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Xaar PLC (XAR)

  Print      Mail a friend       Annual reports

Wednesday 12 September, 2007

Xaar PLC

Interim Results

Xaar PLC
12 September 2007


FOR IMMEDIATE RELEASE                                       12 September 2007

                                    Xaar plc

                INTERIM RESULTS FOR THE 6 MONTHS TO 30 JUNE 2007

Xaar plc ('Xaar'), the inkjet printing technology group headquartered in
Cambridge, has announced its unaudited results for the six months ended 30 June
2007.

KEY POINTS:

• The business has returned to revenue growth after the set-back in
  H2,2006 with progress in Asia and the Americas and complete recovery in the
  important Chinese market.

• Results for the period reflect the costs of the new Huntingdon
  production facility which is now fully operational following commencement of
  production in January 2007.

• The financial results were:

  o  Turnover was up 5% to £23.4m (2006: £22.3m);

  o  Gross margins were 53% for the period (2006: 58%), reflecting the
     dilutive effect of new product manufacturing - and likely to remain broadly
     at this level for the full year;

  o  Costs associated with Huntingdon were £1.2m in the period (2006: nil);

  o  Profit before tax was £3.1m (2006: £4.8m);

  o  Earnings per share were 3.6p (2006: 5.5p);

  o  Net cash and cash equivalents at 30 June 2007 were £10.0m (31 December 2006
     : £16.3m) after making the final stage payments on equipment for the new 
     Huntingdon facility.

• 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, (2006: 2.0p).

• Strong interest in new products, particularly in the Platform 3 Xaar 1001.

• Business development is being focused on sales into the packaging and
  label markets.


On outlook, Chairman, Phil Lawler stated:

'Currently less than 10% of commercial printing worldwide is understood to be
produced using inkjet technology, with the bulk of commercial print produced
using traditional printing methods. From my own experience, it is clear inkjet
markets offer significant long term growth prospects. At Xaar, we have world
leading technology and a growing reputation for performance. Our challenge is to
help accelerate the development of new printing machines that utilise our
technology, and which encompass our highly functional print heads. As inkjet
technologies mature, and gain wider acceptance, we believe Xaar is well
positioned to capitalise on the opportunities this is now bringing.'



Contacts

Xaar plc:                                                today: 020-7367-8888
Ian Dinwoodie, Chief Executive                       Thereafter: 01223-423663
Nigel Berry, Group Finance Director & Deputy                     www.xaar.com
Chief Executive

Bankside Consultants:
Steve Liebmann                                   020-7367-8883 / 07802-888159


Chairman's statement

Introduction

In what is my first statement as Chairman of Xaar plc, I am pleased to report on
the continued progress for the group. Sales of established products have
recovered well from the second half of last year and the potential for our newer
technologies is undiminished. Last year we invested significantly in the new
production facility in Huntingdon; production began as planned in January, and
this facility is now fully operational.

The results for the first half reflect the additional costs of this investment
in our future. It is our strong belief that we have developed the right products
to benefit from what will become a rapid escalation in the rate of adoption of
inkjet technology by more traditional areas of the commercial print market,
although exact timing remains difficult to predict.

Results

Group revenues for the six months ending 30 June 2007 were in line with the
board's expectations at £23.4m (2006: £22.3m), an increase of 5% over the same
period last year and 18% ahead of the half year to 31 December 2006. The
majority of the revenue was product sales of £22.4m (2006: £21.1m), with royalty
income of £0.8m (2006: £0.7m) and development fees of £0.2m (2006: £0.5m).

Royalty growth continued, albeit at a modest rate, confirming the relevance of
Xaar's technology in the market. As expected, development fees more than halved
as Agfa, with which we have a technology agreement, has moved into the
commercialisation stage of its inkjet programme, with a consequent reduction in
its ongoing research and associated development payments to Xaar.

Profitability was also in line with expectations. The overall group gross margin
for the period was 53%, reflecting the dilutive effects of the early stages of
new product manufacturing in Sweden and the initiation of production at the new
Huntingdon facility. As the production of new products ramps up, gross margins
are expected to remain broadly at this level during the second half year.

Overall, operating expenses increased by £0.9m, including increased amortisation
of capitalised research and development costs and increased staff incentive
payments.

Profit before tax was £3.1m (2006: £4.8m) after providing £0.4m (2006: £0.3m)
for share-based payments; earnings per share were 3.6p (2006: 5.5p).

