14th Mar 2006 07:01
Xaar PLC14 March 2006 FOR IMMEDIATE RELEASE 14 March 2006 Xaar plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Xaar plc ("Xaar"), the inkjet printing technology group headquartered inCambridge, has announced its audited results for the year ended 31 December2005. KEY POINTS : • Results reflect a year of excellent progress with growth in revenues, margins and profits. • Reported under IFRS, the financial results for the year were: o Turnover was up 23% to £42.8m (2004: £34.8m); o Profit before tax* jumped 69% to £11.0m (2004: £6.5m); o Operating profit was up 66% to £10.5m (2004: £6.3m); o Operating profit margins improved to 24% (2004: 18%); o Adjusted basic earnings per share* increased 62% to 12.8p (2004: 7.9p); and o Net cash and cash equivalents at 31 December 2004 were £14.4m (2004: £15.3m). * stated before non-trading foreign exchange movements on inter-company loan: loss of £1.0m (2004: loss of £0.2m) • Cash investment in the business during the second half of 2005 included initial spend on the new manufacturing plant, increased working capital to support expanded level of business and funding of purchase of Xaar shares for staff share incentive plans. • Proposed annual dividend per share increased 50% to 1.5p (2004: 1.0p). • New manufacturing plant is to be located in Huntingdon, Cambridge and is scheduled to commence production by the end of 2006. Planned investment of £10m will create initially 30 new jobs. On outlook, Chairman, Arie Rosenfeld stated : "Our sales of established products continue to grow and our new productslaunched in 2006 will add growth in the medium term. For the longer term we havefurther new products due for commercial launch in 2007, together with anexpanding range of applications ready to adopt them." "The Board looks forward to another year of positive results in 2006." For further information, please contact: Xaar plc:Ian Dinwoodie, Chief Executive; or today: 020-7367-8888Nigel Berry, Group Finance Director and Deputy Chief Executive thereafter: 01223-423663 www.xaar.co.uk Bankside Consultants:Steve Liebmann 020-7367-8883 / 07802-888159 CHAIRMAN'S STATEMENT Introduction I am delighted to report another excellent year for Xaar. Our technology andproducts continued their rapid advance, resulting in strong growth in sales andprofitability. Results and Finance Group revenues increased by 23% in the year to £42.8m (2004: £34.8m). Productsales were £39.9m (2004: £33.1m), royalty revenues £1.3m (2004 £1.1m) anddevelopment fees £1.6m (2004: £0.6m). Included in development fees areintegration and early stage business development revenues. Sales increasedacross the whole range of printheads demonstrating the strength and depth of theproduct portfolio which the group continues to develop. Profit for the year also grew strongly and profit before tax and exchangemovements on inter-company loans was £11.0m (2004: £6.5m), an increase of 69%over the prior year. Earnings per share, stated before the exchange movement oninter-company loans, increased by 62% to 12.8p (2004: 7.9p). Cash balances at the end of the year were £14.4m, a reduction of £0.9m duringthe year reflecting investment of the group's cash resources in the next phaseof our development through increased capital expenditure, working capital andtrade investments. We also funded the purchase of the company's own shares forits Employee Share Ownership Plan (ESOP). The ESOP forms a key part of ourremuneration strategy for retaining the highly skilled people we have within thegroup. Dividend The board is recommending payment of an annual dividend for the year of 1.5p, anincrease of 50% on the 1.0p dividend paid in 2004. Trends Turning to the wider print market, inkjet continues its penetration oftraditional printing markets. In a recent press release, Agfa reiterated itsintention to become a major player in the industrial inkjet market and duringthe year several other large global imaging companies entered the market orsignificantly expanded their inkjet activities; Hewlett Packard acquired ScitexVision (a major Xaar customer) and also announced a new strategic partnershipwith Seiko Instruments (a Xaar licensee); Fuji Photo Film acquired Sericol Inksand Avecia Inks, both Xaar ink partners, and Dainippon Screen purchased IncaDigital Printers in Cambridge. The interest shown by such global businesses can only enhance the prospects forinkjet printing and accelerate its acceptance as a primary printing process. Inaddition, we continue to see progress in the development of inkjet as anindustrial manufacturing process in non-print related industries such aspackaging, electronics, three dimensional modelling and biotechnology. We nowhave the products that enable us to address the requirements of these marketsand we continue to build strategic partnerships with the main players in thesesectors. In the immediate future, sales of the OmniDot to Agfa are expected to build moreslowly than originally planned due to a slower roll-out by Agfa of its wideformat products which use the printhead. This is to allow Agfa to focus on theintroduction of its radical digital press, the M Press, which is also builtaround the OmniDot. Xaar's margin on sales to Agfa is significantly lower thanthat on other printhead sales, reflecting Agfa's co-funding of the OmniDot'sdevelopment and its direct investment in Xaar's Swedish manufacturing facility.The lost margin on any shortfall in sales to Agfa in 2006 is, therefore, notmaterial and will be covered by incremental sales to other customers. Investment in Capacity Expansion During the year the board has reviewed the longer term capacity requirements ofthe company given the increasing momentum building across all inkjet markets, aswell as our own future product and market development plans. The reviewconcluded that the group's present manufacturing plant, in Jarfalla, Sweden, islikely to become fully utilised over the next two years and will be unable tomeet future demand. After considering a number of options the board has decided to establish asecond manufacturing plant in Huntingdon, Cambridgeshire, close to the group'sCambridge headquarters. The second plant should begin operations by the end of2006 and will initially produce our Platform 3 HSS product. This