Xaar plc 2018 Full Year Results
Xaar plc
2018 FULL YEAR RESULTS
Xaar plc ("Xaar", "the Group" or "the Company"), the inkjet printing technology Group headquartered in Cambridge, UK, today announces its full year results for the 12 months ended 31 December 2018.
Summary of results for the year to 31 December 2018:
|
|
Adjusted¹ |
|
IFRS |
||
|
|
2018 |
2017 |
|
2018 |
2017 |
|
Revenue |
£63.5m |
£100.1m |
|
£63.5m |
£100.1m |
|
Gross Profit |
£24.4m |
£47.0m |
|
£24.4m |
£47.0m |
|
Gross Margin % |
38.5% |
47.0% |
|
38.5% |
47.0% |
|
Gross R&D investment² |
£15.0m |
£18.1m |
|
£15.0m |
£18.1m |
|
Net R&D investment² |
£14.7m |
£12.3m |
|
£14.7m |
£12.3m |
|
Operating Margin % |
(18.7%) |
17.8% |
|
(23.8%) |
12.1% |
|
(Loss)/profit before tax |
(£11.7m) |
£18.0m |
|
(£14.9m) |
£12.3m |
|
Diluted Earnings per share |
(9.7p) |
20.7p |
|
(16.0p) |
14.0p |
|
Net Cash³ at year end |
£27.9m |
£44.7m |
|
£27.9m |
£44.7m |
|
Dividend per share |
1.0p |
10.2p |
|
1.0p |
10.2p |
1 - Excluding the impact of share-based payment charges, exchange differences relating to intra-group transactions, research and development expenditure credit and restructuring and investment expenses, as reconciled in note 2
2 - Net R&D investment excludes the capitalised costs of the High Speed Sintering development programme (and P4 (Thin Film) technology platform in 2017), and includes the amortisation cost of P4 (Thin Film) technology platform, as required under International Financial Reporting Standards (IAS 38)
3 - Net cash includes cash, cash equivalents and treasury deposits
Financial highlights
· Revenue in line with December update, but pretax losses affected by additional inventory and debtors provisions totalling £7.0 million.
· Revenue in 2018 was £63.5 million, £52.4 million excluding licence royalties. This represents a decline in revenue of 37% year on year, largely driven by a decline in our Ceramics business.
· Gross margin of 38.5% (2017: 47.0%) was adversely impacted by the aggressive 58% decline in revenues from the Industrial segment, a reduction in revenues from licensees of £5.3 million and a one-off provision for slow moving inventory of £2.5 million.
· Adjusted operating loss margin was (18.7%) (2017: profit margin of 17.8%). In addition to the gross margin decline, this incorporates the impact of higher net Research and Development (R&D) investment following cessation of the capitalisation of the P4 (Thin Film) platform in July 2017 and a provision on past due debtors of £4.5 million.
· Net cash at 31 December 2018 was £27.9 million (2017: £44.7 million), reflecting continued investment in our Thin Film platform and High Speed Sintering 3D printer technology, and the working capital build due to slower new product sell through.
Strategic and operational highlights
· Three Business unit structure implemented.
· Revenue streams more diversified; 79% derived from new products and businesses introduced in the last 3 years.
· Strategic review of Printhead business highlights preferred way forward.
· Xaar 5601 Thin Film printhead being integrated and evaluated by more than 20 OEMs across packaging, commercial, textiles and décor segments. Three OEMs have announced publicly (Windmöller & Holscher, Neos and KELENN Technology).
· Formation of Xaar 3D Limited announced in July, the joint investment with Stratasys. First Beta High Speed Sintering printer placed in December 2018.
· EPS signed a distribution agreement with Machines Dubuit to distribute exclusively its product portfolio in North America.
Doug Edwards, Chief Executive Officer, commented:
"We are making progress in transforming Xaar into a more diversified and customer centric organisation. Challenges clearly remain across our Printhead business. Following the review conducted in 2018, it has become increasingly clear that in order to realise the full potential of our Thin Film portfolio, we require strategic investment partners to help us achieve the necessary scale.
The long term opportunities remain for our new Printhead products, particularly Thin Film, and in our new business areas of 3D Printing and Product Print Systems."
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CONTACTS Xaar plc |
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|
Doug Edwards, Chief Executive Officer |
Today: 020-7353-4200 |
|
Shomit Kenkare, Chief Financial Officer |
Thereafter: 01223-423663 |
|
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www.xaar.com |
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Tulchan Communications |
|
|
James Macey White David Ison Hollie Ralston |
020-7353-4200 |
Chairman's Report
2018 has given us several advances, but overshadowed by some key performance gaps.
The year has been a difficult one for Xaar, with continued decline in our Ceramics related sales, a drop of over £20 million this year, and integration issues slowing down our Thin Film product, the Xaar 1201, which aims to re-establish Xaar in the Chinese wide-format graphic market.
These factors have been the major causes of weak financial performance which masks the positive developments in a number of other areas of our business.
In our Thin Film technology, the Xaar 5601 printhead has advanced to the point of now being adopted by several OEMs for integration into their new printer platforms. Relationships with Windmöller & Holscher, Neos and KELENN Technology have been announced and further OEMs are working with the Xaar 5601, which gives encouragement to the prospects of substantial revenues building over the next few years from this technology.
