14th Sep 2005 07:01
Xaar PLC14 September 2005 FOR IMMEDIATE RELEASE 14 September 2005 Xaar plc SHARP PROFITS INCREASE FOR 6 MONTHS TO 30 JUNE 2005 Xaar plc ("Xaar"), the inkjet printing technology group headquartered inCambridge, has announced its unaudited results for the six months ended 30 June2005. KEY POINTS: • The results show continued strong growth in sales, profit and cash. • To provide for future sales growth and the launch of new products, Xaar is to invest £10m in a major new manufacturing plant to be established in the UK. • The financial results (reported under IFRS) were: o Turnover was up 19% to £19.8m (2004: £16.6m); o Profit from operations* jumped by 86% to £4.6m (2004: £2.5m); o Margin from operations* improved to 23% (2004: 14%); o Profit before tax was £3.5m (2004: £1.3m); o Earnings per share* were 5.6p (2004: 3.0p); o Net cash and liquid resources at 30 June 2005 increased to £17.5m (2004: £9.9m); and o The net effect of adopting IFRS was to increase profit before tax by £0.3m (2004: £0.1m). * stated before non-trading foreign exchange movements on inter-company loan: loss of £1.3m (2004: loss of £1.3m) • Increased sales were achieved in each principal territory and industry segment. • Although an interim dividend is not being paid (2004: nil), a final dividend for the year is expected to be declared (2004: 1p). • Successful launch of Xaar's new OmniDot product range with equipment from Agfa already commercialised. • Business development is yielding initial development revenues from new markets. • A minority investment has been made in integration partner, Xennia Technology. • Robert Eckelmann, formerly with Intel, has been appointed as a non-executive director. On outlook, Chairman, Arie Rosenfeld stated: "All of our core markets met or exceeded expectations during the period and theboard expects to achieve a satisfactory result for the year as a whole." Contacts Xaar plc: today: 020-7367-8888Ian Dinwoodie, Chief Executive Thereafter: 01223-423663Nigel Berry, Group Finance Director www.xaar.co.uk & Deputy Chief Executive Bankside Consultants:Steve Liebmann 020-7367-8883 / 07802-888159 CHAIRMAN'S STATEMENTIntroduction I am pleased to report another six months of strong growth and profitability forthe group, together with the important commercial launch of our new OmniDotrange of printheads and the announcement of plans to add a new productionfacility in the UK. Results and Finance For the first time the results have been prepared under International FinancialReporting Standards (IFRS) as required by EU legislation for most listedEuropean companies with reporting periods starting on or after 1 January 2005. Under IFRS, total group revenue was £19.8 million (2004: £16.6 million) for theperiod, an increase of 19% over the same period last year. Included in revenueis the sale of printheads and inks valued at £18.4 million (2004: £15.7million), licensee royalties of £0.8 million (2004: £0.6 million) anddevelopment fees of £0.6 million (2004: £0.3 million). The profit from operations (as defined by IFRS, i.e. profit before net interest,exchange rate movement on the inter-company loan, tax and dividends) for theperiod was £4.6 million (2004: £2.5 million). The exchange rate movement on theinter-company loan between the UK and Sweden resulted in a book loss of £1.3million (2004: £1.3 million loss). After accounting for this movement, profitbefore tax was £3.5 million (2004: £1.3 million) and the tax charge for theperiod was £1.1 million (2004: £0.4 million). Earnings per share, excludingtranslation movements on the inter-company loan, were 5.6p (2004: 3.0p) andincluding currency translation movements on the inter-company loan were 4.1p(2004: 1.5p). The results were previously reported under UK Generally Accepted AccountingPrinciples (UK GAAP), which was also the basis of the trading update issued inJuly of this year. A financial reconciliation and further explanation of thedifferences between the IFRS and UK GAAP results can be found in note 4 to theinterim statement. The net effect of the change to IFRS reporting on profitbefore tax for the period was to increase it by £0.3 million. For the 2004comparative there was an increase of £0.1 million. Cash generation in the period was again strong with cash at the half-yearstanding at £17.5 million (2004: £9.9 million). This is after providing forcapital investment in tangible assets of £1.3 million, trade investments of £0.2million and an increase in working capital of £0.6 million. Outstandingliabilities under finance leases were £1.5 million (2004: £1.4 million). Business Review Printheads and related products Sales improved for all Xaar's printhead products in all market sectors. Ourindustry-standard XJ128 and XJ128 Plus printheads continue to dominate