Final Results - Year Ended 31 December 1999
Xaar PLC
16 February 2000
Xaar plc
RESULTS FOR 1999 : RECORD TURNOVER
Xaar plc ('Xaar'), the ink jet printing technology group
headquartered in Cambridge, has announced its preliminary audited
results for the year ended 31 December 1999.
Key points :
* Excellent progress was made in 1999 by Xaar on technology,
commercial partnerships and trading.
* Record turnover of £15.1m (1998: £1.5m); pre-tax profits of
£0.5m, a turn round from a 1998 loss of £4.6m.
* Licence and development fees increased to £5.9m (1998: £0.1m)
with significant development income from Agfa Gevaert and
Kyocera, Xaar's key development partners for the A4 page wide
printhead. Licence income arose from licence upgrades by
existing licensees, and an ink licence with Toyo Ink.
* Turnover from the manufacture of printheads increased to £8.5m
(1998: £0.4m) reflecting both an initial contribution and good
trading performance from XaarJet AB in Sweden (acquired in
March 1999; formerly called MIT) as well as an uplift in
manufacturing volume in the UK.
* Progress continues with the page wide printhead with Agfa
making a stage milestone' payment after a successful
demonstration of the technology in October 1999. Kyocera is
collaborating on manufacture and DuPont is developing new inks
for this project.
* Balance sheet remains strong with cash of £4.2m after providing
for capital investment and acquisitions. Net assets were
£12.8m.
* On outlook, Chairman, Arie Rosenfeld stated :
'The market for digital printing solutions continued to grow
enormously in 1999, and ink jet is widely viewed as the
technology most likely to succeed across a broad range of
digital printing applications in the future. We have taken a
significant step in 1999 towards our long-term goal of making
Xaar the technology provider of choice for companies involved
in all aspects of printing.'
Graham Wylie, Chief Executive or Jonathan Lowe,
Finance Director at Xaar on : 020 7-466-5000 today
01223-423663 thereafter
Steve Liebmann or Lisa Baderoon at Buchanan
Communications on : 020 7-466-5000
CHAIRMAN'S SSTATEMENT
Introduction
I am delighted to report that 1999 was a year of excellent progress
for Xaar. We secured a number of key commercial partnerships,
achieved some important technical milestones and made a
significant acquisition in Sweden. The combined effect of these
was the delivery of strong revenue growth for the year, a clear
sign of the increasing market acceptance of Xaar's technology.
It is also pleasing to be able to report a profit for the year.
Results and Finance
Turnover for the period was a record £15.1m (1998: £1.5m) which
resulted in a profit before tax of £542,000 (1998: loss £4.6m).
The revenue profile was well balanced in 1999 between technology
revenues (licensing, royalties and development fees) and trading
revenues (printhead and ink sales); this is an important trend
that now makes us less reliant than before on the unpredictable
nature of licence fees. Capital expenditure of £1.4m was lower
than in the previous year (£2.6m) when we had incurred the costs
of moving to new facilities in Cambridge. The cost of acquiring
MIT was £2m (net of the investment of £1.2m from Olympus of
Japan). At year-end Xaar had a strong balance sheet with net
assets of £12.8m and cash of £4.2m.
Business Strategy
We approach each of the principal markets open to Xaar in a
distinct way in order to exploit most effectively the enormous
opportunities that they present - technology licensing for the
home and office printing markets; direct supply of printheads and
inks through XaarJet for industrial printing markets; and
development and distribution alliances with leading corporations
for the next generation of Xaar's technology in commercial
digital printing markets.
There is much satisfaction to be gained from progress in each of
these three areas in the last year; we have seen renewed interest
in technology licensing with a new ink licensee and significant
licence upgrades in 1999; our combined XaarJet business has shown
considerable revenue growth; and our important next-generation
development programme (page wide printheads) has seen the
successful achievement of a number of early technical and
commercial milestones. In his Chief Executive's review Graham
Wylie reports further on the substantial progress made in each of
these three areas in 1999.
Acquisition
Our acquisition in March 1999 of Stockholm-based MIT (now renamed
XaarJet AB) has proved a great success, far exceeding our initial
expectations. It achieved turnover of £7.1m and an operating
profit of £853,000 in the 9 month period to December 1999. We
were delighted to welcome Jan Fineman, the Managing Director of
XaarJet AB, to the Xaar plc board in August 1999 as Operations
Director, assuming responsibility for XaarJet operations in
Cambridge as well as in Sweden.