expansion willrequire an investment of up to £10m, including the additional working capitalrequired to support the incremental sales these new products will generate. Board Changes In October 2005, we were pleased to welcome Robert Eckelmann, 49, to the boardas an independent, non-executive director. Mr Eckelmann had spent a large partof his career at Intel Corporation where he ran Intel's European operations andstarted up its business in the major Asian markets. He replaced Michael Gearywho stood down at the 2005 Annual General Meeting following nine years of valuedservice. Queen's Award for Enterprise The company was honoured during the year to be the recipient of the Queen'sAward for Enterprise in the Innovation category. The award is a fitting tributeto the inventiveness and determination of our staff both past and present. Outlook We see the use of inkjet technology growing strongly in both printing andindustrial markets and, as a market leader, intend to remain at the forefront ofthat growth. Our sales of established products continue to grow and our new products launchedin 2006 will add growth in the medium term. For the longer term we have furthernew products due for commercial launch in 2007, together with an expanding rangeof applications ready to adopt them. The Board looks forward to another year of positive results in 2006. Arie RosenfeldCHAIRMAN13 March 2006 CHIEF EXECUTIVE'S REVIEW Introduction 2005 was a very successful year for Xaar. It is particularly pleasing to report another twelve months of strong sales,confirming that our technology is well-placed to benefit from the excellent longterm prospects for all aspects of digital printing. It is also encouraging tonote the expanding range of applications for our technology, taking us into thenew fields of fluid and materials deposition - not just printing in thetraditional sense. Our long experience in manufacturing piezo-based inkjetproducts has continued to ensure that Xaar is highly profitable with strongmargins in the year at both the gross and operating level. During the second half of the year we embarked on the next stage of the group'sdevelopment with plans for a new production facility in the UK to manufactureour first Platform 3 product, the specification of which has now been finalisedfollowing extensive and positive feedback from our early alpha test partners.Evaluation kits for the printhead have already been shipped to potentialcustomers and volume supply will be available from the end of 2006. Product sales Printheads remain the dominant proportion of our revenues, representing 85% oftotal group sales. As we expand our product portfolio we have taken theopportunity to simplify its presentation by grouping it into three discreteproduct platforms, each with a clear focus on particular market segments. Platform 1, which comprised the majority of product sales in 2005, encompassesour lower resolution products - the XJ126, XJ128 and XJ500 printheads - targetedat external signage and advertising, together with coding and markingapplications. All Platform 1 products experienced double digit growth in theyear and equipment manufacturers continue to introduce new printing machinesbased on our best-selling printhead, the XJ128. During the year we introduced anew product to this platform, the OmniDot 380, which has been designed to fillthe gap between the XJ128 and the XJ500. Platform 2 was introduced during the year and currently consists of thegreyscale OmniDot 760 in 3 and 8 picolitre dropsize variations bringing Xaarinto the higher resolution indoor advertising and poster markets (including theversion of the product manufactured for Agfa). The products commenced commercialshipments during the year and, whilst they are modest contributors at this earlystage, I expect the contribution from this range of products to growsignificantly in the future. Platform 3, the HSS, will be launched commercially at the end of 2006 and willopen up the higher productivity narrow format sheet and web fed print marketsand non-print related industrial applications. Selected partners in thesemarkets have already received the printhead for evaluation. For the future we will continue to enhance and develop products across all threeplatforms to meet the evolving needs of the markets they serve, as well asenhancing the core technology on which all platforms are based. Xaar's ink business continues to contribute positively to the group's results.The business is a combination of our own direct sales of low volume,Xaar-branded specialist inks together with growing commissions from partners ontheir sales of approved Xaar-compatible inks. During the year we added sevenmore commission-based ink partners, including well known brands such as Hexionand Tetenal, to broaden the choice available to end customers by both geographyand application. We also saw early ink revenues from India and South America,which is encouraging for the future. Royalties and Development Fees Royalty receipts from licensees increased as the volume of printheads designedand manufactured by licensees using our patents increased. Development fees alsoinclude revenue from Vivid, our small integration operation in the US,early-stage business development activities and design work carried out onbehalf of third parties. Since the year end we have sold Vivid to one of ourintegration partners, Xennia Technology Ltd. (see Finance Director's report). Geographic Markets When considering the geographic split of our business it is important tounderstand that Xaar's immediate customers are printing equipment manufacturers,not the end-users of such equipment. As a result, our geographic analysis ofsales is not representative of where our printheads are actually used. Asia remains our largest market, representing 59% of turnover with growth of 29%in the year. Most of our Asian customers produce graphics printing machines andmany of them now export a significant proportion of their equipment to theAmerican and European markets. Europe (and the Middle East) is our second largest geographic market accountingfor a third of group sales with growth of 24% in 2005. Wide format graphics andcoding and marking make up the majority of sales in this market and Europecontinues to be a highly