TIDMXAR
RNS Number : 3517I
Xaar PLC
21 March 2018
Xaar plc
2017 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
2017.
Summary of results for the year to 31 December 2017
Adjusted(1) IFRS
------------------------- --------------------- ---------------------
2017 2016 2017 2016
------------------------- ---------- --------- ---------- ---------
Revenue GBP100.1m GBP96.2m GBP100.1m GBP96.2m
------------------------- ---------- --------- ---------- ---------
Gross Profit GBP47.0m GBP44.7m GBP47.0m GBP44.7m
------------------------- ---------- --------- ---------- ---------
Gross Margin % 47.0% 46.4% 47.0% 46.4%
------------------------- ---------- --------- ---------- ---------
Gross R&D investment(2) GBP18.1m GBP22.4m GBP18.1m GBP22.4m
------------------------- ---------- --------- ---------- ---------
Net R&D investment(2) GBP12.3m GBP12.2m GBP12.3m GBP12.2m
------------------------- ---------- --------- ---------- ---------
Operating Margin
% 18% 20% 12% 18%
------------------------- ---------- --------- ---------- ---------
Profit before GBP18.0m GBP19.5m GBP12.3m GBP17.9m
tax
------------------------- ---------- --------- ---------- ---------
Diluted Earnings
per share 20.7p 21.2p 14.0p 18.9p
------------------------- ---------- --------- ---------- ---------
Net Cash(3) at GBP44.7m GBP49.3m GBP44.7m GBP49.3m
Period end
------------------------- ---------- --------- ---------- ---------
Dividend per share 10.2p 10.0p 10.2p 10.0p
------------------------- ---------- --------- ---------- ---------
(1) Excluding the impact of restructuring and acquisition
expenses, share-based payment charges, exchange differences
relating to overseas operations, and research and development
expenditure credits, from the operating margin, profit before tax
and diluted earnings per share figures. Operating margin % is
calculated on operating profit, which is profit before tax less
investment income
(2) Gross R&D investment relates to R&D expenditure
before the capitalisation and amortisation of development costs.
Net R&D investment relates to R&D expenditure after the
capitalisation and amortisation of development costs, as recognised
in the income statement
(3) Net cash includes cash, cash equivalents and treasury
deposits
Financial highlights
-- Total revenue grew by 4% in 2017 to GBP100.1 million (2016: GBP96.2 million)
-- JPY 2.98 billion (circa GBP20.0 million) royalty upgrade and
replacement agreement signed with Seiko Instruments Inc. (SII),
GBP10 million of which is recognised as revenue in 2017 with the
first payment of JPY 1.5 billion received in December 2017 and the
final JPY 1.48 billion received in Q1 2018.
-- Product revenues increased by GBP0.9 million with the
continued slowdown of sales into ceramic tile decoration being
offset by 23% growth in other sectors
-- Adjusted operating profit margin of 18% achieved for the year
(2016: 20%) helped by GBP9.5m from the one-off SII royalty;
underlying adjusted profit before tax in line with expectations set
in November 2017
-- Gross research and development (R&D) investment (before
net capitalisation/amortisation of development costs relating to
the Thin Film and 3D programmes) was GBP18.1 million in 2017 (2016:
GBP22.4 million)
-- Net cash of GBP44.7 million (2016: GBP49.3 million)
Strategic and operational highlights
-- In 2017 revenues from the seven new products launched in the
last 24 months and the acquired Engineered Printing Solutions (EPS)
business accounted for 80% of the total product revenue (2016:
48%)
-- Strong performance from the new 1201 Thin Film printhead,
including a master distribution agreement signed for two years for
90,000 printheads
-- Good progress on 5601 Thin Film printhead. Design frozen;
first development kits shipped to eight partners; four colour print
capabilities showcased at InPrint 2017
-- Realised the first revenues from the Textiles market, largely
from our 5501 bulk printhead product
-- Announcement of the Joint Development Agreement (JDA) with
Xerox to develop the next generation of industrial bulk piezo
printheads using the extensive resources and IP of both
companies
-- Demonstrated to a small select group of partners and
potential customers the first prototype Xaar 3D printer
-- Organisational restructure to strengthen our Go-To-Market capabilities
Doug Edwards, Chief Executive Officer, commented:
"We are making good progress in transforming Xaar to a more
diversified and customer centric company. Although we have had some
challenges during the ramp up phase of multiple new products, the
quality of our business continues to improve. I am particularly
pleased that 80% of our product revenue is from new products
launched in the last 24 months and acquired business which has
helped product revenue excluding Ceramics grow by 23%. We regained
share in the Graphic Arts market; our Thin Film technology and our
3D and Advanced Manufacturing sectors demonstrate exciting
prospects for the future.
I would like to thank all of our staff for their continued hard
work and dedication as we work towards our 2020 vision."
