15th Mar 2007 07:01
Xaar PLC15 March 2007 FOR IMMEDIATE RELEASE 15 March 2007 Xaar plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Xaar plc ("Xaar"), the inkjet printing technology group headquartered inCambridge, announces its audited results for the year ended 31 December 2006. KEY POINTS : • Results reflect temporary setback in China during mid-year and subsequent full recovery. • The financial results for the year were: o Turnover was £42.2m (2005: £42.8m); o Adjusted profit before tax* was £7.9m (2005: £10.5m); o Reported profit before tax was £6.9m (2005: £10.0m); o Basic earnings per share were 7.9p (2005: 11.6p); and o Net cash and cash equivalents at 31 December 2006 were £12.4m (2005: £14.4m). • Investment in capital equipment, including the new manufacturing plant in Huntingdon, Cambridgeshire, was £7.3m during the year. The Huntingdon plant commenced production in January 2007, on time and on budget. • Following a takeover approach from Danaher Corporation announced in November 2006, discussions were ended in February 2007. • Proposed annual dividend per share increased 33% to 2.0p (2005: 1.5p). * stated before non-recurring costs associated with the approach from Danaher Corporation of £0.3m (2005: £nil) and cost of share options of £0.7m (2005: £0.5m) On outlook, Chairman, Arie Rosenfeld stated : "We continue to see industrial inkjet as a key enabling technology in bothprinting and industrial markets and, as a market leader, we intend to remain atthe forefront of that development and growth. "The actions we have taken during the past year have created a robust platformfor future growth for your company. Sales of our established products provideXaar with a sound and profitable base on which to build incremental sales ofPlatform 2 and Platform 3 products in the years to come." 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:01223-423663www.xaar.co.uk Bankside Consultants:Steve Liebmann or Andy Harris 020-7367-8883 / 07802-888159 CHAIRMAN'S STATEMENT Introduction I am pleased to report on a year with two significant achievements for Xaar: wecommissioned a new factory on time and on budget and we saw a strong recovery insales in the closing months following a setback in China in the middle of theyear (see below). With volume sales of our new Platform 2 and Platform 3products (the Xaar 760 and Xaar 1001 printheads) to look forward to, we go into2007 confident about our prospects for the future. Results and finance Revenues for the year were marginally below those for 2005 at £42.2m (2005:£42.8m). Product sales remained in line with the prior year at £39.9m (2005:£39.9m), royalty revenues increased to £1.5m (2005: £1.3m) but development feeswere reduced to £0.8m (2005: £1.6m) as a result of a reduction in fees fromAgfa, following the successful launch of the co-developed Xaar 760 product, andthe sale of Vivid Print Innovations Inc. in March of 2006. Adjusted profit before tax for the year was in line with expectations at £7.9m(2005: £10.5m). This is stated before accounting for the cost of share optionsand non-recurring costs relating to the approach by Danaher Corporation. Afterproviding for the cost of share options of £0.7m (2005: £0.5m) and non-recurringcosts of £0.3m (2005: £nil), the profit before tax was £6.9m (2005: £10.0m) andearnings per share were 7.9p (2005: 11.6p). Cash balances at the end of the year were £12.4m, a reduction of £2.0m from theprevious year end. This reflects the investment of £7.3m made in the year incapital equipment, including the company's newest manufacturing plant inHuntingdon, UK. Dividend policy and dividend With the major investment in the new plant in Huntingdon mostly complete andhaving been funded from our own resources, the board is able to recognise theimportance of dividend payments to shareholders. Going forward, while takingcare to maintain a reasonable level of dividend cover in order to retain cashfor future investment in the business, there is now scope to increase theproposed level of payment. Accordingly, the board is pleased to recommend payment of an annual dividend for2006 of 2.0p, an increase of 33% over the payment for 2005. China As highlighted in previous statements, trading in China during the third quarterwas affected adversely by the Chinese customs authorities' investigation intothree of Xaar's customers for alleged non-payment of import duties. WithinChina, the impact of the investigation spread beyond those directly involved,causing a general reduction in order levels leading to lower sales in the secondhalf of the year. At no time was Xaar itself implicated in the investigation. We reacted swiftly to the situation by implementing new logistics arrangementsfor the China market. Sterling pricing has also been introduced in this market,significantly reducing Xaar's currency exposure to the US dollar. These newarrangements have now been working well