active and innovative region for new inkjetapplications. Sales to the Americas fell by 12% during the year to 8% of total revenues due toone large customer ceasing its manufacturing operations in the USA. Longer termwe see future growth in sales to the Americas coming from both new customers inthe graphics market - where high-end sophisticated machines continue to bemanufactured in the US, and new industrial applications as these develop overthe next few years. In addition, we expect growth from South America where wenow have a Brazilian sales office, through which we will be supporting a numberof local printer manufacturers in their planned launch of wide format printingmachines in the coming year. End User Markets The graphic arts market, and particularly the wide and grand format sectors ofthis market, continues to be the largest single application for Xaar technologytoday. Sales to the graphics printing market grew 28% in the year and accountedfor 77% of total revenues. The growth of digital printing in what was thetraditional analogue screen printing market continues apace. Outer-case coding provides the primary demand for Xaar's technology in thepackaging market and represents 15% of group sales. We saw some shrinkage in2005, following a significant burst of growth in 2004, with sales falling 5%;however, sales have grown nearly 40% over the last two years and we expectvolumes to pick up again in 2006. Our business development initiatives for industrial markets continue to makeprogress and are covered in more detail in the Finance Director's report.Applications ranging from display screens, through printed electronics,biomedical and human tissue engineering are being developed with key strategicpartners in each sector. These represent medium to longer term opportunities butare already generating early-stage revenues. Product Development The group continued to invest in research and development during the year ineach of our three product platforms and in the next step forward in our coretechnology. Total R&D spend for the year was £5.5m, or 13% of revenue. The first Platform 2 products - our own OmniDot and its Agfa variant - togetherwith their support peripherals, the XUSB drive electronics and ink supplysystem, have now been transferred to full scale production and are commerciallyavailable to customers. Xaar's Platform 3 product, HSS, is now ready for initial production. The firstHSS prototypes were shipped on schedule to alpha test sites during the year and,based on the positive feedback received from those tests, the final productionspecification has been set. Fully functioning prototypes are now being producedin the Cambridge pilot line to satisfy customer testing programmes in 2006,prior to its commercial launch in 2007. Manufacturing Despite the high standards we have already achieved, operational improvementscontinue to be made in the key areas of quality, cost and delivery. Theseimprovements increased gross margins to 62%, despite some signs of pricingpressure in the marketplace. Further product cost savings are expected tomaintain margins. Commercial production of the OmniDot 380 and 760 was alsosuccessfully started during the year and volumes are increasing. Work on our second plant in Huntingdon is now underway; fit-out of the facilityis due to be complete by mid 2006, with installation and commissioning ofproduction equipment scheduled for the second half of the year. Although theprocess is highly automated, the plant will initially create around 30 new jobs. Priorities for the future Our primary long term objective is to maintain the profitable growth of the lasttwo years whilst developing further growth through a broader revenue mix acrossproducts, geographies and end user markets based on the aggressive extension ofour lead in inkjet technology. Our main markets today, graphic arts and coding and marking, are widely forecastto maintain their recent growth rates over the medium term - maintaining thegrowth of our Platform 1 products. Incremental sales will be generated by ourPlatform 2 products as they take us into the high resolution or fine featureprint markets - which initially will be weighted towards Europe and theAmericas. Our Platform 3 products will add further sales from web and sheet fedapplications - also weighted towards non-Asian locations. Progress in development of non-print related industrial applications through ourbusiness development activities remains on track. Whilst these opportunities arenot short term initiatives, the innovation and potential for longer term growthremains attractive. People Once again I would like to thank all of our staff for their skill and dedicationwhich has resulted in the excellent performance for 2005. We are now entering avery exciting period of development for the group; through the flexibility anddetermination of our staff we expect be able to maximise and exploit the manyopportunities we see ahead. Ian DinwoodieCHIEF EXECUTIVE13 March 2006 GROUP FINANCE DIRECTOR AND DEPUTY CHIEF EXECUTIVE'S REVIEW Trading for 2005 Sales increased 23% to £42.8m (2004: £34.8m) and gross margin to 62% (2004:57%). Overheads (excluding the cost of share options) increased by 19% insupport of the increase in revenues - with operating margins at 24% and profitbefore tax and exchange movements on inter-company loans, of £11.0m (2004:£6.5m). There was a non-cash loss on translation of the inter-company loanbetween the UK and Sweden for the year of £1.0m (2004: loss £0.2m). The results for 2005 confirmed the strength of our core markets and Platform 1products. These still provide the majority of our revenue but this will changeonce sales of our new Platform 2 and Platform 3 products increase, providingmore balance to revenues. Taxation for the year was £3.0m (30%) (2004: £1.7m, 26%), resulting in earningsper share for the year of 12.8p, an increase of 62% over the 2004 figure of 7.9p(both figures shown before translation differences on the inter-company loan asset out in note 13 to the accounts). The rate of corporation tax applicable tothe group's profits is a blend of the Swedish rate of 28% and the UK rate of30%. The 2005 results, and 2004 comparatives, have been prepared under InternationalAccounting Standards (IAS), in accordance