Final Results

RNS Number : 3711D

Xaar PLC

22 March 2011

 



FOR IMMEDIATE RELEASE

22 March 2011

Xaar plc

FINAL RESULTS FOR 2010

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 2010.

Key points:

·     Return to profitable growth in 2010 reflects strong demand for Xaar's industrial inkjet technology and 
demonstrates its clear economic benefits to end users.

·     Orders for Platform 3 products, particularly from the ceramics industry, were higher than anticipated 
and beyond existing production capacity.

·     A capital investment programme, to substantially increase Platform 3 production capacity at 
Huntingdon, is underway.  First new capacity is expected to start in H2 2011 with fully expanded capacity available in H2 2012; Järfälla Sweden facility to remain open.

·     £13.9m net of fees raised through placing and open offer to fund capacity increase in Huntingdon 
facility.

·     The financial results were:

o   Turnover was up 32% to £54.7m (2009: £41.5m);

o   Adjusted* gross margin improved to 42% (2009: 40%);

o   Adjusted* profit before tax was up 167% to £5.6m (2009: £2.1m)

o   Reported profit before tax was £5.4m (2009: loss £0.7m);

o   Adjusted* diluted earnings per share up 88% to 6.2p (2009: 3.3p);

o   Reported diluted earnings per share at 6.1p (2009: 0.1p); and

o   Net cash** at 31 December 2010 was £22.0m (31 December 2009: £11.1m).

            *   Before restructuring costs, exceptional commercial agreement costs, exchange differences on intra-group transactions and the cost of share-based payment charges, impairment of trade investments, and gain or loss on derivative financial instruments (where applicable)

            ** Cash less borrowings

·     Maintained final dividend of 1.5p is recommended, making 2.5p for the year (2009: 2.5p).

·     Accounting treatment for a Chinese distributor amended to a re-seller relationship, with a consequent restatement of the 2009 accounts (£0.5m profit before tax impact in 2009).  

·     No immediate business impact from the recent events in Japan, however, with a number of key 
suppliers and licensees in the country, we will continue to monitor the developing situation closely.

On outlook, Chairman, Phil Lawler stated:

"Having demonstrated during 2010 that we have the products and opportunity to achieve substantial growth in revenue and profits, we now have in place the management team and other resources to execute our strategy.  We are well placed to achieve significant further success in 2011 and beyond."

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

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report on a year of significant progress with results that reflect a continuing improvement in the underlying performance and its longer term growth potential.

The considerable success of our Platform 3 ("P3") technology resulted in demand outstripping our capacity; we are addressing this through further capital investment following a successful share placing and open offer in October 2010.

In the meantime, the group is profitable and cash generative with the rate of revenue and earnings growth, both from product sales and royalties, increasing during the second half of the year.

Business trends

The scope for industrial ink-jet continues to increase and our focus on selected segments is bearing fruit. However, the global print industry will always be governed by the general economic climate and our success is based on being able to demonstrate that Xaar's industrial inkjet technology delivers clear economic benefits to the end user.

This has been particularly evident in our P3 markets where, specifically, the ceramics industry has found that Xaar's patented TF Technology™ is particularly suited to tile decoration and delivers significant advantage to ceramic tile manufacturers. Consequently, P3 has become disruptive in this application which has resulted in a substantial increase in demand.

We are also seeing increasing demand for P3 from the primary label printing market and, whilst the size of the opportunity is unlikely to be of the same magnitude as ceramics, it remains a very important sector and a critical first step into the packaging market.

In order to capitalise on this demand, we decided to increase P3 production capacity at our Huntingdon facility through a major capital investment programme. This is being partly funded by the new ordinary share placing and open offer announced on 21 October 2010 and successfully concluded on 11 November 2010, raising £13.9m (net of expenses). The first tranche of new plant and machinery has been ordered and the programme is currently on plan.

However, as previously reported, printhead production is complex and some manufacturing equipment is custom-built for Xaar. Consequently critical lead times are long and printhead production cannot be increased as soon as we would like.

In the short term shift patterns have been implemented to maximise output from the existing installed capacity, and we have halted the previously announced closure of our Swedish factory. This has enabled us to allocate all available space at Huntingdon for P3 production. The rapid adoption of P3 is improving the mix of revenues geographically, by product range and by end market.

We are developing other applications for P3 although full commercialisation will depend on sufficient capacity being available to deliver the overall level of product required.

Platform 2 ("P2") revenues are stable although, with P2 being superseded by P3, the business has become less significant.

Overall, P1 revenue has remained steady with sales growth in EMEA being offset by a decrease in China. Continuing growth in sales by licensees of printheads using Xaar technology, is reflected in increased royalties. Recently, a number of wide-format printer OEMs have announced the adoption of the Proton 60, Xaar's latest addition to the P1 family. We are maintaining our focus on the development and introduction of new P1 products through a dedicated team rather than diverting resources.

We are now starting to see the benefits of the process improvements relating to the design, manufacture and market implementation of new products, introduced during the year and which form part of a rolling programme of process improvement across the business.

Results and dividend

Revenues and profit for the year were ahead of our expectations, with demand for P3 taking off and royalty income increasing. We continue to manage costs very carefully and pay close attention to cash flow. Based on the continuing cash generation of the business the board has decided to recommend a final dividend of 1.5p which, together with the 1.0p interim dividend paid already, maintains the total dividend for the year at 2.5p (2009: 2.5p). Whilst the dividend per share remains flat when compared to 2009, the total dividend paid will increase following the issue of additional shares in the placing and open offer.

