13th Sep 2006 07:01
Xaar PLC13 September 2006 FOR IMMEDIATE RELEASE 13 September 2006 Xaar plc INTERIM RESULTS FOR THE 6 MONTHS TO 30 JUNE 2006 Xaar plc ("Xaar"), the inkjet printing technology group headquartered inCambridge, has announced its unaudited results for the six months ended 30 June2006. KEY POINTS: • Increased sales were achieved in each principal territory and in the key graphic arts and packaging industry segments. • Sales into the important Chinese market held back by knock-on effect of investigation by Chinese customs authorities into certain Xaar customers over alleged non-payment of import duties. o Xaar assisting customers to implement new supply arrangements for PRC shipments. • The financial results were: o Turnover was up 13% to £22.3m (2005: £19.8m); o Profit before tax was £4.8m (2005: £4.9m*); o Net margin was 21% (2005: 24%*); o Earnings per share were 5.5p (2005: 5.6p*); o Net cash and cash equivalents at 30 June 2006 increased to £16.3m (31 December 2005: £14.4m). * stated before non-trading foreign exchange loss on inter-company loan of £1.3m • Although an interim dividend is not being paid, as last year, a final dividend for the year is expected to be declared, subject to second half performance, (2005: 1.5p). • New UK manufacturing facility in Huntingdon on track for initial production in Q1, 2007. On outlook, Chairman, Arie Rosenfeld stated: "The timing of the recovery in China remains uncertain and this will inevitablyimpact our second half results. We believe that the underlying demand forXaar-based products in China remains strong and in the medium and longer term weremain positive about the group's prospects in Asian markets and elsewhere. Ourmedium and longer term growth will be driven by new products and new marketapplications which are now progressing towards volume production. These newproducts and markets will bring an increased spread of risk and an improvingbalance to revenues and profitability." Contacts Xaar plc: today: 020-7367-8888Ian Dinwoodie, Chief Executive thereafter: 01223-423663Nigel Berry, Group Finance Director & Deputy www.xaar.co.ukChief Executive Bankside Consultants:Steve Liebmann 020-7367-8883 / 07802-888159 CHAIRMAN'S STATEMENT Introduction I am pleased to report that Xaar is continuing to make progress on most frontsand that the business remains robust. Sales of all existing products grew andfundamental demand for Xaar technology and solutions remains solid. As alreadyannounced, the one area which has caused concern is sales into China, details ofwhich are set out below. Xaar's prospects are underpinned by our new products, and interest in theplatform 2 OmniDot 760 and our groundbreaking platform 3 Xaar 1001 (thecommercial name for the HSS) has been strong. We expect to see the introductionof products incorporating these new printheads during 2007. Results and finance Total group revenue for the six months to 30 June 2006 was £22.3 million (2005:£19.8 million), an increase of 13% over the same period last year. Thecomparative figure for last year included sales of £0.4 million (2006: £nil) byVivid Print Innovations Inc., which was sold in March of this year. Revenueconsisted of the sale of printheads and inks valued at £21.1 million (2005:£18.1 million), licensee royalties of £0.7 million (2005: £0.8 million) anddevelopment fees of £0.5 million (2005: £0.9 million). Trading profit before tax was £4.8 million (2005: £4.9 million, before losses onthe inter-company loan). Earnings per share were 5.5p (2005: 5.6p, before losseson the inter-company loan). The inter-company loan between the UK and Swedishoperations was fully repaid during the period. Production costs and capacity increased during the period and while thisrestricted profitability in the first half it represents an investment in thefuture as sales of existing products recover and volume sales of new productsbegin. Cash generation was strong with cash at the half-year standing at £16.3 million,an increase of £1.9 million in the period (2005: £14.4 million at 31 December;£17.5 million at 30 June). This is after providing for capital investment intangible assets of £2.6 million, intangible assets of £1.6 million and decreasedworking capital. The group's only debt is the outstanding balance on certainequipment leases totalling £1.0 million (2005: £1.5 million). China The Chinese market is important to Xaar as China has now become the largestmanufacturer of wide and grand format printers for the exterior graphics market,Xaar's core market today. In 2005, sales to China accounted for some 50% ofprinthead sales revenue, all from our platform 1 range of products. To date,Xaar has supplied products for this market on an ex-works basis and manycustomers choose to have their products delivered to Hong Kong. After some evidence of slower payments by Chinese customers in the latter partof 2005, Xaar tightened its terms of trade early in 2006 which may have had someimpact on sales. As already announced, on 19 July 2006 Xaar was notified by theChinese customs authorities of an investigation into three of Xaar's customerswith respect to alleged non-payment of import duties. This initial 90-dayinvestigation is influencing other customers in China which have reduced ordersto Xaar and Xaar's competitors whilst they conduct a review of their ownimportation policies and procedures. Xaar is not implicated in thisinvestigation. Xaar's management is moving quickly to put new arrangements in place forsupplying the Chinese market. Xaar will now ship directly into mainland China,where goods will be held in a bonded warehouse for collection by customers.After-market sales of replacement heads for export markets served by our Chinesecustomers are, where appropriate, being made directly to end-users or localdistributors. Business review Printheads and related products Sales once again improved for all Xaar's printhead products. Despite the issuesin China, sales to Asia were up 5% on the