Interim Results
Xaar PLC
24 September 2003
24 September 2003
Xaar plc
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2003
Xaar plc ('Xaar'), the ink jet printing technology group headquartered in
Cambridge, has announced its unaudited results for the six months ended 30 June
2003.
KEY POINTS :
• Interim results reflect the problems announced at the end of the first
quarter.
• Since then, success with efforts to get the business back on track has
improved performance progressively. The cost base has been reduced to match
current levels of trading.
• The financial results for the half year were :
• Turnover: £13.6m (2002: £14.0m);
• Loss before tax: £2.1m (2002: profit of £0.4m);
• Loss per share: 2.5p (2002: loss of 0.2p);
• Net cash and liquid resources at 30 June 2003: £5.9m (Dec 2002:
£9.9m; Jun 2002: £10.9m).
• A non-trading foreign exchange gain of £1.2m (2002: nil) is included within
the pre-tax result. Prior to this gain the operating loss for the period
was £3.3 million.
• Revised XJ500 printhead product now being received well with active
marketing re-commenced after the SARS outbreak affected important Far
Eastern markets.
• Sales of XJ128 and XJ126 printheads continue to meet expectations, with
volume shipments of the XJ126 now being made. Shipments of XJ126 under
major Far East agreement announced in April are scheduled to start by the
end of the year.
• Manufacturing yields on the XJ500 reached target in June and yields on the
XJ128 and XJ126 are in line with expectations.
• Ian Dinwoodie appointed Chief Executive with effect from early July and
Nigel Berry, Group Finance Director, assumed the additional role of Deputy
Chief Executive.
On outlook, Chairman, Arie Rosenfeld stated :
'Xaar's performance improved steadily through the second quarter; that
improvement has been maintained so far in the third quarter. The Board is
encouraged by the recovering interest in the XJ500 printhead, especially within
the important Asian markets. The second half of the year is expected to be
profitable, although this is unlikely to offset the trading losses incurred in
the first half-year and the group anticipates a trading loss for the year
overall.'
Ian Dinwoodie, Chief Executive; or 020-7444-4140 today
Nigel Berry, Finance Director at Xaar on : 01223-423663 thereafter
www.xaar.co.uk
Steve Liebmann at Bankside : 020-7444-4163/07802-888159
CHAIRMAN'S STATEMENT
Introduction
In presenting the results for the first half-year of 2003, it is recognised that
the earlier months of the year were disappointing. This was as a result of the
problems set out in recent trading updates; the decision to take back certain
stocks of the original XJ500 printhead from OEM customers, production problems
in Sweden and the SARS health issue which delayed the re-launch of the revised
XJ500 in Asian markets. The results for the half-year reflect these
difficulties.
Substantial efforts have been made to get the business back on track. The group
returned to profitability in August and anticipates positive cash flow over the
balance of the year. Manufacturing yields on the XJ500 reached target in June
and have remained at that level into the third quarter. Yields on the XJ128 and
XJ126 are in line with expectations.
During the second half of 2002 and the first half of 2003 staff reductions
amounting to over 20 percent of group headcount have been made or announced,
bringing the cost base into line with current levels of trading and improving
manufacturing efficiencies.
Results and finance
Total group revenue was little changed from the same period last year at £13.6
million (2002: £14.0 million). Sales of print heads and inks were £12.5 million
(2002: £13.0 million), technology income (licences and royalties) was £0.7
million (2002: £0.5 million), development fees were £0.3 million (2002: £0.5
million) and income from our applications division, Vivid Print Innovations Inc,
was £0.1m (2002: £nil).
As a result of the reported problems with manufacturing and the XJ500, together
with a generally lower level of sales to Asia during the SARS outbreak, an
operating loss of £3.3 million was incurred (2002: profit of £0.3 million). Net
foreign exchange differences on trading contributed £0.3m of these operating
losses (2002: £0.2m).
A non-trading foreign exchange translation gain of £1.2 million has been
credited for the period; this arises from the revaluation of a loan between Xaar
plc and Xaar Group AB, the Swedish holding company, which forms part of the
group's internal restructuring completed last year and detailed in the 2002
Annual Report. After this translation gain, the reported loss before tax was
£2.1 million (2002: profit of £0.4 million) and the loss per share was 2.5p
(2002: loss of 0.2p).
Cash and liquid resources (net of £0.4m overdraft) at 30 June was £5.9 million
(December 2002: £9.9 million; June 2002: £10.9 million) reflecting the trading
loss, additional capital investment of £0.8 million and payment of prior year
Swedish corporation tax of £0.5 million. Working capital increased by £0.7
million during the period, reflecting a higher level of stockholding and an
increase in the number of key Asian customers being offered credit terms
following establishment of reliable trading records.