CONTACTS
Xaar plc
Doug Edwards, Chief Executive Officer Today: 020-7353-4200
Lily Liu, Chief Financial Officer Thereafter: 01223-423663
www.xaar.com
Tulchan Communications
James Macey White 020-7353-4200
Chairman's Report
2017 marked a year of progress for Xaar on many fronts.
The most significant development related to the diversification
of our revenue streams which have been transformed from being
over-reliant on one product for the Ceramics market to a portfolio
of products addressing multiple market sectors. 80% of our product
revenue was derived from products launched in the last two years or
from the EPS acquisition. With new printheads launched into sectors
such as Graphic Arts and Textiles (a new sector for Xaar) our
Ceramics market dependence is reduced, accounting in 2017 for 34%
of our revenue (2016: 44%).
We made further progress in our Thin Film technology. The
product design of 5601, the result of significant R&D
investment over the last eight years, was frozen and we
successfully demonstrated four colour printing at the InPrint 2017
show. In addition, we shipped development kits to eight of our
partners for analysis and early stage development work as they look
to integrate the 5601 into their next generation printers. We have
also seen great success with the 1201 in its first full year having
re-established ourselves in the Graphic Arts market.
In December 2016 we announced additional investment in 3D
Printing led by Professor Neil Hopkinson and during 2017 we
strengthened our expertise in the area by adding a team in
Copenhagen and opening our 3D centre of excellence in Nottingham.
We have started to develop a 3D printer using High Speed Sintering
(HSS) and successfully demonstrated this to a select group of
potential customers and partners towards the end of the year. A
relatively modest investment to date is generating an exciting
business, potentially offering significant medium term returns to
our shareholders.
In December 2017 we announced an agreement with Sieko
Instruments Inc. (SII) to upgrade and replace their existing
licence for JPY 2.98 billion (circa GBP20.0 million).
The Group achieved an adjusted operating profit margin of 18%
and a very healthy cash balance of GBP45 million at 31 December
2017, with the final tranche of the SII royalty payment received in
Q1 2018. This puts us in a good position to fund growth
opportunities.
The Board remains focused in supporting the management team on
delivering this challenging transformation, which now has a variety
of products and end applications in the frame. Whilst we are
disappointed with the slower than expected adoption of some of our
new products we are confident that the transformation we are
undergoing will lead us to become a more diversified and
customer-centric organisation.
Important changes across the business continue and we appreciate
the support of all staff in achieving our vision. Talent management
is key to our strategy and we have implemented various leadership
and continuous improvement training programmes. I would like to
thank our employees for their hard work and dedication throughout
2017.
Changes to the Board since 1 January 2017, are set out
below:
-- On 2 May 2017, Lily Liu joined Xaar as Chief Financial
Officer and Company Secretary; following the departure of Alex
Bevis on 29 March 2017. I am pleased to see Lily successfully
transition into Xaar
-- On 8 August 2017, we announced that Ted Wiggans, our Chief
Operations Officer, plans to retire from Xaar plc on 9 August 2018.
I would like to thank Ted for his contribution to the business and
the Board
Robin Williams
Chairman
Chief Executive Officer's Report
I am pleased to report that our transformation journey is well
underway and that new products launched in the last two years and
the acquired EPS business accounted for 80% of the Group's total
product revenue in 2017.
We are at different stages of commercialising seven new
printhead products across a diverse range of markets and
applications. We signed a 90,000 unit master distribution agreement
for our 1201 printhead of which we have delivered circa 13,000
units since June. The design of our 5601 printhead was frozen in
July and development kits shipped to eight major Textiles,
Commercial and Package Printing partners. The first product of our
partnership with Xerox, the 5501, achieved revenues of GBP3 million
largely in digital printers for textile printing. In other areas of
the business we saw a significant increase in revenues from
printheads being used in the manufacture of flat panel displays and
we are now working with more than a dozen OEMs.
Our Product Printing business EPS, acquired in July 2016,
continues to perform to plan with growing revenues from their
digital products. We strengthened our European distribution channel
for EPS through a partnership with Comec Italia.
In March we opened our new 3D Centre in Nottingham and, along
with the addition of a team based in Copenhagen, we continue to
strengthen our position in 3D Printing. This was followed by our
strategic partner announcements later in the year with Materialise
and BASF. In November we demonstrated our first HSS prototype Xaar
3D printer to a number of potential partners.
In December we announced that we reached agreement with SII to
upgrade and replace their existing licence agreement in exchange
for JPY 2.98 billion (circa GBP20.0 million). We received the first
tranche in December 2017 and the balance was settled in Q1 2018.
This is significant as it de-risks our future royalty revenue
stream.
We have made further progress in our transformation to a more
customer-centric organisation, funding additional Go-To-Market
resources through efficiency savings elsewhere in the organisation.
The slower than anticipated growth in sales of our new products has
necessitated this strengthening of our Go-To-Market resources.
Despite the success with our new indirect channels for the 1003
bulk printhead in the replacement market our Ceramics business
remains under competitive pressure. The ramp up of our new 2001+
bulk printhead was slower than planned. However, we are now
starting to see improved traction helped by the adoption of our
High Laydown (HL) Technology which was introduced in the middle of
2017.