Board

As previously announced, after three years as Manufacturing Director, Greg Lockett resigned from the board on 31 January 2011 and continues to be employed in an operational management role with the company. We thank Greg for his diligence and on going support.  On the same date Ted Wiggans, a Chartered Engineer, joined the board as Operations Director from Cambridge Semiconductor Ltd. where he was Chief Operating Officer.

Additionally after ten years at Xaar Andrew Taylor, Finance Director announced his intention to resign from the board and he will leave the company on 31 March 2011. We thank Andrew for all his efforts and contribution to Xaar's progress.  On the same date, Alex Bevis, a Chartered Accountant, will be appointed as Finance Director. Alex joined Xaar on 14 February 2011 directly from CSR plc (Cambridge Silicon Radio) where he has spent ten years, most recently as Vice President of Finance.

Accounts restatement

We have concluded that we should treat the relationship with JSS, our distributor of P1 products in China, as that of re-seller, such that we book sales only when JSS sell on to their customers, and inventory held by JSS is treated as on consignment. This has the consequence of a restatement of the 2009 accounts, as set out in the financial review.

Outlook

Our confidence and perseverance with P3 has been justified and, once production capacity has been increased, we expect this platform to have a long and successful life with further potential being realised from P3 through a number of product enhancements.

Whilst we are not planning for significant P1 growth, it is clear that the market continues to be strong and we expect, through new product releases, to remain a significant supplier into the graphic arts sector.

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 plan to continue to innovate, focusing on carefully selected market segments and products whilst enhancing business performance and visibility.

We continue to spend a significant proportion of revenue on R&D and, as a market leader, we are planning to be at the forefront of product development.

In short, having demonstrated during 2010 that we have the products and opportunity to achieve substantial growth in revenue and profits, we now have in place the management team and other resources to execute our strategy. Consequently, we are confident that we are well placed to achieve significant further success in 2011 and beyond.

Phil Lawler

Chairman

21 March 2011

REVIEW OF OPERATIONS

Introduction

I am pleased to report on a year of progress and change. Platform 3 ("P3") demand increased significantly during the year with the scale and rate of uptake being substantially higher than anticipated. As a consequence, demand for P3 products outstripped our capacity to supply.

This sudden shift required a set of immediate actions to be put into place, including the reversal of the decision to close the Järfälla manufacturing plant in Sweden, and to increase significantly P3 production capacity in the Huntingdon plant. This expansion is being funded through a combination of equity and lease financing.

The delivery lead-times for the processing equipment required means that this capacity will not start to come on line until the second half of 2011, with fully expanded capacity becoming available from the second half of 2012.

In the meantime, costs of manufacturing reduced during 2010 leading to a positive progression in gross margin in the second half. The increase in P3 business and improved levels of royalty income combined with Platform 1 ("P1") business remaining at 2009 levels, has led to an overall sales and profitability improvement over the previous year.

Business Review

Total revenue for 2010 of £54.7m (2009: £41.5m) is made up of product sales: £47.2m (2009: £36.1m), representing 86% of turnover (2009: 87%); royalties: £7.0m (2009: £4.7m), representing 13% of turnover (2009: 11%); and development fees: £0.5m (2009:£0.7m). This 32% growth in total revenue is made up of 31% growth in product sales, 49% growth in royalties and 29% decline in development fees.

Adjusted gross margin increased steadily during the year with H1 at 41% and H2 at 43%. This reflects higher sales resulting in improved operational gearing, and a reduction, as expected, in the costs associated with new product stabilisation. For the full year adjusted gross margin increased slightly to 42% (2009: 40%).

P3 has made very significant progress during the year, both in primary label printing and ceramic tile decoration. The P3 performance and advantages demonstrated in the ceramic tile decoration application have caused the transition to digital print to be much faster than expected, with demand for our P3 product rapidly increasing as the year progressed. This transition is presently constrained by our capacity to supply; the significant planned production capacity increases over the next 18 months will enable the desired rate of change from analogue to digital print to be realised. The potential for growth in other applications remains but our ability to access these markets will be constrained until sufficient capacity is in place.

As expected, P1 sales in 2010 were equal to those in 2009 as the wide-format advertising market matures. Stable and reliable revenues from this market remain important to Xaar hence the need to support our customers and continue to offer new products and variants to protect this business.

Licensee royalties increased strongly based on a combination of higher sales and a more financially favourable mix of product.

Commercial Review

Geographic

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

For the first time in the company's history, the EMEA region has become our largest at £24.9m (2009: £12.8m) representing 94% growth over the previous year and predominantly reflects P3 applications moving into volume. P1 business in EMEA also grew in the year although this is primarily the result of a change of distribution routes that previously ran through Asia. Overall P1 business worldwide was flat on 2009.

Asia generated 41% of sales which at £22.3m is a 2% increase on 2009. Included within this figure is a significant increase in royalty income which is offset by the reduction in product sales following changes in distribution routes noted above. Licensee royalties increased strongly through a combination of higher sales and a more financially favourable mix of product. Asia continues to be an important P1 market for Xaar, mainly with sales into the wide-format graphics market. The potential for P3 in Asia is expected to grow once applications have matured and production capacity is available to support that growth.

