2021 Full Year Results

RNS Number : 3603G

Xaar PLC

29 March 2022

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

29 March 2022

Xaar plc 

2021 FULL YEAR RESULTS

STRONG FOUNDATIONS IN PLACE AND CLEAR STRATEGY DELIVERING

WELL CAPITALISED TO INVEST IN FUTURE GROWTH

Xaar plc ("Xaar", the "Group" or the "Company"), the leading inkjet printing technology group, today announces its full year results for the 12 months ended 31 December 2021.

Financial Summary:

	2021	2020	Change
Continuing Operations
Revenue	£59.3m	£48.0m	+23%
Gross profit	£20.2m	£13.0m	+55%
Gross margin %	34%	27%	+7ppts
Gross R&D investment	£5.7m	£4.5m	+26%
Adjusted EBITDA1	£3.2m	£0.1m
Adjusted loss before tax1	(£0.6m)	(£3.9m)
Profit/(loss) before tax	£1.0m	(£4.3m)
Profit/(loss) for the year	£0.7m	(£4.4m)
Cash (utilised)/generated by operations	(£0.6m)	£8.1m
Basic earnings per share	0.9p	(5.7p)
Total Operations
Profit/(loss) before tax	£14.5m	(£14.6m)	+200%
Profit/(loss) for the year	£14.2m	(£14.7m)	+197%
Basic earnings per share	20.9p	(15.2p)	+238%
Net cash at the year end2	£25.1m	£18.1m	+38%

1 - Excluding the impact of share-based payment charges, exchange differences relating to intra-group transactions, gain on derivative financial instruments, restructuring and transaction expenses, research and development expenditure credit, other operating income, fair value gain on financial assets at fair value through profit and loss, and amortisation of acquired intangible assets, as reconciled in note 2

2 - Net cash at 31 December includes cash, cash equivalents and treasury deposits (2020: also excluding Xaar 3D)

Financial Highlights

· Revenue of £59.3 million representing growth of 23%; 12% growth excluding the acquisition of FFEI

· Gross margin of 34% (2020: 27%), benefitting from increased operational leverage in the business

· R&D spend in continuing operations of £5.7 million, up £1.2 million on 2020, with investment focused on the ImagineX platform and product roadmap

· Positive EBITDA contributions from all our businesses

· Adjusted Group profit for second half of the year

· £0.6 million of operating cash utilised excluding Xaar 3D

· Strong closing balance sheet with net cash of £25.1 million

· On track to return business to profitable growth and to achieve target of full year profit in 2022

Strategic and Operational Highlights

· Re-alignment of our go-to-market approach has strengthened customer engagement

· Strong performance for the Printhead business with consistent wins of new customers and projects and renewed focus on markets where products have a competitive advantage

· Ongoing delivery of product roadmap with two successful product launches from our ImagineX platform

· Investment in working capital has allowed Xaar to successfully mitigate supply chain constraints and secure ability to deliver on customer demand

· Further operational progress made in Engineered Printing Solutions (EPS) delivering strong revenue growth

· Relocation of Cambridge office during 2021 will result in £0.7 million annualised cost saving

· Acquisition of Megnajet to provide customers with a more complete package of integration tools

· Successful integration of FFEI acquisition expanding business capability and vertically integrated product offering

· Completion of divestment of Xaar 3D investment

· Launch of Sustainability roadmap with clear strategy to reach 'net zero' by 2030

John Mills, Chief Executive Officer, commented:

"We continue to make good progress towards achieving our strategic goals and we are pleased with our achievements. During 2021 we delivered the first two products on the ImagineX platform and have a comprehensive roadmap of future product releases for 2022 and beyond, aimed at addressing key customer requirements. We have strengthened our leadership and functional teams and added skills and capability with the acquisitions of FFEI and Megnajet. We are investing in people, processes and our IT infrastructure to support our growth and we have made significant progress towards our commitment of 'net zero' by 2030.

"The business was profitable in the second half of 2021, and we carry positive momentum and a strong order book into 2022. We have invested in working capital which provides confidence in our ability to maintain supply to customers throughout the year.

"Market conditions remain uncertain but our progress and strong performance during the challenging conditions of the past two years demonstrates our resilience and the continued demand for our products. We remain on track to return the business to profitable growth and look forward with confidence."

Contacts:

Xaar plc
Ian Tichias, Chief Financial Officer	[phone]
John Mills, Chief Executive Officer
Tulchan Communications	[phone]
James Macey White Giles Kernick

A presentation for analysts and investors will be held via webcast and conference call at 09:00 today. For further details, please contact [e-mail]  

Chairman's Introduction

In my first report as Chairman two years ago, I spoke of my confidence in the new leadership team and in our ability to turn the business around after the challenges encountered in 2019. At the end of 2021 and following a period of unprecedented uncertainty surrounding the COVID-19 pandemic, I am pleased to report good progress continues to be made.

Our fundamental focus has been on Xaar's core competence in design and manufacture of world leading printheads, whilst rebuilding and strengthening all areas of the business to better serve our customers and deliver consistent and reliable business performance.

There has been a realignment of our go-to-market approach with a clear focus on the value chain and our customers, a strengthening of our senior leadership and functional teams, a revitalisation of our brand and corporate identity and, importantly, a focus on the technical and competitive advantages of the Xaar bulk piezo product range. The introduction of our new ImagineX bulk piezo platform has created a pipeline of new product developments with the first two products, Nitrox and Irix launched during 2021.

The Board are pleased with the progress that the management team has made in re-energising the business and would also like to thank our teams worldwide for their commitment and adaptability, particularly across our supply chain, during this period of uncertainty.

Strategic Progress

We have continued to embed our strategy across the Group and through our people: a key enabler of the strong performance in 2021. Our focus on customers and a product roadmap that reflects current and potential customer needs has increased the quality and responsiveness of the business, and this means that we are well placed for further performance improvements. We believe a significant opportunity exists in market sectors and applications where Xaar technology provides commercial and technical performance advantages and that is our focus.

During the year, our ability to serve customers was further advanced through the acquisition of FFEI, adding both capability and capacity whilst enabling a more vertically integrated approach to assisting customers with the adoption of digital print technology. In November 2021 we completed the sale of our stake in Xaar 3D to our partner Stratasys, further strengthening our balance sheet whilst retaining a strong commercial partner in the 3D market.

We recently (March 2022) strengthened the business further with the acquisition of Megnajet, a leader in design and manufacture of ink delivery systems. Megnajet adds complementary skills to Xaar's core competence as we build the capability to provide customers with a more complete package of integration tools and accelerate the adoption of Xaar printhead technology. We welcome the Megnajet team to the Group.

Financial Results

In what has proven to be another challenging year for the global economy, the Group has delivered sales growth of 23% and moved back into profit in the second half of the year. Actions have been taken to build management and organisational strength, while cost control and careful cash management demonstrate our clear focus on performance and a return to profit.

The Printhead business has made good progress both commercially and operationally. Sales volumes have grown and a programme to improve efficiency and consistency of operational performance is progressing well. A specific area of focus has been our supply chain and our response to the challenges caused by the pandemic. An early recognition of the potential constraints on supply and logistics enabled us to secure materials to meet expected production requirements, and to proactively adapt product designs to accommodate alternative components. These actions have increased business resilience and will help us maintain uninterrupted supply to customers during 2022.

After encountering weaker demand and challenges in EPS, during the first half of the year, the appointment of new leadership and a realignment of strategy led to a much stronger second half of the year with sales 25% higher than in the first half. While performance for the year as a whole was impacted by previously announced non-cash adjustments relating to slow moving and obsolete inventory, there is good momentum in the order book and operational performance is improving in EPS.

We are pleased with the progress made at FFEI. Having only joined the group in July 2021, integration of the technical teams is largely complete, and performance is in line with our expectations.

Good underlying cash flow and receipts from the sale of our stake in Xaar 3D in November 2021 enabled the Group to close the year with a robust balance sheet. Net cash of £25.1 million provides a platform for further investment and further complementary acquisitions.

The Board has not declared a dividend in 2021 as we believe that prioritising cash for continued investment in the business at this stage of our rebuilding programme will deliver more compelling returns for shareholders in the medium term.

Environment

As a Board we consider our responsibility to the environment and society in general as an integral part of running a successful business. We are mindful of, and are committed to, the need to be good custodians of our natural resources for future generations.

The business has established an ESG Committee with oversight and input from the Board and has committed to a Sustainability Roadmap including ways in which we will strive to provide solutions and products for our customers that are cleaner and healthier. We are in the process of defining and setting meaningful ESG targets alongside plans of how we will achieve those targets in a specific timeframe. Our goal is for the business to be net zero by 2030.

People

For Xaar to be successful we need the energy, commitment and engagement of all our employees. Periods of 'lockdown', remote working and constraints on how people interact have all presented challenges, but I have great admiration for the way in which our people have overcome these challenges and worked tirelessly developing a strong 'can-do' culture.