Outlook
The market for digital printing solutions continued to grow
enormously in 1999, and ink jet is widely viewed as the
technology most likely to succeed across a broad range of digital
printing applications in the future. We have taken a significant
step in 1999 towards our long-term goal of making Xaar the
technology provider of choice for companies involved in all
aspects of printing.
Our goal for 2000 and beyond is to sustain the momentum that has
been created in 1999. We believe that, with Xaar's combination
of a sound strategy, world-class business partners, excellent
facilities and a committed and enthusiastic staff, we are well
placed to succeed.
Arie Rosenfeld
Chairman
15 February 2000
CHIEF EXECUTIVE'S REVIEW
1999 was a year of substantial growth for the Xaar group of
companies and we are confident that we can capitalise on the
progress made in 1999 and deliver the results in future years
that will substantiate our belief in the exciting prospects for
the company.
2000 has started well and there is clear evidence of the growing
interest in Xaar's ink jet technology, further confirming our
position as one of the fastest growing ink jet companies.
Xaar Business Strategy
The acquisition in March 1999 of MIT (now renamed XaarJet AB) has
enhanced progress towards meeting the central strategy for the
company's ink jet system to be a core technology in the office,
commercial and industrial printing markets. We will continue
with the development of the technology which, with the
demonstration of an A4 page wide prototype printhead, made
significant advances in 1999. We believe that many more
applications for the Xaar system will emerge as the development
of our products, both manufactured and licensed, continues. The
Xaar technology is now proving to be the most flexible ink jet
technology although there is still much development to be done to
take full advantage of the opportunities that will arise.
We continue to operate the group through three divisions, Xaar
Technology, XaarJet and Xaar Digital.
Xaar Technology
Xaar Technology focuses on licensing Xaar technology to major
corporations involved in the manufacture of office equipment.
The majority of potential licensees are based in Japan and Xaar
suffered, along with many other companies, from the downturn in
the Japanese economy in 1998. In the last few months of 1999, we
have seen a strong uplift in the interest being shown by Japanese
companies in investing in future ink jet products using the Xaar
technology.
We have learned over the years that licensees take longer to
launch products containing newly licensed technology than we
would ideally like. The office and home ink jet printer market
is very competitive and still dominated by Canon, Hewlett Packard
and Epson. To gain significant market share, new printers must
be capable of faster, higher quality colour printing while being
competitively priced with those already available. Xaar's
technology offers licensees this opportunity, but product
development takes time. In 1999, some new products were released
by licensees and royalties have continued to grow on a like for
like basis. However, we understand that there are several new
products in the pipeline that will have an impact on the market
and we hope to see these launched in 2000, although the release
plans for these products are within the sole control of our
licensees.
In 1999 we signed a new ink manufacturing licence with Toyo Ink
Manufacturing Company of Japan and we are now in the process of
qualifying the first inks to be produced under the licence by
Toyo. Dainippon Screen of Japan, an existing licensee, committed
to proceed to full manufacture of printheads which triggered an
additional licence stage payment and another Japanese licensee
agreed a significant upgrade to their licence rights.
A combination of these factors led to a substantial increase in
income for the year for Xaar Technology.
We will continue to seek new licensees for the technology and
this process has been given a significant boost by the
appointment on 1st December 1999 of Dr Tokuya Ohta as Director of
Xaar Japan. Dr Ohta was previously Advisory Director and Deputy
Chief Executive of BubbleJet Operations at Canon and was
responsible for the development of Canon's BubbleJet ink jet
printing system which has been one of the market leaders for
several years. Dr Ohta is working full time for Xaar, based in
Tokyo and through his many contacts and acknowledged expertise in
ink jet we believe that the number of opportunities for Xaar to
close new licence deals will increase.
XaarJet
XaarJet is the division through which Xaar's own manufactured ink
jet printing systems are marketed.
In the Cambridge headquarters we currently manufacture the
XaarJet 500 range of printheads targeted specifically at
industrial printing applications. Although in 1999 we did not
achieve the planned manufacturing yields or throughput, we did
ship more printheads than ever before and we have seen an
increase in the number of applications which are only possible
with the Xaar ink jet system. We now have customers using
XaarJet to print digitally onto products as diverse as ceramic
tiles, cardboard cartons and extruded plastics.
In August 1999, we appointed Jan Fineman, Managing Director of
XaarJet AB, to the position of Operations Director, with the
particular target of improving the manufacturing operation at
Cambridge. We are now beginning to see the real benefits of this
appointment and anticipate that 2000 will see an improvement in
manufacturing performance in respect of XaarJet 500 printheads.