Total sales to the Americas grew 9% to £7.5m (2009: £6.8m) representing 14% of sales. The growth has come primarily from P3 adoption with primary label applications in North America whilst P1 business has remained broadly stable with coding and marking applications in North America and wide-format graphics applications in South America.

End markets

Sales into the graphic arts market were 3% up from 2009 but, as other markets have grown, the graphic arts market now represents only 39% of total sales (2009: 50%). Sales were £21.4m (2009: £20.7m). This market will continue to be an important core market for Xaar, specifically in the areas of large format advertising and signage printing. Whilst P3 may generate some graphic arts business, it is expected that this market will continue to be dominated by P1 products. Our efforts to bring new P1 products and variants to market will continue to support customers and protect our position.

Sales into the packaging market grew by 25% with the total for the year of £11.8m (2009: £9.4m) representing 22% of total sales. P1 products into coding and marking applications were stable with the growth in this sector coming from P3 products for primary label printing. As mentioned in my previous report, the label application has been technically challenging. However, as anticipated, significant progress has been made during the year. The success we are now achieving in the primary label space is prompting interest and activity in other areas of the package printing market.

Sales into industrial markets have more than doubled to £14.1m (2009: £6.0m) and now account for 26% of sales. Rapid adoption of P3 technology in the ceramic tile printing sector has been the primary driving force in this area. Sales have been constrained by capacity during the second half of 2010, a situation which will continue until the second half of 2011 when we expect additional capacity to come on stream. Development of further industrial applications has continued with multiple partners but will be constrained until product availability is improved following the capacity expansion.

Operations Review

The plan to relocate all manufacturing capacity from Sweden to the UK was halted during the year as the demand for P3 grew significantly. Following a thorough review, it was concluded that the financial benefit of expanding P3 significantly outweighed the cost savings of the planned manufacturing plant consolidation, and hence the plant in Järfälla, Sweden, would be required for the foreseeable future and, therefore, the relocation programme was cancelled. This change allows all available space in the Huntingdon plant to be dedicated to P3 expansion. As announced during the year, the company will invest £22.2m in significant expansion of P3 capacity to respond to the demand created.

This expansion will involve: the clean-room originally built for the Sweden relocation to be allocated to P3; construction of a third full clean-room at the Huntingdon site; over 100 processing asset additions; the recruitment of close to 200 people; and a very significant installation and process qualification effort. The plan is well underway and additional capacity is due to start to come on stream in the second half of 2011 with the full capacity available by the second half of 2012.

Although a little later than anticipated, costs started to fall during the year, allowing gross margin to progress from 39% in the first half to 43% in the second half of the year. Further progression in gross margin is not expected before additional production capacity comes on line as overheads are planned to rise in advance of realising the benefit of the incremental output.

R&D spend in the year was £4.7m (2009: £4.6m), representing 9% (2009: 11%) of sales.

New product stabilisation programmes are now completing, and the focus is shifting to development of new variants of both P1 and P3. Early stage research of Platform 4 ('P4') has commenced, however technical and commercial feasibility is not expected to be proven until 2013 at the earliest.

Priorities for the Future

The priority for 2011 is to execute the first stage of the P3 capacity expansion plan and, therefore, to increase P3 product availability in the second half of the year. This, combined with a stable P1 business, is expected to deliver further progression of both sales and margins during the latter stages of 2011. As stated previously, the anticipated P3 growth also brings a better balance to the business, both geographically and by end market and application.

People

I would like to thank all our staff for their efforts during the year, especially our Swedish employees who have had to endure some significant uncertainty and changes of circumstance. Overall it is pleasing to see the benefits starting to appear from all the effort applied over the past couple of difficult years.

Ian Dinwoodie

Chief Executive

21 March 2011

FINANCIAL REVIEW

Trading

Trading in 2010 was significantly improved over recent years with first half revenue up 14% to £23.8m (H1 2009: £20.9m), second half revenue up 50% to £30.9m (H2 2009: £20.6m) and full year revenue up 32% to £54.7m (2009: £41.5m). The acceleration in growth is also reflected in revenues for the first half of 2010 being 16% up on the second half of 2009 and, for the second half of 2010, being up 30% on the first half of the year.

This growth is predominantly a result of increased demand for the company's Platform 3 ('P3') product in primary label printing and ceramic tile decoration applications. The strong demand for P3 was the prime driver of growth in printhead and related product sales to £47.2m for the year (2009: £36.1m), an increase of 31%. Licence fees and royalties have increased by 49% to £7.0m (2009: £4.7m), a result of both an increase in licencee product sales and a more favourable product mix within those sales, and the absolute level being supported by the continuing strength of the Japanese Yen. Development fees remain immaterial at £0.5m (2009: £0.7m).

Adjusted gross margin for the full year improved over 2009 to 42% (2009: 40%). Adjusted gross margins for the second half of 2010 increased to 43% (H1 2010: 41%) as the operational gearing effect of increased production volume, through a relatively fixed cost base, began to have a positive financial impact.

Adjusted operating expenditure was £17.3m (2009: £14.8m), including amortisation of capitalised R&D of £0.9m (2009: £1.4m). The increase over 2009 is predominantly second half driven as the business begins the process of scaling up its infrastructure and support functions to deliver the P3 expansion plan, described in further detail in the Review of Operations.

