Final Results

RNS Number : 7096I

Xaar PLC

17 March 2010

 



FOR IMMEDIATE RELEASE

17 March 2010

Xaar plc

FINAL RESULTS FOR 2009

Xaar plc ("Xaar", the "group" or the "company"), the inkjet printing technology group headquartered in Cambridge, announces its unaudited preliminary results for the year ended 31 December 2009.

Key points:

·     The results reflect the stabilisation of the business against a difficult economic background.

·     The financial results were:

o   Turnover was £42.1m (2008: £42.0m);

o   Gross margin was 41% (2008: 49%);

o   Adjusted profit before tax* was £2.6m (2008: £2.8m);

o   Reported loss before tax was £0.2m (2008: profit £4.4m);

o   Adjusted earnings per share* were 3.8p (2008: 3.8p);

o   Earnings per share were 0.6p (2008: 5.6p); and

o   Net cash** at 31 December 2009 was £11.1m (30 June 2009: £10.3m; 31 December 2008: £11.0m).

            *   Before providing for expected total restructuring costs, the impairment of a trade investment, foreign exchange gains or losses on Swedish kronor inter-company balances and the cost of share-based payments

            ** Cash less borrowings

·     Maintained final dividend of 1.5p is recommended, making 2.5p for the year (2008: 2.5p).

·     Recovery of market share in China sustained by new product launches.

·   New technology Platform 3 products gather momentum; production capacity is being increased significantly to meet demand.

On outlook, Chairman, Phil Lawler stated:

"The adoption of inkjet technology by the wider printing industry continues cautiously although certain applications are now moving forward more quickly.  Whilst the overall state of the global economy does not appear conducive to capital outlay, the disruptive nature of Xaar's technology is presenting opportunities for certain printing OEMs to offer new flexibility and value to their customers.  The board remains convinced that Xaar has the right products and has matured in its understanding of what it takes to make the new technology a success for our OEM customers.  We remain profitable, cash generative and financially strong."

Contacts

Xaar plc:	Today: 020-7367-8888
Ian Dinwoodie, Chief Executive	Thereafter: 01223-423663
Andrew Taylor, Finance Director	www.xaar.com
Singer Capital Markets Limited:	020-3205-7500
Shaun Dobson or Claes Spång
Bankside Consultants:
Steve Liebmann or Andy Harris	020-7367-8883 / 07802-888159

CHAIRMAN'S STATEMENT

Introduction

Just over a year ago, when looking ahead to 2009, it was clear that the global economic environment would present continuing trading difficulties for those in the printing industry and we set our financial goals accordingly.  I am pleased to report that these goals were achieved against a backdrop of continuing disappointing financial results from across the global printing industry.  The group continues to be profitable on an adjusted profit basis, cash generative and financially strong.

Business trends

Overall our leadership position with a 'disruptive technology' has enabled us to ride the economic downturn, helped by the fact that a significant portion of our business comes from Asia, specifically China, where internal economies have flourished.  Internally, the restructuring programme implemented in 2008 has delivered the efficiencies expected and contributed significantly to our current financial position.

Despite these 'positives' we are frustrated that our performance was not better.  On the one hand, we are pleased that our new Platform 3 ("P3") technologies and products are opening substantial new commercial opportunities in a range of printing applications.  On the other hand, as set out below in the Review of Operations, the level of activity and costs associated with finalising the performance and quality of our products for multiple applications, whilst assisting our original equipment manufacturer ("OEM") customers in commercialising their printing machinery products, have been higher than expected. In addition, the market has not been helped by the cautious approach towards new capital investment in equipment by those within the printing industry.  These factors have inevitably weakened gross margin as well as revenue.

To resolve these operational and support issues, additional senior and specific expertise was hired during the second half of 2009 and the early part of 2010.  Company processes have been rigorously reviewed and improvements implemented.  Additionally the breadth of activities has been rationalised to allow more focus to be applied in depth to the key activities which will generate returns in the shorter term.  The rationalisation of our manufacturing facilities by consolidation into our Huntingdon facility, announced in April 2009, continues to meet the planned schedule and budget.  As initially indicated, capital funding for this consolidation is a mix of operational cash flow and external financing.

We have recovered market share in China (still our largest market) and sales of Platform 1 ("P1") product remained strong throughout, aided by the latest product introductions, of which more are planned.  Sales in Europe were depressed by the ongoing transition from P1 to P3 products whilst North America has shown growth from P3 success.  Our traditional markets of wide format graphics and coding and marking are stable.

In the Half Yearly Report last August I noted that a further ten printer OEMs had announced machines that incorporated Xaar P3 technology during the first six months of 2009; that number has now been increased to a total of 18 for 2009.  In order to overcome the 'commercialisation' difficulties referred to earlier, we have also focused more on achieving success with fewer applications, putting our resources behind those markets that we believe have the best chance of early success.  As stated on a number of previous occasions, we know that the time from an OEM announcing a Xaar-based printer to it becoming a commercial success is frustratingly long.   However, as experience and expertise grow we expect these lead times to shorten.

It remains clear that with this number of OEM adoptions together with the enquiries received, Xaar technology remains a leader.  In terms of new markets for P3, ceramic printing and primary packaging label printing continue to offer substantial opportunities. P3 printhead sales into the ceramic printing market started to grow significantly towards the end of 2009, and are expected to be a strong contributor to the company's revenue over the next period. Label applications are taking longer to deliver volume sales, however this is expected to occur during  2010.  