for some months and are detailed in theFinancial review. I am pleased to say that since the nadir in sales in July, wehave seen a sustained recovery and that we do not believe that we have lostmarket share as a result of the issues, nor that the long term prospects for theChina market have diminished. We believe the end user markets for printingequipment incorporating Xaar printheads remain robust. Approach for the company In October, whilst the company's share price was recovering from the issuesreferred to above, we received an unsolicited approach from Danaher Corporationof the USA with a possible offer for the company in the range of 200-220p pershare. After due consideration, the board rejected this approach as beingopportunistic and significantly undervaluing the company, its prospects and itstechnology. After further discussions, Danaher outlined a second, informal,offer which the board decided was not sufficiently different from the earlieroffer for it to be worthwhile continuing discussions. Accordingly, on 14February 2007 the company announced that talks had been ended. Both of Danaher'soffers were highly preliminary and subject to certain conditions, including duediligence. As a result of the approach, we incurred professional fees of £0.3mwhich have been reported as a non-recurring item. Market trends Momentum continues to grow in digital printing applications in general and inindustrial inkjet in particular. The interest of large global companies in theindustrial inkjet market (as opposed to the desktop market, already dominated bymultinational businesses) intensified with Fuji Photo Film, of Japan, acquiringDimatix Inc., one of Xaar's competitors, and EFI Inc., of the US, acquiring bothVutek - a manufacturer of large format graphics printers - and Jetrion Inc., asmaller integrator using Xaar technology for the packaging market. In the coming months and years, Xaar's growth will come from our latesttechnology Platform 2 and Platform 3 printheads. These will significantlybroaden the number of end market applications which we address and strengthenour overall competitiveness in the industry. Although some inkjet technologiesare now becoming proprietary, particularly for the desktop, overall thecommercial printing and industrial inkjet markets are still in their infancy. Asthese expand and diversify, system developers will look increasingly todedicated inkjet suppliers for their key technologies and solution components.We therefore continue to work with a number of partners to enable entry intothese new markets. Second manufacturing plant I am pleased to report that Xaar's second manufacturing plant, based inHuntingdon, UK has been completed on schedule and on budget. Productioncommenced in January as planned, with volumes expected to grow through 2007 andinto 2008. Initially this plant will produce the Platform 3 product, Xaar 1001. Senior management Andrew Taylor, currently Company Secretary and Group Financial Controller, hasbeen appointed Deputy Finance Director to allow Nigel Berry, Finance Director,to devote more of his time to business and corporate development. Outlook We continue to see industrial inkjet as a key enabling technology in bothprinting and industrial markets and, as a market leader, we intend to remain atthe forefront of that development and growth. The actions we have taken during the past year have created a robust platformfor future growth for your company. Sales of our established products provideXaar with a sound and profitable base on which to build incremental sales ofPlatform 2 and Platform 3 products in the years to come. Arie RosenfeldChairman14 March 2007 REVIEW OF OPERATIONS Introduction After a strong year in 2005, progress in the current year was interrupted by theevents described in the Chairman's statement. We are confident that theseproblems are behind us; sales in China have recovered fully and we can now lookforward to resumed growth in this market. Our underlying business continues to develop well with three discrete platformsof products, each targeted at a different end market. Whilst Platform 1,particularly the Xaar 128, continues to dominate current sales, we expectsignificant incremental business to be generated over the coming years by bothPlatform 2 and Platform 3 products. These products will bring with them abroader spread of business and will expand both market and geographicopportunities. As referred to in the Chairman's statement, during the year our secondmanufacturing plant in Huntingdon, UK was completed on time and on budget;production began as planned in January 2007 and, although production volumeswill begin modestly, we expect volumes to increase as we go through the year. Product sales Printheads and inks were once again the largest part of our business,representing 95% of total group sales. Within this, our established Platform 1products continue to represent