,728)
Proceeds from issue of financial instrument 753 -
Proceeds from non-controlling interest 2,264 -
Proceeds from the sale of ordinary share 105 -
capital
Proceeds from issue of ordinary share
capital 11 1,518
Net cash used in financing activities (2,876) (6,210)
------------------------------------------------ ------ --------- ---------
Net decrease in cash and cash equivalents (19,549) (5,287)
Effect of foreign exchange rate changes
on cash balances 274 (90)
Cash and cash equivalents at beginning
of year 43,944 49,321
------------------------------------------------ ------ --------- ---------
Cash and cash equivalents at end of
year 24,669 43,944
------------------------------------------------ ------ --------- ---------
Cash and cash equivalents (which are presented as a single class
of asset on the face of the consolidated statement of financial
position) comprise cash at bank and other short term highly liquid
investments with a maturity of three months or less. The carrying
amount of these assets is approximately equal to their fair
value.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEARED 31 DECEMBER 2018
1. Basis of preparation
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2017 and
2018, but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies and those
for 2018 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498 (2) or (3) Companies Act 2006.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with International Financial
Reporting Standards. The Company expects to publish full financial
statements that comply with IFRSs in April 2019.
2. Reconciliation of adjusted financial measures
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- --------
(Loss)/profit before tax (14,927) 12,290
---------------------------------------------- --------- --------
Share-based payment charges 235 3,057
Exchange differences relating to intra-group
transactions (629) 523
Restructuring and investment expenses 5,337 2,553
Research and development expenditure
credit (1,737) (411)
---------------------------------------------- --------- --------
Adjusted (loss)/profit before tax (11,721) 18,012
---------------------------------------------- --------- --------
Adjusted financial measures are alternative performance
measures, which adjust for recurring and non-recurring items that
management consider to have a distorting effect on the underlying
results of the Group.
Share-based payment charges include the IFRS 2 charge for the
year of GBP506,000 (2017: GBP2,747,000) and the credit relating to
National Insurance on the outstanding potential share option gains
of GBP271,000 (2017: charge of GBP310,000). These costs were
included in the general and administrative expenses in the
Consolidated income statement.
Exchange differences relating to the United States, Danish and
Swedish operations represent exchange gains or losses recorded in
the consolidated income statement as a result of operating in the
United States, Denmark and Sweden. These costs were included in
general and administrative expenses in the Consolidated income
statement.
Restructuring costs of GBP5,337,000 in 2018 (2017: GBP2,553,000)
relates mainly to the impairment of fixed assets of GBP3,126,000
used by the Printhead business unit. The fair value less costs of
disposal is less than the value in use and hence the recoverable
amount of the relevant assets has been determined on the basis of
their value in use. The remaining costs relate to expenses incurred
and provisions made in relation to a reorganisation, the closure of
the manufacturing facility in Sweden in 2016, and investment
related expenditure.
The research and development expenditure credit relates to the
corporation tax relief receivable relating to qualifying research
and development expenditure. This item is shown on the face of the
Consolidated income statement.
2018 2017
Pence per Pence per
share share
---------------------------------------------- ---------- ----------
Diluted earnings per share (16.0p) 14.0p
---------------------------------------------- ---------- ----------
Share-based payment charges 0.3p 3.9p
Exchange differences relating to intra-group
transactions (0.8p) 0.7p
Restructuring and investment expenses 6.9p 3.3p
Tax effect of adjusting items (0.1p) (1.2p)
---------------------------------------------- ---------- ----------
Adjusted diluted earnings per share (9.7p) 20.7p
---------------------------------------------- ---------- ----------
3. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based
on the following data:
2018 2017
GBP'000 GBP'000
------------------------------------------------- ----------- -----------
Earnings
Earnings for the purposes of basic earnings
per share being net (loss)/profit attributable
to equity holders of the parent (12,338) 10,932
------------------------------------------------- ----------- -----------
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 76,957,142 76,469,128
Effect of dilutive potential ordinary
shares:
Share options - 1,441,475
------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted earnings
per share 76,957,142 77,910,603
------------------------------------------------- ----------- -----------
2018 2017
Pence per Pence per
share share
------------------------------------------------- ----------- -----------
Basic (16.0p) 14.3
Diluted (16.0p) 14.0
------------------------------------------------- ----------- -----------
Potential ordinary shares are treated as dilutive if their
conversion to ordinary shares would decrease earnings per share or
increase loss per share. Therefore in 2018, the diluted earnings
per share is not impacted by the effect of dilutive potential
ordinary shares.