Results and dividend

Revenue and profit results for the year were in line with market consensus, aided by increased royalty income.  We continue to manage costs very carefully, pay close attention to cash flow and again ended the year with a healthy cash balance.  Despite the product introduction setbacks referred to earlier, we are confident that we have the financial resources to manage through the difficult external trading environment and remain in a strong position to capitalise on opportunities as the market recovers.

Based on the continuing cash generation of the business, the board has decided to recommend a final dividend of 1.5p which, together with the 1.0p interim dividend paid already, maintains the total dividend for the year at 2.5p (2008 : 2.5p).

Board

After nine years dedicated and valued service, John Scott will no longer be considered independent as far as the 'combined code' is concerned and will therefore retire at the forthcoming AGM.  On behalf of the board I would like to take this opportunity to thank John for his wise counsel and sound judgement whilst exercising his duties as non-executive director, Chairman of the Audit Committee and, more recently, Senior Independent Director.

After a wide search I am pleased that we recently appointed Robin Williams as a non-executive director and, with effect from the forthcoming AGM, Chairman of the Audit Committee.  Robin is a Chartered Accountant with broad experience as a director of both quoted and private companies.

Rob Eckelmann, who has served on the board since October 2005 and is Chairman of the Remuneration and Nomination Committee, will become Senior Independent Director.

Outlook

The adoption of inkjet technology by the wider printing industry continues cautiously although certain applications are now moving forward more quickly.  Whilst the overall state of the global economy does not appear conducive to capital outlay, the disruptive nature of Xaar's technology is presenting opportunities for certain printing OEMs to offer new flexibility and value to their customers.  The board remains convinced that Xaar has the right products and has matured in its understanding of what it takes to make the new technology a success for our OEM customers.  We remain profitable, cash generative and financially strong.

The Company is now focusing its resources on the specific partners and markets that will bring faster material returns and, at the same time, act as role models that other OEMs may follow.  Part of this focus is to place greater emphasis on market requirements, product definition and the processes to design and manufacture for a better customer experience.

The results for 2009 were as predicted but the board remains convinced that Xaar has the potential to deliver growth.  The management team has re-focused on improvement, has demonstrated tenacity and is committed to delivering success.

Phil Lawler

Chairman

16 March 2010

REVIEW OF OPERATIONS

Introduction

In a difficult economic environment Xaar has made progress during 2009, both in stabilising sales of its traditional Platform 1 ("P1") products and in developing sales of its new Platform 3 ("P3") products.  Progress to recover P1 market share in existing markets after the downturn in 2008 has been reasonable and should continue into 2010.  The significant cost reductions announced in 2008 were realised fully in 2009; however their effect was diluted by an unexpected level of costs associated with the deployment of new products into diverse applications.  These costs were predominantly incurred in solving final stage performance and quality issues, which were exacerbated by the demands of supporting multiple end product developments in parallel.  The complexity of the learning curve for some of these new products and applications is not uncommon in leading edge technology, especially in the digital imaging world.  Having said that, some applications are now emerging as stable and material businesses and the company remains confident that others are now close to that final transition; hence we believe the opportunities for P3 sales remain significant.  To ensure we are successful, the company has initiated a number of improvement programmes during the second half of the year, the benefits of which we expect to start to see during 2010.  Relocation of the Swedish manufacturing capacity to the UK is underway fully and tracking to plan with completion in early 2011.

Business Review

The total revenue of £42.1m (2008: £42.0m) is made up of: product sales: £36.7m (2008: £37.5m), representing 87% of turnover (2008: 89%); royalties: £4.7m (2008: £3.9m), representing 11% of turnover (2008: 9%) and development fees delivering £0.7m (2008:£0.6m). 

Gross margin for the year declined to 41% (2008: 49%) due to the combined effect of lower P1 throughput to absorb manufacturing overheads, competition in the P1 markets reducing margins, and the level of costs associated with new product introductions. The impact of throughput and new product introduction costs is expected to decline during 2010. Gross margin is expected to improve further as the manufacturing site consolidation programme concludes the following year.

The decline in P1 sales seen in 2008 has been halted and this business has stabilised, albeit at a lower level and at lower margins than historically achieved due to the increasingly competitive environment.  For P1 products in 2009, there was growth in China, offset by some decline in Europe and South America.  The Proton launch in China boosted sales especially in H1 and we have recently added a second variant to this range intended to further stimulate demand in 2010.  Proton adoption in both South America and India has been slower than in China; however we would expect this adoption to accelerate during 2010.  Electron has been slower to make a material impact, primarily due to the higher requirements placed on both the printer product and the inks to realise the significant increase in speed.  However the combined sales rate of 128 and Electron have been in line with expectations.  As expected, Platform 2 sales, especially in Europe, declined during the year. 

Despite the implementation and support issues outlined above, P3 sales grew strongly during the year and now represents a material percentage of our product revenue.  The support and implementation costs reduced gross margins during 2009; we expect these costs to reduce as we move through 2010, with a commensurate improvement in margins.  Digital printing of ceramic tiles has been the first application to stabilise fully and volume adoption developed in the closing months of 2009.  Other applications are presently moving toward levels of performance and stability which will generate volume sales; we will continue to work with our partners in these areas to get to the final stability and performance required.  We remain convinced that P3 sales will grow to become a substantial contributor to product revenue and profits over the medium term.