In our Bulk piezo printhead business, where the impact of declining Ceramic revenues is felt, we have taken a series of cost reduction actions to bring capacity down to the visible level of demand. Some advances were made in Packaging application markets and the potential for upside from the digitisation of markets such as printing direct to containers and laminate decoration remains, albeit on unpredictable timing.
Our 3D Printing business attracted a significant investment and shareholding from a global leader in additive manufacturing, Stratasys, based in the US and Israel. We look forward to further developments on distribution arrangements and manufacturing partners as we meet milestones for placing prototype printers with customers in 2019.
In Q1 2018 we received the second instalment of royalty buyout from Seiko Instruments Inc. (SII) which now leaves our licence income at a low level.
Plainly our trading performance and working capital build up has impacted our cash balances, but, at £27.9 million year end cash, we remain well funded, although unable to recommend dividend payments to shareholders while we make losses.
We announced a strategic review of our printhead business in September 2018 and this has yielded several useful conclusions, covered in the Chief Executive Officer's report, among which was the strong achievements which Xaar has made in the past decade when set against far larger companies with greater resources.
Xaar has a portfolio of innovative and competitive products, with the printhead range now supplemented by bespoke product printers through our EPS company in Vermont, US, also with the prospect of 3D printers in the market for the first time in 2019. Whilst we are disappointed with the slower than expected adoption of some of our new printhead products, we are confident that the transformation we are undergoing will lead us to become a more diversified and customer-centric organisation, with an appropriate balance between established and developing technologies. We remain focused on delivering the benefits of our strong portfolio and technology advantages to shareholders.
The need to reduce costs and to deliver innovative products to the market has once again placed a heavy set of demands on our staff, which have been met with continued skill and determination. I would like to thank our employees for their hard work and dedication throughout 2018.
Changes to the Board during the year are set out below:
· On 14 November 2018, Lily Liu, Chief Financial Officer and Company Secretary left the Company to take up a position elsewhere. We were delighted to appoint Shomit Kenkare as her successor as Chief Financial Officer, who had previously joined Xaar as Head of Corporate Development;
· As previously announced, Ted Wiggans, our Chief Operations Officer, retired from the Group on 9 August 2018.
Robin Williams
Chairman
Chief Executive Officer's Report
Overview
Three years ago Xaar was a business reliant upon a single technology with strong dependence upon sale of a single printhead product to the Ceramics market. Addressing this vulnerability and improving the sustainability and predictability of our business was at the core of our strategy to diversify and to get closer to end customers by becoming an OEM ourselves in two carefully selected areas. These two areas, 3D Printing and Product Print Systems which we have further strengthened during the year, now represent two of our three business units.
In July we announced the formation of Xaar 3D Limited, a joint investment with Stratasys, a market leader in additive manufacturing, to develop 3D printing solutions based on High Speed Sintering technologies. Xaar holds 85% of the shares with Stratasys holding 15%. In addition Stratasys has been granted the option to increase its ownership up to 30%.
In Product Print Systems we have partnered with Machines Dubuit of Paris, France to distribute exclusively their product portfolio in North America through EPS. Their portfolio is complementary to that of EPS, focussing on the conversion of the analogue screen printing process to digital, whereas EPS targets the conversion of pad printing to digital.
Disappointingly, these positive developments are set against challenges in our printhead business with a significant decline in our legacy Ceramics business and the slower than anticipated ramp of our new Xaar 1201 Thin Film printhead, which was launched to re-establish Xaar in the Wide-format graphic market, mainly in China. This Ceramics printhead revenue decline overshadowing the new product growth of our Xaar 1003U, Xaar 2001, Xaar 501 and Xaar 502 printheads in the emerging digital market applications of packaging, coding & marking, décor, architectural glass decoration and direct-to-shape/product printing along with the progress we have made with our Xaar 5601 Thin Film printhead.
Our Xaar 5601 Thin Film product is ground breaking and a phenomenal achievement for a company of our size. Now in the hands of multiple OEMs across commercial, packaging and textile printing. Three of the OEMs, Windmöller & Holscher, KELENN Technology and Neos announcing publicly their choice of Xaar 5601 for their next generation digital presses and printers.
Business Unit Performance
Printheads
Segments
It has been an extremely challenging year for our Printhead business with revenue declining by £36.3 million (42%) year over year. The lion's share of the decline, £26.6 million, being in Ceramics and associated royalties. The largest contributor in the Printhead business despite the decline in Ceramics continues to be the Industrial segment with revenues of £17.6 million (59% decline versus 2017).
The Packaging segment, now the second largest behind Industrial, grew by 16% and at £16.6 million now represents one third of the total Printhead business revenues. This growth was primarily in Coding & Marking and Direct-to-shape sectors.
Sales in Graphic Arts declined by 65% or £8.3 million largely due to the printer integration issues experienced with our Xaar 1201 printhead in China.
Revenues from Royalties were £11.1 million (2017 : £16.4 million) and in line with expectations having entered into a £20 million agreement for a fully paid up licence from Seiko Instruments Inc. (SII) in November 2017.