This business remains a key element of our future plans and has
been complemented by the acquisition of XaarJet AB in Sweden.
XaarJet AB employs around 90 people at a facility extending to
some 60,000 sq. ft., based just outside Stockholm. The focus for
XaarJet AB has been the manufacture of 64 and 128 line printheads
for industrial and commercial printing. In particular the
product has established a strong market position in wide and
grand format printing. This market has grown substantially over
the last few years. The facility offers the opportunity to
expand both the volume and range of products being produced. We
have plans to utilise this capacity more fully in 2000 on the
back of a growing demand for the established product and the
potential to manufacture customised printheads under contract
from major companies, some of which are currently in the early
stages of development. We were convinced that acquiring MIT
would be a good deal for Xaar, especially under the terms
negotiated. In the event, the first nine months have exceeded
even our expectations in terms of revenues and profits. The
management and staff in Sweden have joined the Xaar group with
enthusiasm and there is much more benefit to be derived from that
company.
Xaar Digital
Xaar Digital was established to commercially exploit the
development of a printhead and ink system capable of printing
over 120 A4 pages per minute in full colour.
In 1999, this major development programme continued and it
culminated in the first prototype Page Wide Array (PWA) printing
an A4 page in monochrome at a line speed of 156 pages per minute.
The PWA has 3300 active printing channels and when compared with
the XaarJet 500 and 128 channel printheads, the quantum leap of
this development can be appreciated. We are now involved in
making further and better prototype printheads. Confidence in
the project remains high, but there is unlikely to be a product
in the market containing the PWA until the end of 2001.
Successful completion of this development will represent a major
step by Xaar into converting the commercial printing market to
the benefits of ink jet.
The strategy of Xaar Digital is to work with world class partners
to bring the PWA and inks into reality. In 1999, the key
commercial event was the Joint Development Agreement signed with
Agfa-Gevaert, one of the world's leading photographic and imaging
companies. Agfa agreed to part fund the development with an
initial payment followed by a first milestone payment on
successful demonstration of the prototype PWA. In due course,
Agfa intends to incorporate the PWA system in digital and
photographic printing products. Kyocera, of Japan, also signed a
Joint Development Agreement with Xaar under which, following
proof of design, they will manufacture commercial quantities of
the PWA. Kyocera has also provided Xaar with income to assist in
the development process and we have agreed outline terms for
Kyocera to take a manufacturing licence when they are satisfied
that the PWA is manufacturable at a yield and a cost which meets
both their own and Xaar's expectations. We have a specific ink
development programme running with DuPont Ink jet Inks of the
USA, which is aimed at producing an ink capable of operating at
the speeds that the PWA has been shown to be capable of jetting
the ink.
2000 will be a year in which we will continue to improve and
develop the design and manufacturing processes for the PWA and
also discuss potential exploitation of the finished product with
other commercial partners.
Intellectual Property Rights
During the year, Xaar completed the patent litigation against
CalComp Inc. A financial settlement was reached and Xaar more
than recovered its costs. The outcome of our dispute with
CalComp was commercially satisfactory and just as importantly
demonstrated the validity of Xaar's patents.
We continue to expand our patent portfolio, including new filings
in respect of the PWA development, and we now have a total of 475
patents and patent applications.
People
In addition to the appointment of Jan Fineman to the main board
of Xaar, we have found the injection of new manufacturing
expertise which resides in XaarJet AB to be of considerable
benefit to the Cambridge manufacturing operation. After having
gone through several years of difficulties, the staff in Sweden
have taken well to being part of the Xaar group and their efforts
since acquisition have been very encouraging.
All of the staff at Xaar work hard towards the aim of the company
achieving the level of success of which the technology is
capable. My thanks go particularly to the staff, and the
executive management team for their support and for delivering a
very good 1999.
We look forward with renewed confidence to 2000.