same period last year, sales to Europeand the Middle East increased by 23% and sales to the US were up by 17%. InEurope, our strategic partner in the development of the OmniDot 760, AgfaGevaert, successfully completed the first installation of its new OmniDot baseddigital press, the M-Press, at SMP Group plc in London. Agfa expects this topave the way for further installations as we move into next year. Following the opening last year of our South American sales office in Sao Paulo,Brazil our first two customers in Brazil have launched locally manufactured wideformat printers into the market. In India, sales have been slow to take off butwe remain optimistic about the longer term prospects for this market. New markets We continue to make progress in developing new markets for the future. I amparticularly pleased to report that one of our Japanese strategic partners soldits first digital inkjet polyimide coating machine in the period. Polyimidecoating is an essential part of the production of LCD screens. The machine wasfitted with an OmniDot 760 print engine supplied by Xennia Technology Ltd andthe interest in digital solutions for this market augers well for our future inthis sector. The LabelExpo tradeshow, currently being held in Chicago, includes important newproduct launches featuring Xaar printheads. PAT Technology Systems, a smallcompany based in Canada, will preview a UV digital coating machine based on thenew Xaar 1001 (HSS) printhead. Jetrion, a subsidiary of XSYS Print Solutions,will launch its new Jetrion 4000 digital label press based on the greyscaleOmniDot 318 printhead. XSYS is one of the world's leading suppliers ofcommercial printing inks. Elsewhere, the recent Mediatech tradeshow in Frankfurt saw the launch of twoXaar-based CD printers: one developed by Copytrax, a company based in Cambridge,UK and one by Werner Kammann Maschinenfabrik of Germany. Both machines use theOmniDot 318 printhead. In addition, development projects into packagingprinting, 3D modelling and other sectors of the electronics industry continue toprogress, although it is always difficult to predict the timing ofcommercialisation of such programmes. Technology revenues Royalties from licensees were little changed from the first half of 2005 due tolower pricing by one licensee for a specific market application. New production facility Progress on our new production facility in Huntingdon, UK remains on target forthe start of commercial production in the first quarter of 2007. Equipment forthe plant is now being delivered and is due to be commissioned during the finalquarter of this year. Dividend It is not the group's intention to pay an interim dividend but, subject tosecond half performance, it is our intention to declare a dividend for the fullyear. Outlook The timing of the recovery in China remains uncertain and this will inevitablyimpact our second half results. We believe that the underlying demand forXaar-based products in China remains strong and in the medium and longer term weremain positive about the group's prospects in Asian markets and elsewhere. Ourmedium and longer term growth will be driven by new products and new marketapplications which are now progressing towards volume production. These newproducts and markets will bring an increased spread of risk and an improvingbalance to revenues and profitability. Arie RosenfeldChairman 12 September 2006 Consolidated income statementfor the six months ended 30 June 2006 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000Continuing operations Revenue 1 22,296 19,849 42,772Cost of sales (9,274) (7,944) (16,123)Gross profit 13,022 11,905 26,649 Distribution costs (2,032) (1,950) (4,038)Administrative expenses (6,410) (5,310) (12,132)Operating profit 4,580 4,645 10,479 Investment income 233 252 576Finance costs (39) (34) (63)Foreign exchange loss oninter-company loan - (1,340) (977)Profit before tax 4,774 3,523 10,015 Tax (1,432) (1,057) (2,966)Profit for the periodattributable to shareholders 3,342 2,466 7,049 Earnings per share fromcontinuing operationsBasic 2 5.5p 4.1p 11.6pDiluted 2 5.2p 3.9p 11.1p Dividends paid in the period amounted to £921,000 (six months to 30 June 2005:£604,000; twelve months to 31 December 2005: £604,000). Consolidated statement of recognised income and expensefor the six months ended 30 June 2006 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Exchange differences ontranslation of foreign operations (37) 678 842Gains/(losses) on cash flow hedges 1,487 (2,485) (2,545)Tax on items taken directly to (1,198) - 1,690equityNet income/(loss) recogniseddirectly in equity 252 (1,807) (13) Profit for the period 3,342 2,466 7,049Total recognised income andexpense for the period 3,594 659 7,036 Consolidated balance sheetas at 30 June 2006 As at As at As at 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Non-current assetsProperty, plant and equipment 8,633 5,546 6,436Goodwill 720 771 720Other intangible assets 4,770 3,228 3,773Investments 1,768 234 1,377Deferred tax asset 607 - 1,970 16,498 9,779 14,276Current assets Trade and other receivables 7,444 6,535 9,142Inventories 3,358 2,086 2,835Cash and cash equivalents 16,264 17,523 14,395Derivative financial instruments 290 - - 27,356 26,144 26,372Assets held for sale - - 265Total assets 43,854 35,923 40,913 Current liabilitiesTrade and other payables (8,986) (8,199) (7,875)Current tax liabilities (2,975) (1,130) (2,916)Obligations under finance leases (490) (573) (556)Provisions (188) (134) (120)Derivative financial instruments - (1,137) (1,197)Liabilities directly associatedwith assets classified as held for - - (15)sale (12,639) (11,173) (12,679)Net current assets 14,717 14,971 13,693 Non-current liabilitiesObligations under finance leases (512) (889) (681)Total liabilities (13,151) (12,062) (13,360) Net assets 30,703 23,861 27,553 Equity Share capital 6,147 6,057 6,115Share premium 9,512 9,001 9,376Own shares (3,420) (20) (3,420)Other reserves 2,695 