Cash at the half year was £10.0m (2006: £16.3m) reflecting the final stage
payments on equipment in the new Huntingdon facility as well as the increased
final dividend payment for 2006 of £1.2m. The group's only debt at the half year
was the outstanding balance on certain equipment leases of £1.4m (2006: £1.0m).

Business commentary

Shareholders will recall the difficulties in China during the second half of
last year; I am pleased to confirm that sales have more than fully recovered.
Revenue growth for Asia overall was 17%, driven by strong growth in both China
and India.

Sales to the Americas, whilst representing only 11% of the total group sales,
grew by 45% in the period amid encouraging signs from our South American sales
operation.

The pleasing growth shown in Asia and the Americas was not matched in Europe,
which showed a 20% decline over the period although revenues were up 4% compared
to the second half of last year. We do not believe the first half shortfall
reflects any fundamental trend, but is rather due to the individual performances
of certain customers in the period.

Shareholders will be aware that our geographical split reflects the location of
the printing machine manufacturer, and not the end users of those machines;
consequently fluctuations in sales to particular territories do not always
relate directly to the end user market in those areas.

Markets and technology

Inkjet is firmly established as the 'technology of choice' for the large and
grand-format commercial print sector. This provides a solid market for our
Platform 1 products, which continue to grow even though our best-selling XJ128
printhead was first introduced in its original form over ten years ago. Xaar's
newer Platform 2 and Platform 3 products represent incremental markets. There
are an increasing number of these products under test with global printing
equipment manufacturers and ink companies, and we expect some of these
developments to move to commercial production later this year, with others
making that transition in 2008. As we have previously highlighted, the timing of
such printing machinery product launches is not in the company's control and
therefore is difficult to predict. However, once the newer products are in
production we can look forward to sustained long-term revenue from them, as with
our earlier Platform 1 products.

In June 2007, during the international FESPA exhibition in Berlin, we gave the
first public demonstration of four colour, single pass, continuous web-based
printing using our latest Xaar 1001 product. This demonstration created a
significant amount of positive interest and, together with a number of other
sales and marketing initiatives, is creating a healthy spread of evaluation kits
installed across commercial printing markets. This adds further to the pipeline
of potential future sales.

The markets for non-print related uses of inkjet continue to look positive in
the longer term, but more immediate opportunities for our technology, and the
Xaar 1001 product in particular, exist in packaging markets. Accordingly, we
intend now to focus much of our business development activities on the packaging
and label markets.

Board changes

Steve Temple, 60, one of the founders of Xaar and mainstay for innovation and
patent registrations for so many years, has decided to step down from the board
and from his role as Technical Director. We thank Steve for his immense
contribution to Xaar, and to the establishment of the very successful Cambridge
'inkjet cluster'. Following a handover period, Steve will remain a consultant to
the company.

We are pleased to have appointed Ramon Borrell as Research and Development
Director with effect from September of this year. Over the last 13 years, Ramon
has held various senior positions within the research and development team at
Hewlett-Packard's large format printing division, based in Spain, and as a
result joins us with a good understanding of inkjet and its markets.

Dividend

In line with recent years, it is not our intention to pay an interim dividend
but, subject to second half performance, it is our intention to pay a dividend
for the full year.

Outlook

Currently less than 10% of commercial printing worldwide is understood to be
produced using inkjet technology, with the bulk of commercial print produced
using traditional printing methods. From my own experience, it is clear inkjet
markets offer significant long term growth prospects. At Xaar, we have world
leading technology and a growing reputation for performance. Our challenge is to
help accelerate the development of new printing machines that utilise our
technology, and which encompass our highly functional print heads. As inkjet
technologies mature, and gain wider acceptance, we believe Xaar is well
positioned to capitalise on the opportunities this is now bringing.


Phil Lawler
Chairman
11 September 2007


Consolidated income statement
for the six months ended 30 June 2007

                                          Six months  Six months Twelve months
                                               ended       ended         ended
                                             30 June     30 June   31 December
                                                2007        2006          2006
                                         (unaudited) (unaudited)     (audited)

                                Notes          £'000       £'000         £'000
Revenue                           1           23,441      22,296        42,207
Cost of sales                               (11,092)     (9,274)      (18,096)
Gross profit                                  12,349      13,022        24,111
Distribution costs                           (1,962)     (2,032)       (4,108)
Administrative expenses                      (7,396)     (6,410)      (13,426)
Operating profit                               2,991       4,580         6,577
Investment income                                193         233           451
Finance costs                                   (62)        (39)         (116)
Profit before tax before
abortive deal costs and
share-based payments                           3,553       5,082         7,921
Abortive deal costs                                -           -         (298)
Share-based payments                           (431)       (308)         (711)
Profit before tax                              3,122       4,774         6,912
Tax                                            (874)     (1,432)       (2,068)
Profit for the period
attributable to
shareholders                                   2,248       3,342         4,844
Earnings per share
Basic                             2             3.6p        5.5p          7.9p
Diluted                           2             3.5p        5.2p          7.6p


Dividends paid in the period amounted to £1,218,000 (six months to 30 June 2006:
£921,000; twelve months to 31 December 2006: £903,000).