Although licensee unit volume sales were broadly unchanged over 2008, licensee royalties increased by 20% due to a more financially favourable mix of product and continuing advantageous exchange rates.

Commercial Review - Geographic

As a supplier of technology to OEM partners, our geographic sales split reflects where our products are integrated into the final product and not necessarily the end user location.

Asia continues to be our largest market and generated 54% of our total sales in 2009 at £22.4m (2008: £20.3m) including license fees primarily from Japan.  Following the decline in sales in 2008, we have regained market share by launching new P1 products and continuing to work closely with our partners in the region.  2009 results reflect some success but activities are ongoing.  Proton achieved good sales in its first year; building on that we have launched a second variant which we expect to contribute additionally during 2010.  Although Electron sales have been slower than planned, when combined with continuing sales of the 'industry standard' 128 product, our sales of 'small format' printheads has been reasonable overall.  India and Korea also continue to be important markets for Xaar in this region and have been broadly stable over the period.

The worst effect of the economic downturn on Xaar's business was felt in Europe where sales accounted for 30% of total revenue (2008: 36%) with sales of £12.8m (2008: £14.9m).  This market is in transition from our traditional P1 technologies to P3.  This is reflected in a decline throughout the year of P1 business in both graphic arts and coding and marking business; however P3 demand strengthened strongly in the final months of 2009 and this is expected to continue into 2010.

Total sales to the Americas were stable at £6.8m (2008: £6.8m) representing 16% of sales.  Within that figure, North American sales increased by 23% assisted by the adoption of P3 technology whilst South America declined 33% based on lower P1 sales.

Commercial Review - End Markets

51% of sales were related to the graphic arts market, which continues to be the largest market for Xaar technology, specifically large format advertising and signage printing.  £21.3m of sales represents an 8% decline over 2008, due to a combination of much lower activity in Europe counteracted somewhat by market share recovery in China.

Sales into the packaging market were £9.4m (2008: £9.2m), this being 22% of total sales.  This business is predominately P1 products into coding and marking applications and P3 products into label printing. Overall our sales into coding and marking applications declined in Europe but grew in North America. The adoption of digital label printing through P3 technology has been more challenging than initially anticipated; however good progress is being made and we remain optimistic about this market place. 

Sales into industrial markets have risen by 20% over the previous year, accounting for £6m or 14% of total turnover.  Progress has been most significant in the ceramic printing sector utilising P3 technology.  As noted last year, this industrial sector is now becoming material for Xaar and we continue to explore and support opportunities which can become commercially viable in both the short and medium term.

Operations Review

The relocation of all manufacturing capacity from Sweden to the UK is progressing to the plan announced earlier in the year.  Facilities work is now complete and phase 1 of the equipment and process move commenced during the year.  Phase 2 and Phase 3 will occur during 2010, with the relocation planned to complete early in 2011.

As noted earlier, the issues seen in 2009 around the launch of new products has resulted in a significant overhaul of our new product introduction processes and an upgrade to our quality systems both in R&D and manufacturing.  Whilst these will incur some incremental costs in the short term, the potential benefit is significant and we would expect to see the first signs of this improvement in gross margin during 2010.

R&D spend in the year was £4.6m (2008: £4.5m), representing 11% (2008: 11%) of sales.  Stabilisation of P3 and implementing the upgraded new product introduction process remain the primary priorities.

Priorities for the Future

The top priority for 2010 is to achieve the final performance level required for all of our P3 based developments allowing volume business to develop.  This, combined with a stable P1 business, is expected to deliver increased sales and an improvement in gross margin.  Over the medium term, based upon both the growth of our P3 business and the cost savings following the completion of our manufacturing relocation programme, we expect both margins and profitability to improve further.

People

Once again I would like to thank our staff for all their efforts during a challenging and frustrating year.  I believe the company will emerge from this period in a fitter and more robust state, capable of maximising the significant opportunities which lie ahead of us.

Ian Dinwoodie

Chief Executive

16 March 2010

FINANCIAL REVIEW

Trading

Trading in 2009 was more stable than 2008 with the first and second halves of 2009 showing growth of 7% and 8% respectively over an admittedly difficult second half of 2008.  With first half revenues of £20.9m and second half revenues of £21.2m full year revenue was in line with market consensus at £42.1m (H1 2008: £22.5m, H2 2008: £19.5m, full year 2008: £42.0m).  Within this flat year-on-year performance, 2009 saw an overall fall of 2% in printhead and related product sales to £36.7m (2008: £37.5m), offset by a 20% increase in licence fees and royalties to £4.7m in 2009 (2008: £3.9m).  With 2008 being very much a year of two contrasting halves, printhead and related product sales in the second half of 2009 grew by 8% over the second half of 2008 to £18.2m (H2 2008: £16.9m) but were 11% down on the first half of last year (H1 2008: £20.6m).  Licence fees and royalties showed steady growth over the same period to £2.6m (H1 2008: £1.6m; H2 2008: £2.3m), the 67% growth over the first half of 2008 being assisted by the strengthening of the Japanese yen against sterling in the second half of 2008.  Development fees remain immaterial.