Bulk Piezo
From a product standpoint we have seen growth in our Xaar 501, Xaar 502, Xaar 318 and Xaar 2001 Bulk piezo printheads across packaging, décor, coding & marking and direct-to-shape printing. However, this growth in new products doesn't mitigate the significant decline in our Xaar 1003 Ceramics printhead of over £20 million.The replacement market, for which the Xaar 1003 printhead was designed, has experienced significant pricing pressure and has not proven to be as robust as we anticipated as new printer installs have often been preferred. Our Xaar 2001 printhead although gaining traction, still only represents roughly 10% of all new printer installs. We continue to rightsize the Bulk business and it remains cash and earnings positive despite the Ceramics decline.
Thin Film Piezo
We have two Thin Film product offerings; Xaar 1201 and Xaar 5601 both utilising the same wafer fab for the production of actuators. Not only did we see a market requirement for the Xaar 1201 product in Wide-format graphics but anticipated volumes of this product formed an important part of the early purchase commitment necessary to secure supply of actuators for the Xaar 5601.
Unfortunately we have experienced integration and quality issues with our Xaar 1201 product which, although now behind us, resulted in a much slower than anticipated ramp of this product. This in turn has led to inventory build which we expect to reduce as shipments of the Xaar 1201 increase.
We have experienced delays in the introduction of our Xaar 5601 Thin Film printhead as we moved through the initial production process, but with these teething issues dealt with, it is now being integrated into the next generation of printers and presses of five major OEMs and is under evaluation currently with more than a further twenty across all major print segments.
Strategic Review
As a result of the challenges in our Printhead business we announced back in September a strategic review of more extensive partnership options. In the last six months we explored a number of structural options with third parties supported by advisors, which have not so far produced any proposals which can be recommended to shareholders. We continue to believe that closer alignment with a strategic partner or partners is key to gaining the necessary scale for sustainable and predictable growth in this business. Nowhere is this more important than in the area of Thin Film technology where scale is an essential ingredient for success.
In digital print worldwide,Thin Film looks to be the winning technology from a cost, quality and performance standpoint. Based on its performance and ability to jet aqueous inks there is a strong belief that Thin Film will be chosen where possible over solvent inks. This is confirmed by the fact that most of the major printing companies are either investing directly or through partnership in Thin Film solutions and as a result there is a wealth of intellectual property in this field.
An additional challenge with Thin Film is that the core component of the printhead is a silicon MEMS actuator which requires a wafer fab for its production. Not only is this type of plant a significant investment for our suppliers, but major volumes are required to make it economically viable. Partnership is therefore critical to provide the necessary scale.
Xaar is now nine years into its Thin Film investment. We have explored a variety of partnership options starting with the one we announced in 2016 with Ricoh. This partnership, providing valuable IP coverage and wafer fab volume consolidation, has been a core component of our strategy. It is this type of partnership, in conjunction with the large number of OEMs working with our 5601 for integration into their next generation machines across a wide range of applications, that provides strong evidence of the potential for Xaar's Thin Film product and technology.
However, we recognise that we are some years away from reaching meaningful volumes in Thin Film and in order to continue to fund this activity at the level which will enable Xaar to realise the full potential value of our portfolio, we are seeking, in addition to licensing arrangements, strategic investment.
The conclusion of the review we have engaged in is that deeper partnerships of this type would bring the necessary scale for long term sustainability. We have entered into early discussions with relevant industry parties on a range of potential structures for our Thin Film business.
3D Printing
We announced the formation of Xaar 3D Limited in July. Stratasys invested $4 million for a 15% shareholding, with an option to invest further to increase its ownership up to 30%.
Stratasys will brand and take to market Xaar 3D's High Speed Sintering printer. The first printer was installed at a customer in Denmark in December 2018, and so far feedback has been positive. A further five printers have been produced and are running up to twelve hours a day building parts at our facility in Copenhagen, Denmark. Once the printer design is frozen at mid 2019, production will move to our contract manufacturer, one of the largest in the world with annual revenues in excess of $20 billion.
We have a proven technology, strong management team, a powerful go-to-market partner and strategic investor, with an exciting market opportunity ahead of us.
Product Print Systems
Revenue in the Product Print Systems business remained flat year over year.
In our digital product portfolio, we have seen a shift in our pipeline to higher value solutions. These higher value customised integrations are more complex and do take longer to achieve customer sign off and hence revenue recognition.
Although our focus is on the digital conversion of the analogue pad printing process, it is worth noting that pad printing is stable and our installed base of printers continues to drive ink and service annuities.
Despite our partnerships with Comec Italia and Machines Dubuit, EPS continues to be a US focused business. There remains a consolidation and digital conversion opportunity in this $3.5 billion pad printing market (source: Smithers pira). We have an acquisition target shortlist, but our priority has been to address our Printhead business challenges before pursuing.
People
Over the past three years we have significantly reduced headcount in our Printhead business in line with the revenue decline. Headcount in our Printhead business has reduced by 42% in the last 3 years, including a reduction of over 100 in 2018. This has been largely in the manufacturing area and focused on the Bulk printhead business. Clearly this is a challenging environment for our printhead employees.
Meanwhile we have been investing in Thin Film, the 3D Printing and Product Print Systems businesses.
I would like to thank our staff for their efforts, particularly in the Printhead business where we are dealing with a challenging business situation.
