Final Results - Year Ended 31 December 1999

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

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