We entered the year with optimism and a renewed sense of purpose but of course still uncertain as to the wider economic environment and extent of the challenges that would present. Despite this backdrop we have pushed on with the necessary changes to the business and it is to the great credit of the whole team at Xaar, in all businesses and in the many countries around the world where colleagues live and work, that they have adapted, committed to and succeeded in delivering both solid financial results and a platform for continued growth. On behalf of the Board, I thank them and congratulate them on the progress made.

Summary

The Board is optimistic following our progress this year and is confident in the future prospects of the Group.

Andrew Herbert

Chairman

29 March 2022

Strategy Update

Introduction

We are now two years into the turnaround of Xaar and we are extremely pleased with what we have achieved. We have implemented a new strategy across the business, with a new commercial model whilst investing in the business. This has seen significant progress as old customers have returned and new customers are continuing to engage with us. The speed with which this has been achieved is impressive and we have proved our strategy is working.

We have also made great progress updating our infrastructure and further strengthening the team, our products and the capabilities to deliver growth in the business. Operationally we have strengthened the business, improved our efficiency and margins whilst continuing to build a sustainable solid platform from which to grow the business further. During the year we successfully integrated FFEI, which will enhance our commercial offering and widens our product technology offering.

We have also established an ESG Committee and committed to our Sustainability Roadmap which will become further embedded in the business and be visible in everything we do as a business.

Xaar has achieved much in the last two years and this success will help drive us further in the coming years.

Delivered good results and finished the year well

The results for the year demonstrate significant progress for the business and we are extremely pleased with the continued strong performance which, despite challenging market conditions, demonstrates the positive momentum our strategy is driving throughout Xaar. Investment in capability and capacity provides us with further opportunities to accelerate our strategy and future growth. This leaves the business well placed to capitalise on this performance and deliver further growth and a return to profitability. Delivering profit on an adjusted basis over the second half of 2021 is a key landmark achievement for the Group. It is a milestone which has been achieved quicker than planned as part of the turnaround.

Revenue Growth

Revenue for the year was £59.3 million, representing an increase of 23% relative to 2020. Organic growth before the effects of the acquisition of FFEI was 12%.

In the Printhead business we have a clear customer-focussed commercial model strategy which is reaping rewards, delivering revenue growth of 14%. This approach includes removal of distribution channels, a clear pricing strategy, and a sales process that is focussed on selling the printhead based on its technical merits.

The focus has been on markets where our technology has a competitive advantage and working with the customer, both Original Equipment Manufacturers (OEMs) and User Developer Integrators (UDIs), over the entire product lifecycle to reduce their development times and, therefore, time to market, and to also provide improved aftersales support. We continue to see increased customer engagement both from existing as well as new customers.

The product roadmap delivered two new products during 2021 - Xaar Nitrox and Xaar Irix - that has broadened the Bulk printhead product range to offer advantages over the competition in existing and new markets.

Revenue growth in Asia, especially China, has been significant, up 33% year-on-year, with ceramics and glass customers particularly re-engaging, increasing our market share. Revenue growth in this sector in the year was 38%.

Product Print Systems business ("EPS") delivered improved performance demonstrating strong revenue growth of 9%. This follows the effective implementation of operational changes and progress in developing a modular approach to products. As previously announced the 2021 results were impacted by non-cash adjustments relating to slow moving and obsolete inventory following the implementation of planned process improvement and strategy. This impacted the Gross Profit negatively by £0.7 million of provisions and write downs.

FFEI delivered revenue of £5.3 million in the period from acquisition on 11 July 2021.

Improved Margins and Returns

This strong revenue growth, coupled with our increased operational efficiency saw the Gross Margin increasing to 34% in 2021 (2020: 27%). We have invested in our capability and efficiency most notably in Operations and support functions but have continued to exercise discipline in our cost management actions.

Accordingly, we can report a much reduced adjusted loss for the year of £0.6 million, compared to £3.9 million last year, and crucially we can report an adjusted profit for the second half of the year.

Pleasingly we can report positive adjusted EBITDA in each of our businesses, which is a notable step towards full year profitability for the Group.

Strong Balance Sheet

The Group retains a strong balance sheet and cash position. Net cash at 31 December 2021 was £25.1million. This represents an improvement of £7.0 million in the year. This has been primarily driven by the £9.3 million initial consideration received for the Xaar 3D divestment and continued strong cash generation in our Printhead business. We have taken the opportunity to invest in inventory of £9.1 million in the year to successfully secure materials to meet expected 2022 production requirements and to increase our holding of finished goods. This gives us greater assurance that we can deliver on customer demands throughout 2022. We have taken further proactive actions to adapt product designs to accommodate alternative components increasing our resilience to supply chain constraints.

On track with our journey, plan and strategy and more confidence in our capability

During the last two years we have successfully re-set the Group with a new business model and established a robust platform to deliver profitable growth. The turnaround is now at the end of the first phase, we have established a clear strategy and we are ready for the next stage to achieve sustainable profitable growth.

The first phase focussed on stabilising the business and establishing a clear strategy. Commercially this has seen the Printhead business reduce complexity in its routes to market by eliminating third party distributors and selling directly to OEMs and UDIs. Our principal strategy is to provide an integrated solution for customers whereby they can access more of the printing ecosystem, to include supporting elements such as ink supply systems and the electronics required for printing. We help our customers take advantage of the Inkjet opportunity and working with Xaar means a higher chance of success by being faster to market, making our customers' investment more profitable.

This approach has seen us deliver a more vertically integrated product offering to a wider group of customers in more market sectors.

Refreshed customer engagement

Accordingly, we have regained customers, particularly in core sectors such as Ceramics and Glass, and we now have significant market opportunities in 3D, Coding and Marking and Direct to Shape. Our 2021 revenue in the ceramics and glass sector has increased by over 40% since 2020 and the number of OEM projects commissioning Xaar products has doubled year on year for each of the last two years.

Our commercial approach has also been updated with new branding and a fresh, clear communication plan which has helped to regain the trust of OEMs, making sure the advantages of Xaar technology are well understood. The level of engagement from lapsed and established customers and our desire to listen to their needs and to work with them to find a solution, through consistent communication, indicates this has been working and we are regaining their trust.

Xaar's position in the 3D business is one of technology enabler and our end goal has been, and remains, to supply printheads for use in 3D applications and not become an OEM in the sector. That was the rationale behind our partnership with Stratasys, a recognised leader in 3D with a proven track record and strong routes to market. On 1 November 2021 we sold our remaining stake in Xaar 3D to Stratasys, and we will continue our relationship with them as a supplier of printheads.

Vertically integrated product offering

The acquisition of print systems and printbar specialist FFEI in July 2021 further widens our product offering for our OEM and UDI customers with a broader product range including print engines for adding effects and embellishments digitally. FFEI has been successfully integrated and strengthens Xaar's capabilities and skills. This will accelerate Xaar's existing growth strategy and widen the product portfolio further engaging UDI customers. We have a growing pipeline with a significant number of opportunities thanks to our technology advantages. This will give us further opportunities for additional vertical integration, and we continue to strengthen our offering with more products in the pipeline for 2022.

Our product roadmap, built on the ImagineX platform has already delivered significant enhancements to the current portfolio with two products, Xaar Irix and Xaar Nitrox, launched on time during 2021.

Our EPS business performed well increasing revenue and margins on an underlying, ongoing basis. The non-cash adjustments made in the year were necessary to rebase the business and ensure a strong financial platform from which to drive further growth. In addition, we changed the leadership of EPS and embedded the more efficient modular operational approach which will enable further margin growth. With increased control, focus and a more precise commercial approach EPS is well placed to deliver sustainable margin growth in the coming years.

Operational capability

We have made significant progress in building a world class leadership team, making some key appointments during the year which will drive the business in the next phase of our transformation. This has strengthened our capability and experience across the business, most notably in our Operations, Finance, Human Resources, and EH&S Management, as well as re-organising the sales team. This increase in operational support includes further investment in infrastructure such as IT, manufacturing and supply chain management.

During the year we established new corporate headquarters in Cambridge, UK and focussed our Printhead operations into our main manufacturing facility in Huntingdon, UK. We also opened a new customer service centre in Shenzhen, China. These changes give the benefit of increased efficiency in how our teams work together, providing us with a better way of working more closely and collaboratively with our customers across the world and will deliver £0.7 million of annualised cost savings.

We are proud of how our teams have continued to respond to the difficulties presented by COVID-19. We have proven the business can operate effectively with greater efficiency whilst building greater business resilience.

During the year we have worked on embedding new values into our culture. This is an important step in changing the mindset and culture of our business and has seen employees show engagement and empowerment. A cross functional project team developed an easy to remember logo for our values, launched a new values award, which is embedded across the Group, and developed a new video which we are using for employee engagement, recruitment and induction.

Sustainability

We established an ESG Committee during the year, constituted by a cross functional internal team and supplemented with external expertise. This group, formed from representatives from across the business, has developed a co-ordinated Sustainability Roadmap that will push Xaar towards its goal of 'Net Zero by 2030'. The Roadmap has four key pillars:

1.  Environment,

2.  People,

3.  Innovation, and

4.  Community.

Its purpose is to drive our ESG goals beyond the Energy Reduction scope to a Group wide activity and provide an essential backbone for much of Xaar's future investment and activity. It has the full backing of the Board and is sponsored by Alison Littley, Senior Independent Director.