We continue to drive towards our 2020 vision with a more diverse
and balanced portfolio of products and businesses. Progress made
against each of the pillars that makes up our 2020 vision is
described below.
Ceramics
Ceramics remained our largest market sector in 2017 and we
continue to retain a strong market share with a large proportion of
the printer install base still using Xaar printheads. Increased
competition has seen our market share and revenues from this sector
fall. With the Ceramics market having now reached maturity and
nearly all lines converted to digital, the majority of new printer
sales are machine replacements or upgrades.
In 2016 we launched two new products aimed largely at responding
to the decline in our existing Ceramics products. The launch of the
Xaar 1003 printhead has been a success in addressing the existing
printer install base. It offers the ability to upgrade existing
machines by replacing the Xaar 1002 printheads with one offering
improved performance and longer maintenance-free production run
times.
Sales of the 2001+ printhead, which was also launched in 2016,
have gained traction slowly. Unlike the 1003 it is not backward
compatible with existing machines and is therefore targeted solely
at new machine installs. With the current level of market maturity
and competition OEMs have been slow to invest in new designs and
subsequently the 2001+ printhead has been slow to ramp up and
unable to address the decline in Xaar's market share of new
installs. However, we saw increased sales in both Q4 2017 and early
2018 as we better demonstrated the value proposition of the
printhead and leveraged the new HL Technology made available
mid-year.
At the Ceramics China show in June we announced our Premier
Partner programme and the release of our advanced HL Technology. HL
Technology is used to apply effects, such as glosses and lustres,
as well as adhesives, once the tiles have been digitally
decorated.
Product Printing & Packaging
In 2016 we selected two areas to focus on: Product Printing and
3D Printing; and we continue to make good progress in both.
I am delighted to report the on-going success of the EPS
business acquired in July 2016 which has continued to grow, meeting
our expectations. The ability of EPS to supply customised and
bespoke printing solutions, which are both flexible and cost
effective, to a wide variety of market sectors highlights the
potential of digital inkjet in product printing. EPS has been able
to outperform what is already a fast growing market and one that is
still largely analogue. EPS remains predominantly based in North
America, with a large growth potential. We plan on investing
further in its North American operations and expanding its global
reach. At InPrint 2017 EPS announced Comec Italia as its European
distributor for its digital product portfolio.
During 2017 we made really exciting progress in 3D. At the end
of 2016 we hired an experienced group of talented engineers working
in Copenhagen, Denmark, to complement the skillset of the team
already established in Nottingham. In March 2017 we announced a
collaboration with Materialise to provide their market-leading 3D
print software with Xaar's additive manufacturing development kit.
We then officially opened the Xaar 3D centre in Nottingham, UK, an
event attended by guests from a number of large international
businesses including ABB, BAE Systems and Jaguar Land Rover. In
November we announced a collaboration with BASF, a world-leading
chemical company, to improve the Photopolymer Jetting process which
will enable manufacturers to produce 3D parts with enhanced
properties at lower costs. We then demonstrated, to a small select
group of partners and potential customers, the first HSS prototype
Xaar 3D printer designed in conjunction by the Copenhagen and
Nottingham teams under the leadership of Professor Neil
Hopkinson.
The 5501, our first printhead from our collaboration with Xerox,
has contributed meaningful revenues since it was announced in June
2017. The bulk piezo printhead has been added to our portfolio of
aqueous printheads, complementing the existing Thin Film printheads
the 1201 and the 5601. The 5501 has enabled us to address more of
the Textiles market and, in combination with our increased
Go-To-Market capabilities, has allowed us to achieve significant
revenues in the second half of 2017.
Within the Coding and Marking sector the 501 and 502 printheads
have been adopted by major OEMs (Videojet, Engage, RN Mark, &
Domino) and sales of these are expected to grow further in 2018.
Despite the adoption of the 501 and 502 by these major OEMs the
Coding and Marking sector has declined from its 2016 postion which
was helped by one-off Last-Time-Buy arrangements for products
manufactured in Sweden.
The Product Printing and Packaging pillar has grown 24%
adjusting for the impact of the one-off Last-Time-Buy arrangements
in 2016.
Thin Film
Good progress has been made in Thin Film in 2017 despite being
slower than expected.
In the first half of the year we saw substantial sales of the
1201 printhead into the Graphic Arts sector and signed a master
distribution agreement for the sale of 90,000 units over a two year
period. Sales of the 1201 continued to grow in the second half of
the year but were hampered by supply constraints that meant we were
unable to fulfil all of the demand. These supply constraints have
now been resolved, and with additional capacity coming on stream
later in 2018 we expect to achieve further growth in sales of the
1201.
The development programme for our own Thin Film printhead
technology passed several key milestones. Working with our
manufacturing partner for the 5601 the design was frozen in July.