with EU requirements for listedEuropean companies. The difference in reported profit before tax for the year asdetermined under IAS, and the same figure calculated under previously usedaccounting standards - UK GAAP, was an increase £0.5m. Foreign currency The group invoices approximately 65% of its sales in US dollars and a smallpercentage in other currencies such as the Euro. Compared to 2004, sales andprofit before tax were not materially impacted by exchange rate movements. Thegroup hedges its dollar receipts on a rolling twelve month basis to provide alevel of certainty in the value of sterling receipts by placing a floor underthe dollar/sterling rate to give protection against significant downsidemovements in the dollar, whilst leaving room for some upside benefit should thedollar strengthen. Cash and capital expenditure Cash and short-term investments at the end of the year were £14.4m (2004:£15.3m). Cash is stated after capital expenditure on assets and investments of£5.2m (2004: £3.3m) with no lease financing entered into during the year (2004:£nil). The total value of outstanding lease commitments at the end of the yearwas £1.2m (2004: £1.9m). Working capital increased by £4.7m during the year, in part to support theincreased sales for the year, but in part due to slow payment by certaincustomers in China. We do not consider the amounts involved (£1.7m) to be atrisk, although final collection may be spread over several months. During the year we announced plans to invest some of the group's cash resourcesin the next stage of the group's expansion, and in particular the funding of thenew production plant. During 2006 we expect to invest capital in the order of£6.0m in equipment and fit-out of the new facility. The expansion is initiallyfor production of our new Platform 3 product and we expect the investment togenerate a strong return on capital when fully operational. We also increased our trade investments during the year by £1.4m. Theseinvestments will help build a strong network of equipment integrators supportingour technology, particularly in the markets we have targeted for expansion:packaging, printed electronics, 3D modelling and biotech. Dividend Policy and Dividend The board is proposing an increased annual dividend for the year of 1.5p (2004:1.0p). This payment is covered seven times and follows the policy set out in myreport last year of maintaining a high level of dividend cover. Subject to theapproval of shareholders in Annual General Meeting, the dividend of 1.5p pershare will be paid on 16 June 2006 to shareholders on the register at the closeof business on 19 May 2006. Business Development I am pleased to report continuing progress in our development of new markets forthe group's technology. As ever, it is not possible to refer to individualdevelopment partners as these activities are subject to confidentialityagreements. However, in summary: Packaging We are now actively engaged with five of the world's largest packaging companiesand in discussions with others. These projects involve printing onto productsincluding beverage cans, aerosol cans, paper and other labels, plastic foodcartons, supermarket bags and surgical products. The projects are driven by theever-increasing demand for short run printing within processes configured tomaximise long run efficiencies. Whilst it is always difficult to predict howlong such new development programmes will take, I would hope to see a successfulconclusion to at least some of the projects outlined above within the nexttwelve months. We are also seeing significant interest in the use of RFID for packagingapplications and expect a fully integrated RFID tagging system using Xaarprintheads - for the printing of antennas and other conductive tracks - to becommercially available towards the end of 2006. Printed Electronics Our focus in this sector is on electronic displays, commercial lighting andprinted circuit boards. For LCDs our OmniDot 760 printhead is being tested intwo different processes within the production of flat panel TV screens. For newOLED-based displays, and lighting applications, we have testing programmes withboth commercial and research organisations, in many cases using equipmentsupplied by our integrator partners. In the production of printed circuit boards we have initially focussed on theprinting of etch masks and metallic inks. We were pleased to see the release ofthree Xaar-based etch mask printers at the Productronica trade show held inGermany, in November 2005. We have also made good progress during the year injetting a range of metallic inks for the direct printing of conductive tracks;during 2006 we expect the release - in commercial volumes, not researchquantities - of at least one silver nano particle metal ink fully compatiblewith Xaar printheads. Xennia, one of our integration partners, has developed its own conductivemetallic ink process using Xaar printheads which it is commercialising via CIT,a joint venture with Carclo plc in the UK. This system was previewed at theProductronica tradeshow referred to above and is now in use with CIT for theprinting of RFID antennas and flexible circuitry. Metallic inks are also of interest for decorative purposes to replace expensivehot and cold metal foiling techniques used with traditional printing. Currentlythe level of metal nano particles required to make an ink conductive also makeit too expensive for decorative use, but our primary development partner in thisarea expects to overcome this issue in the near future. Integrators Last year I referred to our key integrator partners and the important role theyhave to play in developing inkjet printing equipment for the new marketsdiscussed above. Although small, these companies are pioneers in their fieldsand are now beginning to see the benefits of this prime-mover advantage. We willbe showcasing some of these products with key partners on our stand at the IPEXtrade show being held at the NEC, Birmingham, in April. We have reviewed the future of our own integration business, Vivid PrintInnovations Inc. ("Vivid"), and decided that our increasingly close relationshipwith other integrators makes it unnecessary for us to continue to own our ownintegration business. As a result we have sold Vivid