the majority of revenues, with new and updatedversions of existing printheads gaining strong acceptance in the market.Solvent-based inkjet printing for external advertising, digital UV printing forsign-making and oil-based printing of outer case coding for packaging allcontinue to develop and to establish themselves as mainstream printingprocesses. Future revenues from Platform 2 and Platform 3 products are dependentupon customers launching machines incorporating these printheads; we lookforward to such launches over the next one to two years. Xaar's ink business continues to contribute positively to the group's results,albeit modestly. To date, the largest market for the company's printhead saleshas been Asia and, in particular, China where its printheads are used forprinting solvent-based inks onto vinyl for the outdoor advertising market.Solvent inks in Asia have now become commodity items, with prices fallingsignificantly over the last few years. As a result, our ability to generateprofitable revenue from ink in these circumstances is limited. As UV inkapplications become more widespread and customers launch higher resolution UVprinters for these markets - based on the Xaar 760 and Xaar 1001 printheads -the opportunity to generate sustainable ink revenues from these applicationsshould increase. Royalties and development fees As expected, royalty receipts from our licensees continue to increase steadily.Toshiba TEC, Konica Minolta and Seiko Printek are each growing their piezoinkjet businesses, based on Xaar's technology. During the year these licenseeswon a number of new supply contracts, increasing the volume of heads theyproduce and, consequently, the royalties payable to Xaar. On the other hand,development fees reduced in the year for two reasons; firstly, the Xaar 760product successfully moved into production and hence the co-development feesfrom Agfa for this initial stage of the project ended; secondly, Vivid PrintInnovations Inc., whose sales have previously been reported under developmentfees, was sold to Xennia Technology Ltd, one of our integration partners, inMarch 2006. Geographic markets The geographic split of sales reflects sales to our customers who are equipmentmanufacturers. It does not detail where that equipment is finally sold and used. For that reason, Asia remains our largest market, generating 57% of turnover.Asia is now the world's leading centre for the manufacture of wide formatprinting equipment. It is also a major end market for such equipment, butincreasing numbers of machines are now exported from Asia into other regions. Inthe current year, due to the issues in China referred to above, sales to Asiawere down 6% compared to sales in 2005; we believe this to be only a temporarydownturn and expect growth to resume in 2007. Europe and the Middle East is our second largest regional market, accounting for35% of turnover in 2006 and recording growth of 7% over 2005. Growth wastempered by one of our customers transferring production from Europe to the USAduring the year. Sales to the Americas were flat year-on-year, despite the transfer of productionby one of our customers, referred to above. This is due to revenue of £0.5mincluded in the 2005 comparative figure relating to Vivid Print InnovationsInc., which was sold in early 2006. Excluding sales by Vivid, revenue from theAmericas grew by 18%. This figure includes good growth from South America, whereour office in Brazil has successfully enabled a number of South Americanmanufacturers to enter the wide and grand format printer market during 2006. Looking forward, we expect growth in 2007 in all regions; Asian manufacturersare likely to continue to gain market share in the existing grand format market(served by our Platform 1 products), whilst in Europe and the Americas growthwill come from new printing applications based on Platform 2 and Platform 3products. End user markets The graphic arts market was again the largest market for Xaar's technologyduring 2006. Sales to the graphics market represented 74% of total revenues.Grand format digital printing, particularly for external advertising, continuesto grow. Faster turnover of advertising campaigns has become economically viabledue to the proliferation of lower cost solvent inks, especially in Asia. Withlower costs per square metre of print, campaigns are being changed morefrequently. Outer case coding accounted for 18% of sales, with growth of 21% in the year.Industrial markets, where revenues are at an early stage, accounted for £1.1m,or 3%, of total sales, up 22% over the previous year. With Platform 2 and Platform 3 products now available, we expect to seeincremental revenues being generated in 2007 and 2008 from the high resolutionwide format market (posters and internal advertising), the narrow format web andsheet fed market (labels and primary packaging) and from functional printing(including