Gross margin for the year excluding restructuring costs was 41% (2008: 49%).  Despite trading being more stable than in 2008, the 2009 gross margin fell significantly when compared to 2008 as a result of higher than anticipated product launch and customer support costs, commercial pressure on Platform 1 ("P1") product margins, and lower P1 production throughput impacting manufacturing overhead recovery.

Operating expenditure for the year, excluding exceptional items, was £14.5m (2008: £17.6m) reflecting the full impact of the cost saving measures taken in the second half of 2008.  Operating expenditure includes amortisation of capitalised R&D of £1.4m (2008: £1.0m).  Exceptional items in the year include a net reversal of share based payment charges of £0.8m (2008: credit £0.1m), the expected total restructuring costs associated with the closure of the Swedish plant of £2.7m (2008: £nil), the foreign exchange loss associated with operating the Swedish plant of £0.2m (2008: gain £1.8m) and the impairment of trade investments of £0.6m (2008: £0.1m).  The restructuring costs associated with the closure of the Swedish plant include a provision of £1.9m (2008: £nil) in respect of costs expected to be incurred in 2010 and 2011.  The charge for the impairment of a trade investment represents £0.6m in relation to a US based printing technology integration company that ceased trading in August 2009.

Adjusted profit before tax for the year was £2.6m (2008: £2.8m).  Adjusted profit before tax is stated before exceptional items and is the measure used by management to measure the underlying profitability of the company. Loss before tax for the year was £0.2m (2008: profit of £4.4m).

Restructuring

Both the effect of the cost saving programme undertaken in the second half of 2008, and the ongoing relocation of manufacturing capacity from Sweden to the UK, have impacted financial results for the year.  The cost saving programme delivered the forecast savings through a mixture of headcount and discretionary expenditure cuts resulting in a reduction in operating expenditure over 2008 of £1.9m.  The costs of the manufacturing relocation project are in line with initial forecasts of incremental capital expenditure of £3.5m, pulled forward capital expenditure of an additional £3.5m and a restructuring charge of £2.7m.

Cash and capital expenditure

Net cash at the end of the year was £11.1m (2008: £11.0m) after dividend payments of £1.5m (2008: £2.1m) and capital expenditure (tangible and intangible) of £5.2m (2008: £4.2m).  The increase in capital expenditure over 2008 is a direct result of equipment and infrastructure purchases for the Huntingdon facility to incorporate the transfer of production from Sweden.  The only debt outstanding at 31 December 2009 was £0.4m (2008: £0.6m) relating to the financing of capital equipment.  A further £1.3m of capital equipment was financed in January 2010.  The group continues to manage its resources prudently, resulting in gross cash at 31 December 2009 of £11.5m (2008: £11.6m).

Dividend

The board will recommend a final dividend of 1.5p for 2009 at the forthcoming Annual General Meeting, giving a total dividend for the year of 2.5p (2008: 2.5p).  An interim dividend of 1.0p was paid during the year (2008: 1.0p).  Subject to approval by shareholders at the Annual General Meeting, the final dividend will be paid on 25 June 2010 to shareholders on the register on 4 June 2010.

Foreign currency

The group's foreign exchange exposure has remained consistent with previous years with 69% (2008: 66%) of product revenues invoiced in Sterling, 18% (2008: 25%) in US Dollars and 13% (2008: 9%) in Euros.  Purchases were 52% (2008: 46%) Sterling, 20% (2008:25%) Swedish Kronor, 12% (2008: 17%) US Dollars and 11% (2008: 12%) Euros.  The group will continue to have an exposure to the Swedish Kronor throughout 2010, although it is expected that Swedish Kronor purchases will reduce later in the year as production continues to transfer to Huntingdon.

Annual General Meeting

The Annual General Meeting will be held at 9.30am on 19 May 2010.  In a change to previous years, the venue for the Annual General Meeting will be the Brandon Hall Hotel and Spa, Brandon, Coventry, to coincide with IPEX 2010 where many of the group's customers will be exhibiting printing machines incorporating Xaar technology.

Risks and uncertainties

Risk is an inherent part of doing business. The Group has a process for identifying, evaluating and managing the risks faced by the business and has identified the following factors as principal potential risks to the successful operation of the business.

·        If our initiatives to grow the business are not effective, financial performance of the group could be adversely affected;

·       If we cannot effectively anticipate technology trends and develop new products to respond to changing customer preferences, this could adversely affect group revenues;

·        If we cannot enforce the intellectual property rights on which our business depends or if third parties claim that we infringe their intellectual property rights our revenue and profit may be adversely impacted;

·        If we cannot attract, retain and motivate key employees the performance of our business could be adversely affected;

·       If our IT infrastructure does not perform as required our revenues and profit could be adversely impacted;

·        If we are unable to effectively complete, integrate and manage any acquisitions, disposals or other significant transactions this could adversely affect the group's business performance and revenues and profit;

·       Changes to the economic and political environment in both our major markets and the regions where we manufacture could adversely affect our business and financial performance;

·       Failure to effectively manage our working capital could adversely affect our cash flow;

·        Failure to manage our relationships with third party suppliers for raw materials could adversely affect our ability to maintain consistent supply of finished goods;

·        Failure to manage our relationships with third party suppliers for capital production equipment could adversely affect our ability to maintain consistent supply of finished goods;

·       Competition from direct competitors or third party technologies could impact our market share and pricing;

·       Failure to effectively manage our distribution of products could damage customer confidence and adversely affect our revenues and profits;

·       When goods are sold internationally we are subject to movements in foreign exchange rates that may adversely affect our revenues;

·       If our reputation is damaged through product quality or other issues our ability to generate sales may be harmed;

·       Natural disaster affecting our manufacturing locations or our customers' locations could adversely affect our future revenue and profit; and

·       Loss or damage to key production equipment as a result of moving from Sweden to the UK may affect our ability to manufacture product.

