RNS Number:6699H
Xaar PLC
19 February 2003
Meeting today:
There will be an analyst meeting today at 10.00 am followed by a press meeting
at 11.30 am at the offices of Buchanan Communications. There will also be a
lunch at 12.45 pm at Buchanan Communications, 107 Cheapside London. If you would
like to attend please contact Charlie Forsyth on 020 7466 5000.
Immediate Release 19 February 2003
XAAR PLC
PRELIMINARY RESULTS ANNOUNCEMENT
For Year Ended 31 December 2002
"Continued Solid Progress : Profitable & Cash Positive"
Xaar plc ("Xaar"), the inkjet printing technology group headquartered in
Cambridge, has announced its preliminary audited results for the year ended 31
December 2002.
Key points
* These results mark full implementation of the change in strategy to
focus on the group's rapidly growing sales and manufacture of inkjet
printheads and ink supplies
* Xaar was profitable and cash positive during 2002 without the benefit of
new licence revenue
* Turnover increased 29% to #30.9m (2001: #24.0m)
* Printhead and related product sales grew by 46% to #28.5m (2001: #19.5m)
with sales more than doubled for the XJ500 printhead and record
shipments for the mature XJ128
* Revenues from licences, royalties and development fees were #2.4m
(2001: #4.5m)
* Profit before tax was #0.9m (2001: #0.6m) and earnings per share were
1.7p (2001 as restated: loss of 0.6p)
* Resolution of tax issues has reduced the charge for 2002 (48%)
from that announced in the interim report with a more normal tax charge
for 2003 and the future (around 30%)
* Year-end cash and liquid resources were #9.9m (2001: #9.8m)
* R&D resources now focussed strongly on product development and
improvement
* Vivid Print Innovations Inc. - agreement in principle
announced to acquire start-up business creating in-house Applications
Division to boost sales, mainly in the US market
On outlook, Chairman, Arie Rosenfeld stated :
"We remain focussed on producing further growth in sales of Xaar products and,
more importantly, growth in margins and profitability."
Contacts:
Jan Fineman, Chief Executive Today on: 020-7466-5000
Nigel Berry, Finance Director Thereafter on : 01223-423663
Xaar plc www.xaar.co.uk
Lisa Baderoon
Buchanan Communications Tel No: 020-7466-5000
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report further significant growth in sales of Xaar products
during the second half of the year and solid progress in positioning the group
within the digital printing industry as a developer, manufacturer and vendor of
high performance inkjet printheads. This change of strategy, set out in the
interim report last September, also offers us more control over our future
development and growth.
The total value of Xaar's product sales increased by 46% during the year with
growth during the second half of the year ahead of that for the first half.
Within this, the volume of XJ500 heads shipped in the year more than doubled,
with over half going to our new markets in Asia, and China in particular.
Although no new licence was signed in the year, we received a further small
stage payment under an existing licence agreement. Whilst Xaar continues to
maintain and develop its extensive portfolio of patents, currently standing at
over 700, R&D emphasis has now been swung behind the development and refinement
of Xaar's product portfolio.
As previously stated, efforts to secure licence revenue continue but, given the
difficulty in predicting both quantum and timing, we are planning our business
without relying on new licence revenues. In future, we intend to comment on new
licences only as and when they arise. Royalty revenues received during the
second half-year were little changed from the level reported for the first half
of the year, reflecting continued difficult market conditions for many of our
licensees.
Overall, we are pleased with the growth seen in what we now regard as our
mainstream business, during what was another challenging year of change. The
company ends the year with a healthy cash balance and no borrowings.
Results and Finance
Group revenues for the year to 31 December 2002 grew to #30.9m (2001: #24.0m).
Sales of Xaar products (printheads, inks and peripherals) increased by 46% to
#28.5m (2001: #19.5m). Development fees received for contract R&D projects were
#1.2m (2001: #1.5m). Licence fees and royalties were #1.2m (2001: #3.0m)
reflecting the fact that no new licence was signed in the year. Within that,
royalty income for the year was #0.9m (2001: #1.3m). Profit before tax and
exceptional items was #0.9m (2001: #1.6m). There were no exceptional items in
2002 (2001: #1.0m). Earnings per share were 1.7p (2001 as restated: loss of
0.6p).