Focus is now on ensuring supply chain reliability and improving our
own manufacturing capability in order to ramp up production. At
InPrint 2017 we showcased the 5601's four colour print capabilities
and its exceptionally high resolution print quality garnering much
interest. We have sold a number of 5601 development kits to our key
OEM partners who now have, or will be, evaluating the printhead for
their next generation of printers. Customer feedback has been very
positive and we truly believe we have a printhead which will unlock
the digital conversion of very large and established analogue
industrial printing markets such as Textiles, Commercial Printing
and Packaging.
Acquisitions and Partnerships
As already noted, we are delighted by the success of our first
acquisition as part of the 2020 vision, EPS. We continue to explore
opportunities in the Product Printing space and target markets that
support our vision.
The first products from the Ricoh and Xerox partnerships have
yielded significant sales in 2017 and are expected to grow further
in 2018. We strengthened our relationship with Xerox with the
announcement of a Joint Development Agreement to develop the next
generation of bulk piezo printheads. In 3D we have built
partnerships with Materialise and BASF. EPS has partnered with
Comec Italia to establish a European Distribution channel. We
collaborated with Meteor Inkjet to produce a development kit and
commercial drive electronics for the 1201 printhead that shortens
OEMs' time-to-market and optimises the printhead performance.
Product and technology development
Building on the success of 2016 we have continued to deliver new
products and technologies to the market. With seven new products
launched in the last 24 months we have greatly diversified the
portfolio we can offer to both new and existing customers.
Our development team has made significant progress on the 5601
allowing us to demonstrate the capabilities of the printhead and
put it in the hands of our partners. The programme team is now
focused on supporting full commercialisation of the product in
2018.
We continued our transformation from an internally focused
product company to a market and customer lead business, redeploying
resources from both operations and R&D to our Go-To-Market
functions. As well as investing in our Sales and Marketing group we
have established an Applications and Integration team to provide a
new layer of technical support to help our customers shorten their
development time and time to market. This strategy has already
allowed us to achieve significant revenue from some of our new
products.
People
As part of our transformation strategy we have invested
significantly in our people in order to develop a customer focused
mind-set and enhance leadership, change management and resilience
skills. During 2017 we launched a suite of Learning and Development
programmes, collectively called XCEL. This includes a world class
program called Inspired Leaders which was rolled out to managers
across the Company and will be extended to the rest of the
workforce in 2018. Inspired Leaders targets the most critical
skills needed to transform a workforce's mindset and skill set.
XCEL also includes a three year programme for High Potential
Development called GATE which combines hands-on instruction from
Senior Executives, a suite of self-assessment tools, group
interaction and project work in the most business critical areas
within Xaar. We have also implemented Continuous Improvement
activities and Six Sigma training across the company to remove
non-value add activities, streamline processes, and enhance our
ability to partner with our customers effectively.
I would like to thank all of our staff for their efforts during
2017; we have had to overcome a number of challenges in the year
but have taken some important steps forward in achieving our
vision.
Summary and outlook
We are making good progress in transforming Xaar to a more
diversified and customer centric Company. Challenges still remain
in our legacy business as Ceramics matures and the speed of
transition to alternative printhead technologies, such as Thin
Film, gain traction. We are well positioned with a more balanced
and diverse portfolio of growing new products and businesses. I am
particularly pleased that 80% of our product revenues now come from
the seven new printhead products and two new businesses we have
added in the last 24 months and that excluding Ceramics they have
grown 23% in the year. This trend is set to continue with
investment in these exciting growth areas.
We remain focused on the long term opportunity, the conversion
of well-established analogue manufacturing techniques to digital
inkjet solutions and the delivery of our 2020 vision.
Doug Edwards
Chief Executive Officer
Chief Financial Officer's Report
Revenue
The Group achieved total revenue for the year of GBP100.1
million (2016: GBP96.2 million) representing a 4% increase. Whilst
disappointed by the slower-than-anticipated revenue growth in the
second half of the year, I am pleased to report a 23% product
revenue growth excluding Ceramics.
In December 2017 we announced that we reached an agreement with
SII to upgrade their current licence arrangement and replace its
future royalty obligations in exchange for a total cash
consideration of JPY 2.98 billion (circa GBP20.0 million). This
agreement substantially de-risks our future royalty stream. The
2017 royalty revenue includes GBP10.0 million derived from the
one-off SII licence upgrade and replacement agreement. Total
Licensee Royalties in 2017 were GBP16.4 million (2016: GBP13.3
milllion).
Sales into Graphic Arts grew by 62% reaching GBP12.8 million for
2017 (2016: GBP7.9 million) and accounted for 13% of the total
revenue for the year. The significant growth in this sector was
driven by the success of the 1201 printhead by way of our master
distribution agreement in China. In November 2017 we reported that
there was a supply constraint that hampered delivery and restricted
sales. These constraints have now been addressed and we expect
further growth in 2018.
