Final Results

RNS Number : 5631Z

Xaar PLC

19 March 2012

 



FOR IMMEDIATE RELEASE

19 March 2012

Xaar plc

FINAL RESULTS FOR 2011

Xaar plc ("Xaar", the "group" or the "company"), the inkjet printing technology group headquartered in Cambridge, announces its results for the year ended 31 December 2011.

Key points:

·     Strong growth in revenue and profit driven by demand for Platform 3 products from the ceramic decoration sector.

·     Increased output to meet growing demand was achieved through the successful implementation of the first stages of a £22m capacity expansion programme at Xaar's Huntingdon facility.

·     The remaining stages of the expansion programme are on track to complete by the end of June 2012, three months ahead of the original plan.

·     Sales into the graphic arts segment declined, as expected, reflecting market maturity and competition.  A recovery plan in this segment is underway.

·     The financial highlights were:

o   Revenue was up 26% to £68.7m (2010: £54.7m);

o   Adjusted* gross margin improved to 44% (2010: 42%);

o   Adjusted* profit before tax was up 90% to £10.6m (2010: £5.6m);

o   Reported profit before tax was £9.1m (2010: £5.4m);

o   Adjusted* diluted earnings per share up 73% to 10.7p (2010: 6.2p);

o   Reported diluted earnings per share at 10.4p (2010: 6.1p); and

o   Net cash** at 31 December 2011 was £17.4m (31 December 2010: £22.0m).

            *   Before restructuring costs, exceptional commercial agreement costs, exchange differences on intra-group transactions, share-based payment charges, and the gain or loss on derivative financial instruments (see the reconciliation of adjusted financial measures)

            ** Cash less borrowings

·     A final dividend of 2.0 pence is recommended, which would increase the total dividend for 2011 to 3.0 pence (2010: 2.5 pence).  Further dividend increases in future years may be considered.

·     Following the resignation of Xaar's nine support staff in China in January 2012, direct contact with customers from UK HQ has been successful in maintaining business levels in the year to date.  Xaar will support Chinese customers with sales and technical staff in Hong Kong.  No adverse impact on 2012 is expected.

Commenting on the results, Chairman, Phil Lawler stated:

"I am pleased to report that Xaar has delivered an excellent set of financial results for 2011, in a very uncertain macro-economic climate, whilst executing a capacity expansion to enable the company to satisfy strong demand for its products.  Our continuing success in the ceramic decoration market is driving the profitable development of our business, which is enabling additional resources to be applied to both the expansion of the current product portfolio and the development of technology for future products."

Contacts

Xaar plc:	Today: 020-7367-8888
Ian Dinwoodie, Chief Executive	Thereafter: 01223-423663
Alex Bevis, Finance Director	www.xaar.com
Singer Capital Markets Limited:	020-3205-7500
Shaun Dobson or Claes Spång
Bankside Consultants:
Simon Bloomfield	020-7367-8888 or 07771 758517
James Irvine-Fortescue	020-7367-8888 or 07971 104243

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that Xaar delivered an excellent set of financial results during 2011, in a very uncertain macro-economic climate, whilst executing a capacity expansion to enable the company to satisfy strong demand for its products.

Our continuing success in the ceramic decoration market, through our Platform 3 ("P3") technology, is driving the profitable development of our business. The major manufacturing capacity and infrastructure investment programme that we embarked on over a year ago, is ahead of plan and on budget and is expected to complete by the end of June 2012.

Revenue growth has continued, with sales up 26% on 2010, and adjusted profit before tax has risen sharply, up by 90% over last year.  Our balance sheet remains strong with a healthy net cash balance of over £17 million at 31 December 2011.

Business Trends

Our success in the ceramic decoration market has shifted the geographic spread of our business. Currently, our main customers in ceramics are based in Europe, whereas our well established graphic arts business, which delivered the majority of sales from 2004 to 2009, is predominantly based in Asia.  Although this has increased our exposure to the economic problems of the Eurozone, the risks are mitigated by the level of exports that our European ceramic partners are achieving.

Our growth and success in the ceramics market continues, where our disruptive technology is enabling digitalisation to take place.  We have won significant market share by offering a new and significantly advantageous solution.  Inevitably, Xaar's success is attracting competition to which we are responding by developing new variants, the first of which is already in customer trials. We are also increasing sales to ceramics customers in China, where over 40% of the world ceramic tile production capacity exists.