Business review
Printheads and related products
The need to exchange customer stocks of the original XJ500 printhead earlier in
the year was a serious setback for Xaar. This product had been expected to
contribute strongly to growth, particularly within Asian markets which accounted
for over 50 percent of group sales in 2002. Although problems with the product
were far from universal, Xaar decided to exchange certain stocks of the original
XJ500 still at OEM's and to replace them with the revised model. This programme
has now been completed, at a cost of approximately £1.1 million. This issue was
referred to in the trading update released in April, together with details of a
production problem, the final cost of which was £0.8 million. Both of these
costs have been reported separately as exceptional items in the profit and loss
account.
The re-launch programme for the revised XJ500 was hampered by the SARS outbreak
in Asia which restricted travel and caused the cancellation of important trade
exhibitions. However, I am pleased to say the revised XJ500 is now being
received well within the marketplace and active marketing has re-commenced
following a successful trade show in Shanghai during August. We look forward to
converting the positive leads generated at the show into orders in the coming
months. The improved design has resulted in a significant reduction in the field
failure rate and a reduction in cost of production which should benefit margins
in the second half of the year. Overall, good progress was achieved during the
second quarter in resolving the problems of the first quarter.
Sales of the XJ128 and XJ126 continue to meet expectations. The agreement
announced in April to confer certain exclusive rights to one of Xaar's larger
Chinese customers for use of the XJ126 printhead, within a category of the wide
format printer market, has yet to take effect. Shipments under the agreement are
now expected to start by the end of the year, later than originally expected due
largely to the SARS restrictions.
The range of inks suitable for use with Xaar printheads continues to be
developed together with the group's ink partners and a new low-priced ink
formulated exclusively for the Chinese market has recently been launched. Ink
sales in the period were lower due to reduced printhead sales.
Sales to Asia were in line with sales in the first half of 2002 but down 41
percent on the record level achieved in the second half of 2002. Sales to Europe
and the Middle East were in line with the first half of last year and ahead of
sales in the second half of last year. Sales to the US declined and reflect
continued movement of production capacity to lower cost economies, particularly
within the graphic arts market.
Sales into the graphics arts market declined overall compared to both the first
and second halves of 2002, largely reflecting the problems with the XJ500. Sales
into packaging applications, lead by coding and marking, increased while
industrial printing remained flat. Further details are set out in Note 1 to the
interim results.
The improvement of Asian markets, and sales of the XJ500 are key to recovering
the level of sales seen in the second half of last year. This is where our focus
rests for the remainder of this year. Beyond that, the new products being
introduced or at prototype stage will allow the group to address more
effectively the significant longer-term growth potential identified within the
packaging and industrial markets, while maintaining its lead in the graphic arts
market.
Vivid Print Innovations Inc., the Applications Division of Xaar, has just signed
its first new contract under our ownership. The contract itself is worth $0.3
million and further wins are anticipated during the coming months.
Technology Revenues
Royalties and development fees continued at a steady, if somewhat modest level.
No new licence revenue was received during the period.
New technology and product developments
In line with the strategy set out at the beginning of 2003, Xaar's development
efforts have been focussed on product improvements more than new technologies.
Expenditure during the six months was £3.3 million (2002: £1.9 million). The
figure reported for R&D in the first half-year includes an additional internal
allocation of £0.8 million in respect of cleanroom costs at the Cambridge
location. Prior to the relocation of production to Sweden in the first half of
last year the cost of the Cambridge cleanroom was split between cost of sales
and research and development. Following the move all cleanroom costs are now
reported within research and development.
A tangible outcome of the spend on research and development is the substantial
reduction in material and manufacturing costs for the XJ500 and the completion
of Xaar's new second- generation printhead range which will be previewing with
customers over the coming months. This product was referred to in both the
interim statement and Annual Report for 2002 and has now been codenamed
'OMNIDOT'. Xaar's third generation printhead, codenamed 'HSS', is now at
prototype stage and should be previewing with customers later in 2004.
Board changes
As announced in early July, Ian Dinwoodie was appointed Chief Executive with
immediate effect and Nigel Berry, Group Finance Director, assumed the additional
role of Deputy Chief Executive to focus on business development. The Board would
like to thank Jan Fineman for his contribution while with the company and to
wish him well for the future.
Outlook
Xaar's performance improved steadily through the second quarter; that
improvement has been maintained so far in the third quarter. The Board is
encouraged by the recovering interest in the XJ500 printhead, especially within
the important Asian markets. The second half of the year is expected to be
profitable, although this is unlikely to offset the trading losses incurred in
the first half-year and the group anticipates a trading loss for the year
overall.