to Xennia Technology Ltd inreturn for shares in Xennia. Vivid was acquired by Xaar in early 2003 for anominal sum and at the date of disposal had gross assets of £0.1m. This saleincreases our total holding in Xennia from 10.0% to 12.5%. Nigel BerryFINANCE DIRECTOR AND DEPUTY CHIEF EXECUTIVE13 March 2006 Consolidated income statementfor the year ended 31 December 2005 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Continuing operations Revenue 42,772 34,812 Cost of sales (16,123) (15,078) ----------------------------------------------- ------- -------- Gross profit 26,649 19,734 Distribution costs (4,038) (2,850) Administrative expenses (12,132) (10,590) ----------------------------------------------- ------- -------- Operating profit 10,479 6,294 Investment income 576 306 Finance costs (63) (100) Foreign exchange loss on inter-company loan (977) (231) ----------------------------------------------- ------- -------- Profit before tax 10,015 6,269 Tax (2,966) (1,658) ----------------------------------------------- ------- -------- Profit for the year attributable to shareholders 7,049 4,611 ----------------------------------------------- ------- -------- Earnings per share from continuing operations Basic 11.6p 7.7p Diluted 11.1p 7.5p ----------------------------------------------- ------- -------- Dividends of 1 pence per share paid in the year amounted to £604,000 (2004:£nil). Dividends of 1.5 pence per share proposed for the year ended 31 December2005 amount to £909,000. Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Exchange differences on translation of foreign operations 842 (136) (Losses)/gains on cash flow hedges (2,545) 1,348 Tax on items taken directly to equity 1,690 - ----------------------------------------------- ------- -------- Net income recognised directly in equity (13) 1,212 Profit for the year 7,049 4,611 ----------------------------------------------- ------- -------- Total recognised income and expense for the year 7,036 5,823 ----------------------------------------------- ------- -------- Consolidated balance sheetas at 31 December 2005 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Non-current assets Goodwill 720 771 Other intangible assets 3,773 2,958 Property, plant and equipment 6,436 5,624 Investments 1,377 - Deferred tax asset 1,970 - ----------------------------------------------- ------- -------- 14,276 9,353 ----------------------------------------------- ------- -------- Current assets Inventories 2,835 2,485 Trade and other receivables 9,142 5,422 Cash and cash equivalents 14,395 15,316 Derivative financial instruments - 1,348 ----------------------------------------------- ------- -------- 26,372 24,571 ----------------------------------------------- ------- -------- Assets held for sale 265 - ----------------------------------------------- ------- -------- Total assets 40,913 33,924 ----------------------------------------------- ------- -------- Current liabilities Trade and other payables (7,875) (8,015) Current tax liabilities (2,916) (557) Obligations under finance leases (556) (632) Provisions (120) (72) Derivative financial instruments (1,197) - Liabilities directly associated with assets classified as held for sale (15) - ----------------------------------------------- ------- -------- (12,679) (9,276) ----------------------------------------------- ------- -------- Net current assets 13,693 15,295 Non-current liabilities Deferred tax liabilities - (116) Obligations under finance leases (681) (1,278) ----------------------------------------------- ------- -------- (681) (1,394) ----------------------------------------------- ------- -------- Total liabilities (13,360) (10,670) ----------------------------------------------- ------- -------- Net assets 27,553 23,254 ----------------------------------------------- ------- -------- Equity Share capital 6,115 6,013 Share premium 9,376 8,713 Own shares (3,420) (20) Other reserves 2,386 1,884 Hedging and translation reserves (131) 1,212 Retained earnings 13,227 5,452 ----------------------------------------------- ------- -------- Equity attributable to shareholders 27,553 23,254 ----------------------------------------------- ------- -------- Total equity 27,553 23,254 ----------------------------------------------- ------- -------- Consolidated cash flow statementfor the year ended 31 December 2005 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Net cash from operating activities 7,862 10,224 Investing activities Interest received 577 308 Purchases of property, plant and equipment (2,579) (1,748) Proceeds on disposal of property, plant and equipment 1 9 Purchases of trading investments (1,377) - Expenditure on product development (1,220) (1,583) ----------------------------------------------- ------- -------- Net cash used in investing activities (4,598) (3,014) Financing activities Dividends paid (604) - Proceeds from issue of ordinary share capital 754 179 Repayments of obligations under finance leases (553) (623) Purchase of own shares (3,400) - ----------------------------------------------- ------- -------- Net cash used in financing activities (3,803) (444) ----------------------------------------------- ------- -------- Net (decrease)/increase in cash and cash equivalents (539) 6,766 Cash and cash equivalents at beginning of year 15,316 8,458 Effect of foreign exchange rate changes (382) 92 ----------------------------------------------- ------- -------- Cash and cash equivalents at end of year 14,395 15,316 ----------------------------------------------- ------- -------- Notes to the consolidated financial statementsfor the year ended 31 December 2005 1. Basis of preparation Information in this preliminary announcement does not constitute statutoryaccounts of the group within the meaning of Section 240 of the Companies Act1985. The financial information for the year ended 31 December 2005 and the yearended 31 December 2004, presented in this preliminary announcement is extractedfrom, and is consistent with, that in the Group's audited financial statementsfor the year ended 31 December 2005. The financial statements were approved bythe Board of Directors on 13 March 2006; the auditors' report on these accountswas unqualified. In their unqualified opinion the auditors have drawn attentionto the matter set out in note 6 below. The financial statements will bedelivered to the Registrar of Companies following the Company's Annual GeneralMeeting. Statutory accounts for the year ended 31 December 2004, which wereprepared under accounting practices generally accepted in the UK, have beenfiled with the Registrar of Companies. The auditors' report on those accountswas unqualified and did not contain any statement under Section 237 of theCompanies Act 1985. 