Our Industrial sector no longer includes revenues from the
acquired EPS business as they have been reclassified to the
Packaging and Product Printing sector. Industrial continues to be
the largest sector for Xaar's technology, representing 43% of Group
revenue in 2017 at GBP42.7 million, compared to 48% in 2016
(GBP45.9 million) on a like for like basis.
The largest revenue contributor in Industrial continues to be
ceramic tile decoration. The Ceramics sector has now reached
maturity with nearly all lines now converted to digital; revenue
was GBP33.7 million in 2017 a decline from GBP42.3 million in 2016.
The replacement market for printers and printheads has become key
and intensity of competition in the sector has continued to drive
down prices. The 1003 printhead has been successful and allowed the
business to retain its prominent position in the replacement market
for printheads. However, adoption of the 2001+ printhead has been
slower than anticipated and the business has lost share in new
printer installs. The Ceramics sector has fallen 20% since 2016 and
now represents just over one third of total revenues.
There has been significant level of growth in nearly all other
Industrial sub-sectors. We are excited about the 83% increase in
the combined Advanced Manufacturing and 3D Printing sectors. This
has been driven by a shift in manufacturing processes for flat
panel displays and also our leading-edge technologies for 3D
Printing. We are equally encouraged about our first revenues of
GBP3.9 million from the Textiles sector, a new market for us,
driven by new products within our portfolio.
The Packaging and Product Printing sector has declined slightly
by 3% and at GBP28.3 million now represents 28% of the Group's
total revenue (2016: GBP29.0 million, 30%). As mentioned above, we
re-classified the EPS business into this sector. EPS grew by 109%
thanks to a full-year contribution and continued growth in the
business. Decline in sales into Coding and Marking of 53% was a
combination of one-off Last-Time-Buy arrangements in 2016 for
products previously manufactured in Sweden, and slower adoption of
the next generation of products.
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 2017 Asia overtook Europe, Middle East and Africa (EMEA) as
the Company's largest sales region. Sales into Asia accounted for
GBP50.9 million (2016: GBP36.4 million) of sales, representing 51%
of the Group's revenue. Product sales i.e. excluding Licensee
Royalties grew 49% largely due to the take up of new products going
into Graphics Arts and Textiles. In Ceramics we have reversed the
trend of decline in China with increased sales of both the 1003 and
2001+ printheads.
Sales into EMEA have fallen 28% with EMEA accounting for GBP29.8
million (2016: GBP41.7 million) of the Group's total sales. This
reduction is mainly due to the result of falling sales to European
Ceramics OEMs.
The Americas, with a total revenue of GBP19.4 million (2016:
GBP18.1 million), grew 7%. Much of the growth in the Americas comes
from the full year contribution of EPS; this growth was restricted
by the decline in sales into Coding and Marking, driven by the
one-off Last-Time-Buy arrangement in 2016.
Profitability
We reported an overall adjusted operating margin in 2017 of 18%
(2016: 20%). This decline in profitability is due to a combination
of factors. The removal of a one-off foreign exchange benefit in
2016 due to the Brexit referendum; a significant reduction of the
Thin Film capitalisation from 2016 (GBP10.2 million) to 2017
(GBP4.9 million net capitalisation/amortisation) which was
partially offset by a reduction in gross R&D spend; and
increased royalties.
Gross profit margins increased from 46.4% in 2016 to 47.0% in
2017, helped by increased Licensee Royalties of GBP3.1 million.
Gross profit margins excluding royalties fell from 37.8% to 36.6%.
The reduction reflects increased price pressures in Ceramics, lower
utilisation of the factory, higher costs on new products as sales
volumes increased more slowly than anticipated, and the dilutive
effect on the gross profit margin of the increased contribution of
sales from products sourced from our partners.
Gross expenditure on R&D (before expense
capitalisation/amortisation) decreased by 19% from GBP22.4 million
in 2016 to GBP18.1 million in 2017 as a number of new products were
delivered to market and resources are made available to support
Go-To-Market activities. The first products from the Thin Film
programme were made available in H2, and as required under
International Financial Reporting Standards (specifically IAS 38)
amortisation of the programme commenced. In addition to the
capitalisation of the Thin Film programme, GBP0.9 million was
capitalised relating to the development of a new 3D Printer
technology platform. This 3D Printer technology was successfully
demonstrated to selected potential customers and partners in late
2017. The net R&D spend for 2017 increased from GBP12.2 million
in 2016 to GBP12.3 million.
Sales, marketing and general administrative costs increased to
GBP16.9 million (2016: GBP13.4 million) on an adjusted basis, due
to foreign exchange trading losses (2017: GBP0.6 million loss,
2016: GBP1.9 million gain) and a full year of EPS' costs.
Adjusted profit before tax of GBP18.0 million was recorded for
2017 (2016: GBP19.5 million). Underlying adjusted profit before tax
(excluding the benefit of one-off SII royalties and foreign
exchange trading losses) was GBP9.0m, in line with revised
expectations. Profit before tax as reported under IFRS was GBP12.3
million (2016: GBP17.9 million).
