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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Xaar Plc | LSE:XAR | London | Ordinary Share | GB0001570810 | ORD 10P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 120.00 | 120.00 | 122.00 | 30,910 | 11:09:04 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Commercial Printing, Nec | 72.78M | 1.63M | 0.0208 | 57.69 | 94.3M |
TIDMXAR
RNS Number : 3517I
Xaar PLC
21 March 2018
Xaar plc
2017 FULL YEAR RESULTS
Xaar plc ("Xaar", "the Group" or "the Company"), the inkjet printing technology Group headquartered in Cambridge, UK, today announces its full year results for the 12 months ended 31 December 2017.
Summary of results for the year to 31 December 2017
Adjusted(1) IFRS ------------------------- --------------------- --------------------- 2017 2016 2017 2016 ------------------------- ---------- --------- ---------- --------- Revenue GBP100.1m GBP96.2m GBP100.1m GBP96.2m ------------------------- ---------- --------- ---------- --------- Gross Profit GBP47.0m GBP44.7m GBP47.0m GBP44.7m ------------------------- ---------- --------- ---------- --------- Gross Margin % 47.0% 46.4% 47.0% 46.4% ------------------------- ---------- --------- ---------- --------- Gross R&D investment(2) GBP18.1m GBP22.4m GBP18.1m GBP22.4m ------------------------- ---------- --------- ---------- --------- Net R&D investment(2) GBP12.3m GBP12.2m GBP12.3m GBP12.2m ------------------------- ---------- --------- ---------- --------- Operating Margin % 18% 20% 12% 18% ------------------------- ---------- --------- ---------- --------- Profit before GBP18.0m GBP19.5m GBP12.3m GBP17.9m tax ------------------------- ---------- --------- ---------- --------- Diluted Earnings per share 20.7p 21.2p 14.0p 18.9p ------------------------- ---------- --------- ---------- --------- Net Cash(3) at GBP44.7m GBP49.3m GBP44.7m GBP49.3m Period end ------------------------- ---------- --------- ---------- --------- Dividend per share 10.2p 10.0p 10.2p 10.0p ------------------------- ---------- --------- ---------- ---------
(1) Excluding the impact of restructuring and acquisition expenses, share-based payment charges, exchange differences relating to overseas operations, and research and development expenditure credits, from the operating margin, profit before tax and diluted earnings per share figures. Operating margin % is calculated on operating profit, which is profit before tax less investment income
(2) Gross R&D investment relates to R&D expenditure before the capitalisation and amortisation of development costs. Net R&D investment relates to R&D expenditure after the capitalisation and amortisation of development costs, as recognised in the income statement
(3) Net cash includes cash, cash equivalents and treasury deposits
Financial highlights
-- Total revenue grew by 4% in 2017 to GBP100.1 million (2016: GBP96.2 million)
-- JPY 2.98 billion (circa GBP20.0 million) royalty upgrade and replacement agreement signed with Seiko Instruments Inc. (SII), GBP10 million of which is recognised as revenue in 2017 with the first payment of JPY 1.5 billion received in December 2017 and the final JPY 1.48 billion received in Q1 2018.
-- Product revenues increased by GBP0.9 million with the continued slowdown of sales into ceramic tile decoration being offset by 23% growth in other sectors
-- Adjusted operating profit margin of 18% achieved for the year (2016: 20%) helped by GBP9.5m from the one-off SII royalty; underlying adjusted profit before tax in line with expectations set in November 2017
-- Gross research and development (R&D) investment (before net capitalisation/amortisation of development costs relating to the Thin Film and 3D programmes) was GBP18.1 million in 2017 (2016: GBP22.4 million)
-- Net cash of GBP44.7 million (2016: GBP49.3 million)
Strategic and operational highlights
-- In 2017 revenues from the seven new products launched in the last 24 months and the acquired Engineered Printing Solutions (EPS) business accounted for 80% of the total product revenue (2016: 48%)
-- Strong performance from the new 1201 Thin Film printhead, including a master distribution agreement signed for two years for 90,000 printheads
-- Good progress on 5601 Thin Film printhead. Design frozen; first development kits shipped to eight partners; four colour print capabilities showcased at InPrint 2017
-- Realised the first revenues from the Textiles market, largely from our 5501 bulk printhead product
-- Announcement of the Joint Development Agreement (JDA) with Xerox to develop the next generation of industrial bulk piezo printheads using the extensive resources and IP of both companies
-- Demonstrated to a small select group of partners and potential customers the first prototype Xaar 3D printer
-- Organisational restructure to strengthen our Go-To-Market capabilities
Doug Edwards, Chief Executive Officer, commented:
"We are making good progress in transforming Xaar to a more diversified and customer centric company. Although we have had some challenges during the ramp up phase of multiple new products, the quality of our business continues to improve. I am particularly pleased that 80% of our product revenue is from new products launched in the last 24 months and acquired business which has helped product revenue excluding Ceramics grow by 23%. We regained share in the Graphic Arts market; our Thin Film technology and our 3D and Advanced Manufacturing sectors demonstrate exciting prospects for the future.