2. Business and geographical segments Business segments For management reporting purposes, the group's operations are currently analysedaccording to product type. These product groups are the basis on which the groupreports its primary segment information. Principal product groups are as follows: Printheads and related products Development fees Licence fees and royalties Segment information about these product types is presented below. 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Revenue Printheads and related products 39,872 33,064 Development fees 1,587 612 Licence fees and royalties 1,313 1,136 ----------------------------------------------- ------- -------- Total revenue 42,772 34,812 ----------------------------------------------- ------- -------- 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Result Printheads and related products 24,100 18,296 Development fees 464 230 Licence fees and royalties 1,049 932 ----------------------------------------------- ------- -------- Total segment results 25,613 19,458 Unallocated corporate expenses (15,134) (13,164 ----------------------------------------------- ------- --------) Profit from operations 10,479 6,294 Investment income 576 306 Finance costs (63) (100) Foreign exchange loss on inter-company loan (977) (231) ----------------------------------------------- ------- -------- Profit before tax 10,015 6,269 Tax (2,966) (1,658) ----------------------------------------------- ------- -------- Profit after tax 7,049 4,611 ----------------------------------------------- ------- -------- Other information Printheads Licence & related Development fees &2005 products fees royalties Consolidated 2005 2005 2005 2005 £'000 £'000 £'000 £'000--------------------- -------- -------- ------- -------Capital additions 2,694 1,265 - 3,959Depreciation and amortisation 1,454 273 57 1,784--------------------- -------- -------- ------- -------Balance sheetAssetsSegment assets 15,816 3,667 525 20,008Unallocated corporate assets 20,905--------------------- -------- -------- ------- -------Consolidated total assets 40,913--------------------- -------- -------- ------- -------LiabilitiesSegment liabilities (4,934) (1,549) (69) (6,552)Unallocated corporateliabilities (6,808)--------------------- -------- -------- ------- -------Consolidated total liabilities (13,360)--------------------- -------- -------- ------- ------- Printheads Licence & related Development fees &2004 products fees royalties Consolidated 2004 2004 2004 2004 £'000 £'000 £'000 £'000--------------------- -------- -------- ------- -------Capital additions 1,006 1,147 - 2,153Depreciation and amortisation 1,412 155 57 1,624--------------------- -------- -------- ------- -------Balance sheetAssetsSegment assets 10,850 2,498 585 13,933Unallocated corporate assets 19,991--------------------- -------- -------- ------- -------Consolidated total assets 33,924--------------------- -------- -------- ------- -------LiabilitiesSegment liabilities (4,896) (667) (60) (5,623)Unallocated corporateliabilities (5,047)--------------------- -------- -------- ------- -------Consolidated total liabilities (10,670)--------------------- -------- -------- ------- ------- Geographical segments The group's operations are located in Europe, Asia and North and South America.The following table provides an analysis of the group's sales by geographicalmarket, irrespective of the origin of the goods: 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Europe and Middle East 14,025 11,308 Asia 25,440 19,748 Americas 3,307 3,756 ----------------------------------------------- ------- -------- 42,772 34,812 ----------------------------------------------- ------- -------- Substantially, all assets and additions to property, plant and equipment andintangible assets are located in Europe and the Middle East. 3. Earnings per ordinary share - basic and diluted The calculation of the basic and diluted earnings per share is based on thefollowing data: 2005 2004 £'000 £'000 --------------------------------------------- --------- ---------- Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 7,049 4,611 --------------------------------------------- --------- ---------- Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 60,578,422 60,043,056 Effect of dilutive potential ordinary shares: Share options 2,921,181 1,703,904 --------------------------------------------- --------- ---------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 63,499,603 61,746,960 --------------------------------------------- ---------- --------- The calculation of earnings per share excluding foreign exchange loss on theinter-company loan is based on earnings of: 2005 2004 £'000 £'000 --------------------------------------------- --------- ---------- Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 7,049 4,611 Foreign exchange loss on the inter-company loan 977 231 Tax effect of loss on inter-company loan (293) (69) --------------------------------------------- --------- ---------- Profit on ordinary activities after tax excluding foreign exchange loss on the inter-company loan 7,733 4,773 --------------------------------------------- --------- ---------- The denominators used are the same as those detailed above for both basic anddiluted earnings per share. Earnings per share excluding foreign exchange loss on the inter-company loan 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Basic 12.8p 7.9p Diluted 12.2p 7.7p ----------------------------------------------- ------- -------- This additional earnings per share information is considered to provide a fairerrepresentation of the company's trading performance year on year. 4. Notes to the cash flow statement 2005 2004 £'000 £'000 ----------------------------------------------- ------- -------- Operating