Exceptional items in the year of £0.1m (2009: £2.8m) include share-based payment charges of £1.3m (2009: credit £0.8m), the net release of the provision for restructuring costs associated with the closure of the Swedish plant of £1.1m (2009: charge £2.7m), exceptional commercial agreement costs of £0.5m (2009: £nil) and exchange differences on intra-group transactions of £0.5m (2009: loss £0.2m).

Adjusted profit before tax for the year increased by 167% to £5.6m (2009: £2.1m). Adjusted profit before tax is stated before exceptional items and is the measure used by management for underlying profitability of the company. Profit before tax for the year was £5.4m (2009: loss of £0.7m).

Prior period restatement

The relationship with JSS, the company's distributor of P1 products in China, is such that the board feels it is appropriate to recognise revenue only when JSS sell on to their customers. The effect of this change in the accounts is to defer revenue into future periods, resulting in a reduction in receivables, an increase in inventory, and a reduction in profit equal to the gross profit attributable to the deferred revenue. This restatement applies to the closing balance sheets for 2008 and 2009, and the income statement for 2009. The effect on the 2010 accounts compared to the previous method is largely neutral; an increase in gross profit in 2010 from the timing of revenues is offset against higher stock provisioning against the resulting increased inventory level at 31 December 2010.

Cumulatively up to 31 December 2009 total revenue recognised on shipment rather than resale was approximately £2.0 million with an associated gross profit of £1.1 million. In the period up to and including 2008 approximately £1.5 million of revenue was recognised along with profit of approximately £0.6 million. The balance of approximately £0.5 million of revenue and £0.5 million of gross profit was recognised in 2009. Accordingly, the 2009 figures for revenue and profit have been re-stated, along with the receivables and inventory figures in the 2008 and 2009 balance sheets.  Further detail is provided in note 2.

Following the review, the company has changed its systems for tracking products shipped to identify the point at which they are sold on to customers, for revenue recognition at this point. The board believes that this is an issue which applies to JSS only and has no material impact on the company's underlying financial performance in 2010 or the current year.

Restructuring

The decision to halt the relocation of manufacturing capacity from Sweden to the UK, and to keep the Swedish facility open, has resulted in the net release of £1.1m of provision for the costs of the closure, booked originally as an exceptional item in 2009.

Fund raising and capacity expansion

In November 2010, the group raised £15.0m (£13.9m net of expenses) through a placing and open offer. A further £7.0m of debt finance is available through an asset leasing facility with the group's existing bank. This cash and debt facility will be used to fund £20.9m of the proposed £22.2m capital investment required to deliver the P3 expansion plan. The remaining £1.3m will be funded through operational cash flow. During the year £1.6m was paid as deposits for long lead time items and the commencement of the construction of the new clean room.

Cash and capital expenditure

Net cash at the end of the year was £22.0m (2009: £11.1m) after the net proceeds of the placing and open offer of £13.9m (2009: £nil), dividend payments of £1.5m (2009: £1.5m) and capital expenditure (tangible and intangible) of £6.8m (2009: £5.2m). The level of capital expenditure has remained consistent with 2009, but the focus has moved in the year away from the purchase of assets for the relocation of Swedish production capacity to the UK, to the purchase of new assets and infrastructure for the P3 expansion programme. The only debt outstanding at 31 December 2010 was £1.3m (2009: £0.4m) relating to the financing of capital equipment. The group continues to manage its resources prudently, resulting in gross cash at 31 December 2009 of £23.3m (2009: £11.5m).

Dividend

The board will recommend a final dividend of 1.5p for 2010 at the forthcoming Annual General Meeting, giving a total dividend for the year of 2.5p (2009: 2.5p). An interim dividend of 1.0p was paid during the year (2009: 1.0p). Subject to approval by shareholders at the Annual General Meeting, the final dividend will be paid on 24 June 2011 to shareholders on the register on 3 June 2011.

Foreign currency

The group's foreign exchange exposure is broadly consistent with prior years, but reflects an increase in sales to euro denominated customers. 60% (2009: 69%) of product revenues were invoiced in sterling, 15% (2009: 18%) in US dollars and 25% (2009: 13%) in euros. Purchases were 57% (2009: 52%) in sterling, 20% (2009:20%) in Swedish kronor, 7% (2009: 12%) in US dollars and 10% (2009: 11%) in euros. The group's exposure to the Swedish kronor will now continue as the Swedish manufacturing facility will now remain operational. The increase in euro revenues is a direct result of the growth in P3 sales with the main customers for ceramic tile decoration markets being based in EMEA.

Annual General Meeting

The Annual General Meeting will be held at 9.30am on 17 May 2011.

Risks and uncertainties

Risk is an inherent part of doing business. The group has a process for identifying, evaluating and managing the risks faced by the business and has identified the following factors as principal potential risks to the successful operation of the business.