As reported in the end-of-year trading update issued early in January, the
immediate benefit of the increase in sales was diluted by somewhat higher than
expected warranty returns for the XJ500 product during the latter part of the
year. The product has now been modified, with all claims settled or provided for
in the results for 2002.
An imbalance between manufacturing profits in Sweden and the costs of R&D
activities in the UK, together with full utilisation of acquired tax losses in
Sweden, gave rise to a disproportionate tax charge in the interim results for
2002. Xaar's tax structure has now been reorganised so that a more normal tax
charge will be incurred going forward. Further details are provided in the
Finance review.
Printheads and related products
In the interim statement, we set out clearly our strategy for 'cherry picking'
digital printing market segments where Xaar's technology is best suited and
where it can become a market leader. Xaar's current strength lies in the graphic
arts market, particularly in wide-format printing machines for banner and poster
advertising where it is already a market leader in non-water based printing. We
have now chosen to enter new markets within the packaging and industrial
printing sectors in order to provide greater long-term growth potential. The
digital printing marketplace as a whole is huge and capable of successfully
supporting a number of different technologies and suppliers; each of the market
segments being chosen for a concentration of our marketing effort is substantial
in its own right and offers tremendous scope for our products. More details of
these initiatives are set out in the Chief Executive's review.
In geographic markets, Asia and Europe increased sales by 48% and 45%
respectively, whilst sales into the US market declined by 28%. We intend to
arrest this decline in the US market over the coming year.
The route to market within both packaging and industrial markets is more complex
than our current markets and will take time to generate volume sales. We will
therefore be working closely with existing and new partners in both these
markets. In addition, we have recognised that many customers, especially in the
important US market, often require assistance in integrating digital printing
technology into their business before they can become significant users of Xaar
products.
To that end, I am pleased to report that Xaar has reached agreement in principle
to acquire for a nominal sum Vivid Print Innovations Inc. (VPI), a San Antonio,
Texas, based start-up business. VPI comprises an established engineering team
with considerable experience in designing and integrating digital printing
systems, mostly utilising Xaar products. Further details are provided in the
Finance review.
New technology and product development
A revised version of the XJ500 product was introduced at the beginning of 2003.
This update includes performance enhancing modifications, as well as resolving
the problems that gave rise to the recent warranty claims. Sales of the XJ500
are expected to show another year of growth. We continue to develop the new
printhead referred to in the interim statement and plan to start previewing the
product with customers during the second half of 2003.
Technology revenues
Royalty income is expected to remain at around current levels for the
foreseeable future. Longer term, the company continues to look for new licensing
opportunities and to develop new patentable technology.
Outlook
We remain focussed on producing further growth in sales of Xaar products and,
more importantly, growth in margins and profitability. Management continues to
maintain tight control over costs and has recently instituted further headcount
savings as part of a constant review of the cost base of the business. Demand in
key Asian and European markets remains firm at the current time and the proposed
increase in systems integration resources is expected to lead to an improved
performance in the US, even though it is not clear whether economic conditions
will improve in that region in the short term.
Arie Rosenfeld
Chairman
18 February 2003
CHIEF EXECUTIVE'S REVIEW
During 2002 Xaar's resources were focussed on our rapidly growing business of
designing, manufacturing and selling printheads and inks, rather than our former
strategy which placed an equal reliance on the generation of revenues from
intellectual property rights.
The strength of what we regard as our mainstream business is shown in the 46%
organic growth in revenue and record shipments of printheads and inks to a
worldwide market. The decision to move production of the XJ500 to Sweden
resulted in improved efficiencies in line with expectations, although this did
not result in immediately improved margins due to the level of warranty returns
referred to in the Chairman's statement. As a result, margins on product sales
were little changed for the second half of the year. Nevertheless, the company
was profitable and cash generative without new licence fees during the year,
representing an important milestone.