The tax charge on adjusted profit before tax was GBP1.9 million
(2016: GBP2.9 million), representing an effective tax rate of 10%
(2016:15%) which compares favourably to the blended UK corporation
tax rate for 2017 of 19.25%. The effective rate is low as Xaar
benefits from intellectual property and our continued investment in
R&D.
The tax charge on IFRS profit before tax was GBP1.4 million
(2016: GBP3.1 million) representing an effective tax rate of 11%
(2016: 17%).
Effective from 1 January 2018 the US corporate income tax rate
reduced from 35% to 21%. We do not expect this to significantly
affect the Group's tax rate in the short term.
Adjusted profit after tax for 2017 was GBP16.1 million (2016:
GBP16.6 million) and adjusted diluted earnings per share was 20.7
pence (2016: 21.2 pence).
Financial position
The Group maintains a strong financial position, which allows us
to fund growth opportunities.
2017 was marked as a year for the business to start reducing its
capital expenditure, as we move away from a vertically-integrated
development and manufacturing model to working more closely with
our strategic partners. We saw a reduction in our capital
expenditure in the year of GBP5.3 million (or 49%); and a reduction
in our capitalised development expenditure in the year of GBP3.8
million (or 36%).
We recorded GBP44.7 million of cash and treasury deposits at 31
December 2017, a decrease of GBP4.6 million compared to balances
held at 31 December 2016, but an increase of GBP6.4 million from 30
June 2017.
Operating cash inflow, being adjusted profit before tax after
adding back depreciation and amortisation, was GBP27.3 million
(2016: GBP28.1 million). The change in working capital during the
year represented a net cash outflow of GBP12.9 million. Receivables
increased GBP9.2 million reflecting the phasing of revenue in the
year, the establishment of terms with new customers, and extended
credit terms for customers driving the adoption of our new
products. Inventory increased GBP5.1 million as we ramped up
production of new products and as sales of these new products give
rise to an increasingly complex supply chain. This working capital
impact was however offset by a significant reduction in fixed
capital expenditure for the Group. Total cash outflow relating to
intangible and tangible assets was GBP12.0 million in the year,
including GBP6.5 million of capitalised development expenditure.
Dividends accounted for GBP7.7 million of all cash outflows.
Intangibles
Intangible assets were reported at GBP32.7 million at 31
December 2017 (GBP27.4 million at 31 December 2016). These assets
are largely associated with the Thin Film development project which
was capitalised over the last 4 years. Amortisation of this project
commenced in August 2017 after the design was frozen and
development kits were made available for sale. We will amortise
this technology platform over a 20 year period. In addition, GBP0.9
million was capitalised relating to the development of a new 3D
Printer technology platform.
Treasury and currency management
As we continue to explore further acquisition opportunities, we
carefully manage our cash and its corresponding liquidity
profile.
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.
As much as possible, we match our billing currencies to our
settlement currency to achieve a natural hedge.
Dividend
As announced in 2014, the Company employs a progressive and
sustainable dividend policy which takes into account the Group's
future prospects, its underlying profitability and the future cash
requirements of the business. The Board will recommend a final
dividend of 6.8 pence for 2017 (2016: 6.7 pence) at the forthcoming
Annual General Meeting (AGM), giving a total dividend for the year
of 10.2 pence, a 2% increase over 2016 (10.0 pence). An interim
dividend of 3.4 pence was paid during the year (2016: 3.3 pence).
Subject to approval by shareholders at the AGM the final dividend
will be paid on 29 June 2018, with an ex-dividend date of 31 May
2018, to shareholders on the register at close of business on 1
June 2018.
Lily Liu
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
-------------------------------------------------- ------ --------- ---------
Revenue 100,142 96,178
Cost of sales (53,097) (51,511)
-------------------------------------------------- ------ --------- ---------
Gross profit 47,045 44,667
Research and development expenses (12,318) (12,211)
Research and development expenditure credit 411 605
Sales and marketing expenses (7,860) (7,608)
General and administrative expenses (12,627) (6,844)
Restructuring and acquisition expenses (2,553) (1,205)
-------------------------------------------------- ------ --------- ---------
Operating profit 12,098 17,404
Investment income 192 449
Profit before tax 12,290 17,853
Tax (1,358) (3,052)
-------------------------------------------------- ------ --------- ---------
Profit for the year attributable to shareholders 10,932 14,801
-------------------------------------------------- ------ --------- ---------
Earnings per share
Basic 3 14.3p 19.4p
Diluted 3 14.0p 18.9p
-------------------------------------------------- ------ --------- ---------
Dividends paid in the year amounted to GBP7,728,000 (2016:
GBP7,328,000).