I would like to thank all of our staff for their continued hard work and dedication as we work towards our 2020 vision."
CONTACTS Xaar plc Doug Edwards, Chief Executive Officer Today: 020-7353-4200 Lily Liu, Chief Financial Officer Thereafter: 01223-423663 www.xaar.com Tulchan Communications James Macey White 020-7353-4200
Chairman's Report
2017 marked a year of progress for Xaar on many fronts.
The most significant development related to the diversification of our revenue streams which have been transformed from being over-reliant on one product for the Ceramics market to a portfolio of products addressing multiple market sectors. 80% of our product revenue was derived from products launched in the last two years or from the EPS acquisition. With new printheads launched into sectors such as Graphic Arts and Textiles (a new sector for Xaar) our Ceramics market dependence is reduced, accounting in 2017 for 34% of our revenue (2016: 44%).
We made further progress in our Thin Film technology. The product design of 5601, the result of significant R&D investment over the last eight years, was frozen and we successfully demonstrated four colour printing at the InPrint 2017 show. In addition, we shipped development kits to eight of our partners for analysis and early stage development work as they look to integrate the 5601 into their next generation printers. We have also seen great success with the 1201 in its first full year having re-established ourselves in the Graphic Arts market.
In December 2016 we announced additional investment in 3D Printing led by Professor Neil Hopkinson and during 2017 we strengthened our expertise in the area by adding a team in Copenhagen and opening our 3D centre of excellence in Nottingham. We have started to develop a 3D printer using High Speed Sintering (HSS) and successfully demonstrated this to a select group of potential customers and partners towards the end of the year. A relatively modest investment to date is generating an exciting business, potentially offering significant medium term returns to our shareholders.
In December 2017 we announced an agreement with Sieko Instruments Inc. (SII) to upgrade and replace their existing licence for JPY 2.98 billion (circa GBP20.0 million).
The Group achieved an adjusted operating profit margin of 18% and a very healthy cash balance of GBP45 million at 31 December 2017, with the final tranche of the SII royalty payment received in Q1 2018. This puts us in a good position to fund growth opportunities.
The Board remains focused in supporting the management team on delivering this challenging transformation, which now has a variety of products and end applications in the frame. Whilst we are disappointed with the slower than expected adoption of some of our new products we are confident that the transformation we are undergoing will lead us to become a more diversified and customer-centric organisation.
Important changes across the business continue and we appreciate the support of all staff in achieving our vision. Talent management is key to our strategy and we have implemented various leadership and continuous improvement training programmes. I would like to thank our employees for their hard work and dedication throughout 2017.
Changes to the Board since 1 January 2017, are set out below:
-- On 2 May 2017, Lily Liu joined Xaar as Chief Financial Officer and Company Secretary; following the departure of Alex Bevis on 29 March 2017. I am pleased to see Lily successfully transition into Xaar
-- On 8 August 2017, we announced that Ted Wiggans, our Chief Operations Officer, plans to retire from Xaar plc on 9 August 2018. I would like to thank Ted for his contribution to the business and the Board
Robin Williams
Chairman
Chief Executive Officer's Report
I am pleased to report that our transformation journey is well underway and that new products launched in the last two years and the acquired EPS business accounted for 80% of the Group's total product revenue in 2017.
We are at different stages of commercialising seven new printhead products across a diverse range of markets and applications. We signed a 90,000 unit master distribution agreement for our 1201 printhead of which we have delivered circa 13,000 units since June. The design of our 5601 printhead was frozen in July and development kits shipped to eight major Textiles, Commercial and Package Printing partners. The first product of our partnership with Xerox, the 5501, achieved revenues of GBP3 million largely in digital printers for textile printing. In other areas of the business we saw a significant increase in revenues from printheads being used in the manufacture of flat panel displays and we are now working with more than a dozen OEMs.
Our Product Printing business EPS, acquired in July 2016, continues to perform to plan with growing revenues from their digital products. We strengthened our European distribution channel for EPS through a partnership with Comec Italia.
In March we opened our new 3D Centre in Nottingham and, along with the addition of a team based in Copenhagen, we continue to strengthen our position in 3D Printing. This was followed by our strategic partner announcements later in the year with Materialise and BASF. In November we demonstrated our first HSS prototype Xaar 3D printer to a number of potential partners.
In December we announced that we reached agreement with SII to upgrade and replace their existing licence agreement in exchange for JPY 2.98 billion (circa GBP20.0 million). We received the first tranche in December 2017 and the balance was settled in Q1 2018. This is significant as it de-risks our future royalty revenue stream.
We have made further progress in our transformation to a more customer-centric organisation, funding additional Go-To-Market resources through efficiency savings elsewhere in the organisation. The slower than anticipated growth in sales of our new products has necessitated this strengthening of our Go-To-Market resources.
Despite the success with our new indirect channels for the 1003 bulk printhead in the replacement market our Ceramics business remains under competitive pressure. The ramp up of our new 2001+ bulk printhead was slower than planned. However, we are now starting to see improved traction helped by the adoption of our High Laydown (HL) Technology which was introduced in the middle of 2017.