printed electronics and 3D modelling). Operations Investment in research and development during the year totalled £5.4m or 13% ofrevenue. Our spending on research and development covers all three productplatforms, as well as peripheral products and an ongoing level of pure researchinto our core technology. A major focus in the year has been the second manufacturing plant in Huntingdon,UK. The first Platform 3 product, the Xaar 1001, was produced by the new plantin January 2007 and volumes will be increased during the year as demand fromdevelopment partners and equipment launches begins to build. In addition to theplant being delivered and commissioned on time, it was also accredited theinternational quality systems standard BS EN ISO9001:2000 during January 2007. Volume sales of the Xaar 760 to Agfa also began during the year. Although thesesales generate a lower gross margin than sales of other products, it should beremembered that Agfa funded the development of the Xaar 760 and has also paidfor some of the production equipment used in its manufacture at our plant inSweden. Overall, sales of Platform 1 and Platform 2 products, both of which are producedin Sweden, grew during the year, but not by as much as we had initially planneddue to the issues in China. This resulted in a lower level of overhead recoverythan planned which, when combined with the commencement of lower margin sales toAgfa, resulted in a lower gross margin for the year of 57% compared to 62% inthe previous year. Priorities for the future We have renewed confidence in the ongoing potential for our Platform 1 business.Our newer Platform 2 and Platform 3 products provide the gateway to additionalmarkets and better geographic diversity. We now have a range of products whichallow us to develop a broader base to the business; our priority now is toconvert this potential into solid financial returns. We will be working closelywith our customers and development partners to achieve this and look forward toseeing them launch printing equipment incorporating our new products during 2007and 2008. People A special note of thanks to all our staff who, once again, have shown skill,dedication and flexibility throughout a year which has at times been difficult. Ian DinwoodieChief Executive14 March 2007 FINANCIAL REVIEW Trading for 2006 After a good start to the year, with sales in the first half up 12% over thefirst half of 2005, sales in the second half of the year were affected adverselyby the investigation in China referred to in the Chairman's statement, althoughat no time was Xaar itself implicated in the investigation. As a result of thecustoms investigation, other customers in China took the opportunity to reviewtheir own importation procedures and the level of orders from China fell whilstthese reviews were being undertaken. The impact of this slowdown was to reducesales in the second half of the year by 13% when compared to the second half of2005. For the year as a whole, sales of printheads were flat compared to theprior year, but the reduction in development fees referred to in the Chairman'sstatement left total revenue down marginally at £42.2m (2005: £42.8m). Sales to China have now recovered fully and the new trading arrangementsintroduced towards the end of the year will reduce the likelihood of the sameissue occurring again in the future. Under these new arrangements, customers inChina now have two methods of purchasing from Xaar; they can buy direct and,after payment of all applicable duties, collect their shipments from a bondedwarehouse in Shanghai run by an international logistics company; or, again afterpayment of all appropriate duties, they can purchase products within China froma provincial government backed distribution company based in Nanjing. Both thesenew methods of supply are working well. As part of the new arrangements, Xaarhas implemented Sterling invoicing for sales to China and in the first half ofthe year also moved customers for direct sales back to cash trading terms. Theeffect of these actions has been to reduce the company's exposure to the USdollar and to improve working capital. Gross margin for the year was lower than the prior year at 57% (2005: 62%). Thiswas due largely to reduced production levels and correspondingly lower overheadrecovery, together with the commencement of lower margin shipments to Agfa.Increased volumes of production in future periods should recover this situation.However, with effect from January 2007 we will begin to incur costs for the newplant in Huntingdon; the annual fixed cost of the plant is £2.5m. For the yearahead, this cost will be only partially covered by sales of the Xaar 1001 inwhat will be its first year of commercial release. These costs will be reportedin 'cost of sales' which in the short term will hold back recovery in grossmargin. Overheads, excluding the cost of share options and non-recurring