Brexit
The Group operates globally and may be affected by Brexit developments, which could provide a number of challenges for Xaar. The Group is continuously monitoring events and putting mitigating actions in place. One of the greatest challenges continues to be concerning EU workers and migration. Trading with our EU customers could be more complex. Any actual or perceived barriers to free trade are an obvious area of concern for us. As a result of Brexit, the Group is exposed to potential currency fluctuations, although not significant. Brexit and trade barriers continue to be an integral part of the Group's ongoing risk management and review process, for which solutions to address the risks identified are explored and implemented. Although there is still uncertainty surrounding the outcome of Brexit, we do not expect the direct consequences of Brexit to have a material impact on the Group.
Summary and outlook
We are making progress in transforming Xaar into a more diversified and customer centric organisation.
Challenges clearly remain in our Printhead business and are taking a number of mitigating actions to address these. Our strategic review has highlighted the prefered way forward, including seeking strategic investment partners for our Thin Film activities and we are focused in 2019 on bringing this process to a conclusion.
The opportunities that this process can bring, combined with the prospects that exist for our new Printhead products, both Bulk and Thin Film, and in our new business areas of 3D Printing and Product Print Systems, combine to make an exciting future for Xaar, even with some risks plainly in view. We remain determined to deliver these benefits to our shareholders.
Doug Edwards
Chief Executive Officer
Chief Financial Officer's Report
2018 has been a tough year for the Group. Revenue for the year was £63.5 million, £52.4 million excluding licence royalties, which represents a decline of 37% year on year. Adjusted operating loss margin of (18.7%) (2017: profit margin of 17.8%) incorporates the gross margin impact from the decline in revenues, the impact of higher net Research and Development (R&D) investment, and additional provisions for slow moving inventory and past due debtors of £7.0 million. Net cash at 31 December 2018 reduced to £27.9 million (including treasury deposits of £3.3 million; net cash at 31 December 2017: £44.7 million, including treasury deposits of £0.8 million), reflecting continued investment in our Thin Film platform and High Speed Sintering 3D printer technology, and the working capital build due to slower new product sell through.
Revenue
The Group achieved total revenue for the year of £63.5 million (2017: £100.1 million) representing a 37% decrease.
Printhead
The £36.3 million decline in revenues by segment is covered in detail in the Chief Executive Officer's report.
By region, Asia was the hardest hit region, largely comprising of China, where revenue declined by £31.2 million. The balance of the decline was in the EMEA region and was partially offset by growth in the Americas.
|
£ million |
2018 |
2017 |
Change |
|
EMEA |
22.7 |
29.7 |
-24% |
|
Asia |
19.8 |
50.9 |
-61% |
|
Americas |
7.3 |
5.4 |
+35% |
|
Total |
49.8 |
86.1 |
-42% |
Product Print Systems
Revenues in the Product Print Systems business were £13.7 million (2017: £14.0 million). This business is predominantly US Dollar denominated and revenues were flat in local currency terms, negated at Group level by the impact of currency fluctuations.
3D Printing
This business remained in a pre-revenue phase of development throughout 2018. We made our first Beta unit printer placement in December 2018 and expect to report first product revenues during 2019.
Group
As a supplier of technology to OEM partners, our geographic sales split reflects where our OEMs are located, which is not necessarily the end-user location.
In 2018 Europe, Middle East and Africa (EMEA) was the Company's largest sales region. Revenues from EMEA accounted for £22.8 million (2017: £29.8 million), representing 36% of the Group's revenue. The decline was due to the drop in volume in the Industrial segment led by the Ceramics sector, partially offset by the traction we have gained in the Packaging segment, principally in Décor applications.
The Americas, with a total revenue of £21.0 million (2017: £19.4 million), grew 8% and now represents 33% of the Group's revenue. Much of the growth in the Americas came from the Coding & Marking sector within the Packaging segment.
Sales to Asia amounted to £19.8 million (2017: £50.9 million), representing 31% of the Group's revenue. This significant reduction is mainly due to the loss of volume in the Ceramics sector, lower than expected volumes in the Wide-format graphics and Textiles sectors, and the expected decline of licensing income.
Profitability
The Group reported an IFRS operating loss of £15.1 million and an adjusted operating loss of £11.9 million, which excludes the impact of the items listed in the reconciliation in note 2. The overall adjusted operating margin in 2018 was (18.7%) (2017: 17.8%). This decline in profitability of £29.7 million is due to a combination of factors:
1. A 37% reduction in revenues resulting in a £22.6 million reduction in Gross profit. The key drivers for this reduction are:
a. Decline in the Industrial and Graphics segments revenues, which carry a much higher margin profile than most of rest of the portfolio, partially offset by growth in revenues in the Packaging segment
b. Reduction in licence income of £5.3 million
c. As a result of the delays associated with OEM products in the Wide-format graphics sector in China, the Group has significantly increased its inventory levels. While we have no specific indication of permanent impairment of these balances, we have made prudent provisions of £2.5 million to reflect the uncertainties associated with sell through of these products.
d. Lower absorption of factory costs as a result of the overall reduction in volumes, partially offset by headcount and fixed overhead reductions at our Huntingdon factory
2. Increase in R&D by £2.4 million due to:
a. Further reduction in gross spend of £3.1 million, primarily as a result of maturity of the Bulk printhead technology and transfer of the integration and applications department to Sales and Marketing to aid customers with post launch installation.