Whilst we have had major success in ceramic decoration, progress in labels and other industrial applications have been slower. This reflects the time taken to develop new printing machines, new processes and gain end market acceptance.

In graphic arts our market share has continued to decline. Competitors are well established and pricing is aggressive. The competition includes Xaar licensees who continue to pay royalties.

Our future continues to lie in selectively re-engineering existing print applications and in new industrial developments. Unlike most high technology markets, these transitions move slowly, but once success has been achieved, they result in long product lifecycles.

 

Over the past few years, much of Xaar's development effort and resource has been expended on existing product development, manufacturability, quality and product integration, resulting in significant improvements, and we continue to set more challenging targets in this area. However, our Research and Development team is now focusing more resources on the future, both in the expansion of P3 and in the development of next generation Platform 4 ("P4"). Research and Development is a vital element of Xaar's strategy and we continue to invest in the range of 7% to 10% of revenue each year. We are fortunate to have a highly knowledgeable and talented team in this function.

I commented earlier on the progress made with our capital investment programme to install significant additional capacity. At the start of last year, we were capacity constrained and could not meet demand for P3. By October 2011, this situation had been resolved and we are now able to meet customer demand. The major and complex task of installing, commissioning and qualifying the new plant facilities and machinery, whilst ensuring that delivered product quality was not compromised, was a massive achievement and testament to the strength and experience of our manufacturing team.

Dividend

Xaar's financial position remains strong with substantial and sufficient net cash resources of £17.4 million as at 31 December 2011.  Based on the profitability and expected continuing cash generation of the business the board has decided to recommend a final dividend of 2.0 pence which, together with the 1.0 pence interim dividend paid on 16 September 2011, represents a 0.5 pence increase in total dividend compared to 2010.  Further dividend increases in future years may be considered.

Board

There have been a number of changes to the Board during 2011.  Ted Wiggans joined in January 2011 as Operations Director and Alex Bevis took over the role of Finance Director and Company Secretary in March 2011.  David Cheesman joined as a non-executive director in July 2011, replacing Rob Eckelmann who stepped down after almost six years.

As announced in 2011, Phil Eaves, Sales and Marketing Director, is retiring from the Board at the end of March 2012. On behalf of Xaar I would like to thank Phil for his significant contribution to the growth and development of the Company over the past six years and wish him well in his retirement.

I am pleased to welcome Richard Barham to the Board (appointed 5 March 2012) as Sales and Marketing Director.  Since 1986, Richard has held a range of sales, marketing and management positions at Agfa Graphics NV. Since February 2008 he has acted as Vice President of the Inkjet Division where he was responsible for turning the business around and integrating a major acquisition.  Richard therefore brings considerable knowledge and relevant experience of our industry as both a tier one printer manufacturer and customer of Xaar product and technology.

Phil Lawler

Chairman

19 March 2012

REVIEW OF OPERATIONS

Introduction

2011 was a year of substantial progress. Strong revenue growth was driven by Platform 3 ("P3") demand and was delivered through the successful execution of the capacity expansion programme at the Huntingdon plant, increasing output. The £22 million investment programme to increase P3 capacity is running smoothly and is now approximately three months ahead of the original schedule and is expected to complete by the end of June 2012.

As a result of this growth, coupled with improvements achieved in gross margins and operating efficiencies, adjusted profit before tax for the year (see the reconciliation of adjusted financial measures) increased by 90%.

Business Review

Total revenue for 2011 of £68.7m (2010: £54.7m) comprises product sales of £61.4 million (2010: £47.2 million), representing 89% of turnover (2010: 86%); royalties of £7.2 million (2010: £7.0 million), representing 11% of turnover (2010: 13%); and development fees of £0.1 million (2010: £0.5 million). This 26% growth in total revenue is made up of 30% growth in product sales, and 3% growth in royalties.

Throughout the year, gross margin continued the positive trend which started in 2009, improving from 44% for the first half of 2011 to 45% for the second half. For the year overall, adjusted gross margin (see the reconciliation of adjusted financial measures) increased to 44% (2010: 42%).