Market focus
Historically, the majority of our products have sold into the graphic arts
market for incorporation into wide format and specialised digital printers of
billboards, banners and other advertising materials. This market is expected to
continue growing steadily over the coming years. In addition, analysis of other
potential market opportunities for Xaar's products has shown that while Xaar
printheads can be used successfully in a very wide range of applications, there
are particular segments in which Xaar has a clear opportunity to become a market
leader and resources are being focussed progressively on these segments.
The Chairman's statement refers to the two new markets initially identified to
provide future growth; industrial printing and packaging printing. Both contain
substantial segments where Xaar's technology brings clear and quantifiable
advantages to the customer when compared with existing technologies and
processes.
Xaar has already successfully sold products into industrial printing
applications which include the printing of ceramic tiles, and the marking of
legends onto printed circuit boards. The Leopard printhead, launched during 2002
and manufactured by our licensee, Toshiba TEC, enables us to target further
applications in this market where near-photographic quality is needed such as
plastic cards (for example; credit cards, identity cards and telephone cards),
CD and DVD printing.
Within packaging printing we also supply to a number of existing customers
building printers for coding and marking applications (including bar coding,
sell-by dates and logo printing). We will now be expanding into additional
sectors including flexible packaging, folding cartons and labels. Development
within this area will be accelerated by the acquisition of Vivid Print
Innovations Inc. (VPI).
Sales
Sales of printheads and inks have grown rapidly during the year with the highest
growth coming from Asia where turnover increased by 48% and accounted for 55% of
the group total. We also saw growth in Europe of 45% contributing 31% to overall
turnover. There was a decrease in US sales (accounting for 14% of total
turnover) due largely to economic conditions in the US market. We have recently
strengthened our operation in China with a small office in Shanghai in addition
to our existing operation in Hong Kong. We expect China to continue to be a key
market for Xaar.
The proposed acquisition of Vivid Print Innovations Inc. is expected to
materially improve Xaar's performance in the US market. VPI specialises in
integrating printheads into customer applications and building bespoke printers
on a customer demand basis. As an integral part of our sales organisation, VPI
will offer a complete printing machine design service to customers that wish to
use Xaar's products in packaging and industrial applications, but who do not
have skills within the digital inkjet printing field. All of VPI's team of
experienced engineers have a long history of working with Xaar's printheads and
already have a number of projects under way with new customers. The focus of
this service will initially be US led but it will also become available to
customers on a global basis.
In 2002, ink sales grew in line with printhead sales and eight new inks were
approved either for direct sales or customer evaluation.
Development activities and product portfolio
Development activities within Xaar's Cambridge facility have been refocussed
onto projects that will have a short or medium-term impact on revenues.
Investment in R&D in 2002 was #4.4m (2001: #4.1m), we do not expect this spend
to increase over the coming year.
Enhancements to the XJ500 product have been a key area of activity during 2002
and by the end of the year resulted in significantly improved performance. This
work will continue in 2003 with the emphasis placed on reducing the cost of
manufacturing the product.
Work on preparing the new Leopard head for launch as a Xaar product was also
completed during the year. The Leopard head is the result of our collaboration
with Toshiba TEC, a Xaar licensee. Toshiba TEC manufactures the printheads in
Japan where it will sell a version direct to major Japanese users. Xaar sells
the head under its own brand name into markets outside Japan, and to customers
requiring the sales and service back-up offered by Xaar through its network of
regional sales offices. The Leopard has concluded field testing with customers
in the industrial printing field and is now being made generally available. The
Leopard head is unique in its greyscale capability - allowing it to vary
dynamically the drop size on a pixel-by-pixel basis giving near-photographic
quality at high speeds.
The XJ500 and Leopard printheads complement the well established smaller XJ128
currently used extensively in wide-format printers throughout the world, and the
XJ126 which is now in full scale production.