Digital inkjet printing is inherently more sustainable compared to traditional analogue printing with a smaller carbon footprint. It reduces and prevents excessive waste and uses less energy due to the ability to print short runs or direct-to-shape. With TF Technology ink recirculation, Xaar printheads, are capable of printing very viscous fluids reducing the need for energy intensive drying processes. We are passionate in continuing further adoption and understanding of the environmental benefits our products can bring to customers.

Product development and increased capability

In aggregate the market size across these sectors is huge. We have a unique roadmap of product development to ensure we offer an increasing vertically integrated commercial strategy to capitalise on this market opportunity.

The ImagineX platform will deliver a number of features over the next few years which will provide significant enhancements to the current portfolio, these include:

· substantially improved speed and throughput (frequencies up to 150kHz, equivalent to a threefold increase in speed compared to current products),

· aqueous compatibility,

· increased throw distance to improve image quality on curved surfaces,

· increased robustness to improve the life of the printhead and maintain image quality,

· higher viscosities enabling a broader range of fluids to be printed (above 100cP), and

· higher resolutions (up to 1440 dpi).

These features will help strengthen our position in markets where we are already well represented and will drive improved adoption in several markets where we are currently not, such as Wide Format Graphics, Labels, Packaging and Textiles. The performance enhancements in our product roadmap give a clear path for OEMs to upgrade their products and maintain their product differentiation.

Development of our aqueous product remains on track, and we intend to release more details on this later in the year. The exciting opportunity this product provides is significant as we would have an unrivalled portfolio that could satisfy market demands which we are currently not able to due to our printhead architecture.

We have made strategic bolt-on acquisitions to the Group that enable us to strengthen our customer offering and we will continue to adopt this approach in the future as we look to continue increasing our capability and become a fully integrated inkjet product provider.

The actions taken in the last two years leave us with a strong balance sheet. The strong operational gearing that exists in the business, which has already delivered good margin growth, has greater capacity to support further margin improvement in the medium term. The business is well placed to move into the next phase of its transformation and to deliver sustainable profitable growth in the medium term.

Significant opportunity

Xaar's digital inkjet technologies are transforming print processes in a wide range of markets, and the medium- and long-term opportunity for the business remains significant. We have already grown market share in core, mature markets such as Ceramics and Coding & Marking. There remains further growth opportunity in these areas as our technology is best in class and we have a clear competitive advantage over our competitors due to our core technologies (TF Technology ink recirculation, High Laydown Technology, Ultra High Viscosity Technology).

Increased market opportunity exists in sectors that are looking for further digitisation of printing on which we can capitalise. We see opportunities typically in areas where fluid applications are challenging, such as Flat Panel Display, Semiconductors, Printed Electronics and Optics. We are well placed to succeed in these markets as Xaar technology offers an unrivalled method of non-contact, fluid deposition with incredible precision, control and speed.

Other markets that already use digital printing such as architectural glass printing and 3D printing are tremendously exciting as our technology has unique benefits that can give our customers commercial advantage in reducing costs and lead times for their products.

Outlook

The positive momentum in the business has continued in the first quarter of 2022 and we remain optimistic about the short-term outlook for the business. Customer engagement and sales orders have been maintained in quarter 1 and are in line with our expectations. We anticipate continued performance improvements during 2022 with further good organic revenue growth.

Due to the action taken to secure supply by investing in working capital during 2021 we believe we are well placed to satisfy customer demand for the year ahead and we have the supply chain resilience to withstand most disruption. We are continuing to invest in the business adding skills, capability and capacity.

We expect an improved Gross Margin which will come from the continued efficiency gains we have in the business. Whilst that enhancement won't be at the same incremental increase as for 2021, we are confident of returning to 40% gross margins in the medium term.

Whilst we are conscious of the continuing risks arising from the economic consequences of wider global issues, and COVID-19 continues to be a risk to economic disruption, particularly in Asia, we remain on track to return the business to profitable growth and look forward to the future with confidence.

We have the right strategy and we remain confident in our ability to achieve our target of a full year profit this year. 

Business Performance

Continuing operations - revenue

Revenue for the Group of £59.3 million is an excellent performance for the year, representing a year-on-year increase of £11.3 million (2020: £48.0 million) of which FFEI represents £5.3 million in the period since acquisition.

It is a very pleasing result given the ongoing restrictions arising from COVID-19, with Printhead revenue increasing 14% and EPS 9%. Group revenues increased from £26.3 million in the first half of the year to £33.0 million in the second half driven principally by a £1.7 million increase in revenue from the EPS business. This is a strong recovery across the business demonstrating the positive customer engagement and trust that is being regained across our customer base and the continued momentum we have in the business.

£M	2021 H1			2021 H2				FY 2021				FY 2020
	PH	EPS	Total	PH	EPS	FFEI	Total	PH	EPS	FFEI	Total	PH	EPS	Total
Americas	3.9	6.1	10.0	3.4	7.8	2.4	13.6	7.3	13.9	2.4	23.6	7.6	12.7	20.3
Asia	5.8	-	5.8	6.1	-	0.1	6.2	11.9	-	0.1	12.0	9.6	-	9.6
EMEA	10.5	-	10.5	10.4	-	2.8	13.2	20.9	-	2.8	23.7	18.1	-	18.1
Total	20.2	6.1	26.3	19.9	7.8	5.3	33.0	40.1	13.9	5.3	59.3	35.3	12.7	48.0

Revenue from the Americas grew year-on-year across the Group, rising £3.3 million (2021: £23.6 million, 2020: £20.3 million), including £2.4m from FFEI and despite a small drop in Printhead revenue of £0.3m. The rise, driven by the recovery in EPS revenue, stems from increases in sales of digital machines and peripherals demonstrating the new commercial approach is being well received with customers.

Performance in Asia, and China in particular, has been very successful in 2021. This has been the key driver for the continued overall revenue growth in Printhead. Group revenue grew £1.3 million in the first half of the year to £5.8 million (H1 2020: £4.5 million) and continued to grow in the second half to £6.2 million (H2 2020: £5.1 million). This growth has largely been driven by the re-engagement of Chinese Ceramic OEM customers where our new product range is proving successful. Revenues in Printhead have increased year-on-year from £9.6 million to £11.9 million, a 24% increase.

This is a real proof point for the change in strategy, the removal of distribution channels, the implementation of a clear pricing strategy, and more significantly a change in how we interact and support our customers have all helped with the speed of adoption of the Xaar 2002 together with Xaar Nitrox and Irix in China.

Revenue in EMEA has continued to rise year-on-year. Excluding FFEI, revenue was £20.9 million compared to £18.1 million, and we have seen a promising continued upward trend in revenue since H2 2019. Revenue in the first half of the year increased £2.1 million compared to H1 2020 of £8.4 million and by £0.7 million in the second half compared to £9.7 million in H2 2020.

Printhead revenue for the year increased £4.8 million to £40.1 million (2020: £35.3 million). Growth in the first half was 20% and in the second half was 8% as we saw continued momentum in revenue throughout the year.

Printhead revenue growth stems from the continued recovery in the key sectors of Ceramics & Glass (C&G) with growth of £5.2 million (38%). Increasing market share with our extended product portfolio and being able to demonstrate our clear technology advantages has proven successful in the Chinese Ceramics market, where we have regained trust with our customers. We have also established a marketing leading position in Glass with the Xaar 2002 and won several accounts in the Glass sector in 2021, with revenue in 2021 increasing 38% compared to 2020.

Coding and Marking (C&M) revenue has remained largely flat year-on-year, Direct to Shape (DTS) revenue has declined with the majority of the decline taking place in the Americas which we believe will be a short term flattening of demand.

Whilst still a relatively small part of our business, DTS will prove to be an increasingly important sector for the business and an area for potential growth in the long-term and it is encouraging that we are showing how our unique technology advantages can prove successful in this area by wining new accounts and commissioning new machines by switching their production lines over to a digital solution.

Wide Format Graphics (WFG) and Labels revenue fell slightly in the year from £6.3 million to £6.2 million. This is an area where we have seen some delays in orders, mainly COVID-19 related. As our customers are more able to access their own customer bases with a relaxation of travel restrictions, we expect this reduction to be one of timing only and to recover in 2022.

3D Printing and Advanced Manufacturing (AVM) have stayed relatively flat year-on-year (2021: £2.4 million, 2020: £2.5 million) with gains in 3D Printing offset by a reduction in revenues from AVM. As with the DTS market, the AVM market for printheads is still relatively small but growing, and we are very excited about our prospects in this area expecting to see significant growth in the coming years. Both 3D Printing and AVM are markets where we are well positioned to take advantage of growth opportunities, but development cycles can be long, therefore, it can take several years for a customer to reach full production and ultimately significant demand for printheads.