All activities relate to continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
2017 2016
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Profit for the year attributable to shareholders 10,932 14,801
--------------------------------------------------------- -------- --------
Items that may be reclassified subsequently to profit
and loss:
Exchange differences on retranslation of net investment (721) 708
Tax (charge)/credit on share option and restructuring
gains (20) 434
Other comprehensive (loss)/income for the year (741) 1,142
--------------------------------------------------------- -------- --------
Total comprehensive income for the year 10,191 15,943
--------------------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
2017 2016
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Non-current assets
Goodwill 5,212 5,776
Other intangible assets 32,678 27,363
Property, plant and equipment 33,471 36,352
Receivables 858 1,516
72,219 71,007
---------------------------------------------- --------- ---------
Current assets
Investments - 1,000
Inventories 19,119 13,790
Trade and other receivables 30,303 20,340
Current tax asset 3,412 3,029
Treasury deposits 753 -
Cash and cash equivalents 43,944 49,321
97,531 87,480
---------------------------------------------- --------- ---------
Total assets 169,750 158,487
---------------------------------------------- --------- ---------
Current liabilities
Trade and other payables (16,583) (14,314)
Other financial liabilities (30) (69)
Provisions (1,911) (774)
---------------------------------------------- --------- ---------
(18,524) (15,157)
---------------------------------------------- --------- ---------
Net current assets 79,007 72,323
---------------------------------------------- --------- ---------
Non-current liabilities
Deferred tax liabilities (3,905) (2,686)
Other financial liabilities (137) (188)
---------------------------------------------- --------- ---------
Total non-current liabilities (4,042) (2,874)
---------------------------------------------- --------- ---------
Total liabilities (22,566) (18,031)
---------------------------------------------- --------- ---------
Net assets 147,184 140,456
---------------------------------------------- --------- ---------
Equity
Share capital 7,833 7,778
Share premium 29,317 27,854
Own shares (3,642) (3,642)
Other reserves 14,638 11,891
Translation reserve 613 807
Retained earnings 98,425 95,768
---------------------------------------------- --------- ---------
Equity attributable to shareholders 147,184 140,456
---------------------------------------------- --------- ---------
Total equity 147,184 140,456
---------------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Share Share Own Other Translation Retained
Capital Premium Shares Reserves Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- --------- ------------ --------- --------
Balance at 1 January
2016 7,764 27,585 (3,796) 11,006 99 87,880 130,538
------------------------ -------- -------- -------- --------- ------------ --------- --------
Profit for the
year - - - - - 14,801 14,801
Tax on items taken
directly to equity - - - - - 434 434
Exchange differences
on retranslation
of net investment - - - - 708 - 708
Total comprehensive
income for the
period - - - - 708 15,235 15,943
Issue of share
capital 14 269 - - - (2) 281
Dividends - - - - - (7,328) (7,328)
Credit to equity
for equity-settled
share-based payments - - 154 885 - (17) 1,022
------------------------ -------- -------- -------- --------- ------------ --------- --------
Balance at 1 January
2017 7,778 27,854 (3,642) 11,891 807 95,768 140,456
------------------------ -------- -------- -------- --------- ------------ --------- --------
Profit for the
year - - - - - 10,932 10,932
Tax on items taken
directly to equity - - - - - (20) (20)
Exchange differences
on retranslation
of net investment - - - - (194) (527) (721)
Total comprehensive
income for the
period - - - - (194) 10,385 10,191
Issue of share
capital 55 1,463 - - - - 1,518
Dividends - - - - - (7,728) (7,728)
Credit to equity
for equity-settled
share-based payments - - - 2,747 - - 2,747
------------------------ -------- -------- -------- --------- ------------ --------- --------
Balance at 31 December
2017 7,833 29,317 (3,642) 14,638 613 98,425 147,184
------------------------ -------- -------- -------- --------- ------------ --------- --------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------------------------ ------ --------- ---------
Net cash from operating activities 4 12,473 13,935
------------------------------------------------ ------ --------- ---------
Investing activities
Investment income 190 471
Acquisition of subsidiary, net of cash
acquired - (7,556)
Redemption of investment 1,000 -
Purchases of property, plant and equipment (5,517) (10,831)
Proceeds on disposal of property, plant
and equipment - 16
Expenditure on software (19) (85)
Expenditure on capitalised product development (6,451) (10,222)
------------------------------------------------ ------ --------- ---------
Net cash used in investing activities (10,797) (28,207)
------------------------------------------------ ------ --------- ---------
Financing activities
Dividends paid (7,728) (7,328)
Treasury amounts (deposited)/withdrawn (753) 27,098
Proceeds from the sale of ordinary share
capital - 137
Proceeds from issue of ordinary share capital 1,518 282
Net cash (used in)/from financing activities (6,963) 20,189
------------------------------------------------ ------ --------- ---------
Net (decrease)/increase in cash and cash
equivalents (5,287) 5,917
Effect of foreign exchange rate changes
on cash balances (90) 755
Cash and cash equivalents at beginning
of year 49,321 42,649
------------------------------------------------ ------ --------- ---------
Cash and cash equivalents at end of year 43,944 49,321
------------------------------------------------ ------ --------- ---------
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 2017
1. Basis of preparation
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2016 and
2017, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Registrar of Companies and those
for 2017 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 2018.