We continue to drive towards our 2020 vision with a more diverse and balanced portfolio of products and businesses. Progress made against each of the pillars that makes up our 2020 vision is described below.
Ceramics
Ceramics remained our largest market sector in 2017 and we continue to retain a strong market share with a large proportion of the printer install base still using Xaar printheads. Increased competition has seen our market share and revenues from this sector fall. With the Ceramics market having now reached maturity and nearly all lines converted to digital, the majority of new printer sales are machine replacements or upgrades.
In 2016 we launched two new products aimed largely at responding to the decline in our existing Ceramics products. The launch of the Xaar 1003 printhead has been a success in addressing the existing printer install base. It offers the ability to upgrade existing machines by replacing the Xaar 1002 printheads with one offering improved performance and longer maintenance-free production run times.
Sales of the 2001+ printhead, which was also launched in 2016, have gained traction slowly. Unlike the 1003 it is not backward compatible with existing machines and is therefore targeted solely at new machine installs. With the current level of market maturity and competition OEMs have been slow to invest in new designs and subsequently the 2001+ printhead has been slow to ramp up and unable to address the decline in Xaar's market share of new installs. However, we saw increased sales in both Q4 2017 and early 2018 as we better demonstrated the value proposition of the printhead and leveraged the new HL Technology made available mid-year.
At the Ceramics China show in June we announced our Premier Partner programme and the release of our advanced HL Technology. HL Technology is used to apply effects, such as glosses and lustres, as well as adhesives, once the tiles have been digitally decorated.
Product Printing & Packaging
In 2016 we selected two areas to focus on: Product Printing and 3D Printing; and we continue to make good progress in both.
I am delighted to report the on-going success of the EPS business acquired in July 2016 which has continued to grow, meeting our expectations. The ability of EPS to supply customised and bespoke printing solutions, which are both flexible and cost effective, to a wide variety of market sectors highlights the potential of digital inkjet in product printing. EPS has been able to outperform what is already a fast growing market and one that is still largely analogue. EPS remains predominantly based in North America, with a large growth potential. We plan on investing further in its North American operations and expanding its global reach. At InPrint 2017 EPS announced Comec Italia as its European distributor for its digital product portfolio.
During 2017 we made really exciting progress in 3D. At the end of 2016 we hired an experienced group of talented engineers working in Copenhagen, Denmark, to complement the skillset of the team already established in Nottingham. In March 2017 we announced a collaboration with Materialise to provide their market-leading 3D print software with Xaar's additive manufacturing development kit. We then officially opened the Xaar 3D centre in Nottingham, UK, an event attended by guests from a number of large international businesses including ABB, BAE Systems and Jaguar Land Rover. In November we announced a collaboration with BASF, a world-leading chemical company, to improve the Photopolymer Jetting process which will enable manufacturers to produce 3D parts with enhanced properties at lower costs. We then demonstrated, to a small select group of partners and potential customers, the first HSS prototype Xaar 3D printer designed in conjunction by the Copenhagen and Nottingham teams under the leadership of Professor Neil Hopkinson.
The 5501, our first printhead from our collaboration with Xerox, has contributed meaningful revenues since it was announced in June 2017. The bulk piezo printhead has been added to our portfolio of aqueous printheads, complementing the existing Thin Film printheads the 1201 and the 5601. The 5501 has enabled us to address more of the Textiles market and, in combination with our increased Go-To-Market capabilities, has allowed us to achieve significant revenues in the second half of 2017.
Within the Coding and Marking sector the 501 and 502 printheads have been adopted by major OEMs (Videojet, Engage, RN Mark, & Domino) and sales of these are expected to grow further in 2018. Despite the adoption of the 501 and 502 by these major OEMs the Coding and Marking sector has declined from its 2016 postion which was helped by one-off Last-Time-Buy arrangements for products manufactured in Sweden.
The Product Printing and Packaging pillar has grown 24% adjusting for the impact of the one-off Last-Time-Buy arrangements in 2016.
Thin Film
Good progress has been made in Thin Film in 2017 despite being slower than expected.
In the first half of the year we saw substantial sales of the 1201 printhead into the Graphic Arts sector and signed a master distribution agreement for the sale of 90,000 units over a two year period. Sales of the 1201 continued to grow in the second half of the year but were hampered by supply constraints that meant we were unable to fulfil all of the demand. These supply constraints have now been resolved, and with additional capacity coming on stream later in 2018 we expect to achieve further growth in sales of the 1201.
The development programme for our own Thin Film printhead technology passed several key milestones. Working with our manufacturing partner for the 5601 the design was frozen in July. Focus is now on ensuring supply chain reliability and improving our own manufacturing capability in order to ramp up production. At InPrint 2017 we showcased the 5601's four colour print capabilities and its exceptionally high resolution print quality garnering much interest. We have sold a number of 5601 development kits to our key OEM partners who now have, or will be, evaluating the printhead for their next generation of printers. Customer feedback has been very positive and we truly believe we have a printhead which will unlock the digital conversion of very large and established analogue industrial printing markets such as Textiles, Commercial Printing and Packaging.