Key Performance Indicators

The principal measures management uses to monitor the performance of the group are as follows:

Revenue by business and geographical segment: sales revenue measured against budget on a monthly basis;

Gross margin: gross margin measured against budget on a monthly basis;

Operating expenditure: operating expenditure measured against budget on a monthly basis;

Adjusted PBT: adjusted profits before tax is a measure of profit before tax, share option costs and exceptional items.  This is measured monthly against budget; and

Cash: cash is measured weekly with a full flow of funds reviewed monthly against target.

Andrew Taylor

Finance Director

16 March 2010

Consolidated income statement

for the year ended 31 December 2009

	2009 (unaudited)	2008 (audited)
Note	£'000	£'000
Continuing operations
Revenue                                                                                     3	42,073	42,017
Cost of sales	(24,822)	(21,389)
Gross profit	17,251	20,628
Distribution costs	(3,412)	(5,012)
Administrative expenses	(14,106)	(11,657)
Operating (loss)/profit	(267)	3,959
Investment income	117	450
Finance costs	(36)	(57)
Profit before tax before restructuring costs, impairment of trade investments, foreign exchange movements on intercompany loans, movements on derivative financial instruments and share-based payments	2,563	2,804
Restructuring costs                                                                       4	(2,686)	(553)
Impairment of trade investments                                                  4	(639)	(120)
Foreign exchange (loss/gain) on Swedish kronor denominated intercompany loans	(157)	1,829
(Loss)/gain on derivative financial instruments	(46)	260
Share-based payments	779	132
(Loss)/profit before tax	(186)	4,352
Tax	585	(921)
Profit for the year attributable to shareholders	399	3,431
Earnings per share from continuing operations
Basic	0.6p	5.6p
Diluted	0.6p	5.5p

Consolidated statement of comprehensive income (unaudited)

for the year ended 31 December 2009

	2009	2008
	£'000	£'000
Profit for the year	399	3,431
Exchange differences on translation of foreign operations	(180)	(260)
(Loss)/gain on cash flow hedges	(349)	452
Tax relating to components of other comprehensive income	499	(446)
Other comprehensive income for the year	(30)	(254)
Total comprehensive income for the year	369	3,177

Consolidated statement of changes in equity (unaudited)

for the year ended 31 December 2009

					Hedging &	Retained
	Share	Share	Own	Other	translation	Earnings
	capital	premium	shares	reserves	reserves		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2009 (as previously reported)	6,350	10,525	(4,465)	3,919	594	21,514	38,437
Prior period adjustment	-	-	-	-	741	-	741
Balances at 1 January 2009 (restated)	6,350	10,525	(4,465)	3,919	1,335	21,514	39,178
Profit for the year	-	-	-	-	-	399	399
Exchange differences on translation of foreign operations	-	-	-	-	(180)	-	(180)
Losses on cash flow hedges	-	-	-	-	(349)	-	(349)
Tax on items taken directly to equity	-	-	-	-	98	401	499
Total comprehensive income for the period	-	-	-	-	(431)	800	369
Issue of share capital	1	-	-	-	-	-	1
Dividends	-	-	-	-	-	(1,545)	(1,545)
Charge to equity for equity-settled share-based payments	-	-	-	(779)	-	-	(779)
Balance at 31 December 2009	6,351	10,525	(4,465)	3,140	904	20,769	37,224
					Hedging &	Retained
	Share	Share	Own	Other	translation	Earnings
	capital	premium	shares	reserves	reserves		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2008 (as previously reported)	6,285	10,146	(4,465)	4,051	529	20,550	37,096
Prior period adjustment	-	-	-	-	406	-	406
Balances at 1 January 2008 (restated)	6,285	10,146	(4,465)	4,051	935	20,550	37,502
Profit for the year	-	-	-	-	-	3,431	3,431
Exchange differences on translation of foreign operations	-	-	-	-	75	-	75
Gains on cash flow hedges	-	-	-	-	452	-	452
Tax on items taken directly to equity	-	-	-	-	(127)	(319)	(446)
Total comprehensive income for the period	-	-	-	-	400	3,112	3,512
Issue of share capital	65	379	-	-	-	-	444
Dividends	-	-	-	-	-	(2,148)	(2,148)
Charge to equity for equity-settled share-based payments	-	-	-	(132)	-	-	(132)
Consolidated balance sheet at 31 December 2008	6,350	10,525	(4,465)	3,919	1,335	21,514	39,178
					Hedging &	Retained
	Share	Share	Own	Other	translation	Earnings
	capital	premium	shares	reserves	reserves		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2007 (as previously reported)	6,201	9,669	(3,420)	3,097	593	17,113	33,253
Prior period adjustment	-	-	-	-	304	(55)	249
Balances at 1 January 2007 (restated)	6,201	9,669	(3,420)	3,097	897	17,058	33,502
Profit for the year	-	-	-	-	-	5,401	5,401
Own shares acquired in the year	-	-	(1,045)	-	-	-	(1,045)
Exchange differences on translation of foreign operations	-	-	-	-	38	-	38
Tax on items taken directly to equity	-	-	-	-	-	(691)	(691)
Total comprehensive income for the period	-	-	(1,045)	-	38	4,710	3,703
Issue of share capital	84	477	-	-	-	-	561
Dividends	-	-	-	-	-	(1,218)	(1,218)
Charge to equity for equity-settled share-based payments	-	-	-	954	-	-	954
Balance at 31 December 2007	6,285	10,146	(4,465)	4,051	935	20,550	37,502