The successful implementation of additional P3 capacity has allowed the acceleration of P3 sales into both the ceramic tile decoration and primary label printing markets. The digitalisation of the ceramic decoration market is now well underway and a significant percentage of this market is expected to convert over the next 5 years. Our success in this field is now starting to attract the interest of competitors and we anticipate that competition will grow over time. We believe that the superiority of our technology and products, combined with a competitive pricing strategy, will enable Xaar to strengthen its position in the ceramics market and to sustain strong growth in revenues and profits. Progress in the primary label market continues, but at a more modest rate than ceramics, and further applications continue to be developed by our partners.

As expected, given the maturity of the wide format graphics market and intense competition, P1 sales fell in 2011 with licensee royalties also marginally down on 2010 in constant currency terms. Both commercial and technical efforts are required to reverse this trend, in parallel with changing our infrastructure in China, as discussed later in this review, we plan to improve results in this sector.

Commercial Review

Geographic

Based on the strong adoption of our P3 technology in the ceramic decoration market, EMEA remained the company's largest sales region, generating revenue of £42.0 million (2010: £24.9 million) representing 69% growth over the previous year which itself had almost doubled from 2009. For 2011 the EMEA region represented 61% of total revenue compared to 46% in the previous year.

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

Asia generated 28% of total sales which, at £19.3 million, were down 13% on 2010. Royalties increased by 3% due to foreign currency movements, and fell slightly in constant currency terms. As expected, in 2011 P3 uptake in Asia was very modest, with the vast majority of volume being supplied via European OEMs and reflected in EMEA revenues. Over the next few years, we expect the contribution of P3 sales in Asia to become more material as the result of direct sales into China.

Total sales to the Americas in 2011 were maintained at the £7.4 million achieved in 2010, representing 11% (2010: 14%) of total sales. P3 growth in the packaging markets of North America was offset by P1 shrinkage in the wide-format graphics market of South America. Ceramics customers in the Americas are supplied by European OEMs with revenues included in those reported for EMEA.

End Markets

For the first time, industrial markets have become the largest end application for Xaar technology. Business in these applications more than doubled for the second year running, resulting in sales of £31.5 million (2010: £14.1 million) and now accounts for 46% of total sales (2010: 26%). Rapid adoption of P3 technology in the ceramic decoration sector has continued to be the primary driving force in this area. Since the second half of 2011, the successful P3 capacity expansion has released the constraint on sales. As a result of the improved availability of product, development of further industrial applications is now taking place with multiple partners.

Sales into the graphic arts market fell by 15% to £18.1 million, compared to £21.4 million for 2010, and now represent 26% of total sales (2010: 39%). Whilst this market is mature it continues to be an important core market for Xaar, specifically in the areas of large format advertising and signage printing. Reversing the trend of declining sales is a key objective of the company which we believe can be achieved by a combination of commercial and technical activities designed to win back market share in this highly competitive market.

Sales into the packaging market were stable compared to the previous year at £11.7 million (2010: £11.8 million) and represent 17% (2010: 22%) of total sales. Within this figure P3 growth in primary label printing applications has been offset by a decline in the mature coding and marking applications serviced by our P1 products.

Operations Review

All elements of the P3 capacity expansion plan have been well executed and the plan is now running approximately three months ahead of the original schedule with the cost expected to be within budget.

I am particularly pleased with the quality of staff we have managed to attract during this process. Facilities work, including a full third clean room, was completed as planned by mid 2011. By the end of the year, 80% of the processing assets had been delivered, with the final deliveries and process qualifications expected to occur by mid 2012. It is also pleasing to report that this capacity expansion programme has been delivered without any disruption of the supply of products to customers and has enabled supply to move ahead of demand during the third quarter of 2011, allowing for a significant improvement in both product lead-times and customer delivery satisfaction.

The increase in volume throughput and operational improvements achieved during the year were key to our success in improving gross margins during the year.

R&D spend in the year increased by 15% to £5.8 million, representing 8% (2010: 9%) of sales.  Projects which commenced during 2011 included the development of a new P3 product together with new P3 variants, new P1 variants and new electronics development programmes. Following successful completion of the modelling and simulation stages, the Platform 4 ("P4") project has moved to prototyping with first physical test structures expected to occur during 2012.