b. This reduction in gross spend is offset by an overall decrease of £4.6 million in capitalised development expenditure; £1.0 million increase in 3D capitalisation, and £5.6 million reduction in capitalisation of the P4 Thin Film technology, which we ceased capitalising and commenced amortisation in August 2017. As a result the year on year amortisation expense increased by £0.9 million.
|
£ million |
2018 |
2017 |
Change |
|
Gross spend |
15.0 |
18.1 |
-3.1 |
|
Capitalisation |
(1.9) |
(6.5) |
+4.6 |
|
Amortisation |
1.6 |
0.7 |
+0.9 |
|
Net spend |
14.7 |
12.3 |
+2.4 |
3. Increase in Sales and Marketing expenses of £1.2 million primarily due to the transfer of the integration and applications department, previously reported in R&D, to help customers with post launch installation.
4. General and Administrative expenses and impairment losses on financial assets increased overall by £3.5 million, driven primarily by the delays associated with OEM products in the Wide-format graphics and Textiles sectors in China as described in point 1c. above, and provisions taken. The Group had to provide extended credit terms to debtors that resulted in increased working capital. While we have no specific indication of permanent impairment of these debtor balances, we have made prudent one-off provisions totalling £4.5 million to reflect the uncertainties associated with recovery of the debt. Partially offsetting these increases is a favourable foreign exchange movement of £1.2 million.
Adjusted loss before tax of £11.7 million was recorded for 2018 (2017: profit of £18.0 million). Loss before tax as reported under IFRS was £14.9 million (2017: profit before tax of £12.3 million).
The tax credit on adjusted loss before tax was £4.2 million (2017: charge of £1.9 million), representing an effective tax rate of 36% (2017: 10%), impacted by the reduction in the deferred tax asset relating to share options and the significant R&D expenditure credit in the year. The tax credit on IFRS loss before tax was £2.6 million (2017: charge of £1.4 million) representing an effective tax rate of 17% (2017: 11%). The rise in effective tax rate is a consequence of the loss before tax position in 2018, compared to a profit before tax position in 2017.
Effective from 1 January 2018 the US corporate income tax rate reduced from 35% to 21%. This did not have a significant effect on the Group's tax rate for 2018 and is not expected to have a significant impact in the short term either.
Adjusted loss after tax for 2018 was £7.5 million (2017: profit after tax of £16.1 million) and adjusted diluted earnings per share was (9.7) pence (2017: 20.7 pence).
Financial position
The Group ended the year with a net cash position of £27.9 million, but carried working capital that are at excessive levels. One of our key financial priorities for 2019 is to unwind working capital to levels commensurate with the size of the business.
We continue to keep our capital expenditure at low levels with the majority of our spend being capitalised development costs associated with our 3D Printing business. We saw a reduction in our property, plant and equipment expenditure in the year of £2.5 million (45%) and a reduction in our capitalised development expenditure in the year of £4.6 million (71%).
Operating cash outflow, before movements in working capital, was £8.7 million (2017: inflow of £25.2 million). The change in working capital during the year represented a net cash outflow of £0.7 million. Receivables decreased £9.4 million and inventory increased by £12.8 million reflecting delays in revenues from our Xaar 1201 printhead. This working capital impact was however offset by a significant reduction in capital expenditure for the Group. Total cash outflow relating to intangible and tangible assets was £4.5 million in the year (2017: £12.0 million), including £1.9 million (2017: £6.5 million) of capitalised development expenditure. Dividends accounted for £6.0 million (2017: £7.7 million) of all cash outflows.
Intangibles
Intangible assets excluding goodwill were £32.8 million at 31 December 2018 (2017: £32.7 million). These assets are largely associated with the Thin Film development project which was capitalised between 2014 and 2017. Amortisation of this project commenced in August 2017 after the design was frozen and development kits were made available for sale. We are amortising this technology platform over a 20 year period. In addition, £1.9 million (2017: £0.9 million) was capitalised relating to the development of a new 3D Printer technology platform.
Treasury and currency management
Cash and liquidity profile of the Group are being managed carefully. With a more diversified business model as well as sourcing from strategic partners across the globe, the Group has increased exposure to foreign exchange risk, in particular to the US Dollar and Japanese Yen. As much as possible, we match our billing currencies to our settlement currency to achieve a natural hedge.
Dividend
In 2014 we announced a sustainable and progressive dividend policy which took into account the Group's future prospects, its underlying profitability and the future cash requirements of the business at the time. The 37% decline in revenue in 2018 resulting in an adjusted loss before tax of £11.7 million, alongside the pending outcome of the strategic review, has led the Board to revisit this policy. In addition, the joint investment in 3D announced in July with Stratasys has committed both parties to fund commercialisation of those products. As a result, the Board will not be recommending the payment of a final dividend for 2018 at the forthcoming Annual General Meeting (AGM), giving a total dividend for the year of 1.0 pence per share (2017: 10.2 pence). An interim dividend of 1.0 pence per share was paid during the year (2017: 3.4 pence).
The Board will continue to keep the dividend policy under review.