Acquisitions and Partnerships
As already noted, we are delighted by the success of our first acquisition as part of the 2020 vision, EPS. We continue to explore opportunities in the Product Printing space and target markets that support our vision.
The first products from the Ricoh and Xerox partnerships have yielded significant sales in 2017 and are expected to grow further in 2018. We strengthened our relationship with Xerox with the announcement of a Joint Development Agreement to develop the next generation of bulk piezo printheads. In 3D we have built partnerships with Materialise and BASF. EPS has partnered with Comec Italia to establish a European Distribution channel. We collaborated with Meteor Inkjet to produce a development kit and commercial drive electronics for the 1201 printhead that shortens OEMs' time-to-market and optimises the printhead performance.
Product and technology development
Building on the success of 2016 we have continued to deliver new products and technologies to the market. With seven new products launched in the last 24 months we have greatly diversified the portfolio we can offer to both new and existing customers.
Our development team has made significant progress on the 5601 allowing us to demonstrate the capabilities of the printhead and put it in the hands of our partners. The programme team is now focused on supporting full commercialisation of the product in 2018.
We continued our transformation from an internally focused product company to a market and customer lead business, redeploying resources from both operations and R&D to our Go-To-Market functions. As well as investing in our Sales and Marketing group we have established an Applications and Integration team to provide a new layer of technical support to help our customers shorten their development time and time to market. This strategy has already allowed us to achieve significant revenue from some of our new products.
People
As part of our transformation strategy we have invested significantly in our people in order to develop a customer focused mind-set and enhance leadership, change management and resilience skills. During 2017 we launched a suite of Learning and Development programmes, collectively called XCEL. This includes a world class program called Inspired Leaders which was rolled out to managers across the Company and will be extended to the rest of the workforce in 2018. Inspired Leaders targets the most critical skills needed to transform a workforce's mindset and skill set. XCEL also includes a three year programme for High Potential Development called GATE which combines hands-on instruction from Senior Executives, a suite of self-assessment tools, group interaction and project work in the most business critical areas within Xaar. We have also implemented Continuous Improvement activities and Six Sigma training across the company to remove non-value add activities, streamline processes, and enhance our ability to partner with our customers effectively.
I would like to thank all of our staff for their efforts during 2017; we have had to overcome a number of challenges in the year but have taken some important steps forward in achieving our vision.
Summary and outlook
We are making good progress in transforming Xaar to a more diversified and customer centric Company. Challenges still remain in our legacy business as Ceramics matures and the speed of transition to alternative printhead technologies, such as Thin Film, gain traction. We are well positioned with a more balanced and diverse portfolio of growing new products and businesses. I am particularly pleased that 80% of our product revenues now come from the seven new printhead products and two new businesses we have added in the last 24 months and that excluding Ceramics they have grown 23% in the year. This trend is set to continue with investment in these exciting growth areas.
We remain focused on the long term opportunity, the conversion of well-established analogue manufacturing techniques to digital inkjet solutions and the delivery of our 2020 vision.
Doug Edwards
Chief Executive Officer
Chief Financial Officer's Report
Revenue
The Group achieved total revenue for the year of GBP100.1 million (2016: GBP96.2 million) representing a 4% increase. Whilst disappointed by the slower-than-anticipated revenue growth in the second half of the year, I am pleased to report a 23% product revenue growth excluding Ceramics.
In December 2017 we announced that we reached an agreement with SII to upgrade their current licence arrangement and replace its future royalty obligations in exchange for a total cash consideration of JPY 2.98 billion (circa GBP20.0 million). This agreement substantially de-risks our future royalty stream. The 2017 royalty revenue includes GBP10.0 million derived from the one-off SII licence upgrade and replacement agreement. Total Licensee Royalties in 2017 were GBP16.4 million (2016: GBP13.3 milllion).
Sales into Graphic Arts grew by 62% reaching GBP12.8 million for 2017 (2016: GBP7.9 million) and accounted for 13% of the total revenue for the year. The significant growth in this sector was driven by the success of the 1201 printhead by way of our master distribution agreement in China. In November 2017 we reported that there was a supply constraint that hampered delivery and restricted sales. These constraints have now been addressed and we expect further growth in 2018.
Our Industrial sector no longer includes revenues from the acquired EPS business as they have been reclassified to the Packaging and Product Printing sector. Industrial continues to be the largest sector for Xaar's technology, representing 43% of Group revenue in 2017 at GBP42.7 million, compared to 48% in 2016 (GBP45.9 million) on a like for like basis.
The largest revenue contributor in Industrial continues to be ceramic tile decoration. The Ceramics sector has now reached maturity with nearly all lines now converted to digital; revenue was GBP33.7 million in 2017 a decline from GBP42.3 million in 2016. The replacement market for printers and printheads has become key and intensity of competition in the sector has continued to drive down prices. The 1003 printhead has been successful and allowed the business to retain its prominent position in the replacement market for printheads. However, adoption of the 2001+ printhead has been slower than anticipated and the business has lost share in new printer installs. The Ceramics sector has fallen 20% since 2016 and now represents just over one third of total revenues.