Revenues from Packing & Textiles remain modest. Our ability to target this sector effectively is somewhat limited by our current product range. However, advancements in the product portfolio driven by the ImagineX platform should make this large sector more accessible in the future. Full year revenue of £0.8 million was down year-on-year (2020: £0.9 million).

Our royalty revenue stream was sold during 2019 and so we have a declining legacy royalty rate which will continue to decline 2021 and 2022 before ceasing altogether shortly thereafter.

M	2021 H1	2021 H2	FY 2021	FY 2020	Var	Var %
Ceramics & Glass	9.5	9.5	19.0	13.8	5.2	+38%
C&M & DTS	5.9	5.2	11.1	11.5	-0.4	-3%
WFG & Labels	3.4	2.8	6.2	6.3	-0.1	-2%
3D Printing & AVM	1.0	1.4	2.4	2.5	-0.1	-4%
Packaging & Textile	0.2	0.6	0.8	0.9	-0.1	-11%
Royalties, Commissions & Fees	0.2	0.4	0.6	0.4	0.2	+50%
Total	20.2	19.9	40.1	35.3	4.8	14%

Revenue from the EPS business increased by £1.2 million to £13.9 million (2020: £12.7 million) as the new commercial approach has seen some significant customer order wins.

This has been driven particularly by digital inkjet machines sales with growth of 11%, which is particularly pleasing as this will be the core focus for the business in the future. Pad print machine revenue has also increased (8%) albeit with a decline year-on-year in the second half. Focus on consumables and accessory sales have contributed to the growth as a result of the change in commercial approach, with increased revenue from ink, plates and parts. We see a strengthening pipeline and order book and we are well placed to deliver further growth in 2022 as companies start to invest in capital equipment again and those markets affected by the pandemic, such as Ad Speciality and Promotional Products, start to recover.

M	2021 H1	2021 H2	FY 2021	FY 2020	Var	Var %
Digital Inkjet	3.6	4.4	8.0	7.2	0.8	+11%
Pad Printing	2.4	3.1	5.5	5.1	0.4	+8%
Other	0.1	0.3	0.4	0.4	-	-
Total	6.1	7.8	13.9	12.7	1.2	+9%

Continuing operations - gross profit

Gross profit for the year increased by £7.2 million to £20.2 million (2020: £13.0 million) with an increase in the gross margin to 34% (2020: 27%). This was primarily the result of an improvement in the Printhead business unit's gross profit which grew from 27%. We increased utilisation of the factory as throughput was increased during the year resulting in better overhead cost recovery, supporting margin gains. We have worked hard on cost saving initiatives during the year and as we increase volumes there should be further scope for improved overhead recoveries and accordingly margin gains. During 2021 we proactively worked to secure raw materials which should reduce further supply chain risks. Issues in supply chains globally are well known and documented, particularly so for semi-conductors and other technology materials, with increasing cost pressures. Our actions in Q4 should insulate us from further costs and mean we are able to meet customer demand throughout 2022. We have increased our working capital with inventory rising £9.1 million (2020: £4.8 million reduction in inventory), This higher level of both raw materials and finished goods is a deliberate, prudent approach which we believe will see us well placed to both manage customer requirements and further insulate the business from external supply chain risks whilst utilising the high level of operational gearing to deliver further improvements in the gross margin.

Gross profit for the EPS business declined £0.2 million in the year to £3.2 million (2020: £3.4 million) with gross margin down year-on-year (2021: 23%, 2020: 27%). Actions taken to refocus the business on future growth opportunities mean 2021 results have been impacted by non-cash write down adjustments totalling £0.7 million. These are largely related to inventory we now consider to be slow moving or obsolete.

Excluding the non-cash adjustments mainly relating to slow moving and obsolete inventory, the underlying gross margin was 28%, largely due to the resetting of the modular strategy by new management. Excluding the £0.7 million of adjustments recorded by EPS in 2021, the gross profit for the Group would have improved to £20.9 million, with a gross margin of 35%.

Continuing operations - R&D

R&D spend of £5.7 million was up £1.2 million on 2020 (2020: £4.5 million). This reflects the investment in the ImagineX platform which will be central to our long-term growth, with the added investment in FFEI of £0.4 million. The total increase is in proportion with our revenue growth and maintains a spend/revenue ratio of approximately 10%. Sales and marketing spend for the year was £6.3 million (2020: £6.0 million). The increase in spend of £0.3 million year-on-year reflects the focus on sales and business development in the Printhead business unit following the restructuring of the business in the second half of 2020. Savings were seen in both the Printhead and EPS businesses due to COVID-19 which limited our ability to visit customers and led to the cancellation of the majority of tradeshows which one, or both, businesses would have attended.

Continuing operations - expenses

General and administrative expenses increased £2.1 million from £8.0 million in 2020 to £10.1 million in 2021. The increase largely relates to planned investment in key areas of the business and infrastructure, including Operations, IT and Finance, offset by, £0.3 million related to trading foreign exchange gains in 2021, as a result of the exchange rate volatility response to COVID-19.

Impairment reversals on financial assets were £0.4 million (2020: £0.9 million). This reversal predominantly relates to a distribution channel used by the Printhead business and the collection of a customer debt previously provided for.

Other operating income in 2020 of £0.8 million related to the PPP loan taken out by the EPS business in the US which met all qualifying criteria to be forgiven.

Restructuring and transaction costs of £1.4 million (2020: £0.8 million) predominantly relate to re-organisation costs, acquisition related professional fees and additional costs relating to the dilapidation and exit of the office on the Cambridge Science Park.

Continuing operations - profit

The profit before tax from continuing operations under IFRS was £1.0 million in 2021 (2020: £4.3 million loss). Basic Earnings per share from continuing operations was 0.9p (2020: loss 5.7p).

The performance of the Printhead business improved £6.5 million from a £4.3 million loss in 2020 to a £2.2 million profit in 2021 driven by increased sales, a much improved gross margin, and a reduction in operating expenditure. The EPS business went from a £0.3 million profit in 2020 to a £0.9 million loss in 2021 due to the impact arising from the write off and provisioning of legacy inventory. Excluding this one-off impact, the EPS business made a small loss which given the underlying performance of the business should see turn into profit during 2022.

FFEI contributed a profit before tax of £0.4 million since acquisition on 11 July 2021.

In calculating the adjusted loss before tax we have adjusted for gains on derivative financial liabilities of £2.9 million (2020: £0.1 million) and fair value gains on financial assets £1.0 million (2020: nil) alongside restructuring costs of £1.4 million, foreign exchange losses on intra-group loans of £0.1 million, and share-based payments of £0.7 million with an R&D expenditure credit of £0.3 million and amortisation of acquired intangible assets of £0.4 million.

The adjusted loss before tax from continuing operations was £0.6 million, compared to £3.9 million loss in 2020. This is a significant step forward for the business, emphasised by the delivery of adjusted profit in the second half of 2021.

The adjusted EBITDA for continuing operations in the year was £3.2 million (2020: £0.1 million).

Discontinued operations

Due to the divestment of the remaining investment in Xaar 3D, completed on 1 November 2021, the results are classified as discontinued operation. The business was classified as an asset held for sale as at 31 December 2020.

A £13.5 million profit was recorded in relation to discontinued operations (2020: Loss £10.3 million) with net cash outflows for the period of £2.0 million (2020: £12.1 million). The Thin Film business, which was classified as discontinued in 2019, recorded a loss of £0.2 million in 2021 (2020: £3.7 million) which related to inventory commitments and supplier liabilities. All liabilities regarding the Thin Film business have now been settled. The 3D business recorded an operating loss before tax of £4.2 million in 2021 (2020: £6.4 million loss).

The Group has recognised a gain on the sale of investment in subsidiary of £17.9 million, comprising net cash received £9.3 million, with contingent consideration at the transaction date of £10.9 million, less transaction costs of £0.2 million

Basic earnings per share from discontinued operations was 20.0p (2020: loss 9.5p)

Profit for the year

The Group profit for the year was £14.2 million (2020: £14.7 million loss) of which £16.2 million is attributable to the owners of the company, (2020: £11.7 million loss) with a £2.0 million loss to non-controlling interests (2020: £3.0 million loss). The total basic earnings per share attributable to shareholders is 20.9p (2020: loss 15.2p).

Cash generation

The Group retained a healthy cash balance of £25.1 million at the year end, representing an increase of £4.9 million during the year, comprising a cash outflow from continuing operations of £2.3 million, with discontinued Xaar 3D operations utilising £2.1 million, being offset against cash proceeds received for the sale of Xaar 3D of £9.3 million.

Operating cash inflow from continuing operations before working capital was £2.7 million due to improved aEBITDA of £3.2 million delivered principally in our Printhead division.