the wideformat graphic arts market where they are primarily used to print outdooradvertising media and other outdoor signage. The XJ500 continues to findsuccess in both the wide format graphics market and the secondary packagingmarket, where coding directly onto external packaging is eliminating the needfor pre-printed barcode labels. Sales of the OmniDot 318 (formerly Leopard)printhead also continued to grow. Sales to Asia were up 20% on the same period last year, with sales to Europe upby 16% and sales to the US up by 25%. Our new office in India, opened in late2004, is starting to develop direct sales to this market and we have recentlytaken on our first full time sales person in South America, based in Sao Paulo,Brazil. The major new product news from the first half was the successful commerciallaunch of the greyscale OmniDot 760, which made its debut in a commercialprinting product in May at the FESPA tradeshow in Munich, Germany. The OmniDotwas co-developed with Agfa, who demonstrated it at the show in both a grandformat graphics printer, the Anapurna 100, and a revolutionary new digitalpress, the M-Press, which is the most advanced product of its type yet built.The M-Press in particular generated tremendous interest from potential end usersand Agfa is due to begin deliveries later this year. Xaar's own version of the OmniDot 760 printhead has been supplied inevaluation-kit form to both existing and new customers and we would expectequipment based on the new printhead to be in the market towards the end of2006. The smaller and variable drop size offered by the OmniDot allows muchhigher resolution printing which, in turn, opens up the indoor advertising andfine art market to Xaar. This will add an incremental layer of sales to thosegenerated by our existing product portfolio. The OmniDot range will also includea binary version (the OM 380) which will fill the space between the XJ128 andXJ500 printheads in both the wide format and coding markets. Looking further ahead, we have also shipped early test kits of our next newprinthead platform, currently referred to as the HSS. This printhead has apatented recirculating ink system giving it the ability to self-recover fromblocked nozzles. This makes it inherently much more reliable than conventionalinkjet printheads. The recirculating principle also allows a much wider rangeof fluids to be used in the printhead; we believe these features will not onlyopen up new areas of traditional printing to inkjet, but will also take inkjetinto new industrial processes where patterns and images are today produced bywasteful subtractive processes rather than by direct printing. New Markets Our business development activities generated initial revenues during the periodand continue to gather pace. We are actively involved in a range of projectscovering printed electronics, packaging, electronic displays and biotech. Theseprojects include: the printing of etch masks for the manufacture of printedcircuit boards, where we expect to see commercial equipment released later inthe year; the printing of aerosol and beverage cans; the repair of LCD screensand other deposition related processes within the manufacture of electronicdisplays, and the use of inkjet in textile printing for which we have OmniDotevaluation kits on trial in the field. In each of these areas we work very closely with our approved integrationpartners whose skill in applying our technology to each customer's particularapplication is very important. Xennia Technology Ltd. We recently made a minority investment in Xennia Technology Ltd., one of ourapproved integration partners. As a result we now own 10% of the company withan option to increase this to 12.5%. The investment is intended to strengthenfurther our relationship with Xennia and it is not currently our intention toincrease our stake beyond that of a minority shareholder. Where appropriate, it is our intention to make other small trade investments ifthese can speed adoption of our technology into existing and new markets. Technology Revenues Royalties from licensees increased during the period compared to both the firstand second half of 2004. This growth comes primarily from Toshiba TEC, KonicaMinolta, Toyo Ink, Seiko Instruments, and Brother. Our licensees use Xaartechnology across a range of markets including graphic arts, document printingand mailing. New Production Facility With the launch of the OmniDot range, manufactured in our production facility inSweden for both ourselves and Agfa, it is likely that the Swedish plant willbecome fully utilised in the short to medium term. In order to provide capacityfor the introduction of the HSS product range, as well as to provide furthercapacity for existing products, we have decided to add a second productionfacility