China Representation

As previously announced on 24 January 2012, our China sales support team have left the Company.

The Company is in direct contact with its Chinese customers, and revenue during the early stages of 2012 is in line with expectations. The Company has decided to close its representative office in Shanghai, and will support Chinese customers with sales and technical support based in Hong Kong. This is a return to the support model which was successfully used prior to 2007.  In the short term UK staff will continue to provide support to Chinese customers, and it is expected the new Hong Kong based support centre will be fully operational, for both technical and commercial local support, by the middle of the year.  Whilst some transitional costs will be incurred, the financial impact of this change is expected to be immaterial.

Outlook

Our strategy to drive the development of Xaar technology into selected multiple applications and industries, whilst delivering sustainable, profitable growth was re-affirmed at a Strategic Review early in 2011. Consequently we will continue to innovate, focusing on carefully selected market segments and products offering attractive commercial returns.

Having established a trend of profitable growth, which we expect to continue, we are now seeking to accelerate the further adoption of Xaar's technology in both existing and new applications.

P3 is now established, with both variants and new products being planned and developed to enable us to exploit its potential fully. We expect this platform to have a long and successful life.

Whilst we are not planning for substantial growth in graphic arts, the market is significant and through new product releases and competitive pricing, we expect to remain a leading supplier to this sector.

The priorities for 2012 are:

·      in the short term, complete the establishment of our new support infrastructure for China;

·      to grow P3 further in both the label and ceramic markets whilst commencing material business in the décor market;

·      to reverse the decline in the wide format graphics market; and

·      to prime the product development pipeline to underpin and sustain growth over the medium term.

People

I would like to thank all our staff for their efforts during a year of significant progress for the Company. The combination of their skill, hard work and dedication has delivered a set of results of which they can be justifiably proud.

Ian Dinwoodie

Chief Executive

19 March 2012

FINANCE REVIEW

Trading

Strong demand from the industrial sector, driven mainly by ceramics, resulted in total group revenue growing by 26% to £68.7 million in 2011 from £54.7 million in 2010.  This followed a 32% increase in sales in 2010 compared to 2009. 

The prospect for sustainable revenue growth supported Xaar's decision, announced in 2010, to invest in expanding production capacity at Huntingdon, and is reflected in the revenue growth achieved over consecutive half years since 2009.

Revenue for the second half of 2011 grew by 17% over the first six months of the year.  This increase was driven by sales into the ceramics segment, facilitated by the capacity expansion programme.  It also reflects normal seasonality favouring the second half as a result of the Chinese New Year and other factors affecting the first half.  Revenue for the second half of 2011 grew by 20% over the same period in 2010.

The majority of Xaar's revenue is generated by product sales (£61.4 million, 89% of total sales in 2011), with printheads constituting the most significant element of this category (£54.4 million, 89% of product sales in 2011).    

Success in ceramics resulted in 124% growth (£17.5 million) in sales for the industrial segment.  Product sales into other segments reduced by 8% (£3.4 million), principally reflecting a decline in sales into the graphic arts segment.  In response to market maturity and competitive pressures in this sector, management is implementing a recovery plan which includes new product development.

License fees and royalties grew by 3% to £7.2 million (2010: £7.0 million).  In constant currency terms, royalties fell slightly highlighting competitive pressure in the mature wide-format graphics market.

An adjusted gross margin (gross margin excluding exceptional items per the reconciliation of financial measures) of 44.2% was achieved in 2011 (2010: 41.8%).  This increase reflects the leverage of higher sales over the fixed elements of manufacturing costs, production efficiency improvements achieved during the year, and the cessation of royalties payable on licensee income.  As a result of these factors, adjusted gross profit grew by 33%, from £22.9 million in 2010 to £30.4 million in 2011.

Adjusted operating expenditure for the year, excluding share charges, intercompany exchange and exceptional items, was up 14% on 2010 to £19.8 million for 2011.  This increase reflects an investment in headcount in the R&D, sales and marketing, and support functions.  R&D expenditure increased by 15% to £5.8 million.

 
Included within adjusted operating expenditure was a £0.4 million exchange loss in 2011 (2010: a £0.1 million gain), reflecting exposure to Euro/Sterling currency fluctuations during the year through higher sales to European ceramic printer manufacturers.  Despite some natural hedging against Euro outflows, particularly related to the capacity expansion programme, exchange losses were suffered in the latter part of 2011 on net excess Euro inflows.  In 2012, Euro cash inflows will be managed using a combination of spot trades and flexible forward contracts.