Shomit Kenkare
Chief Financial Officer
|
CONSOLIDATED INCOME STATEMENT |
|||
|
FOR THE YEAR ENDED 31 DECEMBER 2018 |
|||
|
|
|
2018 |
2017 |
|
|
Notes |
£'000 |
£'000 |
|
Revenue |
|
63,534 |
100,142 |
|
Cost of sales |
|
(39,085) |
(53,097) |
|
Gross profit |
|
24,449 |
47,045 |
|
Research and development expenses |
|
(14,682) |
(12,318) |
|
Research and development expenditure credit |
|
1,737 |
411 |
|
Sales and marketing expenses |
|
(9,071) |
(7,860) |
|
General and administrative expenses |
|
(7,512) |
(12,610) |
|
Impairment losses on financial assets |
|
(4,681) |
(17) |
|
Restructuring and investment expenses |
|
(5,337) |
(2,553) |
|
Operating (loss)/profit |
|
(15,097) |
12,098 |
|
Investment income |
|
170 |
192 |
|
(Loss)/profit before tax |
|
(14,927) |
12,290 |
|
Tax |
|
2,589 |
(1,358) |
|
(Loss)/profit for the year |
|
(12,338) |
10,932 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
(12,276) |
10,932 |
|
Non-controlling interests |
|
(62) |
- |
|
|
|
(12,338) |
10,932 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
3 |
(16.0p) |
14.3p |
|
Diluted |
3 |
(16.0p) |
14.0p |
Dividends paid in the year amounted to £6,009,000 (2017: £7,728,000).
All activities relate to continuing operations.
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
|
|
|
FOR THE YEAR ENDED 31 DECEMBER 2018 |
|
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
(Loss)/profit for the year attributable to shareholders |
(12,338) |
10,932 |
|
Items that may be reclassified subsequently to profit and loss: |
|
|
|
Exchange differences on retranslation of net investment |
202 |
(721) |
|
Tax charge on share options |
(41) |
(20) |
|
Other comprehensive income/(loss) for the year |
161 |
(741) |
|
Total comprehensive (loss)/income for the year |
(12,177) |
10,191 |
|
|
|
|
|
Total comprehensive (loss)/income attributable to: |
|
|
|
Owners of the Company |
(12,113) |
10,191 |
|
Non-controlling interests |
(64) |
- |
|
|
(12,177) |
10,191 |
|
CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
|
|
|
AS AT 31 DECEMBER 2018 |
|
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Non-current assets |
|
|
|
Goodwill |
5,522 |
5,212 |
|
Other intangible assets |
32,796 |
32,678 |
|
Property, plant and equipment |
28,044 |
33,471 |
|
Receivables |
- |
858 |
|
|
66,362 |
72,219 |
|
Current assets |
|
|
|
Inventories |
32,142 |
19,119 |
|
Trade and other receivables |
21,398 |
30,303 |
|
Current tax asset |
5,142 |
3,412 |
|
Treasury deposits |
3,277 |
753 |
|
Cash and cash equivalents |
24,669 |
43,944 |
|
|
86,628 |
97,531 |
|
Total assets |
152,990 |
169,750 |
|
Current liabilities |
|
|
|
Trade and other payables |
(18,958) |
(16,583) |
|
Other financial liabilities |
(33) |
(30) |
|
Provisions |
(499) |
(1,911) |
|
Derivative financial instruments |
(643) |
- |
|
|
(20,133) |
(18,524) |
|
Net current assets |
66,495 |
79,007 |
|
Non-current liabilities |
|
|
|
Deferred tax liabilities |
(870) |
(3,905) |
|
Other financial liabilities |
(103) |
(137) |
|
Total non-current liabilities |
(973) |
(4,042) |
|
Total liabilities |
(21,106) |
(22,566) |
|
Net assets |
131,884 |
147,184 |
|
Equity |
|
|
|
Share capital |
7,833 |
7,833 |
|
Share premium |
29,328 |
29,317 |
|
Own shares |
(3,113) |
(3,642) |
|
Other reserves |
15,144 |
14,638 |
|
Translation reserve |
817 |
613 |
|
Retained earnings |
79,675 |
98,425 |
|
Equity attributable to owners of the Company |
129,684 |
147,184 |
|
Non-controlling interests |
2,200 |
- |
|
Total equity |
131,884 |
147,184 |
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
|
||||||||
|
FOR THE YEAR ENDED 31 DECEMBER 2018 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
Share |
Own |
Other |
Translation |
Retained |
|
Non-controlling |
Total |
|
|
capital |
premium |
shares |
reserves |
reserve |
earnings |
Total |
interest |
equity |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 January 2017 |
7,778 |
27,854 |
(3,642) |
11,891 |
807 |
95,768 |
140,456 |
- |
140,456 |
|
Profit for the year |
- |
- |
- |
- |
- |
10,932 |
10,932 |
- |
10,932 |
|
Tax on items taken directly to equity |
- |
- |
- |
- |
- |
(20) |
(20) |
- |
(20) |
|
Exchange differences on retranslation of net investment |
- |
- |
- |
- |
(194) |
(527) |
(721) |
- |
(721) |
|
Total comprehensive income for the year |
- |
- |
- |
- |
(194) |
10,385 |
10,191 |
- |
10,191 |
|
Issue of share capital |
55 |
1,463 |
- |
- |
- |
- |
1,518 |
- |
1,518 |
|
Dividends |
- |
- |
- |
- |
- |
(7,728) |
(7,728) |
- |
(7,728) |
|
Credit to equity for equity-settled share-based payments |
- |
- |
- |
2,747 |
- |
- |
2,747 |
- |
2,747 |
|
Balance at 1 January 2018 |
7,833 |
29,317 |
