Interim Results

Xaar PLC 18 September 2002 FOR IMMEDIATE RELEASE 18 September 2002 Xaar plc INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2002 Xaar plc ('Xaar'), the ink jet printing technology group headquartered in Cambridge, has announced its unaudited results for the six months ended 30 June 2002. Key points : - Turnover increased 14% to Â£14.0m (2001 : Â£12.3m). - XaarJet printhead manufacturing and ink sales business increased turnover by 44% to Â£13.0m (2001 : Â£9.0m). - Total technology income was Â£1.0m (2001 : Â£3.3m) reflecting the absence of licence sales in the first half of this year. - Accordingly, profit before tax was Â£0.4m (2001 : Â£2.0m). - Xaar continues to be cash generative with cash and short term investments standing at Â£10.9m at 30 June 2002 after providing for capital investment of Â£0.5m and R&D expenditure of Â£1.9m. - Going forward, business will be focussed on XaarJet manufacturing activities. On outlook, Chairman, Arie Rosenfeld stated : 'Xaar has a thriving and profitable high-tech manufacturing business to concentrate on, and the group as a whole is financially robust and cash generative. Efforts to sell further technology licences in the future will continue, but their timing and size will always be unpredictable.' Jan Fineman, Chief Executive or Nigel Berry, Finance Director at Xaar on : 020-7466-5000 today 01223-423663 thereafter Steve Liebmann or Lisa Baderoon at Buchanan Communications on : 020-7466-5000 CHAIRMAN'S STATEMENT Introduction Against a background of continuing expansion in the XaarJet side of our business, the Board of Xaar has been reviewing the company's positioning within the digital printing industry. It is the company's intention to focus its resources in a manner which will build on its strengths, and offer more control over its future development and growth. Xaar has some of the very best digital printing technology available, giving rise to a specialist printhead manufacturing business which goes from strength to strength. The successful consolidation of these activities at our Swedish plant during the period will support the future growth of this business. The global digital printing industry is huge and diverse and offers enormous growth potential; however, it is clearly not possible for a company of Xaar's size to address the whole market, and Xaar intends to concentrate its efforts on those market segments for which its technologies are best suited and where Xaar can be positioned as a clear market leader. As part of this review, it must also be acknowledged that technology revenues (principally licences and royalties) have been disappointing and will remain uncertain as to both quantum and timing; indeed, no new licence was signed during the first half year. The differing prospects for the two sides of the business, XaarJet and Xaar Technology, have led the board to decide the future now lies in developing its successful XaarJet sales and manufacturing activities. The group's technology will continue to be driven forward in support of this development, which may still provide future licensing opportunities. Xaar continues to be technically and financially strong, providing it with the resources to implement this strategy. Results and finance Group revenues grew by 14% to Â£14.0 million (2001: Â£12.3 million). Strong growth was achieved within the XaarJet manufacturing activities, which increased turnover by 44% to Â£13.0 million (2001: Â£9.0 million). Total technology income declined to Â£1.0 million (2001: Â£3.3 million) with the most important factor being the absence of licence revenue (2001: Â£2.0 million). Royalty income fell to Â£0.5 million, from Â£0.8 million in the previous year. Profit before tax was Â£0.4 million (2001: Â£2.0 million), reflecting the absence of licence revenue in the period. (Loss)/earnings per share were (0.2)p (2001: 2.7p), and reflect a full tax charge in Sweden, following utilisation last year of all available tax losses in XaarJet AB. Xaar generated cash during the half year with cash and short term investments standing at Â£10.9 million at 30 June 2002 (31 December 2001: Â£9.8 million) after providing for capital investment of Â£0.5 million and research and development expenditure of Â£1.9 million (2001: Â£2.0 million). Business review XaarJet Demand for XaarJet printheads has continued to outstrip our manufacturing capacity with a record number of printheads being shipped during the period. Ink sales also grew strongly. Demand during the first half varied between major markets; strong demand in Asia and continued growth in Europe were partly offset by weaker sales in the USA. During the half year, production