There has been significant level of growth in nearly all other Industrial sub-sectors. We are excited about the 83% increase in the combined Advanced Manufacturing and 3D Printing sectors. This has been driven by a shift in manufacturing processes for flat panel displays and also our leading-edge technologies for 3D Printing. We are equally encouraged about our first revenues of GBP3.9 million from the Textiles sector, a new market for us, driven by new products within our portfolio.
The Packaging and Product Printing sector has declined slightly by 3% and at GBP28.3 million now represents 28% of the Group's total revenue (2016: GBP29.0 million, 30%). As mentioned above, we re-classified the EPS business into this sector. EPS grew by 109% thanks to a full-year contribution and continued growth in the business. Decline in sales into Coding and Marking of 53% was a combination of one-off Last-Time-Buy arrangements in 2016 for products previously manufactured in Sweden, and slower adoption of the next generation of products.
As a supplier of technology to OEM partners, our geographic sales split reflects where our OEMs are located, which is not necessarily the end-user location.
In 2017 Asia overtook Europe, Middle East and Africa (EMEA) as the Company's largest sales region. Sales into Asia accounted for GBP50.9 million (2016: GBP36.4 million) of sales, representing 51% of the Group's revenue. Product sales i.e. excluding Licensee Royalties grew 49% largely due to the take up of new products going into Graphics Arts and Textiles. In Ceramics we have reversed the trend of decline in China with increased sales of both the 1003 and 2001+ printheads.
Sales into EMEA have fallen 28% with EMEA accounting for GBP29.8 million (2016: GBP41.7 million) of the Group's total sales. This reduction is mainly due to the result of falling sales to European Ceramics OEMs.
The Americas, with a total revenue of GBP19.4 million (2016: GBP18.1 million), grew 7%. Much of the growth in the Americas comes from the full year contribution of EPS; this growth was restricted by the decline in sales into Coding and Marking, driven by the one-off Last-Time-Buy arrangement in 2016.
Profitability
We reported an overall adjusted operating margin in 2017 of 18% (2016: 20%). This decline in profitability is due to a combination of factors. The removal of a one-off foreign exchange benefit in 2016 due to the Brexit referendum; a significant reduction of the Thin Film capitalisation from 2016 (GBP10.2 million) to 2017 (GBP4.9 million net capitalisation/amortisation) which was partially offset by a reduction in gross R&D spend; and increased royalties.
Gross profit margins increased from 46.4% in 2016 to 47.0% in 2017, helped by increased Licensee Royalties of GBP3.1 million. Gross profit margins excluding royalties fell from 37.8% to 36.6%. The reduction reflects increased price pressures in Ceramics, lower utilisation of the factory, higher costs on new products as sales volumes increased more slowly than anticipated, and the dilutive effect on the gross profit margin of the increased contribution of sales from products sourced from our partners.
Gross expenditure on R&D (before expense capitalisation/amortisation) decreased by 19% from GBP22.4 million in 2016 to GBP18.1 million in 2017 as a number of new products were delivered to market and resources are made available to support Go-To-Market activities. The first products from the Thin Film programme were made available in H2, and as required under International Financial Reporting Standards (specifically IAS 38) amortisation of the programme commenced. In addition to the capitalisation of the Thin Film programme, GBP0.9 million was capitalised relating to the development of a new 3D Printer technology platform. This 3D Printer technology was successfully demonstrated to selected potential customers and partners in late 2017. The net R&D spend for 2017 increased from GBP12.2 million in 2016 to GBP12.3 million.
Sales, marketing and general administrative costs increased to GBP16.9 million (2016: GBP13.4 million) on an adjusted basis, due to foreign exchange trading losses (2017: GBP0.6 million loss, 2016: GBP1.9 million gain) and a full year of EPS' costs.
Adjusted profit before tax of GBP18.0 million was recorded for 2017 (2016: GBP19.5 million). Underlying adjusted profit before tax (excluding the benefit of one-off SII royalties and foreign exchange trading losses) was GBP9.0m, in line with revised expectations. Profit before tax as reported under IFRS was GBP12.3 million (2016: GBP17.9 million).
The tax charge on adjusted profit before tax was GBP1.9 million (2016: GBP2.9 million), representing an effective tax rate of 10% (2016:15%) which compares favourably to the blended UK corporation tax rate for 2017 of 19.25%. The effective rate is low as Xaar benefits from intellectual property and our continued investment in R&D.
The tax charge on IFRS profit before tax was GBP1.4 million (2016: GBP3.1 million) representing an effective tax rate of 11% (2016: 17%).
Effective from 1 January 2018 the US corporate income tax rate reduced from 35% to 21%. We do not expect this to significantly affect the Group's tax rate in the short term.
Adjusted profit after tax for 2017 was GBP16.1 million (2016: GBP16.6 million) and adjusted diluted earnings per share was 20.7 pence (2016: 21.2 pence).
Financial position
The Group maintains a strong financial position, which allows us to fund growth opportunities.