Exceptional items in the year of £1.4 million (2010: £0.1 million) include share-based payment charges of £1.3 million (2010: £1.3 million); the net release of the provision for restructuring costs associated with the previously planned closure of the Swedish plant of £0.2 million (2010: £1.1 million); and foreign exchange losses associated with operating the Swedish plant of £0.3 million (2010: a gain of £0.5 million).  In 2010, exceptional commercial agreement costs of £0.5 million were incurred.

The total charge relating to interest income, interest payable and non-operating exchange gains and losses netted to £nil in 2011 (2010: a charge of £0.1 million). 

Adjusted profit before tax for the year (see the reconciliation of adjusted financial measures) increased by 90% to £10.6 million (2010: £5.6 million) as a result of gross profit increasing 33%, well ahead of the 12% increase in operating expenditure.  Adjusted profit before tax is stated before exceptional items and is the normal measure used by management for tracking the underlying profitability of the Group.

The tax charge on adjusted profit before tax was £2.6 million (2010: £1.5 million), representing an effective tax rate of 25% (2010: 27%).  This tax charge is the product of the UK and Sweden corporation tax rates (26.5% and 26.3% respectively) reduced by the impact of R&D tax credits.

The tax charge on unadjusted profit before tax was £1.5 million (2010: £1.4 million) representing an effective tax rate of 16% (2010: 27%).  The low rate was mainly the result of the release of a provision that is no longer required.

Adjusted profit after tax for 2011 (see note 2) was £7.9 million, up 93% from the £4.1 million recorded in 2010.  Adjusted diluted earnings per share for 2011 was 10.7 pence (2010: 6.2 pence).

Financial Position

Xaar maintains a strong balance sheet, with net cash (gross cash less financing arrangements) at 31 December 2011 of £17.4 million, versus £22.0 million at 31 December 2010.  Compared to the adjusted profit before tax of £10.6 million achieved in 2011, the reduction in cash is principally explained by the capacity expansion programme, with total capital related cash expenditure for the year of £15.7 million. 

Operational cash flow remains strong, benefiting from the growth in revenue and profit resulting from the capacity expansion at Huntingdon, and the company continues to focus on controlling costs and working capital.

Dividend

The board will recommend a final dividend of 2 pence for 2011 at the forthcoming Annual General Meeting, giving a total dividend for the year of 3 pence (2010: 2.5 pence).  An interim dividend of 1 pence was paid during the year (2010: 1 pence).  Subject to approval by shareholders at the Annual General Meeting, the final dividend will be paid on 22 June 2012 to shareholders on the register on 1 June 2012.

Annual General Meeting

The Annual General Meeting will be held at 9.30am on 22 May 2012 at 316 Science Park, Cambridge, CB4 0XR.

Alex Bevis

Finance Director & Company Secretary

19 March 2012

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
		2011	2010
	Notes	£'000	£'000
Revenue		68,706	54,678
Cost of sales		(38,327)	(32,085)
Gross profit		30,379	22,593
Research and development costs		(5,781)	(5,017)
Sales and marketing expenses		(4,606)	(4,192)
General and administrative expenses		(11,064)	(9,010)
Restructuring costs		169	1,107
Operating profit		9,097	5,481
Investment income		91	42
Finance costs		(62)	(92)
Profit before tax		9,126	5,431
Tax		(1,450)	(1,442)
Profit for the year attributable to shareholders		7,676	3,989
Earnings per share
Basic	2	10.8p	6.3p
Diluted	2	10.4p	6.1p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
	2011	2010
	£'000	£'000
Profit for the year	7,676	3,989
Exchange differences on retranslation of net investment	67	(391)
Loss on cash flow hedges	-	(87)
Tax relating to components of other comprehensive income	-	14
Other comprehensive income/(loss) for the year	67	(464)
Total comprehensive income for the year	7,743	3,525