of the XJ500 printhead was successfully transferred to Sweden from Cambridge. As a result, production yields and margins for this product have improved with further progress expected during the second half year. Considerable effort is being put into a programme of continuous development in both product design and manufacturing processes in order to progressively improve manufacturing profit margins. Capital investment of some Â£2 million over the next few months will create additional manufacturing capacity, allowing a doubling of XJ500 production in 2003, as well as increased output of the new XJ126 printhead. Licensing and Technology Revenues Progress in developing technology revenues has been disappointing reflecting, in part, a continued reluctance by potential licensees to commit the manufacturing investment implied by the signing of a full Xaar licence agreement. The level of royalty income has also not progressed as had been hoped, with licensee sales and new product launches affected by economic conditions. New technology and product developments With the Cambridge facility now focused on research, development and rapid prototyping, emphasis is being placed on product-related projects which will generate either cost savings through improvements in design or new sales revenue within the short to medium term. In this latter context, we are pleased to report progress on a new advanced design of printhead. The design has full greyscale capability, a 3 pico-litre drop size and a firing speed and drop placement accuracy exceeding that of any existing Xaar product. The basic technical performance of this printhead has now been proven and validated; we expect to start previewing the product into the graphics, packaging and industrial markets in 2003. In April 2002 we announced a new collaboration agreement with Toshiba TEC, part of Toshiba Corporation. Toshiba TEC will manufacture and supply Xaar branded ink jet printheads. The first product to be launched under this agreement is closely targeted at a specific market segment. The 'Leopard' has full greyscale capability and is designed specifically to deliver the highest quality, 'near photographic' printing onto plastics such as smart cards, ID cards, CD decoration and other packaging applications. Xaar has reviewed its PWA ('page wide array') concept and project. Technical progress has been satisfactory with the demonstration of working prototypes to the standards and milestones prescribed by our partners. However, as a result of changes within the commercial digital printing market and current economic conditions, we no longer expect significant further progress in this project. Xaar retains a good working relationship with its partners, which may prove fruitful in the future. It is Xaar's intention to concentrate its own resources in the other areas outlined above, and the PWA project in its current form has now been put on hold, pending further developments in the commercial printing markets. The PWA project contributed significant new technology to the Xaar patent portfolio, which will form the basis for future generations of Xaar products. Board changes We were pleased to welcome Nigel Berry to the Board in May as Group Finance Director. Nigel replaces Gordon MacLeod who has returned to his native New Zealand with his family. We wish Gordon every success for the future and thank him for his contribution during his time with us. Outlook While the absence of new licensing revenue is clearly disappointing, Xaar has a thriving and profitable high-tech manufacturing business to concentrate on, and the group as a whole is financially robust and cash generative. Efforts to sell further technology licences in the future will continue, but their timing and size will always be unpredictable. Arie Rosenfeld 17 September 2002 Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 JUNE 2002 Notes 6 months to 6 months to 12 months to 30 June 30 June 31 December 2002 2001 2001 (unaudited) (unaudited) (audited, restated) Â£'000 Â£'000 Â£'000 Turnover 14,041 12,272 23,982 Cost of sales (7,705) (4,992) (11,374) Gross profit 6,336 7,280 12,608 Other operating expenses (net) (6,011) (5,370) (11,231) Operating profit 325 1,910 1,377 Costs of fundamental restructuring of continuing operations - - (1,049) Profit on ordinary activities before interest 325 1,910 328 Interest receivable 137 163 315 Interest payable (45) (33) (67) Profit on ordinary activities before taxation 417 2,040 576 Tax on profit on ordinary activities (532) (447) (939) Retained (loss)/profit for the financial period (115) 1,593 (363) (Loss)/earnings per share - basic 2 (0.2)p 2.7p (0.6)p (Loss)/earnings