in the vicinity of our Cambridge headquarters. We have identifiedseveral possible leasehold buildings and expect to finalise negotiations on oneof these sites by the end of the year. Initial equipment and fit-out costs forthe new facility are expected to be around £7.0 million and the total commitmentincluding working capital is likely to be in the order of £10.0 million.Commercial volume production of the first model in the HSS printhead range isscheduled to begin by the end of 2006. The investment in the new facility willbe met from the group's existing cash reserves. Board We are delighted to have appointed Mr Robert Eckelmann as a non-executivedirector with effect from 1 October 2005. Mr Eckelmann, 49, has a strongbackground in the electronics industry; having launched Intel's Asian business,he later became VP and General Manager for the whole of Intel's EMEA region. Dividend As previously stated, due to the administrative time and cost involved in makinga dividend payment it is not the group's intention to pay an interim dividendbut, subject to a satisfactory second half performance, it is our intention todeclare a dividend for the full year. Outlook All of our core markets met or exceeded expectations during the period and theboard expects to achieve a satisfactory result for the year as a whole. Arie RosenfeldChairman14 September 2005 CONSOLIDATED INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 ----------- ---------- ----------- Notes 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ---------- ----------- Continuing operations Revenue 1 19,849 16,589 34,812Cost of sales (7,944) (7,305) (15,078) ----------- ----------- -----------Gross profit 11,905 9,284 19,734 Other operating expenses (7,260) (6,793) (13,440)(net) ----------- ----------- -----------Profit from operations 4,645 2,491 6,294 Investment income 252 97 306Finance costs (34) (67) (100)Foreign exchange loss onintercompany loan (1,340) (1,250) (231) ----------- ----------- -----------Profit before taxation 3,523 1,271 6,269 Tax (1,057) (359) (1,658) ----------- ----------- -----------Profit for the period fromcontinuing operations 2,466 912 4,611 Dividend (604) - - ----------- ----------- -----------Profit for the period 1,862 912 4,611 ----------- ----------- ----------- Earnings per share - 2 4.1p 1.5p 7.7pbasicEarnings per share - 2 3.9p 1.5p 7.5pdiluted Consolidated statement of recognised income and expensefor the six months ended 30 June 2005 ----------- ---------- ----------- 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ---------- -----------Exchange differences on translationof foreign operations 678 746 (136) ----------- ---------- -----------Net income recognised directly inequity 678 746 (136) Profit for the period 1,862 912 4,611 ----------- ---------- -----------Total recognised income and expensefor the period attributable toshareholders 2,540 1,658 4,475 ----------- ---------- ----------- CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2005 ----------- ---------- ----------- As at As at As at 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ---------- ----------- Non-current assetsGoodwill 771 771 771Other intangible assets 3,228 2,147 2,958Tangible assets 5,546 5,241 5,623Investments 234 - - ----------- ----------- ----------- 9,779 8,159 9,352 Current assetsInventories 2,086 2,226 2,485Trade and other receivables 6,535 6,323 6,771Short term investments - 2,945 900Cash and cash equivalents 17,523 6,946 14,416 ----------- ----------- ----------- 26,144 18,440 24,572 ----------- ----------- -----------Total assets 35,923 26,599 33,924 Current liabilitiesAmounts falling due in one year (11,039) (5,812) (9,258) Short-term provisions (134) (496) (134) ----------- ----------- ----------- (11,173) (6,308) (9,392) ----------- ----------- -----------Net current assets 14,971 12,132 15,180 Non-current liabilities Obligations under finance leases (889) (1,446) (1,278) ----------- ----------- -----------Total liabilities (12,062) (7,754) (10,670) ----------- ----------- -----------Net assets 23,861 18,845 23,254 ----------- ----------- ----------- EquityShare capital 6,057 6,004 6,013Share premium 9,001 8,648 8,713Own shares (20) (20) (20)Other reserves 2,104 1,229 1,884Hedging and translation reserves (595) 746 1,212Retained earnings 7,314 2,238 5,452 ----------- ----------- -----------Equity attributable toshareholders 23,861 18,845 23,254 ----------- ----------- -----------Total equity 23,861 18,845 23,254 ----------- ----------- ----------- CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 ----------- ---------- ----------- 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ---------- ----------- Net cash from operating activities 4,807 3,338 10,224 Investing activitiesInterest received 253 79 