RECONCILIATION OF ADJUSTED FINANCIAL MEASURES
FOR THE YEAR ENDED 31 DECEMBER 2011
	2011	2010
	£'000	£'000
Gross profit	30,379	22,593
Exceptional commercial agreement costs	-	271
Adjusted gross profit	30,379	22,864
Profit before tax	9,126	5,431
Release of accrued restructuring costs	(169)	(1,107)
Exceptional commercial agreement costs	-	461
Exchange differences arising on consolidation of the Swedish operations	335	(462)
Gain on derivative financial instruments	-	(39)
Share-based payment charges	1,274	1,276
Adjusted profit before tax	10,566	5,560
	2011	2010
	Pence per share	Pence per share
Diluted earnings per share	10.4p	6.1p
Release of accrued restructuring costs	(0.2p)	(1.7p)
Exceptional commercial agreement costs	-	0.7p
Exchange differences arising on consolidation of the Swedish operations	0.4p	(0.7p)
Gain on derivative financial instruments	-	(0.1p)
Share-based payment charges	1.7p	2.0p
Tax effect of adjusting items	(0.5p)	(0.1p)
Tax provision release	(1.1p)	-
Adjusted diluted earnings per share	10.7p	6.2p

The restructuring costs released related to the aborted closure of the Swedish manufacturing plant. 

Exceptional commercial agreement costs related to dispute settlements with two customers.

Exchange differences arising on consolidation of the Swedish operations relates to the exchange gains or losses recorded in the income statement as a result of operating in Sweden.

Gain on derivative financial instruments related to gains made on forward contracts in 2010.

Share-based payment charges include the IFRS 2 charge for the period and the movement on the National Insurance provision on the outstanding potential share option gains.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
					Hedging and
	Share	Share	Own	Other	translation	Retained
	capital	premium	shares	reserves	reserves	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2010	6,351	10,525	(4,465)	3,140	904	20,008	36,463
Profit for the year	-	-	-	-	-	3,989	3,989
Exchange differences on retranslation of net investment	-	-	-	-	(391)	-	(391)
Loss on cash flow hedges	-	-	-	-	(87)	-	(87)
Tax on items taken directly to equity	-	-	-	-	14	-	14
Total comprehensive income for the period	-	-	-	-	(464)	3,989	3,525
Issue of share capital	886	14,139	-	-	-	-	15,025
Expenses of issue of equity shares	-	(1,130)	-	-	-	-	(1,130)
Dividends	-	-	-	-	-	(1,545)	(1,545)
Deferred tax on share option gains	-	-	-	-	-	1,064	1,064
Credit to equity for equity-settled share-based payments	-	-	-	874	-	-	874
Balance as at 1 January 2011	7,237	23,534	(4,465)	4,014	440	23,516	54,276
Profit for the year	-	-	-	-	-	7,676	7,676
Exchange differences on retranslation of net investment	-	-	-	-	67	-	67
Total comprehensive income for the period	-	-	-	-	67	7,676	7,743
Issue of share capital	43	193	-	-	-	(18)	218
Dividends	-	-	-	-	-	(1,773)	(1,773)
Deferred tax on share option gains	-	-	-	-	-	(230)	(230)
Credit to equity for equity-settled share-based payments	-	-	-	1,135	-	-	1,135
Balance at 31 December 2011	7,280	23,727	(4,465)	5,149	507	29,171	61,369

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2011
	2011	2010
	£'000	£'000
Non-current assets
Goodwill	720	720
Other intangible assets	4,408	4,349
Property, plant and equipment	27,558	17,385
Investments	1,261	1,261
Deferred tax asset	835	995
	34,782	24,710
Current assets
Inventories	11,756	10,715
Trade and other receivables	9,375	9,301
Current tax asset	465	381
Cash and cash equivalents	18,274	23,344
	39,870	43,741
Total assets	74,652	68,451
Current liabilities
Trade and other payables	(9,945)	(10,969)
Other financial liabilities	(61)	(217)
Current tax liabilities	(642)	-
Obligations under finance leases	(277)	(265)
Provisions	(991)	(797)
	(11,916)	(12,248)
Net current assets	27,954	31,493
Non-current liabilities
Deferred tax liabilities	(484)	(695)
Other financial liabilities	(289)	(361)
Obligations under finance leases	(594)	(871)
Total non-current liabilities	(1,367)	(1,927)
Total liabilities	(13,283)	(14,175)
Net assets	61,369	54,276
Equity
Share capital	7,280	7,237
Share premium	23,727	23,534
Own shares	(4,465)	(4,465)
Other reserves	5,149	4,014
Hedging and translation reserves	507	440
Retained earnings	29,171	23,516
Equity attributable to shareholders	61,369	54,276
Total equity	61,369	54,276