items,increased by 5% during the year to £16.5m (2005: £15.7m). Adjusted profit beforetax for the year (before the cost of share options and non-recurring items), was£7.9m (2005: £10.5m). After providing for the cost of share options of £0.7m(2005: £0.5m), and for non-recurring items of £0.3m (2005: £nil), profit beforetax was £6.9m (2005: £10.0m). The inter-company loan between the UK and Swedenwas fully repaid during the year with no material impact on profit (2005: lossof £1.0m) and no effect on cash. Taxation for the year was £2.1m (30%) (2005: £3.0m, 30%), resulting in earningsper share for the year of 7.9p (2005: 11.6p). Foreign currency The move away from US dollar invoicing for sales to China has removed themajority of the group's exposure to the US dollar, although some exposureremains on sales to the US. The group has an exposure to the Swedish kronor dueto the need to fund its production operations in Sweden. The company hedges thisexposure using forward exchange contracts, usually on a rolling twelve monthbasis; these contracts are fully IFRS compliant. Cash and capital expenditure Cash at the end of the year was £12.4m (2005: £14.4m). Cash is stated afterhigher than usual capital expenditure on assets and investments of £11.1m (2005:£5.2m). The major part of the capital expenditure in the year related to thegroup's new manufacturing plant in Huntingdon, in which an investment of £4.7mhas been made. The total value of capitalised research and development costs onthe balance sheet at the end of the year was £6.5m. This balance will beamortised over the next five years. Additional financing in the year of £1.0m was taken out relating to certainequipment in the new Huntingdon plant, bringing the outstanding balance onequipment financing at the end of the year to £1.8m (2005: £1.2m). Thisrepresents the group's only debt. Working capital improved by £1.2m during the year due largely to the return tocash trading terms for direct sales to China. Dividend The board is recommending an increased annual dividend for the year of 2.0p pershare (2005: 1.5p), an increase of 33%. The payment is covered four times,against eight times for the prior year. Subject to the approval of shareholdersat the Annual General Meeting (AGM), the annual dividend will be paid on 15 June2007 to shareholders on the register at the close of business on 16 May 2007. Business development We continue to develop new markets for Xaar's technology. Some are alreadygenerating early commercial revenues, but will only ramp significantly once theXaar 1001 solution becomes widely available. Whilst early feasibility testinghas used other Xaar printheads, the Xaar 1001 will provide the performance whichour development partners in sheet and web fed applications require to progressfurther. With the 1001 now beginning commercial shipments, we expect to seeseveral of these projects come to fruition over the next twelve months. Packaging Interest in inkjet from the packaging printing market is initially focused onlabelling and the short run requirements for cans, aerosols and other rigidpackages. We have active projects in all these areas involving bothmultinational brand owners, web and sheet fed equipment suppliers and,increasingly, the major analogue ink companies. This latter group are keen tofind digital inkjet equipment to distribute, bundled together with their newdigital inks. Xaar's integration partners are playing an increasing role in thisarea and now have distribution agreements in place with ink companies coveringweb-based label printing systems and CD printers. We look forward to theircontinued success in the year to come. Interest in the use of Radio Frequency Identification (RFID) for packagingapplications remains strong, and one company already offering a digital RFIDprinting system is Conductive Inkjet Technology Ltd. (CIT), based in Cambridge.CIT offers a commercial roll-to-roll direct write system for printing conductivemetals onto non-porous substrates. Printed electronics Inkjet has already made inroads into this market in the area of coatings andcolour filters for LCD production, and the early stage printing of OLEDmaterials. In addition, inkjet manufactured printed circuit boards (PCBs) aremoving closer to commercial reality but the exact timing of adoption by the PCBindustry, however, remains unclear. Other In North America, PAT Technology Systems Inc. has become the first company tolaunch a Xaar 1001-based piece of equipment with its range of UV coatingmachines for pre-printed sheet or web fed substrates. This unique equipmentoffers a commercial printer the opportunity to apply a variety ofprint-enhancing finishes to pre-printed matter from any printing process - be ittraditional analogue, inkjet or toner-based electro-photography. We are alsoaware that at least one European country has begun to produce its passports onan inkjet printer supplied