per share - diluted 2 (0.2)p 2.6p (0.6)p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 30 JUNE 2002 6 months to 6 months to 12 months to 30 June 30 June 31 December 2002 2001 2001 (unaudited) (unaudited) (audited, restated) Â£'000 Â£'000 Â£'000 Retained (loss)/profit for the financial period (115) 1,593 (363) Gain/(loss) on foreign currency translation 715 (528) (489) Total recognised gains and losses relating to the period 600 1,065 (852) Prior year adjustment (see note 1) (332) Total recognised gains and losses since last annual report 268 BALANCE SHEET AS AT 30 JUNE 2002 As at As at As at 30 June 30 June 31 December 2002 2001 2001 (unaudited) (unaudited) (audited, restated) Â£'000 Â£'000 Â£'000 Fixed assets Intangible assets 1,358 1,523 1,456 Tangible assets 4,310 4,209 4,336 Investments 20 20 20 5,688 5,752 5,812 Current assets Stocks 1,642 1,461 1,125 Debtors 5,433 5,721 5,517 Short term investments 2,830 4,255 2,875 Cash at bank and in hand 8,039 4,536 6,885 17,944 15,973 16,402 Creditors: amounts falling due within one year (6,292) (4,203) (5,271) Net current assets 11,652 11,770 11,131 Total assets less current liabilities 17,340 17,522 16,943 Creditors: amounts falling due after more than one year (446) (222) (470) Provisions for liabilities and charges (694) - (1,024) Net assets 16,200 17,300 15,449 Capital and reserves Called-up share capital 5,965 5,921 5,934 Share premium account 11,129 10,956 11,009 Other reserves 1,095 1,095 1,095 Accumulated deficit (1,989) (672) (2,589) Shareholders' funds - all equity 16,200 17,300 15,449 CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2002 6 months to 6 months to 12 months to 30 June 30 June 31 December 2002 2001 2001 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities 945 1,160 2,769 Returns on investments and servicing of finance 93 119 248 Capital expenditure and financial investment (539) (603) (1,192) Cash inflow before management of liquid resources and financing 499 676 1,825 Management of liquid resources 45 545 1,925 Financing 25 417 238 Increase in cash in the period 569 1,638 3,988 NOTES TO THE INTERIM FINANCIAL INFORMATION Notes to the interim financial information 1. Prior year adjustment The Group's policy for accounting for deferred tax has changed to take into account the new accounting standard FRS19 'Deferred tax'. Previously deferred tax was only provided to the extent that timing differences were expected to reverse in the future without being replaced. Deferred tax is now provided in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more or less tax in the future have occurred at the balance sheet date. As a result the comparative figure for the tax on profit on ordinary activities and the deferred tax provision have been restated. The effects of the change in policy are summarised below: 6 months to 6 months to 12 months to 30 June 30 June 31 December 2002 2001 2001 Â£'000 Â£'000 Â£'000 Profit and loss account Increase in deferred tax charge 190 - 332 Balance sheet Increase in deferred tax liability (190) - (332) 2. (Loss)/earnings per ordinary share - basic and diluted The calculation of (loss)/earnings per share is based upon the (loss)/profit for the period after taxation and on the weighted average number of ordinary shares in issue during the period. For basic (loss)/earnings per share, this is 59,498,071 (30 June 2001: 58,556,295, 31 December 2001: 58,890,234) and for diluted (loss)/earnings per share, this is 59,498,071 (30 June 2001: 62,413,626, 31 December 2001: 58,890,234), the only difference being in relation to movements in share options. 3. Comparative figures These interim financial statements do not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. The results for the year ended 31 December 2001 have been extracted from the statutory financial statements, which have been filed with the Registrar of Companies and upon which the auditors reported without qualification. The accounting policies that have been applied to these interim figures are consistent with those applied in the preceding annual accounts, taking into consideration the change as detailed in note 1. INDEPENDENT REVIEW REPORT TO XAAR PLC Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2002 which comprises the consolidated profit and loss account, the consolidated statement of total recognised gains and losses, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 3. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2002. Deloitte & Touche Chartered Accountants Cambridge 17 September 2002 This information is provided by RNS The company news service from the London Stock Exchange

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