Consolidated statement of recognised income and expense
for the six months ended 30 June 2007
                                         Six months  Six months  Twelve months
                                              ended       ended          ended
                                            30 June     30 June    31 December
                                               2007        2006           2006
                                        (unaudited) (unaudited)      (audited)
                                              £'000       £'000          £'000
Exchange differences on translation              55        (37)          (113)
of foreign operations
(Losses)/gains on cash flow hedges             (18)       1,487          1,197
taken in equity
Tax on items taken directly to equity           222     (1,198)          (415)
Net income recognised directly in               259         252            669
equity
Profit for the period                         2,248       3,342          4,844
Total recognised income and expense           2,507       3,594          5,513
for the period



Consolidated balance sheet
as at 30 June 2007
                                               As at       As at         As at
                                             30 June     30 June   31 December
                                                2007        2006          2006
                                         (unaudited) (unaudited)     (audited)
                                               £'000       £'000         £'000
Non-current assets
Property, plant and equipment                 11,886       8,633        11,990
Goodwill                                         720         720           720
Other intangible assets                        7,097       4,770         7,030
Investments                                    2,020       1,768         1,931
Deferred tax asset                               916         607         1,383
                                              22,639      16,498        23,054
Current assets
Inventories                                    4,098       3,358         3,690
Trade and other receivables                    7,041       7,444         6,135
Current tax assets                               834         188           757
Cash and cash equivalents                     10,033      16,264        12,438
Derivative financial instruments                  36         290             -
                                              22,042      27,544        23,020
Total assets                                  44,681      44,042        46,074
Current liabilities
Trade and other payables                     (7,181)     (8,986)       (7,928)
Other financial liabilities                    (191)           -         (185)
Current tax liabilities                        (308)     (3,163)       (1,264)
Obligations under finance leases               (453)       (490)         (468)
Provisions                                     (164)       (188)         (209)
Derivative financial instruments                (18)           -             -
                                             (8,315)    (12,827)      (10,054)
Net current assets                            13,727      14,717        12,966
Non-current liabilities
Deferred tax liabilities                     (1,635)           -       (1,635)
Other financial liabilities                    (752)           -         (865)
Obligations under finance leases                (42)       (512)         (267)
                                             (2,429)       (512)       (2,767)
Total liabilities                           (10,744)    (13,339)      (12,821)
Net assets                                    33,937      30,703        33,253
Equity
Share capital                                  6,275       6,147         6,201
Share premium                                 10,048       9,512         9,669
Own shares                                   (4,465)     (3,420)       (3,420)
Other reserves                                 3,528       2,695         3,097
Hedging and translation reserves                 635         872           593
Retained earnings                             17,916      14,897        17,113
Equity attributable to shareholders           33,937      30,703        33,253
Total equity                                  33,937      30,703        33,253



Consolidated cash flow statement
for the six months ended 30 June 2007

                                         Six months   Six months Twelve months
                                              ended        ended         ended
                                            30 June      30 June   31 December
                                               2007         2006          2006
                                        (unaudited)  (unaudited)     (audited)
                                              £'000        £'000         £'000
Net cash from operating activities            2,905        6,791         8,692
Investing activities
Interest received                               193          233           450
Purchases of property, plant and            (2,177)      (2,626)       (7,274)
equipment
Proceeds on disposal of property,
plant and equipment                              -            5             5
Purchases of trading investments               (89)        (141)         (427)
Payments to acquire intangible assets       (1,084)      (1,412)       (3,420)
Net cash used in investing activities       (3,157)      (3,941)      (10,666)
Financing activities
Dividends paid                              (1,218)        (921)         (903)
Proceeds from issue of ordinary share           449          162           384
capital
New borrowings                                    -            -         1,050
Repayments of borrowings                      (107)            -             -
Repayments of obligations under               (224)        (261)         (520)
finance leases
Purchase of own shares                      (1,045)            -             -
Net cash (outflow)/inflow from              (2,145)      (1,020)            11
financing activities
Net (decrease)/increase in cash and
cash equivalents                            (2,397)        1,830       (1,963)
Effect of foreign exchange rate                 (8)           39             6
changes
Cash and cash equivalents at                 12,438       14,395        14,395
beginning of period
Cash and cash equivalents at end of          10,033       16,264        12,438
period



Notes to the interim financial information
for the six months ended 30 June 2007


1. Business and geographical segments


Business segments

For management reporting purposes, the group's operations are currently analysed
according to product type. These product groups are the basis on which the group
reports its primary segment information.