profit 10,479 6,294 Adjustments for: Increase in cost of share options 502 244 Depreciation of property, plant and equipment 1,936 1,865 Amortisation of intangible assets 404 210 Loss on disposal of property, plant and equipment 103 104 Increase/(decrease) in provisions 66 (12) ----------------------------------------------- ------- -------- Operating cash flows before movements in working capital 13,490 8,705 (Increase)/decrease in inventories (556) 128 Increase in receivables (4,867) (260) Increase in payables 681 2,643 ----------------------------------------------- ------- -------- Cash generated by operations 8,748 11,216 Income taxes paid (823) (892) Interest paid (63) (100) ----------------------------------------------- ------- -------- Net cash from operating activities 7,862 10,224 ----------------------------------------------- ------- -------- Cash and cash equivalents (which are presented as a single class of asset on theface of the balance sheet) comprise cash at bank and other short term highlyliquid investments with a maturity of three months or less. 5. Explanation of transition to IFRSs This is the first year that the company has presented its financial statementsunder IFRS. The following disclosures are required in the year of transition.The last financial statements under UK GAAP were for the year ended 31 December2004 and the date of transition to IFRSs was therefore 1 January 2004. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with IFRSs, this announcement does not itselfcontain sufficient information to comply with IFRSs. The Company plans topublish full financial statements that comply with IFRSs in April 2006. Reconciliation of equity at 1 January 2004 (date of transition to IFRSs) Effect of UK GAAP transition IFRS Notes £'000 £'000 £'000 ---------------------------------- ----- ------- -------- ------ Non-current assets Goodwill 771 - 771 Other intangible assets 1, 2 805 1,082 1,887 Tangible assets 2 6,090 (98) 5,992 ---------------------------------- ----- ------- -------- ------ 7,666 984 8,650 Current assets Inventories 2,592 - 2,592 Trade and other receivables 6,424 - 6,424 Short term investments 2,325 - 2,325 Cash and cash equivalents 6,133 - 6,133 ---------------------------------- ----- ------- -------- ------ 17,474 - 17,474 ---------------------------------- ----- ------- -------- ------ Total assets 25,140 984 26,124 ---------------------------------- ----- ------- -------- ------ Current liabilities Amounts falling due in one year 3 (5,968) (970) (6,938) Short term provisions (345) - (345) ---------------------------------- ----- ------- -------- ------ (6,313) (970) (7,283) ---------------------------------- ----- ------- -------- ------ Net current assets 11,161 (970) 10,191 Non-current liabilities Obligations under finance leases (1,833) - (1,833) ---------------------------------- ----- ------- -------- ------ Total liabilities (8,146) (970) (9,116) ---------------------------------- ----- ------- -------- ------ Net assets 16,994 14 17,008 ---------------------------------- ----- ------- -------- ------ Equity Share capital 5,983 - 5,983 Share premium 11,129 - 11,129 Own shares (20) - (20) Other reserves 4 1,105 50 1,155 Retained earnings (1,203) (36) (1,239) ---------------------------------- ----- ------- -------- ------ Equity attributable to shareholders 16,994 14 17,008 ---------------------------------- ----- ------- -------- ------ Total equity 16,994 14 17,008 ---------------------------------- ----- ------- -------- ------ Notes to the reconciliation of equity at 1 January 2004 1. Where the group's research and development programmes meet the criteria setout in IAS 38 the costs have been capitalised as an intangible asset. The costof research and development programmes capitalised at 1 January 2004 is£984,000. 2. Software purchased by the company and capitalised as a tangible asset underUK GAAP has been reclassified as an intangible asset under IFRS. The net cost ofsoftware held as an intangible asset at 1 January 2004 is £98,000. 3. Income received in relation to the company's research and developmentprogrammes that directly relates to the intangible asset booked under IAS 38 isheld as deferred income and amortised in accordance with the amortisationprofile for the associated intangible asset. Deferred income at 1 January 2004is £970,000. 4. Share options granted after 7 November 2002 that have not vested are measuredin accordance with IFRS 2 at their fair value as determined by the Black-Scholesoption pricing model. The amortisation charged through the profit and lossaccount up to 1 January 2004 is £50,000. This amount is shown as an otherreserve. Reconciliation of equity at 31 December 2004 (date of last UK GAAP financialstatements) Effect of UK GAAP transition IFRS Notes £'000 £'000 £'000 ---------------------------------- ----- ------- -------- ------ Non-current assets Goodwill 1 627 144 771 Other intangible assets 2, 3 595 2,363 2,958 Tangible assets 3 5,880 (256) 5,624 ---------------------------------- ----- ------- -------- ------ 7,102 2,251 9,353 ---------------------------------- ----- ------- -------- ------ Current assets Inventories 2,485 - 2,485 Trade and other receivables 4 5,741 1,029 6,770 Cash and cash equivalents 15,316 - 15,316 ---------------------------------- ----- ------- -------- ------ 23,542 1,029 24,571 ---------------------------------- ----- ------- -------- ------ Total assets 30,644 3,280 33,924 ---------------------------------- ----- ------- -------- ------ Current liabilities Amounts falling due in one year 5 (8,179) (1,025) (9,204) Provisions (72) - (72) ---------------------------------- ----- ------- -------- ------ (8,251) (1,025) (9,276) ---------------------------------- ----- ------- -------- ------ Net current assets 15,291 4 15,295 Non-current liabilities Deferred tax liabilities (116) - (116) Obligations under finance leases (1,278) - (1,278) ---------------------------------- ----- ------- -------- ------ (1,394) - (1,394) ---------------------------------- ----- ------- -------- ------ Total liabilities (9,645) (1,025) (10,670) ---------------------------------- ----- ------- -------- ------ Net assets 20,999 2,255 23,254 ---------------------------------- ----- ------- -------- ------ Equity Share capital 6,013 - 6,013 Share premium 8,713 - 8,713 Own shares (20) - (20) Other reserves 6 1,590 294 1,884 Hedging and translation reserves 4, 7 - 1,212 1,212 Retained earnings 4,703 749 5,452 ---------------------------------- ----- ------- -------- ------ Equity attributable to shareholders 20,999 2,255 23,254 ---------------------------------- ----- ------- -------- ------ Total equity 20,999 2,255 23,254 ---------------------------------- ----- ------- -------- ------ Notes to the reconciliation of equity at 31 December 2004 1. In accordance with IFRS 3 the group has ceased to amortise goodwill witheffect from 1 January 2004. Under UK GAAP the total amount of goodwill amortisedin 2004 is £144,000. 