Movement in net cash* (including 3D)	2021 £'000	2020 £'000
Cash & Treasury Deposits - Continuing Operations	25,051	18,117
Cash & Treasury Deposits - 3D operations	-	2,120
Cash & Treasury Deposits at end of year	25,051	20,237
Cash & Treasury Deposits at the beginning of the year	20,237	25,322
Total Net Cash Inflow / (Outflow)	4,814	(5,085)
Effect of foreign exchange rate changes on cash balances	110	57
Increase / (Decrease) in net cash for the Group	4,924	(5,028)
Consisting of:
Total Cash (outflow) / inflow from Continuing Operations	(2,342)	7,073
Cash outflow from Xaar 3D Business	(2,109)	(7,018)
Xaar 3D - Proceeds from share capital and share sale	9,272	-
Cash inflow / (outflow) from Thin Film Operation	103	(5,083)
Increase / (decrease) in net cash for the Group	4,924	(5,028)

*Net cash is defined as cash and cash equivalents, plus treasury deposits

As a result of the managed investment in inventory, working capital saw an outflow of £3.4 million, with improvements in receivables and payables helping to offset some of the £9.1 million increase in inventory.

The Group maintains a strong disciplined focus on cash, and this will continue throughout 2022. During 2021 investing activities saw cash spend of £2.3 million, mainly on infrastructure and IT projects.

The business has a clear plan and strategy which the strong balance sheet and cash position will support. There remain external development opportunities which, if they can expand our capabilities and expertise, we will look to potentially add to the Group. We will also continue to invest internally to ensure we have the operational capacity and efficiency to meet future demand, alongside investment in our product roadmap development.

Cash Inflow from Continuing Operations (excluding 3D)	2021 £'000	2020 £'000
aEBITDA	3,183	62
Restructuring and transaction expenses	(1,404)	(754)
Depreciation of right of use assets	871	1,107
Government Grant (PPP Loan)	-	819
Other	90	144
Operating cash flows before movements in working capital	2,740	1,378
Movement in working capital	(3,383)	6,735
Cash (utilised) / generated by operations	(643)	8,113
Income taxes received	288	351
Net cash used in investing & other financing activities	(1,987)	(1,391)
Net (decrease) / increase in cash and cash equivalents from Continuing Operations	(2,342)	7,073

Strong balance sheet

Non-current assets increased £22.7 million in the year from £24.7 million to £47.4 million. This was driven by the increase in Goodwill following the acquisition of FFEI Limited of £0.7 million, along with an increase in Intangible assets of £3.8 million. The identification of financial assets at fair value arising from the sale of 3D assets was £10.9 million plus revaluation through profit and loss at the year end of £1.0 million (2020: £nil). Additionally, there were increases in right of use assets of £7.3 million, and a £0.9 million reduction in Property, Plant and Equipment as new purchases were controlled in with line with the Group's cash focus.

Current assets, excluding the disposal group assets held for sale, increased £18.4 million from £38.1 million in 2020 to £56.5 million. A significant proportion of this increase is attributable to the increase in Inventories of £9.1 million to £18.8 million (2020: £9.7 million), associated to the managed investment in our supply chain capability. Trade and other receivables increased by £2.5 million to £12.1 million (2020: £9.6 million) and Cash & Cash equivalents (including Treasury Deposits) increased by £7.0 million to £25.1 million (2020: £18.1 million), with current tax assets increasing by £0.1 million to £0.5 million (2020: £0.4 million). Each of these were primarily driven by the consolidation of FFEI.

The 3D business was classified as held for sale with £10.0 million of assets in 2020 and disposed of in 2021.

Current liabilities, excluding liabilities associated with Xaar 3D (held for sale) in 2020 of £1.6 million increased by £8.7 million to £23.0 million (2020: £14.3 million) primarily due to the.  Increase in Trade and other payables of £11.6 million to £21.5 million (2020: £9.9 million) as a result of the consolidation of FFEI. A reduction in the provision balance of £0.2 million arose from the utilisation of the £0.3 million restructuring provision in the year, offset against an increase in warranty provision of £0.1 million. Current lease liabilities increased by £0.1 million to £1.2 million (2020: £1.1 million), with the disposal of Xaar 3D also removing the liability arising from derivative financial instrument of £2.9 million.

Non-current liabilities increased by £10.7 million to £12.2 million (2020: £1.5 million), which mainly relate to lease liabilities recorded under IFRS 16 for property which increased by £7.0 million to £8.5 million (2020: £1.5 million) in the year, alongside recognising a dilapidation provision on leases of £0.3 million (2020: £nil) and long-term liability of £3.4 million for the deferred consideration on the acquisition of FFEI Limited.

Dividend

No dividend has been declared for 2021, as the Board believes that prioritising cash for continued investment in the business at this stage of our rebuilding programme will deliver more compelling returns for shareholders in the medium term.

John Mills	Ian Tichias
Chief Executive Officer	Chief Financial Officer

29 March 2022

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
		2021	2020
	Notes	£'000	£'000
Revenue	3	59,254	47,984
Cost of sales		(39,064)	(34,974)
Gross profit		20,190	13,010
Research and development expenses		(5,706)	(4,535)
Research and development expenditure credit		270	142
Sales and Marketing expenses		(6,342)	(5,970)
General and administrative expenses		(10,070)	(8,022)
Impairment reversal on financial assets		388	946
Restructuring and transaction expenses	2	(1,404)	(754)
Other operating income	2	-	819
Fair value gain on financial assets at FVPL		987	-
Gain on derivative financial liabilities		2,919	77
Operating profit / (loss)		1,232	(4,287)
Investment income		4	47
Finance costs for leases		(242)	(82)
Profit / (loss) before tax		994	(4,322)
Income tax expense		(299)	(52)
Profit / (loss) for the period from continuing operations		695	(4,374)
Profit / (loss) from discontinued operations after tax	6	13,533	(10,295)
Profit / (loss) for the year		14,228	(14,669)
Attributable to:
Owners of the Company		16,219	(11,685)
Non-controlling interests		(1,991)	(2,984)
Profit / (loss) for the year		14,228	(14,669)
Earnings/(loss) per share - Total
Basic	4	20.9p	(15.2p)
Diluted	4	20.6p	(15.2p)
Earnings/(loss) per share - Continuing operations
Basic		0.9p	(5.7p)
Diluted	4	0.9p	(5.7p)

There were no dividends paid during the current and preceding year.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021
		2021	Restated 2020
		£'000	£'000
Profit / (loss) for the year		14,228	(14,669)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of net investment		143	262
Tax on items taken directly to equity		-	(5)
Other comprehensive income for the year		143	257
Total comprehensive loss for the year		14,371	(14,412)
Total comprehensive loss attributable to:
Owners of the Company		16,366	(11,444)
Non-controlling interests		(1,995)	(2,968)
		14,371	(14,412)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
	2021	Restated 2020
	'000	'000
Non-current assets
Goodwill	5,894	5,152
Other intangible assets	4,043	207
Property, plant and equipment	16,226	17,147
Right of use asset	9,368	2,078
Financial asset at FVPL	11,850	-
Deferred tax asset	-	139
	47,381	24,723
Current assets
Inventories	18,839	9,750
Trade and other receivables	12,138	9,640
Current tax asset	531	425
Treasury deposits	-	161
Cash and cash equivalents	25,051	17,956
Derivative Financial Instruments	-	160
Assets held for sale	-	43
	56,559	38,135
Disposal Group Assets held for sale	-	9,968
	56,559	48,103
Total assets	103,940	72,826
Current liabilities
Trade and other payables	(21,489)	(9,940)
Provisions	(264)	(357)
Derivative financial instruments	-	(2,919)
Lease liabilities	(1,231)	(1,064)
	(22,984)	(14,280)
Liabilities associated with disposal group	-	(1,589)
	(22,984)	(15,869)
Net current assets	33,575	32,234
Non-current liabilities
Deferred tax liabilities	(1)	-
Lease liabilities	(8,499)	(1,515)
Provisions	(300)	-
Other financial liabilities	(3,354)	-
Total non-current liabilities	(12,154)	(1,515)
Total liabilities	(35,138)	(17,384)
Net assets	68,802	55,442
Equity
Share capital	7,844	7,833
Share premium	29,427	29,328
Own shares	(1,923)	(1,957)
Translation reserves	1,011	864
Other reserves	21,820	21,167
Retained earnings	10,623	(5,564)
Equity attributable to owners of the company	68,802	51,671
Non-controlling interest	-	3,771
Total equity	68,802	55,442