·      if our initiatives to grow the business are not effective, financial performance of the group could be adversely affected;

·      if we are unable to satisfy customer demand through inability to supply due to capacity constraints or any other reason, both short term group revenues and longer term financial performance could be adversely affected;

·      if there is insufficient demand for our products to substantially utilise installed production capacity, financial performance could be adversely affected;

·      if we cannot effectively anticipate technology trends and develop new products to respond to changing customer preferences, this could adversely affect group revenues;

·      if we cannot enforce the intellectual property rights on which our business depends or if third parties claim that we infringe their intellectual property rights our revenue and profit may be adversely impacted;

·      if we cannot attract, retain and motivate key employees the performance of our business could be adversely affected;

·      if our IT infrastructure does not perform as required our revenues and profit could be adversely impacted;

·      if we are unable to effectively complete, integrate and manage any acquisitions, disposals or other significant transactions this could adversely affect the group's business performance and revenues and profit;

·      changes to the economic and political environment in both our major markets and the regions where we manufacture could adversely affect our business and financial performance;

·      failure to effectively manage our working capital could adversely affect our cash flow;

·      failure to manage our relationships with third party suppliers for raw materials could adversely affect our ability to maintain consistent supply of finished goods;

·      failure to manage our relationships with third party suppliers for capital production equipment could adversely affect our ability to maintain consistent supply of finished goods;

·      competition from direct competitors or third party technologies could impact our market share and pricing;

·      failure to effectively manage our distribution of products could damage customer confidence and adversely affect our revenues and profits;

·      when goods are sold internationally we are subject to movements in foreign exchange rates that may adversely affect our revenues;

·      if our reputation is damaged through product quality or other issues our ability to generate sales may be harmed;

·      natural disaster affecting our manufacturing locations or our customers' locations could adversely affect our future revenue and profit; and

·      loss or damage to key production equipment as a result of moving production capacity between or within sites may affect our ability to manufacture product.

Key Performance Indicators

The principal measures management uses to monitor the performance of the group are as follows:

Revenue by business and geographical segment: sales revenue measured against budget on a monthly basis;

Gross margin: gross margin measured against budget on a monthly basis;

Operating expenditure: operating expenditure measured against budget on a monthly basis;

Adjusted PBT: adjusted profits before tax is a measure of profit before tax, share option costs and exceptional items.

This is measured monthly against budget; and

Cash: cash is measured weekly with a full cash flow reviewed monthly against target.

Andrew Taylor

Finance Director

21 March 2011

CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
		2010	2009
	Notes	£'000	£'000
			(restated) (note 2)
Continuing operations
Revenue	3	54,678	41,497
Cost of sales		(32,085)	(24,720)
Gross profit		22,593	16,777
Distribution costs		(3,623)	(3,412)
Administrative expenses		(14,596)	(11,420)
Restructuring costs		1,107	(2,686)
Operating profit/(loss)		5,481	(741)
Investment income		42	117
Finance costs		(92)	(36)
Profit/(loss) before tax		5,431	(660)
Tax		(1,442)	718
Profit for the year attributable to shareholders		3,989	58
Earnings per share from continuing operations
Basic	4	6.3p	0.1p
Diluted	4	6.1p	0.1p

RECONCILIATION OF ADJUSTED FINANCIAL MEASURES
FOR THE YEAR ENDED 31 DECEMBER 2010
	2010	2009
	£'000	£'000
		(restated)
Gross profit	22,593	16,777
Exceptional commercial agreement costs	271	-
Gross profit (adjusted)	22,864	16,777
Profit/(loss) before tax	5,431	(660)
Restructuring costs	(1,107)	2,686
Exceptional commercial agreement costs	461	-
Impairment of trade investments	-	639
Exchange differences on intra-group transactions	(462)	157
(Gain)/loss on derivative financial instruments	(39)	46
Share-based payment charges	1,276	(779)
Profit before tax (adjusted)	5,560	2,089

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010
	2010	2009
	£'000	£'000
		(restated)
Profit for the year (as previously reported)	3,989	399
Prior period adjustment (note 2)	-	(341)
Profit for the year (restated)	3,989	58
Exchange differences on retranslation of net investment	(391)	(180)
Loss on cash flow hedges	(87)	(349)
Tax relating to components of other comprehensive income	14	499
Other comprehensive loss for the year	(464)	(30)
Total comprehensive income for the year	3,525	28

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2010
					Hedging and	Retained
	Share	Share	Own	Other	translation	earnings
	capital	premium	shares	reserves	reserves		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2010 (as previously reported)	6,351	10,525	(4,465)	3,140	904	20,769	37,224
Prior period adjustment (note 2)	-	-	-	-	-	(761)	(761)
Balance as at 1 January 2010 (restated)	6,351	10,525	(4,465)	3,140	904	20,008	36,463
Profit for the year	-	-	-	-	-	3,989	3,989
Exchange differences on translation of foreign operations	-	-	-	-	(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 benefit on share option gains	-	-	-	-	-	1,064	1,064
Credit to equity for equity-settled share-based payments	-	-	-	874	-	-	874
Balance at 31 December 2010	7,237	23,534	(4,465)	4,014	440	23,516	54,276

					Hedging and	Retained
	Share	Share	Own	Other	translation	earnings
	capital	premium	shares	reserves	reserves		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2009 (as previously reported)	6,350	10,525	(4,465)	3,919	1,335	21,514	39,178
Prior period adjustment (note 2)	-	-	-	-	-	(420)	(420)
Balance as at 1 January 2009 (restated)	6,350	10,525	(4,465)	3,919	1,335	21,094	38,758
Profit for the year	-	-	-	-	-	58	58
Exchange differences on translation of foreign operations	-	-	-	-	(180)	-	(180)
Loss on cash flow hedges	-	-	-	-	(349)	-	(349)
Tax on items taken directly to equity	-	-	-	-	98	401	499
Total comprehensive income for the period	-	-	-	-	(431)	459	28
Issue of share capital	1	-	-	-	-	-	1
Dividends	-	-	-	-	-	(1,545)	(1,545)
Charge to equity for equity-settled share-based payments	-	-	-	(779)	-	-	(779)
Balance at 31 December 2009 (restated)	6,351	10,525	(4,465)	3,140	904	20,008	36,463