Development of our next generation of printheads referred to in the interim
statement has also been progressed during the year. This development has
generated a modular printhead design that can be more rapidly adapted to
different formats than is currently the case with existing product designs.
The performance shown in prototypes has given us optimism about the future for
products based on this platform.
Manufacturing
In October 2001 we announced our decision to transfer all manufacturing
operations into our Swedish plant with R&D activities being undertaken at our
Cambridge facility. The move to Sweden was completed during the first half of
2002 and as a result we were able to almost triple output of the XJ500 printhead
last year compared to 2001. The higher warranty returns of our XJ500 product
during the last four months of the year should be taken in the context of this
significant increase in production and sales, in particular to our new markets
in China. Once the particular issues giving rise to the problems were
identified, changes to the XJ500 were made quickly and we are confident that
these problems have now been eliminated. A revised version of the XJ500 is now
being offered to the market, providing improved performance, greater reliability
and increased manufacturing margin.
Although strong demand for the XJ500 has made this the fastest growing product
in our portfolio, we also sold record numbers of our XJ128 product which in 2002
still contributed the larger part of our revenue. This is particularly
encouraging given the fact that it is now a mature product.
Licensing
We continue to work towards securing new licensees but we are no longer relying
on new licence income as a fundamental part of our business plan.
Royalty income has been steady during the year, albeit at a reduced level. We
believe this to be a result of the tough market environment facing our
licensees, resulting in lower than expected sales of their products. At the
current time royalties for 2003 appear likely to continue at a level similar to
2002.
Priorities for 2003
Xaar starts 2003 with continuing demand for its printheads and inks, an
expanding product portfolio and increased systems integration resources with
which to drive our sales and marketing efforts in established and new markets.
The key focus for 2003 is to convert higher sales into significantly improved
profitability. Emphasis is being placed on reducing the cost of manufacturing of
all our products, with ongoing programmes designed to cut material costs,
increase yields and control overhead expenditure in order to improve the
contribution from our manufacturing operation. A reduction in the group's
headcount was implemented in February 2003 at both the Cambridge and Swedish
facilities.
People
As the company is focussing more on its manufacturing business with a target to
become a world class manufacturing operation, our staff worldwide have had to
respond to rapid change during the year. I would like to acknowledge the
contribution everyone in the group has made to this process.
Jan Fineman
Chief Executive
18 February 2003
FINANCE REVIEW
2002 was a year of change for the group. We have focussed the business on its
manufacturing activities, and intend to grow those significantly within existing
and new markets. Whilst it is pleasing to report strong growth within this
context, there are important issues facing the group which must be addressed
during 2003 and which are being given priority.
Results for 2002
Turnover for the year was #30.9m (2001: #24.0m) which resulted in a profit
before taxation and exceptional items of #0.9m (2001: #1.6m). There were no
exceptional items in the year (2001: #1.0m). Net assets at the end of the year
were #17.3m (2001 as restated: #15.4m), of which #9.9m was represented by cash
and liquid resources (2001: #9.8m). The gross profit margin for the group was
46%, down from 53% in 2001 reflecting reduced technology revenues of #1.2m
(2001: #3.0m). Margins on printheads and related products were 42% for the full
year, largely in line with the first half, with underlying second-half
improvements in yield offset by additional warranty claims of #0.3m.
The group taxation charge for the year is a credit of #0.1m (2001 as restated:
charge of #0.9m). This is lower than the charge made in the interim results for
the reasons set out below. Earnings per share for the year were 1.7p (2001 as
restated: loss of 0.6p).
We have amended the way we report segmental information for the year to improve
understanding of the business. Development fees, which were previously included
with technology revenue, have been separately identified. Technology revenue now
only includes licence and royalty income.
In addition, we have adjusted our reporting of geographic turnover to cover
Xaar's three main markets; Asia, Europe and the Americas. Results by class of
business are now detailed at both the revenue and gross margin level. Going
forward we will also include details of turnover by industry segment, matching
the target markets discussed in the Chairman's and Chief Executive's reports;
graphic arts, packaging printing and industrial printing. As a guide, for 2002
the majority of sales remain in the company's existing graphic arts market,
which accounted for 85% of sales, but newer markets such as packaging, at 12%
and industrial markets at 3% made growing contributions in the year.