Graham Wylie
Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1999
Notes 1999 1998
£'000 £'000
(audited) (audited)
Turnover
Continuing operations 7,981 1,504
Acquisitions 1 7,083 -
-------- --------
Total turnover 1 15,064 1,504
Cost of sales (6,957) -
--------- --------
Gross profit 8,107 1,504
Other operating expenses (net) (7,781) (6,957)
--------- --------
Operating profit/(loss)
Continuing operations (527) (5,453)
Acquisitions 853 -
-------- --------
Total operating profit/(loss) 326 (5,453)
Interest receivable 272 870
Interest payable (56) (43)
------- --------
Profit/(loss) on ordinary
activities before taxation 542 (4,626)
Tax on profit/(loss) for the
financial year (338) (10)
-------- -------
Retained profit/(loss) for the 204 (4,636)
financial year
====== =======
Earnings/(loss) per share - 2 0.4p (8.9p)
basic
------- -------
Earnings/(loss) per share - 2 0.4p (8.9p)
diluted
------- -------
Consolidated statement of total
recognised gains and losses
Profit/(loss) for the financial
year 204 (4,636)
Loss on foreign currency
translation (80) -
-------- -------
Total recognised gains and
losses relating to the year 124 (4,636)
======== =======
CONSOLIDATED BALANCE SHEET
as at 31 December 1999
1999 1998
£'000 £'000
(audited) (audited)
Fixed assets
Goodwill 1,272 -
Tangible assets 4,789 3,430
Investments 20 20
------- -------
6,081 3,450
------- -------
Current assets
Stocks 842 38
Debtors 5,709 1,214
Cash and liquid resources 4,217 8,739
------- ------
10,768 9,991
Creditors: amounts falling due (3,682) (2,030)
within one year
------ -------
Net current assets 7,086 7,961
------ -------
Total assets less current 13,167 11,411
liabilities
Creditors: amounts falling due
after more than one year (415) (227)
------- -------
Net assets 12,752 11,184
======= =======
Capital and reserves
Called-up share capital 5,568 5,201
Share premium account 10,116 9,111
Other reserves 1,010 938
Accumulated deficit (3,942) (4,066)
------ -------
Shareholders' funds - all equity 12,752 11,184
======== ========
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1999
1999 1998
£'000 £'000
(audited) (audited)
Net cash outflow from operating (2,210) (3,485)
activities
-------- ---------
Returns on investments and
servicing of finance 275 851
Capital expenditure and financial
investment (581) (1,744)
Acquisitions (net of cash acquired) (2,942) -
---------- --------
Cash outflow before management
of liquid resources and financing (5,458) (4,378)
---------- --------
Management of liquid resources 5,728 4,287
Financing 960 (180)
---------- --------
Increase/(decrease) in cash in the 1,230 (271)
year
======== =========
Notes
1 Segment information
Turnover by class of business:
1999 1998
£'000 £'000
Licence and development fees 5,852 125
Royalties (includes £148,000 in respect of
MIT (1998: £598,000)) 721 1,011
Printheads and related products 8,491 368
------ ------
15,064 1,504
====== ======
The acquisition of XaarJet AB (formerly MIT) had the effect of
increasing sales of printheads and related products by
£7,083,000. Royalties in 1998 and the period to 31 March
1999 (the date of acquiring MIT) include pre-acquisition
royalty income from MIT, as disclosed above.
Turnover by geographical segment:
1999 1998
£'000 £'000
Europe 3,871 959
Rest of World 11,193 545
------ -----
15,064 1,504
====== =====
The acquisition of XaarJet AB had the effect of increasing sales
by origin in Europe by £7,083,000 and sales by destination to
Europe by £1,032,000 and to the Rest of World by £6,051,000.
Otherwise all turnover originates in the UK.
2. Earnings/(loss) per share - basic and diluted
The calculation of earnings/(loss) per share is based on the
profit/(loss) for the financial year after taxation and on the
weighted average number of ordinary shares in issue during the
year of 54,256,720 (1998: 51,904,762) in respect of basic
earnings/(loss) per share, and 57,580,244 in respect of diluted
earnings per share (the only difference being in relation to
exercises of share options). Due to the loss incurred in 1998 no
share options were deemed to be dilutive.
3. Financial information
The financial information contained in this preliminary
announcement of audited results does not constitute the group's
statutory accounts for the years ended 31 December 1999 or 31
December 1998. The accounts for the year ended 31 December 1998
have been delivered to the Registrar of Companies.
The statutory accounts for the years ended 31 December 1999 and
1998 have been reported on by the company's auditors; the reports
on these accounts were unqualified and they did not contain any
statement under section 237(2) or (3) of the Companies Act 1985.
The accounts for the year ended 31 December 1999 are expected to
be posted to shareholders in due course and will be delivered to
the Registrar of Companies after they have been laid before the
company in a general meeting on 21 March 2000.
Copies will also be available from the registered office of the
company, Science Park, Cambridge, CB4 0XR. The registered number
of Xaar plc is 3320972.
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