Segment information about these product types is presented below:

                                          Six months  Six months Twelve months
                                               ended       ended         ended
                                             30 June     30 June   31 December
                                                2007        2006          2006
                                         (unaudited) (unaudited)     (audited)
                                               £'000       £'000         £'000
Revenue
Printheads and related products               22,353      21,112        39,918
Development fees                                 244         497           748
Licence fees and royalties                       844         687         1,541
Total revenue                                 23,441      22,296        42,207


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 revenue by geographical
market, which is considered to be the group's secondary segment:

                                          Six months  Six months Twelve months
                                               ended       ended         ended
                                             30 June     30 June   31 December
                                                2007        2006          2006
                                         (unaudited) (unaudited)     (audited)
                                               £'000       £'000         £'000
Asia                                          13,940      11,955        23,937
Europe and Middle East                         6,800       8,479        14,997
Americas                                       2,701       1,862         3,273
Total revenue                                 23,441      22,296        42,207


2. Earnings per ordinary share - basic and diluted

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

                                            Six months  Six months Twelve months
                                                 ended       ended         ended
                                               30 June     30 June   31 December
                                                  2007        2006          2006
                                           (unaudited) (unaudited)     (audited)
                                                 £'000       £'000         £'000
Earnings
Earnings for the purposes of basic earnings
per share being net profit attributable to
equity holders of the parent                     2,248       3,342         4,844
Number of shares
Weighted average number of ordinary shares for
the purposes of basic earnings per share    62,246,666  61,323,233    61,447,492
Effect of dilutive potential ordinary shares:
Share options                                1,729,183   2,405,029     2,221,595
Weighted average number of ordinary shares
for the purposes of diluted earnings
per share                                   63,975,849  63,728,262    63,669,087


2. Earnings per ordinary share - basic and diluted continued

Adjusted earnings per share

The calculation of earnings per share excluding abortive deal costs and
share-based payments is based on earnings of:

                                         Six months   Six months  Twelve months
                                              ended        ended          ended
                                            30 June      30 June    31 December
                                               2007         2006           2006
                                        (unaudited)  (unaudited)      (audited)
                                              £'000        £'000          £'000
Earnings for the purposes of basic
earnings per share being net profit
attributable to equity holders of the
parent                                        2,248        3,342          4,844
Abortive deal costs                               -            -            298
Share-based payments                            431          308            711
Tax effect of adjusting items                 (129)         (92)          (303)
Profit after tax excluding abortive
deal costs and share-based payments           2,550        3,558          5,550


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


Earnings per share excluding abortive deal costs and share-based payments:

                                         Six months  Six months Twelve months
                                              ended       ended         ended
                                            30 June     30 June   31 December
                                               2007        2006          2006
                                        (unaudited) (unaudited)     (audited)
                                              £'000       £'000         £'000
Basic                                          4.1p        5.8p          9.0p
Diluted                                        4.0p        5.6p          8.7p


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


3. Financial information

These interim financial statements do not constitute statutory financial
statements within the meaning of section 240 of the Companies Act 1985. The
results for the year ended 31 December 2006 have been extracted from the
statutory financial statements, which have been filed with the Registrar of
Companies. The auditor's report on those accounts was unqualified and did not
contain a statement made under section 237 (2) or section 237 (3) of the
Companies Act 1985.

The unaudited interim financial statements for the six months ended 30 June 2007
have been prepared on the basis of the accounting policies set out in the most
recently published financial statements of the group for the year ended 31
December 2006.



4. Date of approval of interim financial statements

The interim financial statements cover the period 1 January 2007 to 30 June 2007
and were approved by the board on 11 September 2007.

The interim financial statements will be sent to shareholders in due course.
Further copies will be available from the company's registered office, Science
Park, Cambridge CB4 0XR and can be accessed on the Xaar plc website,
www.xaar.com.





                      This information is provided by RNS
            The company news service from the London Stock Exchange
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