(3,642) |
14,638 |
613 |
98,425 |
147,184 |
- |
147,184 |
|
(Loss)/profit for the year |
- |
- |
- |
- |
- |
(12,276) |
(12,276) |
(62) |
(12,338) |
|
Tax on items taken directly to equity |
- |
- |
- |
- |
- |
(41) |
(41) |
- |
(41) |
|
Exchange differences on retranslation of net investment |
- |
- |
- |
- |
204 |
- |
204 |
(2) |
202 |
|
Total comprehensive income/(loss) for the year |
- |
- |
- |
- |
204 |
(12,317) |
(12,113) |
(64) |
(12,177) |
|
Issue of share capital |
- |
11 |
- |
- |
- |
- |
11 |
- |
11 |
|
Own shares sold in the year |
- |
- |
529 |
- |
- |
(424) |
105 |
- |
105 |
|
Dividends |
- |
- |
- |
- |
- |
(6,009) |
(6,009) |
- |
(6,009) |
|
Credit to equity for equity-settled share-based payments |
- |
- |
- |
506 |
- |
- |
506 |
- |
506 |
|
Adjustment arising from change in non-controlling interest |
- |
- |
- |
- |
- |
- |
- |
2,264 |
2,264 |
|
Balance at 31 December 2018 |
7,833 |
29,328 |
(3,113) |
15,144 |
817 |
79,675 |
129,684 |
2,200 |
131,884 |
|
CONSOLIDATED CASH FLOW STATEMENT |
|
|
|
|
FOR THE YEAR ENDED 31 DECEMBER 2018 |
|
|
|
|
|
|
2018 |
2017 |
|
|
Notes |
£'000 |
£'000 |
|
Net cash from operating activities |
4 |
(9,862) |
12,473 |
|
Investing activities |
|
|
|
|
Investment income |
|
171 |
190 |
|
Treasury amounts deposited |
|
(2,524) |
(753) |
|
Redemption of investment |
|
- |
1,000 |
|
Purchases of property, plant and equipment |
|
(2,790) |
(5,517) |
|
Proceeds on disposal of property, plant and equipment |
|
584 |
- |
|
Expenditure on software |
|
(160) |
(19) |
|
Expenditure on licences |
|
(177) |
- |
|
Expenditure on capitalised product development |
|
(1,915) |
(6,451) |
|
Net cash used in investing activities |
|
(6,811) |
(11,550) |
|
Financing activities |
|
|
|
|
Dividends paid |
|
(6,009) |
(7,728) |
|
Proceeds from issue of financial instrument |
|
753 |
- |
|
Proceeds from non-controlling interest |
|
2,264 |
- |
|
Proceeds from the sale of ordinary share capital |
|
105 |
- |
|
Proceeds from issue of ordinary share capital |
|
11 |
1,518 |
|
Net cash used in financing activities |
|
(2,876) |
(6,210) |
|
Net decrease in cash and cash equivalents |
|
(19,549) |
(5,287) |
|
Effect of foreign exchange rate changes on cash balances |
|
274 |
(90) |
|
Cash and cash equivalents at beginning of year |
|
43,944 |
49,321 |
|
Cash and cash equivalents at end of year |
|
24,669 |
43,944 |
Cash and cash equivalents (which are presented as a single class of asset on the face of the consolidated statement of financial position) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2018
1. Basis of preparation
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2017 and 2018, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006.
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 April 2019.
2. Reconciliation of adjusted financial measures
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
(Loss)/profit before tax |
(14,927) |
12,290 |
|
Share-based payment charges |
235 |
3,057 |
|
Exchange differences relating to intra-group transactions |
(629) |
523 |
|
Restructuring and investment expenses |
5,337 |
2,553 |
|
Research and development expenditure credit |
(1,737) |
(411) |
|
Adjusted (loss)/profit before tax |
(11,721) |
18,012 |
Adjusted financial measures are alternative performance measures, which adjust for recurring and non-recurring items that management consider to have a distorting effect on the underlying results of the Group.
Share-based payment charges include the IFRS 2 charge for the year of £506,000 (2017: £2,747,000) and the credit relating to National Insurance on the outstanding potential share option gains of £271,000 (2017: charge of £310,000). These costs were included in the general and administrative expenses in the Consolidated income statement.
Exchange differences relating to the United States, Danish and Swedish operations represent exchange gains or losses recorded in the consolidated income statement as a result of operating in the United States, Denmark and Sweden. These costs were included in general and administrative expenses in the Consolidated income statement.
Restructuring costs of £5,337,000 in 2018 (2017: £2,553,000) relates mainly to the impairment of fixed assets of £3,126,000 used by the Printhead business unit. The fair value less costs of disposal is less than the value in use and hence the recoverable amount of the relevant assets has been determined on the basis of their value in use. The remaining costs relate to expenses incurred and provisions made in relation to a reorganisation, the closure of the manufacturing facility in Sweden in 2016, and investment related expenditure.