2. Where the group's research and development programmes meet the criteria setout in IAS 38 the costs have been capitalised as an intangible asset. The costof research and development programmes capitalised at 31 December 2004 is£2,107,000. 3. Software purchased by the company and capitalised as a tangible asset underUK GAAP has been reclassified as an intangible asset under IFRS. The net cost ofsoftware held as an intangible asset at 31 December 2004 is £256,000. 4. Under IAS 39 where hedge accounting is adopted, any movement in the valuationof financial instruments is shown on the face of the balance sheet with theeffect of this movement being recognised in the hedging and translation reserve.The effect of these movements at 31 December 2004 is an asset of £1,348,000.Other immaterial differences amount to a credit to trade and other receivablesof £319,000. 5. Income received in relation to the company's research and developmentprogrammes that directly relates to the intangible asset booked under IAS 38 isheld as deferred income and amortised in accordance with the amortisationprofile for the associated intangible asset. Deferred income at 31 December 2004is £1,637,000. Under UK GAAP proposed dividends are recognised as an expense inthe year to which they relate and a current liability at the balance sheet date.Under IFRS dividends are recognised as an expense in the year in which they aredeclared. The proposed dividend held as a current liability under UK GAAP at 31December 2004 is £601,000. Other immaterial differences amount to a debit of£11,000. 6. Share options granted after 7 November 2002 that have not vested are measuredin accordance with IFRS 2 at their fair value as determined by the Black-Scholesoption pricing model. The amortisation charged through the profit and lossaccount up to 31 December 2004 is £294,000. This amount is shown as an otherreserve. 7. Under IAS 39 the amount recognised as a credit to the hedging and translationreserve is £1,348,000. Other immaterial differences amount to a debit to thehedging and translation reserve of £136,000. Reconciliation of profit for 2004 Effect of UK GAAP transition IFRS Notes £'000 £'000 £'000 ---------------------------------- ----- ------- -------- ------ Continuing operations Revenue 1 35,479 (667) 34,812 Cost of sales (15,078) - (15,078) ---------------------------------- ----- ------- -------- ------ Gross profit 20,401 (667) 19,734 Distribution costs (2,850) - (2,850) Administrative expenses 2, 3, 4 (11,612) 1,022 (10,590) ---------------------------------- ----- ------- -------- ------ Operating profit 5,939 355 6,294 Investment revenues 306 - 306 Finance costs (100) - (100) Foreign exchange loss on inter-company loan (231) - (231) ---------------------------------- ----- ------- -------- ------ Profit before tax 5,914 355 6,269 Tax (1,658) - (1,658) Profit for the year from continuing operations 4,256 355 4,611 ---------------------------------- ----- ------- -------- ------ Notes to the reconciliation of profit for 2004 1. Under UK GAAP income received in the year in relation to the company'sresearch and development programmes is booked as revenue. Under IFRS this incomeis deferred to the extent that it relates to an intangible asset created inaccordance with IAS 38. Income received in 2004 and deferred amounts to£667,000. 2. In accordance with the group's accounting policies under UK GAAP, expenditureon research and development programmes is written off as an expense in the yearin which it is incurred. Under IFRS, where the group's research and developmentprogrammes meet the criteria set out in IAS 38, the costs have been capitalisedas an intangible asset. Research and development expenditure capitalised in theyear in accordance with IAS 38 amounts to £1,123,000. 3. Share options granted after 7 November 2002 that have not vested are measuredin accordance with IFRS 2 at their fair value as determined by the Black Scholesoption pricing model. The amortisation charged through the profit and lossaccount for the year ended 31 December 2004 amounts to £243,000. 4. In accordance with IFRS 3 the group has ceased to amortise goodwill witheffect from 1 January 2004. The goodwill amortised in the year ended 31 December 2004 under UK GAAP amounts to £144,000. Explanation of material adjustments to the cash flow statement for 2004 Material adjustments to the cash flow statement for 2004 as a result of thetransition to IFRS are detailed below: 1. Corporation tax paid of £892,000 is shown as a reduction in net cash fromoperating activities under IFRS. Under UK GAAP corporation tax payments areshown separately on the face of the cash flow statement. 2. The net cash outflow on research and development expenditure of £1,123,000 isincluded in the net cash outflow from operating activities under UK GAAP. UnderIFRS this outflow is shown separately on the face of the cash flow statement asexpenditure on product development. 6. Trade receivables Included within trade and other receivables is an overdue amount of £1.7m inrelation to certain customers in China. The directors have assessed the need fora further provision against this risk, are actively pursuing these amounts, haveconcluded that no further provision is required at present and are of theopinion that substantially all amounts from these debtors are recoverable. Theauditors will emphasise this matter in their unqualified audit opinion. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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