2,104 2,386Hedging and translation reserves 872 (595) (131)Retained earnings 14,897 7,314 13,227Equity attributable to 30,703 23,861 27,553shareholders Total equity 30,703 23,861 27,553 Consolidated cash flow statementfor the six months ended 30 June 2006 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash from operating activities 6,791 4,807 7,862 Investing activitiesInterest received 233 253 577Purchases of property, plant and (2,626) (1,252) (2,579)equipmentProceeds on disposal of property,plant and equipment 5 - 1Purchase of trading investments (141) (234) (1,377)Expenditure on product development (1,412) (469) (1,220)Net cash used in investing (3,941) (1,702) (4,598)activities Financing activitiesDividends paid (921) (604) (604)Proceeds from issue of ordinary 162 333 754share capitalRepayments of obligations underfinance leases (261) (285) (553)Purchase of own shares - - (3,400)Net cash used in financing (1,020) (556) (3,803)activities Net increase/(decrease) in cash andcash equivalents 1,830 2,549 (539)Cash and cash equivalents atbeginning of period 14,395 15,316 15,316Effect of foreign exchange rates 39 (342) (382)Cash and cash equivalents at end ofperiod 16,264 17,523 14,395 Notes to the interim financial informationfor the six months ended 30 June 2006 1. Segmental analysis 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 grouppresents its primary segment information. Segment information about these product types is presented below: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Revenue Printheads and related products 21,112 18,094 39,872Development fees 497 948 1,587Licence fees and royalties 687 807 1,313Total 22,296 19,849 42,772 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: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Europe and Middle East 8,035 6,519 14,025Americas 2,306 1,968 3,307Asia 11,955 11,362 25,440Total 22,296 19,849 42,772 2. Earnings per ordinary share - basic and diluted The calculation of earnings per share is based upon the following data: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Earnings Earnings for the purposes of basicearnings per share being net profitattributable to equity holders of 3,342 2,466 7,049the parent Number of shares Weighted average number of ordinaryshares for the purposes of basic 61,323,233 60,367,096 60,578,422earnings per shareEffect of dilutive potentialordinary shares:Share options 2,405,029 2,828,964 2,921,181 Weighted average number of ordinaryshares for the purposes of diluted 63,728,262 63,196,060 63,499,603earnings per share 2. Earnings per ordinary share - basic and diluted (continued) The calculation of earnings per share excluding foreign exchange loss on theinter-company loan is based on earnings of: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Earnings for the purposes of basicearnings per share being net profitattributable to equity holders of the 3,342 2,466 7,049parentForeign exchange loss on theinter-company loan - 1,340 977Tax effect of loss on inter-company - (402) (293)loan Profit on ordinary activities aftertax excluding foreign exchange losson the inter-company loan 3,342 3,404 7,733 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: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited)Basic 5.5p 5.6p 12.8pDiluted 5.2p 5.4p 12.2p This additional earnings per share information is considered to provide a fairerrepresentation of the group's trading performance year on year. 3. Financial information These interim financial statements do not constitute statutory financialstatements within the meaning of section 240 of the Companies Act 1985. Theresults for the year ended 31 December 2005 have been extracted from thestatutory financial statements, which have been filed with the Registrar ofCompanies. Without qualifying their opinion on the financial statements for theyear ended 31 December 2005, the previous auditors drew attention, by way ofemphasis, to disclosures concerning the possible outcome of amounts due fromsome of the group's debtors. They concluded that there was uncertainty over boththe timing and quantum of amounts which may be recovered. The unaudited interim financial statements for the six months ended 30 June 2006have been prepared on the basis of the accounting policies set out in the mostrecently published financial statements of the Group for the year ended 31December 2005. 4. Date of approval of interim financial statements The interim financial statements cover the period 1 January 2006 to 30 June 2006and were approved by the board on 12 September 2006. The interim financial statements will be sent to shareholders in due course.Further copies will be available from the Company's registered office, SciencePark, Cambridge CB4 0XR and can be accessed on the Xaar plc website,www.xaar.co.uk. Independent review report to Xaar plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, theconsolidated balance sheet, the consolidated cash flow statement and the relatednotes 1 to 4. We have read the other information contained in the interim reportand considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 "Review of interim financial information" issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 "Review of interim financial information" issued by the AuditingPractices Board for use in the United Kingdom. A review consists principally ofmaking enquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Ernst & Young llpCambridge12 September 2006 Notes: The maintenance and integrity of the Xaar plc website is the responsibility ofthe directors; the work carried out by the auditors does not involveconsideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the financialinformation since it was initially first presented on the website. Legislation in the United Kingdom governing the preparation and dissemination offinancial statements may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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