Taxation
The strategy changes implemented during the year, including the concentration of
manufacturing activities in Sweden, have provided greater clarity with regard to
the revenue streams originating within the group and the costs that should
properly be associated with those different activities.
The result of more closely matching relevant costs and revenues is an underlying
group tax charge of 48% for the full year 2002, with a more normalised charge
expected from 2003 onwards. In addition, an adjustment of #0.3m was made in the
year in order to recognise a deferred tax asset which should have been included
in the results for 2001. After taking account of this and other adjustments
there was a net credit for the year of #0.1m.
A new 100% owned group company, Xaar Group AB, was established in Sweden during
the second half of the year. This company now holds the group's investment in
XaarJet AB.
Costs
Total operating costs (including cost of sales) for the group were #30.1m (2001:
#22.6m). The increase is a result of three main factors; the higher level of
product sales made by the group during the year; the higher proportion of sales
of the XJ500, on which yields and margins do not yet match those of our more
established XJ128 product (including the cost of warranty returns); and higher
operating expenses.
The higher expenses arise from a full year of the Hong Kong office, established
in the second half of 2001, higher patent costs, marketing costs and external
project-related R&D costs.
The group is taking steps to reduce its total costs as follows;
The XJ500 product was re-engineered during 2002 which has reduced unit costs and
improved ease of manufacture. The revised product was introduced early in 2003
and will generate improved yields and margins. Further improvements are planned
during 2003.
A reduction in group headcount of 10% was made early in February 2003, although
savings made in Sweden will only come through during the second-half year due to
local employment legislation.
The problems resulting in the higher cost of warranty claims have been resolved.
The group has implemented an ongoing process of continuous efficiency
improvement across the organisation and of refocussing group resources to areas
where they can generate maximum returns.
Vivid Print Innovations Inc.
The group has reached agreement in principle to acquire Vivid Print Innovations
Inc. (VPI). Under the agreement Xaar will acquire all the outstanding share
capital of VPI for a nominal sum of $1,500. VPI has negligible net assets. The
five principals of the business will have remuneration packages commensurate
with similar employees within the Xaar group, including an annual bonus scheme
related to the results of the VPI business. VPI had (unaudited) turnover of
$0.4m in 2002 and the acquisition is expected to be earnings neutral for the
full year 2003.
Cash and capital expenditure
Cash and liquid resources closed the year at #9.9m (2001: #9.8m). This was after
capital expenditure, before lease financing, of #1.1m (2001: #1.2m). Total
capital expenditure for the year was #1.9m (2001: #1.8m), which was lower than
previously indicated due to late delivery of an additional laser costing #0.8m.
This will now be commissioned in the first quarter of 2003. The group used
additional working capital of #1.0m to support the increase in sales during the
year.
The group considers its level of cash holding to be prudent in the current
economic climate.