by another of our integrator partners, utilising thegreyscale Xaar 318 printhead. Integrators We continue to work closely with a range of integrators of inkjet technology andcan offer potential Xaar customers a global network of integration partners withwhom to discuss their equipment requirements, whether that requirement is for abespoke system or a standard off-the-shelf product. Nigel BerryFinance Director and Deputy Chief Executive14 March 2007 Consolidated income statementfor the year ended 31 December 2006 2006 2005 £'000 £'000Continuing operationsRevenue 42,207 42,772Cost of sales (18,096) (16,123)Gross profit 24,111 26,649Distribution costs (4,108) (4,038)Administrative expenses (13,426) (12,132)Operating profit 6,577 10,479Investment income 451 576Finance costs (116) (63)Foreign exchange loss on inter-company loan - (977)Profit before tax before abortive deal costs and 7,921 10,517share-based paymentsAbortive deal costs (298) -Share-based payments (711) (502)Profit before tax 6,912 10,015Tax (2,068) (2,966)Profit for the year attributable to shareholders 4,844 7,049Earnings per share from continuing operationsBasic 7.9p 11.6pDiluted 7.6p 11.1p Dividends paid in the year amounted to £903,000, 1.5p per share (2005: £604,000,1.0p per share). Consolidated statement of recognised income and expensefor the year ended 31 December 2006 2006 2005 £'000 £'000Exchange differences on translation of foreign (113) 842operationsGains/(losses) on cash flow hedges taken to equity 1,197 (2,545)Tax on items taken directly to equity (415) 1,690Net income/(loss) recognised directly in equity 669 (13)Profit for the year 4,844 7,049Total recognised income and expense for the year 5,513 7,036 Consolidated balance sheetas at 31 December 2006 2006 2005 £'000 £'000Non-current assetsProperty, plant and equipment 11,990 6,436Goodwill 720 720Other intangible assets 7,030 3,773Investments 1,931 1,377Deferred tax asset 1,383 2,916 23,054 15,222Current assetsInventories 3,690 2,835Trade and other receivables 6,135 9,142Cash and cash equivalents 12,438 14,395 22,263 26,372Assets held for sale - 265Total assets 45,317 41,859Current liabilitiesTrade and other payables (7,928) (7,875)Other financial liabilities (185) -Current tax liabilities (507) (2,916)Obligations under finance leases (468) (556)Provisions (209) (120)Derivative financial instruments - (1,197)Liabilities directly associated with assets - (15)classified as held for sale (9,297) (12,679)Net current assets 12,966 13,693Non-current liabilitiesDeferred tax liabilities (1,635) (946)Other financial liabilities (865) -Obligations under finance leases (267) (681) (2,767) (1,627)Total liabilities (12,064) (14,306)Net assets 33,253 27,553EquityShare capital 6,201 6,115Share premium 9,669 9,376Own shares (3,420) (3,420)Other reserves 3,097 2,386Hedging and translation reserves 593 (131)Retained earnings 17,113 13,227Equity attributable to shareholders 33,253 27,553Total equity 33,253 27,553 Consolidated cash flow statementfor the year ended 31 December 2006 2006 2005 £'000 £'000Net cash from operating activities 8,692 7,862Investing activitiesInterest received 450 577Purchases of property, plant and equipment (7,274) (2,579)Proceeds on disposal of property, plant and 5 1equipmentPurchases of trading investments (427) (1,377)Expenditure on capitalised product development (3,420) (1,220)Net cash used in investing activities (10,666) (4,598)Financing activitiesDividends paid (903) (604)Proceeds from issue of ordinary share capital 384 754New borrowings 1,050 -Repayments of obligations under finance leases (520) (553)Purchase of own shares - (3,400)Net cash inflow/(outflow) from financing activities 11 (3,803)Net decrease in cash and cash equivalents (1,963) (539)Effect of foreign exchange rate changes 6 (382)Cash and cash equivalents at beginning of year 14,395 15,316Cash and cash equivalents at end of year 12,438 14,395 Notes to the consolidated financial statementsfor the year ended 31 December 2006 1.Basis of preparation Information in this final announcement does not constitute statutory accounts ofthe group within the meaning of Section 240 of the Companies Act 1985. Thefinancial information for the year ended 31 December 2006 and the year ended 31December 2005, presented in this final announcement is extracted from, and isconsistent with, that in the group's audited financial statements for the yearended 31 December 2006. The financial statements were approved by the board ofdirectors on 14 March 2007; the auditors' report on these accounts wasunqualified. The financial statements will be delivered to the Registrar ofCompanies following the company's Annual General Meeting. Statutory accounts forthe year ended 31 December 2005, which were prepared under InternationalFinancial Reporting Standards, have been filed with the Registrar of Companies.The auditors' report on those accounts was unqualified and did not contain anystatement under Section 237 of the Companies 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 productsDevelopment feesLicence fees and royalties Segment information about these product types is presented below. 