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
		Share	Share	Own	Translation	Other	Retained		Non-controlling	Total
		capital	premium	shares	reserves	reserves	earnings	Total	interest	equity
		£'000	£'000	£'000	£'000	'000	£'000	£'000	£'000	£'000
Balance at 1 January 2020 (as reported)		7,833	29,328	(2,676)	594	20,921	7,598	63,598	6,739	70,337
Prior year restatement		-	-	-	24	-	(766)	(742)	-	(742)
Balance at 1 January 2020 (as restated)		7,833	29,328	(2,676)	618	20,921	6,832	62,856	6,739	69,595
Profit for the year		-	-	-	-	-	(11,685)	(11,685)	(2,984)	(14,669)
Tax on items taken directly to equity		-	-	-	-	-	(5)	(5)	-	(5)
Exchange differences on retranslation of net investment		-	-	-	224	-	-	224	16	240
Prior year restatement		-	-	-	22	-	4	26	-	20
Total comprehensive loss for the period		-	-	-	246	-	(11,686)	(11,440)	(2,968)	(14,408)
Own shares sold in the period		-	-	719	-	-	-	719	-	719
Share option exercises		-	-	-	-	-	(710)	(710)	-	(710)
Credit to equity for equity-settled share-based payments		-	-	-	-	246	-	246	-	246
Balance at 31 December 2020 (as restated)		7,833	29,328	(1,957)	864	21,167	(5,564)	51,671	3,771	55,442
Profit for the year		-	-	-	-	-	16,219	16,219	(1,991)	14,228
Tax on items taken directly to equity		-	-	-	-	-	-	-	-	-
Exchange differences on retranslation of net investment		-	-	-	147	-	-	147	(4)	143
Total comprehensive income for the period		-	-	-	147	-	16,219	16,366	(1,995)	14,371
Own shares sold in the period		3	-	34	-	-	3	34	-	34
Share option exercises		8	99	-	-	-	(29)	78	-	78
Deferred tax benefit on share option gains		-	-	-	-	-	-	-	-	-
Credit to equity for equity-settled share-based payments		-	-	-	-	653	-	653	-	653
De-recognition of non-controlling interest		-	-	-	-	-	-	-	(1,776)	(1,776)
Balance at 31 December 2021		7,844	29,427	(1,923)	1,011	21,820	10,623	68,802	-	68,802

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
			2021	2020
	Notes		£'000	£'000
Net cash used in operating activities	5		(2,054)	(2,807)
Investing activities
Investment income			13	64
Treasury deposits (deposited)/withdrawn			161	361
Purchase of derivative financial instrument			-	(130)
Purchases of property, plant and equipment			(1,876)	(1,098)
Proceeds on disposal of property, plant and equipment			209	167
Expenditure on software			(38)	-
Proceeds from disposal of investment in subsidiary			9,272	-
Cash attributable to subsidiary sold			(96)	-
Acquisition of subsidiary, net cash acquired			168	-
Net cash provided by / (used in) investing activities			7,813	(636)
Financing activities
Proceeds from sales of ordinary share capital			150	-
Payment of lease liabilities and related interest			(824)	(1,224)
Net cash used in financing activities			(674)	(1,224)
Net increase / (decrease) in cash and cash equivalents			5,085	(4,667)
Effect of foreign exchange rate changes on cash balances			(110)	(57)
Cash and cash equivalents at beginning of year			20,076	24,800
Cash and cash equivalents at end of year			25,051	20,076
Cash and cash equivalents attributable to subsidiary sold			-	2,120
Cash and cash equivalents			25,051	17,956

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 2021

1.  Basis of preparation and accounting policies

Basis of preparation

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2020 and 2021 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 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 summary 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 2022.

Going concern

The Group reported a profit after tax for the year ended 31 December 2021 of £14.2 million, which includes a profit after tax of £13.5 million related to discontinued operations, being the costs relating to Thin Film and Xaar 3D (£4.4 million loss), as well as the gain on disposal (£17.9 million). The Group's day to day working capital requirements are expected to be met through the current cash and cash equivalent resources (including Treasury deposits) at the balance sheet date of 31 December 2021 of £25.1 million. The Group was debt free as at 31 December 2021.

To date the impact of COVID-19 on the Group's trading has been minimal, however we did experience some COVID-19 related supply constraints in 2021, for which actions have been taken to mitigate their impact and therefore the Board continues to be optimistic on the future trading environment.

The going concern review has been completed by considering the performance of the different businesses across the Group and each of their funding requirements before performing a number of stress tests. The base going concern case is consistent with the current board approved forecasts and, to reflect judgement over timing of contingent consideration payments, has been adjusted to exclude these in the going concern period. A second case which includes the consideration payable on the acquisition of Megnajet Ltd (as set out in Note 9), however excludes the revenue compared to forecast across the entire Group required to prevent the business continuing as a going concern is more than 30% which is considered remote given the nature and size of the order book and the trading experience of the printhead and EPS segments during COVID-19 conditions to date.

Notwithstanding this, the Group has further options to mitigate a cash shortfall which have not been factored into the above forecasts, such as staffing reductions, further delaying/stopping capital and research and development expenditure and aligning performance related pay to actual results.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the period to 30 June 2023, taking account of reasonably possible changes in trading performance. For this reason, we continue to adopt the going concern basis in preparing the financial statements.

2.  Reconciliation of adjusted financial measures

		2021	2020
		£'000	£'000
Profit/(loss) before tax from continuing operations		994		(4,322)
Share-based payment charges		758		348
Exchange differences on intra-group transactions		95		347
Gain on derivative financial liabilities		(2,919)		(77)
Restructuring and transaction expenses		1,404		754
R&D Expenditure credit		(270)		(142)
Other operating income		-		(819)
Fair value gain on financial assets at FVPL		(987)		-
Amortisation of acquired intangible assets		354		-
Adjusted loss before tax from continuing operations		(571)	(3,911)
Interest income		(4)	(47)
Finance costs		242	82
Depreciation of property, plant and equipment		3,318	3,400
Amortisation of intangible assets (other than acquired intangibles)		121	82
Profit on asset disposal		77	99
Impairment of assets		-	391
Other immaterial movements in property, plant and equipment		-	(34)
Adjusted EBITDA from continuing operations		3,183	62

EBITDA is calculated as statutory operating profit before depreciation, amortisation and impairment of property, plant and equipment, intangible assets and goodwill. Adjusted EBITDA is calculated as EBITDA excluding other adjusting items as defined.

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, as they are not reflective of the underlying performance of the Group. Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment. Non-recurring items are identified and adjusted for by virtue of their size or nature.

Share-based payment charges include the IFRS 2 charge for the period of £653,000 (2020: £242,000) and the debit relating to National Insurance on the outstanding potential share option gains of £105,000 (2020: credit £106,000). These costs were included in the general and administrative expenses in the consolidated income statement and exclude the Xaar 3D charge of £440 (2020: £5,000).

Exchange differences relating to the operations in the United States, represent exchange gains or losses recorded in the consolidated income statement as a result of intragroup transactions in the United States. These costs were included in general and administrative expenses in the consolidated income statement.

Gain on derivative financial instruments relates to gains made on call option contracts. The option was exercised in 2021. These amounts are included on the consolidated income statement under Gain on derivative financial liabilities.

Restructuring and transaction expenses of £1,404,000 (2020: £754,000) relate to costs incurred and provisions made in relation to acquisition transaction costs incurred of £961,000 and re-organisation costs. In the prior year, it related to re-organisation costs. The calculated impact of the restructuring and transaction expenses at the corporation tax rate of 19% would be £52,000 based on the expenses included that would be treated as deductible (2020: £143,000). The cash paid related to restructuring and investment expenses is £992,000 (2020: £518,000).

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. Cash receipts of £219,000 was received during the year were in relation to the FFEI RDEC and R&D claim which related to their financial year 1 April 2020 to 31 March 2021. The £1,460,000 received in 2020 was in relation to the 2018 and 2019 submitted RDEC claims.

Other operating income of £nil (2020: £819,000) relates to a forgivable $1 million loan between Engineered Print Solutions (EPS) and TD bank and is backed by the US Federal Government (Small Business Administration); further details are provided under note 7. The loan was taken out as part of the government backed scheme. The Company met the requirements of the waiver, and therefore the Loan was waived, and has therefore been treated as a government grant under IAS 20. A cash receipt of the same amount was received.

The fair value gain on financial assets at fair value through profit and loss relates to the sale of Xaar 3D Limited. The net consideration includes contingent consideration that is valued and reported at fair value. The fair value movement is recognised in the income statement as fair value gain on financial assets at fair value through profit and loss.

The amortisation of acquired intangible assets relates to the acquisition of FFEI Limited. These include software, patents and customer relationships and are being amortised over six years. These costs were included in general and administrative expenses in the consolidated income statement

			2021	2020
	Notes		Pence per share	Pence per share
Basic earnings per share continuing operations	4		0.9p	(5.7p)
Share-based payment charges			1.0p	0.5p
Exchange differences on intra-group transactions			0.1p	0.5p
Gain on derivative financial liabilities			(3.8p)	(0.1p)
Restructuring and transaction expenses			1.8p	1.0p
Other operating income			-	(1.1p)
Fair value gain on financial assets at FVPL			(1.3p)	-
Amortisation of acquired intangible assets			0.5p	-
Tax effect of adjusting items			(0.2p)	(0.3p)
Adjusted basic earnings per share			(1.0p)	(5.2p)

This reconciliation is provided to align with how the Board measures and monitors the business at an underlying level, and is a measure used in establishing remuneration.

3.  Business segments

For management reporting purposes, the Group's operations are analysed according to the three operating segments of 'Printhead', 'Product Print Systems', and 'Digital Imaging'. These three operating segments are the basis on which the Group reports its primary segment information and on which decisions are made by the Group's Chief Executive Officer and Board of Directors, and resources allocated. Each business unit is run independently of the others and headed by a general manager. The Group's chief operating decision maker is the Chief Executive Officer. There is no aggregation of segments for disclosure purposes.