2017 was marked as a year for the business to start reducing its capital expenditure, as we move away from a vertically-integrated development and manufacturing model to working more closely with our strategic partners. We saw a reduction in our capital expenditure in the year of GBP5.3 million (or 49%); and a reduction in our capitalised development expenditure in the year of GBP3.8 million (or 36%).
We recorded GBP44.7 million of cash and treasury deposits at 31 December 2017, a decrease of GBP4.6 million compared to balances held at 31 December 2016, but an increase of GBP6.4 million from 30 June 2017.
Operating cash inflow, being adjusted profit before tax after adding back depreciation and amortisation, was GBP27.3 million (2016: GBP28.1 million). The change in working capital during the year represented a net cash outflow of GBP12.9 million. Receivables increased GBP9.2 million reflecting the phasing of revenue in the year, the establishment of terms with new customers, and extended credit terms for customers driving the adoption of our new products. Inventory increased GBP5.1 million as we ramped up production of new products and as sales of these new products give rise to an increasingly complex supply chain. This working capital impact was however offset by a significant reduction in fixed capital expenditure for the Group. Total cash outflow relating to intangible and tangible assets was GBP12.0 million in the year, including GBP6.5 million of capitalised development expenditure. Dividends accounted for GBP7.7 million of all cash outflows.
Intangibles
Intangible assets were reported at GBP32.7 million at 31 December 2017 (GBP27.4 million at 31 December 2016). These assets are largely associated with the Thin Film development project which was capitalised over the last 4 years. Amortisation of this project commenced in August 2017 after the design was frozen and development kits were made available for sale. We will amortise this technology platform over a 20 year period. In addition, GBP0.9 million was capitalised relating to the development of a new 3D Printer technology platform.
Treasury and currency management
As we continue to explore further acquisition opportunities, we carefully manage our cash and its corresponding liquidity profile.
With a more diversified business model as well as sourcing from strategic partners across the globe, the Group has increased exposure to foreign exchange risk, in particular to the US Dollar. As much as possible, we match our billing currencies to our settlement currency to achieve a natural hedge.
Dividend
As announced in 2014, the Company employs a progressive and sustainable dividend policy which takes into account the Group's future prospects, its underlying profitability and the future cash requirements of the business. The Board will recommend a final dividend of 6.8 pence for 2017 (2016: 6.7 pence) at the forthcoming Annual General Meeting (AGM), giving a total dividend for the year of 10.2 pence, a 2% increase over 2016 (10.0 pence). An interim dividend of 3.4 pence was paid during the year (2016: 3.3 pence). Subject to approval by shareholders at the AGM the final dividend will be paid on 29 June 2018, with an ex-dividend date of 31 May 2018, to shareholders on the register at close of business on 1 June 2018.
Lily Liu
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT FOR THE YEARED 31 DECEMBER 2017 2017 2016 Notes GBP'000 GBP'000 -------------------------------------------------- ------ --------- --------- Revenue 100,142 96,178 Cost of sales (53,097) (51,511) -------------------------------------------------- ------ --------- --------- Gross profit 47,045 44,667 Research and development expenses (12,318) (12,211) Research and development expenditure credit 411 605 Sales and marketing expenses (7,860) (7,608) General and administrative expenses (12,627) (6,844) Restructuring and acquisition expenses (2,553) (1,205) -------------------------------------------------- ------ --------- --------- Operating profit 12,098 17,404 Investment income 192 449 Profit before tax 12,290 17,853 Tax (1,358) (3,052) -------------------------------------------------- ------ --------- --------- Profit for the year attributable to shareholders 10,932 14,801 -------------------------------------------------- ------ --------- --------- Earnings per share Basic 3 14.3p 19.4p Diluted 3 14.0p 18.9p -------------------------------------------------- ------ --------- ---------
Dividends paid in the year amounted to GBP7,728,000 (2016: GBP7,328,000).