The research and development expenditure credit relates to the corporation tax relief receivable relating to qualifying research and development expenditure. This item is shown on the face of the Consolidated income statement.
|
|
2018 |
2017 |
|
|
Pence per share |
Pence per share |
|
Diluted earnings per share |
(16.0p) |
14.0p |
|
Share-based payment charges |
0.3p |
3.9p |
|
Exchange differences relating to intra-group transactions |
(0.8p) |
0.7p |
|
Restructuring and investment expenses |
6.9p |
3.3p |
|
Tax effect of adjusting items |
(0.1p) |
(1.2p) |
|
Adjusted diluted earnings per share |
(9.7p) |
20.7p |
3. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based on the following data:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Earnings |
|
|
|
Earnings for the purposes of basic earnings per share being net (loss)/profit attributable to equity holders of the parent |
(12,338) |
10,932 |
|
Number of shares |
|
|
|
Weighted average number of ordinary shares for the purposes of basic earnings per share |
76,957,142 |
76,469,128 |
|
Effect of dilutive potential ordinary shares: |
|
|
|
Share options |
- |
1,441,475 |
|
Weighted average number of ordinary shares for the purposes of diluted earnings per share |
76,957,142 |
77,910,603 |
|
|
|
|
|
|
2018 |
2017 |
|
|
Pence per share |
Pence per share |
|
Basic |
(16.0p) |
14.3 |
|
Diluted |
(16.0p) |
14.0 |
Potential ordinary shares are treated as dilutive if their conversion to ordinary shares would decrease earnings per share or increase loss per share. Therefore in 2018, the diluted earnings per share is not impacted by the effect of dilutive potential ordinary shares.
The weighted average number of ordinary shares for the purposes of basic earnings per share is calculated after the exclusion of ordinary shares in Xaar plc held by Xaar Trustee Ltd, the Xaar plc ESOP Trust and the matching shares held in trust for the Share Incentive Plan.
For 2018, there were share options granted over 541,008 shares that would not have been included in the diluted earnings per share calculation because they were anti-dilutive at the year end (2017: 382,843 shares had not been included).
The performance conditions for LTIP awards over 1,581,632 shares (2017: 657,355 shares) have not been met in the current financial year or are not expected to be met in future financial periods, and therefore the dilutive effect of those shares have not been included in the diluted earnings per share calculation.
Adjusted earnings per share
This adjusted earnings per share information is considered to provide a fairer representation of the Group's trading performance year on year, as it removes items which, in the Board's opinion, do not reflect the underlying performance of the Group.
The calculation of adjusted EPS excluding share-based payment charges, exchange differences relating to intra-group transactions, and restructuring and investment expenses, is based on earnings of:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent |
(12,338) |
10,932 |
|
Share-based payment charges |
235 |
3,057 |
|
Exchange differences relating to intra-group transactions |
(629) |
523 |
|
Restructuring and investment expenses |
5,337 |
2,553 |
|
Tax effect of adjusting items |
(68) |
(929) |
|
Adjusted (loss)/profit after tax |
(7,463) |
16,136 |
The denominators used are the same as those detailed above for both basic and diluted earnings per share.
Adjusted earnings per share is earnings per share excluding the items adjusted for as detailed above:
|
|
2018 |
2017 |
|
|
Pence per Share |
Pence per Share |
|
Adjusted basic |
(9.7p) |
21.1p |
|
Adjusted diluted |
(9.7p) |
20.7p |
Adjusted EPS is considered to provide a fairer representation of the Group's trading performance year on year.
4. Notes to the cash flow statement
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
(Loss)/profit before tax |
(14,927) |
12,290 |
|
Adjustments for: |
|
|
|
Share-based payments |
235 |
3,057 |
|
Depreciation of property, plant and equipment |
4,725 |
7,795 |
|
Impairment of fixed assets |
3,258 |
- |
|
Amortisation of intangible assets |
2,139 |
1,149 |
|
Research and development expenditure credit |
(1,737) |
(411) |
|
Investment income |
(170) |
(186) |
|
Foreign exchange (gains)/losses |
(689) |
32 |
|
Other gains |
(110) |
- |
|
(Profit)/loss on disposal of property, plant and equipment |
(3) |
351 |
|
(Decrease)/increase in provisions |
(1,383) |
1,133 |
|
Operating cash flows before movements in working capital |
(8,662) |
25,210 |
|
Increase in inventories |
(12,817) |
(5,071) |
|
Decrease/(increase) in receivables |
9,364 |
(9,226) |
|
Increase in payables |
2,724 |
1,103 |
|
Cash (used in)/generated by operations |
(9,391) |
12,016 |
|
Income taxes (paid)/received |
(471) |
457 |
|
Net cash from operating activities |
(9,862) |
12,473 |
5. Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, based on the Group's forecasts and projections for the next twelve months, taking account of reasonably possible changes in trading performance. Although there is still uncertainty surrounding the outcome of the UK exiting the EU, we do not expect the direct consequences to have a material impact on the Group, as discussed in our Chief Executive Officer's report. For this reason, they continue to adopt the going concern basis in preparing the financial information.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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