308Purchases of property, plant and equipment (1,252) (635) (1,748)Proceeds on disposal of property, plantand equipment - - 9Acquisition of investments in associates (234) - -Expenditure on product development (469) (830) (1,583) ----------- ---------- -----------Net cash used in investing activities (1,702) (1,386) (3,014) Financing activitiesDividends paid (604) - -Proceeds from issue of ordinary sharecapital 333 105 179Repayments of obligations under financeleases (285) (318) (623) ----------- ---------- -----------Net cash used in financing activities (556) (213) (444) ----------- ---------- -----------Net increase in cash and cashequivalents 2,549 1,739 6,766 Cash and cash equivalents at beginning ofperiod 15,316 8,458 8,458 Effect of foreign exchange rates (342) (306) 92 ----------- ---------- -----------Cash and cash equivalents at end ofperiod 17,523 9,891 15,316 ----------- ---------- ----------- NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Segmental analysis The segmental analysis of turnover is: ---------- ---------- ----------- 6 months 6 months 12 months to to to 30 June 30 June 31 December 2005 2004 2004 £'Million £'Million £'Million ---------- ---------- ----------- Geographic: Europe & Middle East 6.5 5.6 11.3 Americas 2.0 1.6 3.8 Asia 11.3 9.4 19.7 ---------------- ---------- ---------- ----------- Total 19.8 16.6 34.8 ---------------- ---------- ---------- ----------- Industry Graphic arts 14.5 12.3 25.6segment: Packaging printing 3.1 2.9 6.6 Industrial printing 0.8 0.5 0.9 Development fees 0.6 0.3 0.6 Licence fees and 0.8 0.6 1.1 royalties ---------------- ---------- ---------- ----------- Total 19.8 16.6 34.8 ---------------- ---------- ---------- ----------- 2. Earnings per ordinary share - basic and diluted The calculation of earnings per share is based upon the profit for the periodafter taxation and on the weighted average number of ordinary shares in issueduring the period. For basic earnings per share, this is 60,367,096 (30 June2004: 60,003,648, 31 December 2004: 60,043,056) and for diluted earnings pershare, this is 63,196,060 (30 June 2004: 61,260,066, 31 December 2004:61,746,960), the only difference being in relation to movements in shareoptions. Adjusted earnings per share 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Earnings per share excluding 5.6p 3.0p 7.9pforeign exchange loss onintercompany loan - basicEarnings per share excluding 5.4p 2.9p 7.7pforeign exchange loss onintercompany loan - diluted Basic earnings per share excluding foreign exchange loss on the intercompanyloan is based on earnings of: ----------- ----------- ----------- 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ----------- -----------Profit for the period fromcontinuing operations 2,466 912 4,611Foreign exchange loss on theintercompany loan 1,340 1,250 231Tax effect of loss on intercompany (402) (375) (69)loan ----------- ----------- -----------Retained earnings for the financialperiod excluding foreign exchangeloss on the intercompany loan 3,404 1,787 4,773 ----------- ----------- ----------- 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 2004 have been extracted from thestatutory financial statements, which have been filed with the Registrar ofCompanies and upon which the auditors reported without qualification. 4. Reconciliation between IFRS and UK GAAP The key changes made to the group's UK GAAP results to comply with IFRS are: •Capitalisation of certain product development costs and deferral of associated third party contributions towards those development costs. Under UK GAAP, capitalisation of product development expenditure was optionaland the group did not capitalise these costs. To comply with IFRS, costsassociated with development of the OmniDot product range in 2003 and 2004, andthe HSS product range in 2004 and 2005 have now been capitalised. These costswill be amortised over a three year period on the basis of unit shipmentsbeginning in the year in which the products are first commercially sold. Thiswill be 2005 for the OmniDot range and potentially late 2006 or early 2007 forthe HSS range. In tandem with capitalising development costs for the OmniDot products, we arealso obliged to defer recognition of the contributions received towards thosecosts from Agfa, our co-development partner. Such deferred revenues will bereleased in parallel with amortisation of the capitalised development costs forthis product. •Expensing of share options. The group has expensed the cost of share options issued to executives andemployees in accordance with the methodology set out by IFRS2. •Amortisation of goodwill arising on acquisition of the group's Swedish operations in 1999 and Vivid Print Innovations in 2003. Under UK GAAP, such goodwill was being amortised through the profit and