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2010
	2010	2009	2008
	£'000	£'000	£'000
		(restated)	(restated)
Non-current assets
Goodwill	720	720	720
Other intangible assets	4,349	5,108	6,650
Property, plant and equipment	17,385	14,513	12,667
Investments	1,261	1,261	1,900
Deferred tax asset	995	200	239
	24,710	21,802	22,176
Current assets
Inventories	10,715	6,738	8,139
Trade and other receivables	9,301	5,525	6,225
Current tax asset	381	-	-
Cash and cash equivalents	23,344	11,521	11,601
Derivative financial instruments	-	47	704
	43,741	23,831	26,669
Total assets	68,451	45,633	48,845
Current liabilities
Trade and other payables	(10,969)	(5,435)	(6,031)
Other financial liabilities	(217)	(224)	(210)
Current tax liabilities	-	(121)	(265)
Obligations under finance leases	(265)	-	-
Provisions (note 5)	(797)	(2,408)	(528)
Derivative financial instruments	-	-	(352)
	(12,248)	(8,188)	(7,386)
Net current assets	31,493	15,643	19,283
Non-current liabilities
Deferred tax liabilities	(695)	(765)	(2,260)
Other financial liabilities	(361)	(217)	(441)
Obligations under finance leases	(871)	-	-
Total non-current liabilities	(1,927)	(982)	(2,701)
Total liabilities	(14,175)	(9,170)	(10,087)
Net assets	54,276	36,463	38,759
Equity
Share capital	7,237	6,351	6,350
Share premium	23,534	10,525	10,525
Own shares	(4,465)	(4,465)	(4,465)
Other reserves	4,014	3,140	3,919
Hedging and translation reserves	440	904	1,335
Retained earnings	23,516	20,008	21,094
Equity attributable to shareholders	54,276	36,463	38,758
Total equity	54,276	36,463	38,758

CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
		2010	2009
		£'000	£'000
			(restated)
Net cash from operating activities  (note 6)	5,524			6,979
Investing activities
Investment income	42			81
Purchases of property, plant and equipment	(6,488)			(5,172)
Proceeds on disposal of property, plant and equipment	10			-
Expenditure on capitalised product development	(359)			(185)
Net cash used in investing activities	(6,795)			(5,276)
Financing activities
Dividends paid	(1,546)			(1,545)
Loan financing	1,389			-
Proceeds from issue of ordinary share capital	15,025			-
Fees for issue of ordinary share capital	(1,130)			-
Finance costs	(80)			-
Repayments of borrowings	(537)			(210)
Net cash provided by/(used in) financing activities	13,121			(1,755)
Net increase/(decrease) in cash and cash equivalents	11,850			(52)
Effect of foreign exchange rate changes	(27)			(28)
Cash and cash equivalents at beginning of year	11,521			11,601
Cash and cash equivalents at end of year	23,344			11,521

Notes to the consolidated financial information

for the year ended 31 December 2010

1.       Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2010, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 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 2011.

2.       Restatement of prior periods

The financial information includes a prior period restatement in relation to the recognition of revenue from a distributor. In prior periods revenue (and associated profits) were recognised at the point of receipt of goods by the distributor.  The restated financial information recognises revenue (and associated profits) at the point of resale by the distributor which is when risk and rewards of ownership of inventory has transferred.

In addition to the impact on the 2009 income statement following adjustments to revenue and profit, receivables and inventory have also been restated in the 2009 and 2008 statement of financial position.  Segment results in note 3 reflect this restatement which only impacted printheads and related products.

Outlined below are the corrections made for each financial statement line item affected.

CONSOLIDATED INCOME STATEMENT 31 December 31 December 31 December 2009 2009 2009 as reported adjustment restated £'000 £'000 £'000 Continuing operations Revenue             42,073                 (576)             41,497 Cost of sales           (24,822) 102           (24,720) Gross profit             17,251                 (474)             16,777 Operating loss                 (267)                 (474)                 (741) Loss before tax                 (186)                 (474)                 (660) Tax 585 133                  718 Profit for the year attributable to shareholders                  399                 (341)                     58 Earnings per share from continuing operations Basic 0.6p 0.1p Diluted 0.6p 0.1p
2.        Restatement of prior periods (continued) CONSOLIDATED STATEMENT OF FINANCIAL POSITION (extracts)
		31 December	31 December	31 December	31 December	31 December		31 December
		2009	2009	2009	2008	2008		2008
		as reported	adjustment	restated	as reported	adjustment		restated
		£'000	£'000	£'000	£'000	£'000		£'000
Current assets
Inventories		5,766	972	6,738	7,269	870		8,139
Trade and other receivables		7,554	(2,029)	5,525	7,678	(1,453)		6,225
Total assets		46,690	(1,057)	45,633	49,428	(583)		48,845
Current liabilities
Current tax liabilities		(417)	296	(121)	(428)	163		(265)
Net current assets		16,404	(761)	15,643	19,703	(420)		19,283
Total liabilities		(9,466)	296	(9,170)	(10,250)	163		(10,087)
Net assets		37,224	(761)	36,463	39,178	(420)		38,758
Equity
Retained earnings		20,769	(761)	20,008	21,514	(420)		21,094
Equity attributable to shareholders		37,224	(761)	36,463	39,178	(420)		38,758
Total equity		37,224	(761)	36,463	39,178	(420)		38,758