The weighted average number of ordinary shares for the purposes
of basic earnings per share is calculated after the exclusion of
ordinary shares in Xaar plc held by Xaar Trustee Ltd, the Xaar plc
ESOP Trust and the matching shares held in trust for the Share
Incentive Plan.
For 2018, there were share options granted over 541,008 shares
that would not have been included in the diluted earnings per share
calculation because they were anti-dilutive at the year end (2017:
382,843 shares had not been included).
The performance conditions for LTIP awards over 1,581,632 shares
(2017: 657,355 shares) have not been met in the current financial
year or are not expected to be met in future financial periods, and
therefore the dilutive effect of those shares have not been
included in the diluted earnings per share calculation.
Adjusted earnings per share
This adjusted earnings per share information is considered to
provide a fairer representation of the Group's trading performance
year on year, as it removes items which, in the Board's opinion, do
not reflect the underlying performance of the Group.
The calculation of adjusted EPS excluding share-based payment
charges, exchange differences relating to intra-group transactions,
and restructuring and investment expenses, is based on earnings
of:
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- --------
Earnings for the purposes of basic earnings
per share being net profit attributable
to equity holders of the parent (12,338) 10,932
---------------------------------------------- --------- --------
Share-based payment charges 235 3,057
Exchange differences relating to intra-group
transactions (629) 523
Restructuring and investment expenses 5,337 2,553
Tax effect of adjusting items (68) (929)
---------------------------------------------- --------- --------
Adjusted (loss)/profit after tax (7,463) 16,136
---------------------------------------------- --------- --------
The denominators used are the same as those detailed above for
both basic and diluted earnings per share.
Adjusted earnings per share is earnings per share excluding the
items adjusted for as detailed above:
2018 2017
Pence Pence per
per Share Share
------------------ ----------- ----------
Adjusted basic (9.7p) 21.1p
Adjusted diluted (9.7p) 20.7p
------------------ ----------- ----------
Adjusted EPS is considered to provide a fairer representation of
the Group's trading performance year on year.
4. Notes to the cash flow statement
2018 2017
GBP'000 GBP'000
----------------------------------------------- --------- --------
(Loss)/profit before tax (14,927) 12,290
Adjustments for:
Share-based payments 235 3,057
Depreciation of property, plant and equipment 4,725 7,795
Impairment of fixed assets 3,258 -
Amortisation of intangible assets 2,139 1,149
Research and development expenditure credit (1,737) (411)
Investment income (170) (186)
Foreign exchange (gains)/losses (689) 32
Other gains (110) -
(Profit)/loss on disposal of property,
plant and equipment (3) 351
(Decrease)/increase in provisions (1,383) 1,133
----------------------------------------------- --------- --------
Operating cash flows before movements
in working capital (8,662) 25,210
Increase in inventories (12,817) (5,071)
Decrease/(increase) in receivables 9,364 (9,226)
Increase in payables 2,724 1,103
----------------------------------------------- --------- --------
Cash (used in)/generated by operations (9,391) 12,016
Income taxes (paid)/received (471) 457
----------------------------------------------- --------- --------
Net cash from operating activities (9,862) 12,473
----------------------------------------------- --------- --------
5. Going concern
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, based on the
Group's forecasts and projections for the next twelve months,
taking account of reasonably possible changes in trading
performance. Although there is still uncertainty surrounding the
outcome of the UK exiting the EU, we do not expect the direct
consequences to have a material impact on the Group, as discussed
in our Chief Executive Officer's report. For this reason, they
continue to adopt the going concern basis in preparing the
financial information.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAKDFAELNEEF
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March 21, 2019 03:01 ET (07:01 GMT)
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