Consolidated balance sheets

As at 31 December 2009

	2009	2008	2007
	(unaudited) £'000	(restated) £'000	(restated) £'000
Non-current assets
Property, plant and equipment	14,513	12,667	11,849
Goodwill	720	720	720
Other intangible assets	5,108	6,650	7,294
Investments	1,261	1,900	2,020
Deferred tax asset	200	239	322
	21,802	22,176	22,205
Current assets
Inventories	5,766	7,269	4,137
Trade and other receivables	7,554	7,678	8,393
Cash and cash equivalents	11,521	11,601	13,036
Derivative financial instruments	47	704	261
	24,888	27,252	25,827
Total assets	46,690	49,428	48,032
Current liabilities
Trade and other payables	(5,435)	(6,031)	(6,728)
Other financial liabilities	(224)	(210)	(198)
Current tax liabilities	(417)	(428)	(705)
Obligations under finance leases	-	-	(245)
Provisions	(2,408)	(528)	(193)
Derivative financial instruments	-	(352)	-
	(8,484)	(7,549)	(8,069)
Net current assets	16,404	19,703	17,758
Non-current liabilities
Deferred tax liabilities	(765)	(2,260)	(1,810)
Other financial liabilities	(217)	(441)	(651)
Total non-current liabilities	(982)	(2,701)	(2,461)
Total liabilities	(9,466)	(10,250)	(10,530)
Net assets	37,224	39,178	37,502
Equity
Share capital	6,351	6,350	6,285
Share premium	10,525	10,525	10,146
Own shares	(4,465)	(4,465)	(4,465)
Other reserves	3,140	3,919	4,051
Hedging and translation reserves	904	1335	935
Retained earnings	20,769	21,514	20,550
Equity attributable to shareholders	37,224	39,178	37,502
Total equity	37,224	39,178	37,502

Consolidated cash flow statement

For the year ended 31 December 2009

	2009 (unaudited)	2008 (audited)
Note	£'000	£'000
Net cash from operating activities                                     6	6,979	4,228
Investing activities
Investment income	81	457
Purchases of property, plant and equipment	(5,172)	(3,307)
Proceeds on disposal of property, plant and equipment	-	75
Expenditure on capitalised product development	(185)	(854)
Net cash used in investing activities	(5,276)	(3,629)
Financing activities
Dividends paid	(1,545)	(2,148)
Proceeds from issue of ordinary share capital	-	444
Finance costs	-	(57)
Repayments of borrowings	(210)	(198)
Repayments of obligations under finance leases	-	(259)
Net cash used in financing activities	(1,755)	(2,218)
Net decrease in cash and cash equivalents	(52)	(1,619)
Effect of foreign exchange rate changes	(28)	184
Cash and cash equivalents at beginning of year	11,601	13,036
Cash and cash equivalents at end of year	11,521	11,601

Notes to the consolidated financial information

for the year ended 31 December 2009

1.       Basis of preparation

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2009. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s237(2) or (3) Companies Act 1985. The audit of the statutory accounts for the year ended 31 December 2009 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs"), this announcement does not itself contain sufficient information to comply with International Financial Reporting Standards.  The company expects to publish full financial statements that comply with IFRSs in March 2010.

2.      Restatement of prior periods

The financial statements include a restatement of the prior year balance sheet in relation to the accounting treatment of tax in the Group for prior periods.  The adjustment predominantly relates to the accounting for untaxed reserves in the Swedish subsidiary and has no impact on the Income Statement or Cash Flow Statement.   The Consolidated Statement of Comprehensive Income is presented for the first time in 2009.  Outlined below are the corrections made for each financial statement line item affected.

	31 December	31 December	31 December
	2008	2008	2008
	as reported	adjustment	restated
	(audited)	(unaudited)	(unaudited)
	£'000	£'000	£'000
Current assets
Trade and other receivables	7,796	(118)	7,678
Total current assets	27,370	(118)	27,252
Current liabilities
Trade and other payables	(5,997)	(34)	(6,031)
Current tax liabilities	(1,321)	893	(428)
Total current liabilities	(8,408)	859	(7,549)
Net assets	38,437	741	39,178
Equity
Hedging and translation reserves	594	741	1335
Retained earnings	21,514	-	21,514
Equity attributable to shareholders	38,437	741	39,178
Total equity	38,437	741	39,178

2.      Restatement of prior periods (continued)

	31 December	31 December	31 December
	2007	2007	2007
	as reported	adjustment	restated
	(audited)	(unaudited)	(unaudited)
	£'000	£'000	£'000
Current assets
Trade and other receivables	8,511	(118)	8,393
Total current assets	25,945	(118)	25,827
Current liabilities
Trade and other payables	(6,711)	(17)	(6,728)
Current tax liabilities	(1,246)	541	(705)
Total current liabilities	(8,593)	524	(8,069)
Net assets	37,096	406	37,502
Equity
Hedging and translation reserves	529	406	935
Retained earnings	20,550	0	20,550
Equity attributable to shareholders	37,096	406	37,502
Total equity	37,096	406	37,502