NOTES TO THE CASH FLOW STATEMENT (extracts)
		31 December	31 December	31 December
		2009	2009	2009
		as reported	adjustment	restated
		£'000	£'000	£'000
Loss before tax		(186)	(474)	(660)
Operating cash flows before movements in working capital		6,287	(474)	5,813
Decrease/(increase) in inventories		1,389	(972)	417
Decrease in receivables		236	2,029	2,265
Decrease in payables		(516)	(583)	(1,099)

3.         Business and geographical segments

For management reporting purposes, the group's operations are currently analysed according to product type. These product groups comprise the group's operating segments for the purposes of reporting to the group's Chief Executive Officer and board of directors.  The group's chief operating decision maker is the Chief Executive Officer.

Principal product groups are as follows:

•   Printheads and related products

•   Development fees

•   Licence fees and royalties

Segment information about these product types is presented below and the nature of these product groups is discussed in more detail in the review of operations.

Year ended 31 December 2010	Printheads and related products	Development fees	Licence fees and royalties	Unallocated	Consolidated
	£'000	£'000	£'000	£'000	£'000
Revenue
Total segment revenue	47,237	459	6,982	-	54,678
Result
Underlying operating (loss)/profit	(1,029)	179	5,999	-	5,149
Restructuring costs	-	-	-	1,107	1,107
Exchange differences on intra-group transactions	-	-	-	462	462
Gain on derivative financial instruments	-	-	-	39	39
Share-based payment charges	-	-	-	(1,276)	(1,276)
Segment result	(1,029)	179	5,999	332	5,481
Investment income	-	-	-	42	42
Finance costs	-	-	-	(92)	(92)
(Loss)/profit before tax	(1,029)	179	5,999	282	5,431

Investment income and finance costs are not allocated to reportable segments for the purposes of reporting to the Group's Chief Executive Officer and Board of Directors.

3.      Business and geographical segments continued

Year ended 31 December 2009	Printheads and related products	Development fees	Licence fees and royalties	Unallocated	Consolidated
	£'000	£'000	£'000	£'000	£'000
Revenue	(restated)				(restated)
Total segment revenue	36,079	745	4,673	-	41,497
Result
Underlying operating (loss)/profit	(2,033)	34	4,007	-	2,008
Restructuring costs	-	-	-	(2,686)	(2,686)
Impairment of trade investments	-	-	-	(639)	(639)
Exchange differences on intra-group transactions	-	-	-	(157)	(157)
Loss on derivative financial instruments	-	-	-	(46)	(46)
Share-based payment charges	-	-	-	779	779
Segment result	(2,033)	34	4,007	(2,749)	(741)
Investment income	-	-	-	117	117
Finance costs	-	-	-	(36)	(36)
(Loss)/profit before tax	(2,033)	34	4,007	(2,668)	(660)

3.         Business and geographical segments continued

SEGMENT ASSETS
	2010
	£'000
Printheads and related products	42,966
Development fees	-
Licence fees and royalties	880
Total segment assets	43,846
Investments	1,261
Cash and cash equivalents	23,344
Total assets	68,451
Assets are allocated to the segment which has responsibility for their control.
	2009
	£'000
	(restated)
Printheads and related products	32,307
Development fees	1
Licence fees and royalties	543
Total segment assets	32,851
Investments	1,261
Cash and cash equivalents	11,521
Total assets	45,633

No information is provided for segment liabilities as this measure is not provided to the chief operating decision maker.

3.       Business and geographical segments continued

OTHER SEGMENT INFORMATION
Year ended 31 December 2010	Printheads and related products	Development fees	Licence fees and royalties	Unallocated	Consolidated
	£'000	£'000	£'000	£'000	£'000
Depreciation and amortisation	3,686	1,119	-	-	4,805
Share based payment charges	-	-	-	1,276	1,276
Capital expenditure	6,481	-	-	-	6,481
Year ended 31 December 2009	Printheads and related products	Development fees	Licence fees and royalties	Unallocated	Consolidated
	£'000	£'000	£'000	£'000	£'000
Depreciation and amortisation	3,035	1,727	-	-	4,762
Share based payment charges	-	-	-	(779)	(779)
Capital expenditure	5,004	-	-	-	5,004
Asset impairment	-	-	-	639	639

REVENUES FROM MAJOR PRODUCTS AND SERVICES
	2010	2009
	£'000	£'000
		(restated)
Sales of goods	47,237	36,079
Development fees	459	745
Licence fees and royalties	6,982	4,673
Consolidated revenue (excluding investment income)	54,678	41,497

3.         Business and geographical segments continued

Geographical information

The group operates in three principal geographical areas: EMEA, the Americas and Asia.  The group's revenue from external customers and information about its segments (non-current assets excluding deferred tax assets and other financial assets) by geographical location is detailed below:

Revenue from external customers 2010 2009 £'000 £'000 (restated) EMEA 24,893 12,800 Asia:  - China 10,273 11,524  - Japan 7,181 4,858  - Other 4,851 5,467 The Americas (including USA) 7,480 6,848                   54,678                  41,497

Revenues are attributed to geographical areas on the basis of the customer's operating location.