All activities relate to continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARED 31 DECEMBER 2017 2017 2016 GBP'000 GBP'000 --------------------------------------------------------- -------- -------- Profit for the year attributable to shareholders 10,932 14,801 --------------------------------------------------------- -------- -------- Items that may be reclassified subsequently to profit and loss: Exchange differences on retranslation of net investment (721) 708 Tax (charge)/credit on share option and restructuring gains (20) 434 Other comprehensive (loss)/income for the year (741) 1,142 --------------------------------------------------------- -------- -------- Total comprehensive income for the year 10,191 15,943 --------------------------------------------------------- -------- -------- CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 2017 2016 GBP'000 GBP'000 ---------------------------------------------- --------- --------- Non-current assets Goodwill 5,212 5,776 Other intangible assets 32,678 27,363 Property, plant and equipment 33,471 36,352 Receivables 858 1,516 72,219 71,007 ---------------------------------------------- --------- --------- Current assets Investments - 1,000 Inventories 19,119 13,790 Trade and other receivables 30,303 20,340 Current tax asset 3,412 3,029 Treasury deposits 753 - Cash and cash equivalents 43,944 49,321 97,531 87,480 ---------------------------------------------- --------- --------- Total assets 169,750 158,487 ---------------------------------------------- --------- --------- Current liabilities Trade and other payables (16,583) (14,314) Other financial liabilities (30) (69) Provisions (1,911) (774) ---------------------------------------------- --------- --------- (18,524) (15,157) ---------------------------------------------- --------- --------- Net current assets 79,007 72,323 ---------------------------------------------- --------- --------- Non-current liabilities Deferred tax liabilities (3,905) (2,686) Other financial liabilities (137) (188) ---------------------------------------------- --------- --------- Total non-current liabilities (4,042) (2,874) ---------------------------------------------- --------- --------- Total liabilities (22,566) (18,031) ---------------------------------------------- --------- --------- Net assets 147,184 140,456
---------------------------------------------- --------- --------- Equity Share capital 7,833 7,778 Share premium 29,317 27,854 Own shares (3,642) (3,642) Other reserves 14,638 11,891 Translation reserve 613 807 Retained earnings 98,425 95,768 ---------------------------------------------- --------- --------- Equity attributable to shareholders 147,184 140,456 ---------------------------------------------- --------- --------- Total equity 147,184 140,456 ---------------------------------------------- --------- --------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31 DECEMBER 2017 Share Share Own Other Translation Retained Capital Premium Shares Reserves Reserve Earnings Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------ -------- -------- -------- --------- ------------ --------- -------- Balance at 1 January 2016 7,764 27,585 (3,796) 11,006 99 87,880 130,538 ------------------------ -------- -------- -------- --------- ------------ --------- -------- Profit for the year - - - - - 14,801 14,801 Tax on items taken directly to equity - - - - - 434 434 Exchange differences on retranslation of net investment - - - - 708 - 708 Total comprehensive income for the period - - - - 708 15,235 15,943 Issue of share capital 14 269 - - - (2) 281 Dividends - - - - - (7,328) (7,328) Credit to equity for equity-settled share-based payments - - 154 885 - (17) 1,022 ------------------------ -------- -------- -------- --------- ------------ --------- -------- Balance at 1 January 2017 7,778 27,854 (3,642) 11,891 807 95,768 140,456 ------------------------ -------- -------- -------- --------- ------------ --------- -------- Profit for the year - - - - - 10,932 10,932 Tax on items taken directly to equity - - - - - (20) (20) Exchange differences on retranslation of net investment - - - - (194) (527) (721) Total comprehensive income for the period - - - - (194) 10,385 10,191 Issue of share capital 55 1,463 - - - - 1,518 Dividends - - - - - (7,728) (7,728) Credit to equity for equity-settled share-based payments - - - 2,747 - - 2,747 ------------------------ -------- -------- -------- --------- ------------ --------- -------- Balance at 31 December 2017 7,833 29,317 (3,642) 14,638 613 98,425 147,184 ------------------------ -------- -------- -------- --------- ------------ --------- -------- CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARED 31 DECEMBER 2017 2017 2016 Notes GBP'000 GBP'000 ------------------------------------------------ ------ --------- --------- Net cash from operating activities 4 12,473 13,935 ------------------------------------------------ ------ --------- --------- Investing activities Investment income 190 471 Acquisition of subsidiary, net of cash acquired - (7,556) Redemption of investment 1,000 - Purchases of property, plant and equipment (5,517) (10,831) Proceeds on disposal of property, plant and equipment - 16 Expenditure on software (19) (85) Expenditure on capitalised product development (6,451) (10,222) ------------------------------------------------ ------ --------- --------- Net cash used in investing activities (10,797) (28,207) ------------------------------------------------ ------ --------- --------- Financing activities Dividends paid (7,728) (7,328) Treasury amounts (deposited)/withdrawn (753) 27,098 Proceeds from the sale of ordinary share capital - 137 Proceeds from issue of ordinary share capital 1,518 282 Net cash (used in)/from financing activities (6,963) 20,189 ------------------------------------------------ ------ --------- --------- Net (decrease)/increase in cash and cash equivalents (5,287) 5,917 Effect of foreign exchange rate changes on cash balances (90) 755 Cash and cash equivalents at beginning of year 49,321 42,649 ------------------------------------------------ ------ --------- --------- Cash and cash equivalents at end of year 43,944 49,321 ------------------------------------------------ ------ --------- ---------
Cash and cash equivalents (which are presented as a single class of asset on the face of the consolidated statement of financial position) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEARED 31 DECEMBER 2017
1. Basis of preparation
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2016 and 2017, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The auditor has 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 2018.
2. Reconciliation of adjusted financial measures 2017 2016 GBP'000 GBP'000 ---------------------------------------------- -------- -------- Profit before tax 12,290 17,853 ---------------------------------------------- -------- -------- Share-based payment charges 3,057 969 Exchange differences relating to intra-group transactions 523 60 Restructuring and acquisition expenses 2,553 1,205 Research and development expenditure credit (411) (605) ---------------------------------------------- -------- -------- Adjusted profit before tax 18,012 19,482 ---------------------------------------------- -------- --------
Adjusted financial measures are alternative performance measures, which adjust for recurring and non-recurring items that management consider to have a distorting effect on the underlying results of the Group.