	1 January	1 January	1 January
	2007	2007	2007
	as reported	adjustment	restated
	(audited)	(unaudited)	(unaudited)
	£'000	£'000	£'000
Current assets
Trade and other receivables	6,135	(113)	6,022
Total current assets	22,263	(113)	22,150
Current liabilities
Trade and other payables	(7,928)	(15)	(7,943)
Current tax liabilities	(507)	377	(130)
Total current liabilities	(9,297)	362	(8,935)
Net assets	33,253	249	33,502
Equity
Hedging and translation reserves	593	304	897
Retained earnings	17,113	(55)	17,058
Equity attributable to shareholders	33,253	249	33,502
Total equity	33,253	249	33,502

3.       Business and geographical segments

Products and services from which reportable segments derive their revenues

Business segments

In the current financial year, the group has adopted International Financial Reporting Standard 8 "Operating Segments" as required.  Adoption of IFRS 8 has resulted in no changes in the group's reportable segments.  For management reporting purposes, the group's operations are currently analysed according to product type.  These product groups comprise the group's operating segments for the purposes of reporting to the group's Chief Executive Officer and Board of Directors.

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 and the nature of these product groups is discussed in more detail in the review of operations.

3.       Business and geographical segments (continued)

Year ended 31 December 2009	Printheads and related products	Develop- ment fees	Licence fees and royalties	Unallo- cated	Consol- idated
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	£'000	£'000	£'000	£'000	£'000
Revenue
Total segment revenue	36,655	745	4,673	-	42,073
Result
Restructuring costs	-	-	-	(2,686)	(2,686)
Impairment of trade investments	-	-	-	(639)	(639)
Foreign exchange gain/(loss) on Swedish kroner denominated intercompany loans	-	-	-	(157)	(157)
Gain/(loss) on derivative financial instruments	-	-	-	(46)	(46)
Share-based payments	-	-	-	779	779
Operating loss/segment result	(1,559)	34	4,007	(2,749)	(267)
Underlying operating (loss)/profit*	(1,559)	34	4,007	81	2,563
Investment income	-	-	-	117	117
Finance costs	-	-	-	(36)	(36)
(Loss)/profit before tax	(1,559)	34	4,007	(2,668)	(186)

Investment income and finance costs are not allocated to reportable segments for the purposes of reporting to the Group's Chief Executive Officer and Board of Directors.

Year ended 31 December 2008	Printheads and related products	Develop- ment fees	Licence fees and royalties	Unallo- cated	Consol- idated
	(audited)	(audited)	(audited)	(audited)	(audited)
	£'000	£'000	£'000	£'000	£'000
Revenue
Total segment revenue	37,511	605	3,901	-	42,017
Result
Restructuring costs	-	-	-	(553)	(553)
Impairment of trade investments	-	-	-	(120)	(120)
Foreign exchange gain/(loss) on Swedish kronor denominated intercompany loans	-	-	-	1,829	1,829
Gain/(loss) on derivative financial instruments	-	-	-	260	260
Share-based payments	-	-	-	132	132
Operating loss/segment result	(903)	(75)	3,389	1,548	3,959
Underlying operating (loss)/profit*	(903)	(75)	3,389	393	2,804
Investment income	-	-	-	450	450
Finance costs	-	-	-	(57)	(57)
(Loss)/profit before tax	(903)	(75)	3,389	1,941	4,352

3.             Business and geographical segments (continued)

Segment assets
	2009 (unaudited)
	£'000
Printheads and related products	33,170
Development fees	1
Licence fees and royalties	543
Total segment assets	33,714
Investments	1,261
Cash and cash equivalents	11,521
Total assets	46,496
Assets are allocated to the segment which has responsibility for their control.
	2008 (unaudited)
	£'000
Printheads and related products	35,166
Development fees	457
Licence fees and royalties	422
Total segment assets	36,045
Investments	1,900
Cash and cash equivalents	11,601
Total assets	49,546

No information is provided for segment liabilities as this measure is not provided to the chief operating decision maker.

Other segment information

Year ended 31 December 2009	Printheads and related products	Develop- ment fees	Licence fees and royalties	Unallo- cated	Consol- idated
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	£'000	£'000	£'000	£'000	£'000
Depreciation and amortisation of intangible assets	3,035	1,727	-	-	4,762
Share option expense	-	-	-	(779)	(779)
Capital expenditure	6,382	-	-	-	6,382
Asset impairment	-	-	-	(639)	(639)
Year ended 31 December 2008	Printheads and related products	Develop- ment fees	Licence fees and royalties	Unallo- cated	Consol- idated
	(audited)	(audited)	(audited)	(audited)	(audited)
	£'000	£'000	£'000	£'000	£'000
Depreciation and amortisation of intangible assets	3,844	460	57	0	4,361
Share option expense	-	-	-	(132)	(132)
Capital expenditure	4,234	-	-	-	4,234
Asset impairment	-	-	-	(120)	(120)

Revenues from major products and services
	2009	2008
	(unaudited)	(audited)
	£'000	£'000
Sales of goods	36,655	37,511
Development fees	745	605
Licence fees and royalties	4,673	3,901
Consolidated revenue (excluding investment income)	42,073	42,017