Nigel Berry
Finance Director
18 February 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2002
2002 2001
#'000 #'000
(restated)
Turnover 30,870 23,982
Cost of sales (16,770) (11,374)
Gross profit 14,100 12,608
Other operating expenses (net) (13,315) (11,231)
Operating profit 785 1,377
Exceptional item - (1,049)
Profit on ordinary activities before interest 785 328
Interest receivable 275 315
Interest payable (135) (67)
Profit on ordinary activities before taxation 925 576
Tax on profit on ordinary activities 86 (939)
Retained profit/(loss) for the financial year 1,011 (363)
Earnings/(loss) per share - basic 1.7p (0.6)p
Earnings/(loss) per share - diluted 1.7p (0.6)p
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December 2002
2002 2001
#'000 #'000
(restated)
Retained profit/(loss) for the financial year 1,011 (363)
Gain/(loss) on foreign currency translation 718 (489)
Total recognised gains and losses relating
to the financial year 1,729 (852)
Prior year adjustment (332) -
Total recognised gains and losses since
last annual report 1,397 (852)
CONSOLIDATED BALANCE SHEET
as at 31 December 2002
2002 2001
#'000 #'000
(restated)
Fixed assets
Intangible assets 1,260 1,456
Tangible assets 4,733 4,336
Investments 20 20
6,013 5,812
Current assets
Stocks 1,967 1,125
Debtors 6,801 5,517
Short term investments - 2,875
Cash at bank and in hand 9,852 6,885
18,620 16,402
Creditors:
amounts falling due within one year (6,388) (5,271)
Net current assets 12,232 11,131
Total assets less current liabilities 18,245 16,943
Creditors:
amounts falling due after more than one year (906) (470)
Provisions for liabilities and charges - (1,024)
Net assets 17,339 15,449
Capital and reserves
Called-up share capital 5,971 5,934
Share premium account 11,129 11,009
Other reserves 1,099 1,095
Accumulated deficit (860) (2,589)
Shareholders' funds - all equity 17,339 15,449
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2002
2002 2001
#'000 #'000
Net cash inflow from operating activities 540 2,769
Returns on investments and servicing of finance 149 248
Capital expenditure and financial investment (1,090) (1,192)
Cash (outflow)/inflow before management
of liquid resources and financing (401) 1,825
Management of liquid resources 2,875 1,925
Financing (141) 238
Increase in cash in the year 2,333 3,988
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Segmental information
Turnover by class of business:
2002 2001
#'000 #'000
Printheads and related products 28,477 19,488
Development fees 1,227 1,463
Licence fees and royalties 1,166 3,031
30,870 23,982
Turnover by geographical segment:
2002 2001
#'000 #'000
Europe & Middle East 9,641 6,652
Asia 17,071 11,553
Americas 4,158 5,777
30,870 23,982
Gross margin by class of business:
2002 2001
#'000 #'000
Printheads and related products 11,859 8,278
Development fees 1,227 1,463
Licence fees and royalties 1,014 2,867
14,100 12,608
2. Earnings/(loss) per ordinary share - basic and diluted
The calculation of earnings/(loss) per share is based upon the profit/(loss) for
the period after taxation and on the weighted average number of ordinary shares
in issue during the period. For basic earnings/(loss) per share, this is
59,603,709 (2001: 58,890,234) and for diluted earnings/(loss) per share, this is
59,842,670 (2001: 58,890,234), the only difference being in relation to
movements in share options.
3. Prior year adjustment
The Group's policy for accounting for deferred tax has changed to take into
account the new accounting standard FRS19 "Deferred tax". Previously deferred
tax was only provided to the extent that timing differences were expected to
reverse in the future without being replaced. Deferred tax is now provided in
respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an obligation to
pay more or less tax in the future have occurred at the balance sheet date.
As a result the comparative figure for the tax on profit on ordinary activities
and the deferred tax provision have been restated. The effects of the change in
policy are summarised below:
2002 2001
#'000 #'000
Profit and loss account
Decrease in profit for the financial year - (332)
Balance sheet
Decrease in net assets - (332)
4. Financial information
The financial information contained in this preliminary announcement of audited
results does not constitute the group's statutory accounts for the years ended
31 December 2002 or 31 December 2001. The accounting policies that have been
applied are consistent with those applied in the preceding annual accounts,
taking into consideration the change as detailed in note 3. The accounts for the
year ended 31 December 2001 have been delivered to the Registrar of Companies.
The statutory accounts for the years ended 31 December 2002 and 2001 have been
reported on by the company's auditors; the reports on these accounts were
unqualified and they did not contain any statement under section 237(2) or (3)
of the Companies Act 1985.
The accounts for the year ended 31 December 2002 are expected to be posted to
shareholders in due course and will be delivered to the Registrar of Companies
after they have been laid before the company at the annual general meeting on 15
April 2003.
Copies will also be available from the registered office of the company, Science
Park, Cambridge, CB4 0XR. The registered number of Xaar plc is 3320972.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UWOWROKRUAAR