2. Reconciliation of adjusted financial measures
2017 2016
GBP'000 GBP'000
---------------------------------------------- -------- --------
Profit before tax 12,290 17,853
---------------------------------------------- -------- --------
Share-based payment charges 3,057 969
Exchange differences relating to intra-group
transactions 523 60
Restructuring and acquisition expenses 2,553 1,205
Research and development expenditure
credit (411) (605)
---------------------------------------------- -------- --------
Adjusted profit before tax 18,012 19,482
---------------------------------------------- -------- --------
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
period of GBP2,747,000 (2016: GBP885,000) and the charge relating
to National Insurance on the outstanding potential share options of
GBP310,000 (2016: GBP84,000). These costs were included in the
general and administrative expenses in the Consolidated income
statement.
Exchange differences relating to intra-group transactions
represent exchange gains or losses recorded in the Consolidated
income statement as a result of operating in the United States and
Sweden. These costs were included in the general and administrative
expenses in the Consolidated income statement.
Restructuring and acquisition expenses of GBP2,553,000 (2016:
GBP1,205,000) relate to costs incurred and a provision made in
relation to a reorganisation and earn-out expenses relating to the
acquisition of EPS in 2016.
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
Income statement.
2017 2016
Pence per Pence per
share share
---------------------------------------------- ---------- ----------
Diluted earnings per share 14.0 18.9
---------------------------------------------- ---------- ----------
Share-based payment charges 3.9 1.2
Exchange differences relating to intra-group
transactions 0.7 0.2
Restructuring and acquisition expenses 3.3 1.5
Tax effect of adjusting items (1.2) (0.6)
---------------------------------------------- ---------- ----------
Adjusted diluted earnings per share 20.7 21.2
---------------------------------------------- ---------- ----------
3. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based
on the following data:
2017 2016
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Earnings
Earnings for the purposes of basic earnings
per share being net profit attributable
to equity holders of the parent 10,932 14,801
---------------------------------------------- ----------- -----------
Number of shares
Weighted average number of ordinary
shares for the purposes of basic earnings
per share 76,469,128 76,246,300
Effect of dilutive potential ordinary
shares:
Share options 1,441,475 1,994,875
---------------------------------------------- ----------- -----------
Weighted average number of ordinary
shares for the purposes of diluted earnings
per share 77,910,603 78,241,175
---------------------------------------------- ----------- -----------
2017 2016
Pence per Pence per
share share
---------------------------------------------- ----------- -----------
Basic 14.3 19.4
Diluted 14.0 18.9
---------------------------------------------- ----------- -----------
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 2017, there were share options granted over 382,843 shares
that had not been included in the diluted earnings per share
calculation because they were anti-dilutive at the period end
(2016: 22,758 shares).
The performance conditions for LTIP awards over 657,355 shares
(2016: 1,109,652 shares) have not been met in the current financial
period 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 acquisition expenses, is based on earnings
of:
2017 2016
GBP'000 GBP'000
---------------------------------------------- -------- --------
Earnings for the purposes of basic earnings
per share being net profit attributable
to equity holders of the parent 10,932 14,801
---------------------------------------------- -------- --------
Share-based payment charges 3,057 969
Exchange differences relating to intra-group
transactions 523 60
Restructuring and acquisition expenses 2,553 1,205
Tax effect of adjusting items (929) (447)
---------------------------------------------- -------- --------
Adjusted profit after tax 16,136 16,588
---------------------------------------------- -------- --------
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:
2017 2016
Pence Pence
per Share Per Share
------------------ ----------- -----------
Adjusted basic 21.1 21.8
Adjusted diluted 20.7 21.2
------------------ ----------- -----------
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
2017 2016
GBP'000 GBP'000
----------------------------------------------- -------- --------
Profit before tax 12,290 17,853
Adjustments for:
Share-based payments 3,057 969
Depreciation of property, plant and equipment 7,795 7,851
Amortisation of intangible assets 1,149 787
Research and development expenditure
credit (411) (605)
Investment income (186) (449)
Foreign exchange losses/(gains) 32 (956)
Loss/(profit) on disposal of property,
plant and equipment 351 (3)
Increase/(decrease) in provisions 1,133 (2,759)
----------------------------------------------- -------- --------
Operating cash flows before movements
in working capital 25,210 22,688
(Increase)/decrease in inventories (5,071) 2,841
Increase in receivables (9,226) (8,910)
Increase/(decrease) in payables 1,103 (2,381)
----------------------------------------------- -------- --------
Cash generated by operations 12,016 14,238
Income taxes received/(paid) 457 (303)
----------------------------------------------- -------- --------
Net cash from operating activities 12,473 13,935
----------------------------------------------- -------- --------
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. For this reason, they continue to adopt the going
concern basis in preparing the financial information.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAXDEAEDPEFF
(END) Dow Jones Newswires
March 21, 2018 03:00 ET (07:00 GMT)
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