3.         Business and geographical segments (continued)

Geographical information

The group operates in 3 principal geographical areas - Europe and the Middle East, the Americas and Asia.  The Group's revenue form external customers and information about its segments (non-current assets excluding deferred tax assets and other financial assets) by geographical location is detailed below:

Revenue from external customers
	2009 (unaudited)		2008 (audited)
	£'000		£'000
Europe and the Middle East	12,800		14,819
Asia
- India	4,121		4661
- Japan	4,858		4116
- China	12,100		10431
- Korea	1,346		1053
The Americas (including USA)	6,848		6937
	42,073		42,017
Revenues are attributed to geographical areas on the basis of the customer's manufacturing location.
	Non-current assets
	2009 (unaudited)		2008 (audited)
	£'000		£'000
Europe and the Middle East	21,542		22,092
Asia	45		56
The Americas (including USA)	20		28
	21,607		22,176

Non-current assets being property, plant and equipment, goodwill, other intangible assets, investments and the deferred tax asset, are attributed to the location where they are situated.

Information about major customers

Included in revenues arising from sales of goods are revenues of approximately £11.3m (27% of revenues) (2008: £7.0m, 17% of revenues) which arose from sales to the Group's largest customer.  In the year ended 31 December 2009 revenues of approximately £3.4m (8% of revenues) were included in both the sale of goods and licence fees and royalties which arose from sales to the Group's second largest customer.  In 2008, only the largest customer of the group exceeded 10% of revenue in the period.  Revenue from the top 5 customers represents 44% of revenues (2008: 33%).

4.       Restructuring costs and impairment of trade investments

On 1 April 2009 the Group announced the rationalisation of its manufacturing facilities which will involve the eventual closure of its plant in Stockholm, Sweden and the relocation of that manufacturing capability to the Group's manufacturing facility in Huntingdon, England. This process is expected to take up to two years to complete and is expected to result in a substantial reduction in the Group's cost base.  A provision for costs associated with this closure program has been made, and has been separately reported on the face of the income statement due to the size and nature of the amounts to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods. 

The charge for the impairment of a trade investment represents £0.6m in relation to a US based printing technology integration company that ceased trading in August 2009.  The full value of this investment has therefore been recognised as an impairment loss in the income statement in the year, within administrative expenses.

5.       Earnings per ordinary share - basic and diluted

The calculation of basic and diluted earnings per share is based on the following data:

	2009 (unaudited)	2008 (audited)
	£'000	£'000
Earnings
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	399	3,431
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	61,797,389	61,458,643
Effect of dilutive potential ordinary shares:
Share options	130,116	526,969
Weighted average number of ordinary shares for the purposes of diluted earnings per share	61,927,505	61,985,612

Share options granted over 2,610,156 shares (2008: 2,181,953) have not been included in the diluted earnings per share calculation because they are anti-dilutive at the period end.

The performance conditions for LTIP awards granted over 2,058,381shares (2008: 857,491) and share options granted over 668,859 shares (2008: 292,000) have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.

Adjusted earnings per share

The calculation of adjusted EPS excluding restructuring costs, impairment of trade investments and share-based payments is based on earnings of:

		2008
	2009	restated
	(unaudited)	(unaudited)
	£'000	£'000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	399	3,431
Restructuring costs	2,686	553
Impairment of trade investments	639	120
Foreign exchange gain/(loss) on Swedish kroner denominated intercompany loans	157	(1,829)
Gain/(loss) on derivative financial instruments	46	(260)
Share-based payments	(779)	(132)
Tax effect of adjusting items	(770)	433
Profit after tax excluding restructuring costs, impairment of trade investments and share-based payments	2,378	2,316

The denominators used are the same as those detailed above for both basic and diluted earnings per share.

Earnings per share excluding restructuring costs, impairment of trade investments and share-based payments:

	2009	2008
	(unaudited)	(restated) (unaudited)
	£'000	£'000
Basic	3.8p	3.8p
Diluted	3.8p	3.7p

5.       Earnings per ordinary share - basic and diluted (continued)

This adjusted earnings per share information is considered to provide a fairer representation of the group's trading performance year on year.

6.       Note to the cash flow statement

	2009 (unaudited)	2008 (audited)
	£'000	£'000
Profit before tax	(186)	4,352
Adjustments for:
Share-based payments	(779)	(132)
Depreciation of property, plant and equipment	3,035	3,010
Amortisation of intangible assets	1,727	1,351
Impairment loss on trade investments	639	120
Investment income	-	(450)
Finance costs	-	57
Movements on cash flow hedge valuations	(47)	-
Loss on disposal of property, plant and equipment	18	-
Increase in provisions	1,880	335
Operating cash flows before movements in working capital	6,287	8,643
Increase in inventories	1,389	(2,769)
(Increase)/decrease in receivables	236	609
Decrease in payables	(516)	(1,206)
Cash generated by operations	7,396	5,277
Income taxes paid	(417)	(1,049)
Net cash from operating activities	6,979	4,228

Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.

7.       Going concern

The group has considerable financial resources and through a diverse customer base is exposed not only to the western economies but also China, India and Latin America. As a consequence, the directors believe that the group is well placed to manage its business risks successfully despite the continuing uncertain economic outlook.

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

END

 

 

FR UBUARRNAOARR