Share-based payment charges include the IFRS 2 charge for the period of GBP2,747,000 (2016: GBP885,000) and the charge relating to National Insurance on the outstanding potential share options of GBP310,000 (2016: GBP84,000). These costs were included in the general and administrative expenses in the Consolidated income statement.
Exchange differences relating to intra-group transactions represent exchange gains or losses recorded in the Consolidated income statement as a result of operating in the United States and Sweden. These costs were included in the general and administrative expenses in the Consolidated income statement.
Restructuring and acquisition expenses of GBP2,553,000 (2016: GBP1,205,000) relate to costs incurred and a provision made in relation to a reorganisation and earn-out expenses relating to the acquisition of EPS in 2016.
The research and development expenditure credit relates to the corporation tax relief receivable relating to qualifying research and development expenditure. This item is shown on the face of the Income statement.
2017 2016 Pence per Pence per share share ---------------------------------------------- ---------- ---------- Diluted earnings per share 14.0 18.9 ---------------------------------------------- ---------- ---------- Share-based payment charges 3.9 1.2 Exchange differences relating to intra-group transactions 0.7 0.2 Restructuring and acquisition expenses 3.3 1.5 Tax effect of adjusting items (1.2) (0.6) ---------------------------------------------- ---------- ---------- Adjusted diluted earnings per share 20.7 21.2 ---------------------------------------------- ---------- ---------- 3. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based on the following data:
2017 2016 GBP'000 GBP'000 ---------------------------------------------- ----------- ----------- Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 10,932 14,801 ---------------------------------------------- ----------- ----------- Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 76,469,128 76,246,300 Effect of dilutive potential ordinary shares: Share options 1,441,475 1,994,875 ---------------------------------------------- ----------- ----------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 77,910,603 78,241,175 ---------------------------------------------- ----------- ----------- 2017 2016 Pence per Pence per share share ---------------------------------------------- ----------- ----------- Basic 14.3 19.4 Diluted 14.0 18.9 ---------------------------------------------- ----------- -----------
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, the Xaar plc ESOP trust and the matching shares held in trust for the Share Incentive Plan.
For 2017, there were share options granted over 382,843 shares that had not been included in the diluted earnings per share calculation because they were anti-dilutive at the period end (2016: 22,758 shares).
The performance conditions for LTIP awards over 657,355 shares (2016: 1,109,652 shares) have not been met in the current financial period or are not expected to be met in future financial periods, and therefore the dilutive effect of those shares have not been included in the diluted earnings per share calculation.
Adjusted earnings per share
This adjusted earnings per share information is considered to provide a fairer representation of the Group's trading performance year on year, as it removes items which, in the Board's opinion, do not reflect the underlying performance of the Group.
The calculation of adjusted EPS excluding share-based payment charges, exchange differences relating to intra-group transactions, and restructuring and acquisition expenses, is based on earnings of:
2017 2016 GBP'000 GBP'000 ---------------------------------------------- -------- -------- Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 10,932 14,801 ---------------------------------------------- -------- -------- Share-based payment charges 3,057 969 Exchange differences relating to intra-group transactions 523 60 Restructuring and acquisition expenses 2,553 1,205 Tax effect of adjusting items (929) (447) ---------------------------------------------- -------- -------- Adjusted profit after tax 16,136 16,588 ---------------------------------------------- -------- --------
The denominators used are the same as those detailed above for both basic and diluted earnings per share.
Adjusted earnings per share is earnings per share excluding the items adjusted for as detailed above:
2017 2016 Pence Pence per Share Per Share ------------------ ----------- ----------- Adjusted basic 21.1 21.8 Adjusted diluted 20.7 21.2 ------------------ ----------- -----------
Adjusted EPS is considered to provide a fairer representation of the Group's trading performance year on year.
4. Notes to the cash flow statement 2017 2016 GBP'000 GBP'000 ----------------------------------------------- -------- -------- Profit before tax 12,290 17,853 Adjustments for: Share-based payments 3,057 969 Depreciation of property, plant and equipment 7,795 7,851 Amortisation of intangible assets 1,149 787 Research and development expenditure credit (411) (605) Investment income (186) (449) Foreign exchange losses/(gains) 32 (956) Loss/(profit) on disposal of property, plant and equipment 351 (3) Increase/(decrease) in provisions 1,133 (2,759) ----------------------------------------------- -------- -------- Operating cash flows before movements in working capital 25,210 22,688 (Increase)/decrease in inventories (5,071) 2,841 Increase in receivables (9,226) (8,910) Increase/(decrease) in payables 1,103 (2,381) ----------------------------------------------- -------- -------- Cash generated by operations 12,016 14,238 Income taxes received/(paid) 457 (303) ----------------------------------------------- -------- -------- Net cash from operating activities 12,473 13,935 ----------------------------------------------- -------- -------- 5. Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, based on the Group's forecasts and projections for the next twelve months, taking account of reasonably possible changes in trading performance. For this reason, they continue to adopt the going concern basis in preparing the financial information.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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March 21, 2018 03:00 ET (07:00 GMT)
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