lossaccount over a ten year period. Under IAS38, the fair value of such balancesheet assets must be assessed on an annual basis by the group's directors, withany permanent change in fair value taken through the profit and loss account.The directors do not consider there has been any change in the fair value ofthese items during 2004, or in the first half of 2005. As a result,amortisation previously charged in the 2004 results has been written back toprofit, and no charge has been made in the first half of the current year. Reconciliations between IFRS results and UK GAAP results for the major financialheadings are shown below. ----------- ----------- -----------Profit before tax 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ----------- ----------- Profit before tax under IFRS 3,523 1,271 6,269 Capitalisation of R&D (net) (note (461) (78) (456)1)Cost of share options (note 2) 220 74 244Amortisation of goodwill (note 3) (71) (72) (143) ----------- ----------- ----------- (312) (76) (355) ----------- ----------- -----------Profit before tax under UK GAAP 3,211 1,195 5,914 Foreign exchange loss on inter 1,340 1,250 231company loan ----------- ----------- -----------Trading profit under UK GAAP 4,551 2,445 6,145 1. Where the company's R&D programmes meet the criteria set out in IAS38, thecosts have been capitalised as an intangible asset and amortised as appropriate. 2. Share options granted after 7 November 2002 that have not vested aremeasured, in accordance with IFRS2, at their fair value as determined by theBlack Scholes option pricing model. The fair value of these options is writtenoff over the vesting period of the individual option. 3. Under IAS38 goodwill is held at its 31 December 2003 value unless there isimpairment to its value. Net assets ----------- ----------- ----------- As at As at As at 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 ----------- ----------- ----------- Net assets (IFRS) 23,861 18,845 23,254 Non-current asset adjustments (note (2,738) (1,426) (2,250)1)Current asset adjustments (note 2) 318 - (1,030) Current liabilities adjustments 2,719 1,262 1,025(notes 2,3) Net assets (UK GAAP) 24,160 18,681 20,999 1. Where the company's R&D programmes meet the criteria set out in IAS38, thecosts have been capitalised as an intangible asset. The cost of R&D programmescapitalised at 30 June 2005 is £2,524k (30 June 2004: £1,354k, 31 December 2004:£2,107k). 2. Under IAS39 where hedge accounting is adopted, any movement in thevaluation of financial instruments is shown on the face of the balance sheetwith the effect of this movement being recognised in the hedging and translationreserve. The effect of these movements at 30 June 2005 is a liability of£1,137k (30 June 2004: nil, 31 December 2004: asset of £1,348k). 3. Income received in relation to the company's R&D programmes that directlyrelates to the intangible assets booked under IAS38 is held as deferred incomeand amortised in accordance with the amortisation profile for the associatedintangible asset. Deferred income at 30 June 2005 is £1,593k (30 June 2004:£1,262k, 31 December 2004: £1,637k). Shareholders' equity ----------- ---------- ----------- As at As at As at 30 June 30 June 31 December 2005 2004 2004 (unaudited) unaudited) (unaudited) £'000 £'000 £'000 ----------- --------- ---------- Total equity (IFRS) 23,861 18,845 23,254 Retained earnings adjustments (838) (164) (907)Valuation of financial instruments (hedging 1,137 - (1,348)and translation reserve) (note 1) Total equity (UK GAAP) 24,160 18,681 20,999 1. Under IAS39 where hedge accounting is adopted, any movement in thevaluation of financial instruments is taken to the hedging and translationreserve. 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 2005 which comprises the profit and loss account,the balance sheets, the cash flow statement and related notes 1 to 4. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave 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 are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 4, the next annual financial statements of the group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not 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 2005. Deloitte & Touche LLPChartered AccountantsCambridgeEngland13 September 2005 Notes: A review does not provide assurance on the maintenance and integrity ofthe website, including controls used to achieve this, and in particular onwhether any changes may have occurred to the financial information since firstpublished. These matters are the responsibility of the directors but no controlprocedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination offinancial information differs 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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