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
		2011	2010
	Notes	£'000	£'000
Net cash from operating activities	3	12,787	5,524
Investing activities
Investment income		91	42
Purchases of property, plant and equipment		(14,438)	(6,488)
Proceeds on disposal of property, plant and equipment		2	10
Expenditure on capitalised product development		(1,272)	(359)
Net cash used in investing activities		(15,617)	(6,795)
Financing activities
Dividends paid		(1,773)	(1,546)
Loan financing		-	1,389
Proceeds from issue of ordinary share capital		218	15,025
Fees for issue of ordinary share capital		-	(1,130)
Finance costs		(54)	(80)
Repayments of borrowings		(482)	(537)
Net cash (used in)/provided by financing activities		(2,091)	13,121
Net (decrease)/increase in cash and cash equivalents		(4,921)	11,850
Effect of foreign exchange rate changes		(149)	(27)
Cash and cash equivalents at beginning of year		23,344	11,521
Cash and cash equivalents at end of year		18,274	23,344

Notes to the consolidated financial information

for the year ended 31 December 2011

1.         Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2011, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. The auditors have 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 2012.

2.         Earnings per ordinary share - basic and diluted

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

	2011	2010
	£'000	£'000
Earnings
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	7,676	3,989
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	70,878,697	63,009,082
Effect of dilutive potential ordinary shares:
Share options	3,015,999	2,311,031
Weighted average number of ordinary shares for the purposes of diluted earnings per share	73,894,696	65,320,113
	2011	2010
	Pence per share	Pence per share
Basic	10.8p	6.3p
Diluted	10.4p	6.1p

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 and the Xaar plc ESOP trust.

Share options granted over 344,312 shares (2010: 1,939,540) have not been included in the diluted earnings per share calculation because they are anti-dilutive at the period end.

The performance conditions for LTIP awards granted over 231,457 shares (2010: 516,061) and share options granted over 229,793 shares (2010: nil) have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.

Adjusted earnings per share

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 is based on earnings of:

	2011	2010
	£'000	£'000
Profit before tax	7,676	3,989
Release of accrued restructuring costs	(169)	(1,107)
Exceptional commercial agreement costs	-	461
Exchange differences on intra-group transactions	335	(462)
Gain on derivative financial instruments	-	(39)
Share-based payment charges	1,274	1,276
Tax effect of adjusting items	(382)	(36)
Tax provision release	(812)	-
Adjusted profit after tax	7,922	4,082

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 restructuring costs, exceptional commercial agreement costs, exchange differences on intra-group transactions, share-based payment charges, and the gain or loss on derivative financial instruments:

	2011	2010
	Pence per share	Pence per share
Adjusted basic	11.2p	6.5p
Adjusted diluted	10.7p	6.2p

3.         Notes to the cash flow statement

	2011	2010
	£'000	£'000
Profit before tax	9,126	5,431
Adjustments for:
Share-based payments	1,274	1,276
Depreciation of property, plant and equipment	4,660	3,686
Amortisation of intangible assets	1,315	1,119
Investment income	(91)	(42)
Finance costs	62	92
Foreign exchange losses/(gains)	313	(649)
Movements on cash flow hedge valuations	-	(39)
Loss on disposal of property, plant and equipment	(9)	25
Increase/(Decrease) in provisions	194	(1,611)
Operating cash flows before movements in working capital	16,844	9,288
Increase in inventories	(1,079)	(3,988)
Increase in receivables	(88)	(3,621)
(Decrease)/increase in payables	(1,654)	5,389
Cash generated by operations	14,023	7,068
Income taxes paid	(1,236)	(1,544)
Net cash from operating activities	12,787	5,524

Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.  The carrying amount of these assets is approximately equal to their fair value.

4.         Going concern

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

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future, based on the group's forecasts and projections, taking account of reasonably possible changes in trading performance. For this reason, they continue to adopt the going concern basis in preparing the financial information.

 

END

 

 

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