The Xaar 3D business which was classified as assets held for sale in the prior year has now divested on 1 November 2021. The result for the ten-month period is classified as discontinued operations and is presented separately in note 6.

Segment information for continuing operations is presented below:

	Printhead	Product Print Systems	Digital Imaging	Unallocated	Consolidated
Year ended 31 December 2021	£'000	£'000	£'000	£'000	£'000
Revenue
Total segment revenue	40,104	13,900	5,250	-	59,254
Result from continuing operations
Adjusted (loss) / profit before tax from continuing operations	(526)	(766)	721	-	(571)
Share-based payment charges	-	-	-	(758)	(758)
Exchange differences on intra-group transactions	(95)	-	-	-	(95)
Restructuring and transaction expenses	(1,288)	(116)	-	-	(1,404)
Gain on derivative financial liabilities	2,919	-	-	-	2,919
Research and development expenditure credit	227	-	43	-	270
Fair value gain on financial assets at FVPL	987	-	-	-	987
Amortisation of acquired intangible assets	-	-	(354)	-	(354)
Profit/(loss) before tax from continuing operations	2,224	(882)	410	(758)	994

	Printhead	Product Print Systems	Digital Imaging	Unallocated	Restated Consolidated
Year ended 31 December 2020	£'000	£'000	£'000	£'000	£'000
Revenue
Total segment revenue	35,283	12,701	-	-	47,984
Result from continuing operations
Adjusted loss before tax from continuing operations	(3,431)	(480)	-	-	(3,911)
Share-based payment charges	-	-	-	(348)	(348)
Exchange differences on intra-group transactions	(347)	-	-	-	(347)
Restructuring and transaction expenses	(754)	-	-	-	(754)
Gain on derivative financial liabilities	77	-	-	-	77
Research and development expenditure credit	142	-	-	-	142
Other operating income	-	819	-	-	819
(Loss)/profit before tax from continuing operations	(4,313)	339	-	(348)	(4,322)

Share-based payment charges include the IFRS 2 charge for the year and the charge relating to National Insurance on the outstanding potential share options, excluding the charge attributable to Xaar 3D as discontinued operations £440 (2020: £5,000).

4.  Earnings per share - basic and diluted

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

	2021	2020
	£'000	£'000
Earnings
Earnings for the purposes of basic earnings per share being net (loss) attributable to equity holders of the parent	16,219	(11,685)
from continuing operations	695	(4,374)
from discontinued operations	15,524	(7,311)
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	77,528,064	77,103,593
Effect of dilutive potential ordinary shares:
Share options	1,261,215	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	78,789,279	77,103,593
	2021	2020
	Pence per share	Pence per share
Basic	20.9p	(15.2p)
Diluted	20.6p	(15.2p)
Continuing operations
Basic	0.9p	(5.7p)
Diluted	0.9p	(5.7p)
Discontinued operations
Basic	20.0p	(9.5p)
Diluted	19.7p	(9.5p)

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 2020 the diluted earnings per share is not impacted by the effect of dilutive potential ordinary shares, given the loss per share.

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 2021, there were share options granted over 107,490 shares that had not been included in the diluted earnings per share calculation because they were anti-dilutive at the period end (2020: 310,100 shares that would not have been included).

The performance conditions for LTIP awards over 1,510,685 shares (2020: 510,482 shares) have not been met in the current financial period, and therefore the dilutive effect of those shares has not been included in the diluted earnings per share calculation.

5.  Notes to cash flow statement

	2021	2020
	'000	'000
Profit / (loss) before tax from continuing operations	994	(4,322)
Profit / (loss) before tax from discontinued operations	13,503	(10,105)
Total profit / (loss) before tax	14,497	(14,427)
Adjustments for:
Share based payments	758	353
Depreciation of property, plant and equipment	3,318	4,223
Depreciation of right of use assets	871	1,236
Amortisation of intangible assets	475	685
Impairment of assets	-	391
Research and development expenditure credit	(582)	(454)
Investment income	(4)	(72)
Interest expense	252	94
Foreign exchange (loss)/gain	(23)	523
Gain on re-measurement of derivative liability	(2,919)	(77)
Fair value gain on financial assets at FVPL	(987)	-
Loss on disposal of property, plant and equipment	77	99
Profit on disposal of investment in subsidiary	(17,899)	-
Other gains and losses	-	202
Decrease in provisions	(74)	(2,572)
Operating cash flows before movements in working capital	(2,240)	(9,796)
(Increase) / decrease in inventories	(7,964)	4,849
Decrease in receivables	(1,525)	(1,337)
Increase in payables	9,525	2,011
Cash used in operations	(2,204)	(4,273)
Income taxes received	150	1,466
Net cash used in operating activities	(2,054)	(2,807)

6.  Discontinued operations

The Thin Film business which was discontinued in 2019 incurred costs in 2020 and 2021 which mainly related to supplier liabilities and inventory for last time buy sales. All liabilities have now been settled and we maintain an amount of inventory, that is fully provided, and not likely to be sold. Of the total Group net assets, £nil (2020: £271,000) is related to Thin Film which is not included in net assets held for sale.

As detailed in the strategic and financial update, the Xaar 3D business completed its divestment on 1 November 2021. Xaar received net cash of £9,272,000 and as specified in an 'earn out' clause in the sale agreement, additional cash consideration of up to $15,456,000 will be receivable. At the time of sale, the fair value of the consideration was determined to be £10,863,000 will be receivable. It has been recognised as a financial asset at fair value through profit or loss.

At year end, the fair value was re-estimated to be £11,850,000. The gain of £987,000 is presented in the income statement as fair value gain on financial assets at fair value through profit or loss. The results of Xaar 3D business for the period ended 1 November 2021 are included in the discontinued operations in the income statement.

The results of Thin Film and 3D related activities for the year are shown below:

		Thin Film	3D	Total	Thin Film	3D	Total
		2021	2021	2021	2020	2020	2020
		£'000	£'000	£'000	£'000	£'000	£'000
Revenue		384	2,918	3,302	258	734	992
Expenses		(623)	(7,075)	(7,698)	(3,922)	(7,175)	(11,097)
Loss before income tax		(239)	(4,157)	(4,396)	(3,664)	(6,441)	(10,105)
Income tax (charge)/credit		-	30	30	-	(190)	(190)
Net loss before gain on sale		(239)	(4,127)	(4,366)	(3,664)	(6,631)	(10,295)
Gain on sale of investment in subsidiary		-	17,899	17,899	-	-	-
(Loss)/profit after income tax from discontinued operations		(239)	13,772	13,533	(3,664)	(6,631)	(10,295)
Attributable to:
Owners of the Company		(239)	15,763	15,524	(3,664)	(3,647)	(7,311)
Non-controlling interest		-	(1,991)	(1,991)	-	(2,984)	(2,984)
		(239)	13,772	13,533	(3,664)	(6,631)	(10,295)

The gain on sale of investment in subsidiary is not subject to income tax because it falls under Substantial Shareholding Exemptions (SSE) Rule.

Included in the £7,075,000 expenses in 3D are net of £297,000 relates to a service charge received from the Group undertaking which has to be eliminated in the Group's consolidated income statement.

The major classes of assets and liabilities of 3D classified as held for sale as at 31 December 2020 and its carrying amounts as at the date of sale (1 November 2021) are as follows:

				1 November 2021	2020
				'000	£'000
Assets
Property, plant and equipment				1,207	1,041
Intangible assets				4,649	4,649
Deferred Tax Asset				164	68
Right of use asset				592	440
Inventory				870	919
Debtors				2,085	737
Corporate income tax				371	(6)
Cash and cash equivalents				96	2,120
Assets held for sale				10,034	9,968
Liabilities
Creditors				(5,542)	(1,115)
Corporate income tax				-	-
Provisions (Warranty & Restructuring)				(31)	(11)
IFRS 16 lease liability				(525)	(463)
Liabilities associated with the assets held for sale				(6,098)	(1,589)
Net assets associated with disposal group				3,936	8,379

The net cash flows incurred by Thin Film and 3D are as follows.

					Thin Film	3D	Total	Thin Film	3D	Total
					2021	2021	2021	2020	2020	2020
					£'000	£'000	£'000	£'000	£'000	£'000
Net cash inflow/(outflow) from operating activities					103	(1,792)	(1,689)	(5,058)	(6,213)	(11,271)
Net cash outflow from investing activities					-	(122)	(122)	(25)	(645)	(670)
Net cash outflow from financing activities					-	(98)	(98)	-	(160)	(160)
Net decrease in cash generated from discontinued operation					103	(2,012)	(1,909)	(5,083)	(7,018)	(12,101)

					2021	2020
					Pence per share	Pence per share
Earnings / (loss) per share
Basic, earnings / (loss) for the year from discontinued operations					20.0p	(9.5p)
Diluted, earnings / (loss) for the year from discontinued operations					19.7p	(9.5p)

The sale of Xaar 3D business is summarised below. The total consideration received include the initial cash consideration and contingent consideration less transaction costs that are directly attributable to the sale. The carrying amount of the net assets sold represents 55% of Xaar shareholding to 3D, adjusted by an intracompany mark-up that relates to inventory.