Arie Rosenfeld 24 September 2003
Chairman
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 2003
Notes 6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Turnover 1 13,552 14,041 30,870
Cost of sales
Exceptional XJ500 Cost (1,068) - -
Exceptional Production (767) - -
Cost
Non-exceptional cost of (7,507) (7,705) (16,770)
sales
Total Cost of Sales (9,342) (7,705) (16,770)
--------------------------------------------
Gross profit 4,210 6,336 14,100
Other operating expenses (7,467) (6,011) (13,315)
(net) --------------------------------------------
Operating (loss)/profit (3,257) 325 785
on ordinary activities
before interest
Interest receivable and
similar income
Foreign exchange gain on 4 1,241 - -
inter-company loan
Interest receivable 74 137 275
Total interest receivable 1,315 137 275
and similar income
Interest payable (127) (45) (135)
--------------------------------------------
(Loss)/profit on ordinary (2,069) 417 925
activities before
taxation
Tax on (loss)/profit on 570 (532) 86
ordinary activities --------------------------------------------
Retained (loss)/profit
for the financial period (1,499) (115) 1,011
============================================
(Loss)/earnings per share 2 (2.5)p (0.2)p 1.7p
- basic
(Loss)/earnings per share 2 (2.5)p (0.2)p 1.7p
- diluted ============================================
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS
ENDED 30 JUNE 2003
6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Retained (loss)/profit for the (1,499) (115) 1,011
financial period
(Loss)/gain on foreign currency (965) 715 718
translation ----------------------------------------
Total recognised gains and losses (2,464) 600 1,729
relating to the period
Prior year adjustment - (332) (332)
----------------------------------------
Total recognised gains and losses (2,464) 268 1,397
since last annual report ========================================
CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2003
As at As at As at
30 June 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Intangible assets 1,216 1,358 1,260
Tangible assets 6,787 4,310 4,733
Investments 20 20 20
---------------------------------------
8,023 5,688 6,013
---------------------------------------
Current assets
Stocks 2,671 1,642 1,967
Debtors 6,741 5,433 6,801
Short term investments 1,400 2,830 -
Cash at bank and in hand 4,917 8,039 9,852
---------------------------------------
15,729 17,944 18,620
---------------------------------------
Creditors:
amounts falling due within one (6,579) (6,292) (6,388)
year ---------------------------------------
Net current assets 9,150 11,652 12,232
---------------------------------------
Total assets less current 17,173 17,340 18,245
liabilities
Creditors:
amounts falling due after more than (2,155) (446) (906)
one year
Provisions for liabilities and (124) (694) -
charges ---------------------------------------
Net assets 14,894 16,200 17,339
=======================================
Capital and reserves
Called-up share capital 5,984 5,965 5,971
Share premium account 11,129 11,129 11,129
Other reserves 1,105 1,095 1,099
Accumulated deficit (3,324) (1,989) (860)
---------------------------------------
Shareholders' funds - all equity 14,894 16,200 17,339
=======================================
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2003
6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net cash (outflow)/inflow from
operating activities (2,867) 945 540
----------------------------------------
Returns on investments and (59) 93 149
servicing of finance
Taxation (505) - -
Capital expenditure and financial (821) (539) (1,090)
investment ----------------------------------------
Cash (outflow)/inflow before (4,252) 499 (401)
management of liquid resources and ----------------------------------------
financing
Management of liquid resources (1,400) 45 2,875
Financing (194) 25 (141)
----------------------------------------
(Decrease)/increase in cash in the (5,846) 569 2,333
period ========================================
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Segmental analysis
The segmental analysis of turnover is :
6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
£'m £'m £'m
Geographic: Europe & Middle 5.7 5.7 9.6
East
Americas 1.5 2.1 4.2
Asia 6.4 6.2 17.1
----------------------------------------------------------------
Total 13.6 14.0 30.9
----------------------------------------------------------------
Industry Graphic arts 9.7 10.8 24.1
segment:
Packaging printing 2.4 1.9 3.5
Industrial 0.4 0.4 0.9
printing
Development fees 0.3 0.4 1.2
Licence fees and 0.7 0.5 1.2
royalties
Applications 0.1 - -
----------------------------------------------------------------
Total 13.6 14.0 30.9
----------------------------------------------------------------
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 59,737,053 (30 June 2002: 59,498,071, 31 December 2002:
59,603,709) and for diluted (loss)/earnings per share, this is 59,737,053
(30 June 2002: 59,498,071, 31 December 2002: 59,603,709), the only
difference being in relation to movements in share options.
Due to the group having a retained loss for the period outstanding share
options are anti-dilutive thus the diluted loss per share equals the basic
loss per share for the period.
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 2002 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.
4. Currency translation differences on inter-company loan
In December 2002 Xaar Group AB, the Swedish holding company, acquired the
group's Swedish operating company, XaarJet AB, from Xaar plc. The
consideration for the purchase was partly satisfied by the issue of a loan
note to Xaar plc in the sum of SEK281 million. The loan carries interest at
commercial rates and as a result is classified as a monetary asset for
accounting purposes, in accordance with SSAP20. Monetary assets must be
reported in the profit and loss account and not through reserves. The loan
is for an initial term of five years and is due to be repaid in 2007 unless
extended by agreement of both parties.
5. Prior year adjustment
The Group's policy for accounting for deferred tax changed in 2002 to take
into account FRS19. Full details of the effect of this change are disclosed
in the Report and Accounts for the year ended 31 December 2002.
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 2003 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 5. 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.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for the report, or for the conclusions we have
formed.
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 2003.
Deloitte & Touche LLP
Chartered Accountants
Cambridge
24 September 2003
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