	Non-current assets
	2010	2009
	£'000	£'000
EMEA	24,655	21,737
Asia	46	45
The Americas (including USA)	9	20
	24,710	21,802

Non-current assets, being property, plant and equipment, goodwill, other intangible assets, investments and the deferred tax asset, are attributed to the location where they are situated.

Information about major customers

Included in revenues arising from sales of goods are revenues of approximately £9.5m (17% of revenues) (2009: £10.7m, 26% of revenues) which arose from sales to the group's largest customer.  In the year ended 31 December 2010 revenues of approximately £2.9m (5% of revenues) (2009: £3.4m, 8% of revenues) were included in both the sale of goods and licence fees and royalties which arose from sales to the group's second largest customer.  In 2010 and 2009, only the largest customer of the group exceeded 10% of revenue in the period.  Revenue from the top five customers represents 37% of revenues (2009: 44%).

4.         Earnings per ordinary share - basic and diluted

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

	2010	2009
	£'000	£'000
		(restated)
Earnings
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	3,989	58
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	63,009,082	61,797,389
Effect of dilutive potential ordinary shares:
Share options	2,311,031	130,116
Weighted average number of ordinary shares for the purposes of diluted earnings per share	65,320,113	61,927,505

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 1,939,540 shares (2009: 2,610,156) 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 516,061 shares (2009: 2,058,381) and share options granted over nil shares (2009: 668,859) 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

The calculation of adjusted EPS excluding restructuring costs, impairment of trade investments and share-based payments is based on earnings of:

	2010	2009
	£'000	£'000
		(restated)
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	3,989	58
Restructuring costs	(1,107)	2,686
Exceptional commercial agreement costs	461	-
Impairment of trade investments	-	639
Exchange differences on intra-group transactions	(462)	157
(Gain)/loss on derivative financial instruments	(39)	46
Share-based payment costs	1,276	(779)
Tax effect of adjusting items	(36)	(770)
Profit after tax excluding restructuring costs, exceptional commercial agreement costs, impairment of trade investments and share-based payment costs	4,082	2,037

4.         Earnings per ordinary share - basic and diluted continued

The denominators used are the same as those detailed above for both basic and diluted earnings per share.

Earnings per share excluding restructuring costs, impairment of trade investments and share-based payment charges:

	2010	2009
	£'000	£'000
		(restated)
Basic	6.5p	3.3p
Diluted	6.2p	3.3p

This adjusted EPS information is considered to provide a fairer representation of the group's trading performance year on year.

5.       Provisions

			Closure of
	Warranty	Restructuring	Swedish
	provision	Provision	manufacturing
			facility	Total
	£'000	£'000	£'000	£'000
At 1 January 2008	193	-	-	193
Additional provision in the year	214	595	-	809
Utilisation of provision	(130)	(344)	-	(474)
At 1 January 2009	277	251	-	528
Additional provision in the year	359	-	1,941	2,300
Utilisation of provision	(169)	(251)	-	(420)
At 1 January 2010	467	-	1,941	2,408
Additional provision in the year	436	-	274	710
Utilisation of provision	(306)	-	(828)	(1,134)
Release of provision	(17)	-	(1,170)	(1,187)
At 31 December 2010	580	-	217	797

The warranty provision represents management's best estimate of the group's liability under twelve month warranties granted on printheads, based on past experience of returns for defective products.

The restructuring provision, created in 2008, related to amounts payable in respect of staff redundancies during the year.  The provision was fully utilised in 2009.

On 1 April 2009 the Group announced the rationalisation of its manufacturing facilities which would have involved the eventual closure of its plant in Stockholm, Sweden and the relocation of that manufacturing capability to the Group's manufacturing facility in Huntingdon, England.  The board has now announced that the rationalisation programme has been stopped.  As a result, the remaining provision is for any committed residual costs associated with the project.  

6.         Note to the cash flow statement

	2010	2009
	£'000	£'000
		(restated)
Profit/(loss) before tax	5,431	(660)
Adjustments for:
Share-based payments	874	(779)
Depreciation of property, plant and equipment	3,686	3,035
Amortisation of intangible assets	1,119	1,727
Impairment loss on trade investments	-	639
Investment income	(42)	-
Finance costs	92	-
Foreign exchange gains	(649)	-
Movements on cash flow hedge valuations	(39)	(47)
Loss on disposal of property, plant and equipment	25	18
(Decrease)/increase in provisions	(1,209)	1,880
Operating cash flows before movements in working capital	9,288	5,813
(Increase)/decrease in inventories	(3,988)	417
(Increase)/decrease in receivables	(3,621)	2,265
Increase/(decrease) in payables	5,389	(1,099)
Cash generated by operations	7,068	7,396
Income taxes paid	(1,544)	(417)
Net cash from operating activities	5,524	6,979

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.

7.       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. For this reason, they continue to adopt the going concern basis in preparing the financial information.

 

END

 

 

FR UURNRAVAOURR