2006 2005 £'000 £'000RevenuePrintheads and related products 39,918 39,872Development fees 748 1,587Licence fees and royalties 1,541 1,313Total revenue 42,207 42,772 2006 2005 £'000 £'000ResultPrintheads and related products 16,198 20,062Development fees (442) 464Licence fees and royalties 1,247 1,049Total segment results 17,003 21,575Unallocated corporate expenses (10,426) (11,096)Profit from operations 6,577 10,479Investment income 451 576Finance costs (116) (63)Foreign exchange loss on inter-company loan - (977)Profit before tax 6,912 10,015Tax (2,068) (2,966)Profit after tax 4,844 7,049 Unallocated corporate expenses relate to administrative expenses which cannot bedirectly attributed to any of the principal product groups. 2. Business and geographical segments (continued) Other information 2006 Printheads Licence fees and related Development and products fees royalties Consolidated 2006 2006 2006 2006 £'000 £'000 £'000 £'000 Capital additions 11,147 - - 11,147Depreciation and 1,531 616 59 2,206amortisationBalance sheetAssetsSegment assets 24,440 1,378 635 26,453Unallocated corporate 18,864assetsConsolidated total assets 45,317LiabilitiesSegment liabilities (5,781) (1,162) (82) (7,025)Unallocated corporate (5,039)liabilitiesConsolidated total (12,064)liabilities 2005 Printheads Licence fees and related Development and products fees royalties Consolidated 2005 2005 2005 2005 £'000 £'000 £'000 £'000Capital additions 3,913 46 - 3,959Depreciation and 1,454 273 57 1,784amortisationBalance sheetAssetsSegment assets 17,209 2,274 525 20,008Unallocated corporate 20,905assetsConsolidated total assets 40,913LiabilitiesSegment liabilities (4,934) (1,549) (69) (6,552)Unallocated corporate (6,808)liabilitiesConsolidated total (13,360)liabilities The capital additions and segment assets disclosures for 2005 have been amendedsince the prior year financial statements in order to provide a more accuratereflection of the assets attributed to the Printheads and related products andDevelopment fees business segments. 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, which is considered to be the group's secondary segment, irrespective ofthe origin of the goods: 2006 2005 £'000 £'000Europe and Middle East 14,997 14,025Asia 23,937 25,440Americas 3,273 3,307 42,207 42,772 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 basic and diluted earnings per share is based on thefollowing data: 2006 2005 £'000 £'000EarningsEarnings for the purposes of basic earnings per sharebeing net profit attributable to equity holders ofthe parent 4,844 7,049Number of shares Number NumberWeighted average number of ordinary shares for thepurposes of basic earnings per share 61,447,492 60,578,422Effect of dilutive potential ordinary shares:Share options 2,221,595 2,921,181Weighted average number of ordinary shares for thepurposes of diluted earnings per share 63,669,087 63,499,603 Adjusted earnings per share The calculation of earnings per share excluding abortive deal costs, share-basedpayments and foreign exchange loss on the inter-company loan is based onearnings of: 2006 2005 £'000 £'000Earnings for the purposes of basic earnings per sharebeing net profit attributable to equity holders ofthe parent 4,844 7,049Abortive deal costs 298 -Share-based payments 711 502Foreign exchange loss on the inter-company loan - 977Tax effect of adjusting items (303) (444)Profit after tax excluding abortive deal costs,share-based payments and foreign exchange loss on theinter-company loan 5,550 8,084 The denominators used are the same as those detailed above for both basic anddiluted earnings per share. Earnings per share excluding abortive deal costs, share-based payments andforeign exchange loss on the inter-company loan: 2006 2005 £'000 £'000Basic 9.0p 13.3pDiluted 8.7p 12.7p This adjusted earnings per share information is considered to provide a fairerrepresentation of the group's trading performance year on year. 4 Notes to the cash flow statement 2006 2005 £'000 £'000Operating profit 6,577 10,479Adjustments for:Share-based payments 711 502Depreciation of property, plant and equipment 1,998 1,936Amortisation of intangible assets 785 404Loss on disposal of property, plant and equipment 15 103Increase in provisions 89 66Operating cash flows before movements in working 10,175 13,490capitalIncrease in inventories (814) (556)Decrease/(increase) in receivables 1,944 (4,867)Increase in payables 77 681Cash generated by operations 11,382 8,748Income taxes paid (2,576) (823)Interest paid (114) (63)Net cash from operating activities 8,692 7,862 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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