		2021
		£'000
Consideration received or receivable:
Net cash received		9,272
Fair value of contingent consideration		10,863
Less: Transaction costs		(246)
Total disposal consideration		19,889
Carrying amount of net assets sold		(1,990)
Gain on sale of investment in subsidiary		17,899

The carrying amount of net assets sold includes an inventory mark-up from the Group undertaking amounting to £172,000 which has to be eliminated in the Group consolidated balance sheet. Following the divestment of 3D, this elimination was reversed and adjusted to the gain on sale. A recycled foreign exchange difference of £3,000 was also included to the carrying amount as a result of translation.

7. Business Combination

On 11 July 2021, Xaar acquired 100% of the issued share capital of FFEI Limited, a leading integrator and manufacturer of industrial digital inkjet systems and digital life science technology with many years of experience in managing technical integration and engineering projects. 

Details of the net assets acquired, goodwill and purchase consideration are as follows:

Recognised amounts of identifiable assets acquired and liabilities assumed
				£'000
Cash				4,075
Trade & other receivables				2,301
Corporate income tax				291
Inventories				1,169
Property, plant and equipment				91
Right of use assets				3,074
Intangible assets				4,248
Trade & other payables				(4,130)
Lease liabilities				(2,996)
Provision (non-current)				(50)
Total net identifiable assets				8,073
Goodwill				689
Total consideration				8,762
Satisfied by:
Cash				3,907
Deferred consideration				4,855
Total consideration transferred				8,762
Net cash inflow arising on acquisition
Cash consideration				3,907
Less: cash and cash equivalents acquired				4,075
Total net cash inflow arising on acquisition				168

The fair value of acquired trade receivables is £1,310,000. The gross contractual amount for trade receivables due is £1,388,000, with a loss allowance of £78,000 recognised on acquisition.

The goodwill of £689,000 arising from the acquisition represents those characteristics and valuable attributes of the acquired business that cannot be quantified and attributed to separately identifiable assets in accounting terms. This goodwill is underpinned by a number of elements, the most significant of which is the well-established, skilled and experienced operations team which will allow Xaar to accelerate the Company's existing growth strategy and will enable Xaar to capture additional opportunities in vertically integrated solutions. None of the goodwill recognised is expected to be deductible for income tax purposes.

The fair value of the intangible assets attributed to the acquisition of the business relates to patents and software (£3,044,000) and customer relationships (£1,204,000). These have an estimated useful life of six years. The amortisation from the date of acquisition to 31 December 2021 is £354,000 which is included in the income statement under general and administrative expenses.

In addition to the cash consideration, deferred consideration shall be paid in three annual instalments. The undiscounted amount of all future payments that the Company is required to make under the deferred consideration arrangement is £5,200,000.

Acquisition related costs which are included in administrative expenses in the consolidated income statement for the period ended 31 December 2021 amounted to £618,000.

The acquired business contributed revenues of £5,250,000 and net profit of £410,000 to the Group for the period from 11 July 2021 to 31 December 2021. FFEI Limited had an accounting reference date of 31 March prior to acquisition, reporting on a 4 week/4 week/5 week basis in their ERP system, which has subsequently been aligned with the Xaar Group date of 31 December and month end reporting. FFEI Limited reported under FRS 102 up to 31 March 2021, transitioning to IFRS and reporting under FRS 101 from 1 April 2021. Due to the difficulties presented in performing an accurate calculation of the results as if the acquisition had occurred on 1 January, the Board has decided that it is impracticable to present the pro-forma revenue and profit.

8. Restatement of prior period

The financial statements include a prior period restatement in relation to non-cash inventory related adjustments identified at EPS in 2021, that relate prior to 2020. Inventory items with a total value of $827,000 (£627,000) were identified as being held on the balance sheet that had been previously disposed, scrapped or consumed prior to 1 January 2020. The errors occurred as a result of the internal control deficiencies identified in the EPS subsidiary, in respect of the adequacy of controls over inventory management, as disclosed in the 2020 Annual Report and Financial Statements. Additionally an amount owed to an EPS supplier of $153,000 (£116,000) was incorrectly classified as a vendor deposit on the balance sheet when the payment was made to them in 2020, which should have been recognised as an expense in 2016. The increase in the brought forward tax losses as a result of these adjustments has not been recognised as a deferred tax asset but has increased the level of unused tax losses (as also disclosed in note 23). There was no impact of the restatement on Earnings Per Share. Actions have been taken in 2021 to remediate the deficiencies identified. Process changes have been made to prevent the reoccurrence of such errors.

The following tables summarise the impact of the prior period restatement on the financial statements of the Group for the periods ended 1 January and 31 December 2020:

Consolidated statement of financial position			1 Jan 2020	EPS	1 Jan 2020
			as reported	adjustment	restated
			£'000	£'000	£'000
Current assets
Inventories			16,530	(627)	15,903
Total assets			88,224	(627)	87,597
Current liabilities
Trade and other payables			(7,973)	(116)	(8,089)
Total liabilities			(17,887)	(116)	(18,003)
Net assets			70,337	(742)	69,595
Equity
Translation reserve			594	24	618
Retained earnings			7,598	(766)	6,832
Total equity			70,337	(742)	69,595

Consolidated statement of comprehensive income	31 Dec 2020	EPS	31 Dec 2020
	as reported	adjustment	restated
	£'000	£'000	£'000
Loss for the year	(14,669)	-	(14,669)
Exchange differences on retranslation of net investment	240	22	262
Tax on items taken directly to equity	(5)	-	(5)
Other comprehensive income for the year	235	22	257
Total comprehensive loss for the year	(14,434)	22	(14,412)
Attributable to:
Owners of the Company	(11,466)	22	(11,444)
Non-controlling interests	(2,968)	-	(2,968)
	(14,434)	22	(14,412)

Consolidated statement of financial position	31 Dec 2020	EPS	31 Dec 2020
	as reported	adjustment	restated
	£'000	£'000	£'000
Non-current assets
Goodwill	5,152	-	5,152
Other intangible assets	207	-	207
Property, plant and equipment	17,147	-	17,147
Right of use asset	2,078	-	2,078
Deferred tax asset	139	-	139
	24,723	-	24,723
Current assets
Inventories	10,355	(605)	9,750
Trade and other receivables	9,751	(111)	9,640
Current tax asset	425	-	425
Treasury deposits	161	-	161
Cash and cash equivalents	17,956	-	17,956
Derivative financial instruments	160	-	160
Assets held for sale	43	-	43
	38,851	(716)	38,135
Disposal group assets held for sale	9,968	-	9,968
	48,819	-	48,103
Total assets	73,542	(716)	72,976
Current liabilities
Trade and other payables	(9,940)	-	(9,940)
Provisions	(357)	-	(357)
Derivative financial instruments	(2,919)	-	(2,919)
Lease liabilities	(1,064)	-	(1,064)
	(14,280)	-	(14,280)
Liabilities associated with disposal group	(1,589)	-	(1,589)
	(15,869)	-	(15,869)
Net current assets	32,950	(716)	32,234
Non-current liabilities
Lease liabilities	(1,515)	-	(1,515)
Total non-current liabilities	(1,515)	-	(1,515)
Total liabilities	(17,384)	-	(17,384)
Net assets	56,158	(716)	55,442
Equity
Share capital	7,833	-	7,833
Share premium	29,328	-	29,328
Own shares	(1,957)	-	(1,957)
Translation reserve	818	46	864
Other reserves	21,167	-	21,167
Retained earnings	(4,802)	(762)	(5,564)
Equity attributable to owners of the company	52,387	(716)	51,671
Non-controlling interests	3,771	-	3,771
Total equity	56,158	(716)	55,442

9.  Non-Adjusting Post Balance Sheet Event - Megnajet Acquisition

On 2 March 2022, Xaar completed the acquisition of Megnajet Ltd and Technomation Ltd.

The companies trade together under the name of Megnajet, and design and manufacture industrial ink management and supply systems for digital inkjet. The acquisitions will accelerate the Company's growth strategy by creating a more integrated inkjet solution whereby customers can access more of the printing ecosystem (such as ink supply systems and the electronics) from Xaar.

The initial combined cash consideration of £3,600,000 (£1,800,000 for each Megnajet Ltd and Technomation Ltd) was paid on completion, with an additional combined £400,000 deferred consideration (£200,000 for each Megnajet Ltd and Technomation Ltd) to be paid out in two years. The Board expects the acquired expertise and resource will contribute to the long-term profitable growth in Xaar's core printhead business. The acquisition accounting is not yet complete due to the timing of the transaction. Due to the short time since the acquisition of Megnajet Ltd and Technomation Ltd and date of the financial statements, and the work yet to be completed with regard to transitioning the entities to IFRS, this presents difficulties in performing an accurate calculation of the results as if the acquisition of Megnajet Ltd and Technomation Ltd had occurred on 1 January 2021. Therefore the Board has decided that it is impracticable to present the pro-forma revenue and profit.

 

END

 

 

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