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Xaar PLC  -  XAR   

Final Results

Released 07:00 22-Mar-2017

RNS Number : 1146A
Xaar PLC
22 March 2017
 

Xaar plc

2016 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 2016. 

Summary of results for the year to 31 December 2016

 

Adjusted¹

 

IFRS

 

Revenue

£96.2m

£93.5m

 

£96.2m

£93.5m

Gross Profit

£44.7m

£44.7m

 

£44.7m

£44.7m

Gross Margin %

46.4%

47.8%

 

46.4%

47.8%

Gross R&D investment²

£22.4m

£19.9m

 

£22.4m

£19.9m

Net R&D investment²

£12.2m

£11.5m

 

£12.2m

£11.5m

Operating Margin %

20%

22%

 

18%

14%

Profit before tax

£19.5m

£20.8m

 

£17.9m

£13.6m

Diluted Earnings per share

21.2p

24.5p

 

18.9p

16.1p

Net Cash³ at Period end

£49.3m

£69.7m

 

£49.3m

£69.7m

Dividend per share

10.0p

9.45p

 

10.0p

9.45p

1 Excluding the impact of acquisitions, restructuring costs, share-based payment charges, exchange differences relating to the Swedish operations, gains/losses on derivative financial instruments, 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 of development costs. Net R&D investment relates to R&D expenditure after the capitalisation 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 3% in 2016 to £96.2 million (2015: £93.5 million)

·      Disappointing sales into ceramic tile printing were offset by revenue from the EPS business (acquired 1 July 2016), strong sales growth in Packaging, and higher license income resulting from royalty audit settlements

·      Adjusted operating profit margin of 20% achieved for the year (2015: 22%)

·      Gross research and development (R&D) investment (before capitalisation of development costs relating to the Thin Film programme) increased to £22.4 million in 2016 (2015: £19.9 million)

·      Net cash reduced by £20.4 million to £49.3 million (2015: £69.7 million) through investments in capital expenditure, working capital and the acquisition of EPS

 

Strategic and operational highlights

·      Establishment of our vision to grow annual sales to £220 million by 2020

·      Two major printhead partnerships have now been announced; Ricoh and Xerox

·      Two Thin Film printheads were launched in 2016

·      Acquisition of EPS completed on 1 July 2016

·      Investment in 3D printing confirmed with resources in Nottingham and Copenhagen

·      Multiple new Bulk piezo products were launched during the year

·      The Sweden facility was closed successfully, as planned

 

Doug Edwards, Chief Executive Officer, commented:

 

"I would like to thank all of our staff for their efforts during 2016; an important year in the long term development and progression of the Company.  We remain focused on our long-term opportunity; the conversion of well-established analogue manufacturing techniques to digital inkjet solutions.  Our vision is to grow annual revenues to £220 million by 2020."

   

CONTACTS

Xaar plc

 

Doug Edwards, Chief Executive Officer

Today: 020-7353-4200

Alex Bevis, Chief Financial Officer

Thereafter: 01223-423663

 

www.xaar.com

Tulchan Communications

 

James Macey White

020-7353-4200

 

 

 

Chairman's Report

I was delighted to be appointed Chairman in October 2016, a year in which we continued the transformation of Xaar under the leadership of our Chief Executive Doug Edwards and made good progress towards our strategic vision.

 

We took significant steps to deliver our strategy of partnership and acquisition, with the highlights being the Ricoh partnership, the Xerox partnership and the acquisition of EPS, a first step for Xaar outside the area of component manufacture.   The partnerships with Ricoh and Xerox capitalise on each company's considerable expertise in printhead development.  They will deliver substantial benefits through the expansion of market-leading technology and enable Xaar to bring to customers a broader range of products.  The acquisition of EPS, a leading provider of product printing equipment in North America, extends our reach beyond printheads and provides us with a customer base and footprint in North America, a region Xaar has been targeting for growth.

 

We announced in December an investment in our 3D printing activity, led by Professor Neil Hopkinson, through the establishment of staff and facilities in Nottingham, UK and Copenhagen, Denmark, enabling us to deliver 3D printing services and equipment to OEMs, material suppliers and end users. 

 

This was also a very active year for product launches and the commercial development of a new technology platform. We launched multiple new products during the year to support our partner OEMs in both existing and new markets for digital printing.  The launch of our first Thin Film piezo printhead, the Xaar 5601, was particularly satisfying.  We have made a significant investment in this technology and it is an important element of our 2020 vision.

 

Our financial performance in 2016 was broadly in line with our expectations set at the start of the year.  Revenue increased 3% compared to 2015, including the sales generated by EPS, which contributed from the acquisition date of 1 July 2016.  In 2016, the Group achieved an adjusted operating profit margin of 20%.  Our cash balance remains strong, with almost £50 million as at 31 December 2016, which puts us in a good position to pursue our strategy of partnership and acquisition.

 

I would like to thank our employees for their hard work and dedication through 2016. Important changes across the business continue, and the support of staff at all levels getting behind those changes is much appreciated. As previously announced we closed our Sweden plant in 2016 following almost 20 years of service as part of Xaar and I would like to thank our Swedish colleagues for their dedication and hard work over the entire period.

 

There have been a number of changes to the Board since 1 January 2016, and these are set out below.  The most notable is the departure of Phil Lawler, who stepped down as Chairman in 2016 after nine years of service.  I thank Phil for his significant contribution to Xaar and the strong team that he has put together to take the Company forward.

 

·      On 4 January 2016, Chris Morgan joined the Board as a Non-Executive Director.

·      Following a review of the Board structure, Jim Brault stepped down from the Board on 16 March 2016. He continues in his role as Chief Human Resources Officer.

·      On 1 June 2016, Andrew Herbert joined the Board as a Non-Executive Director.

·      On 30 September 2016, Phil Lawler retired as Chairman.  As a result, Robin Williams was appointed Chairman and Chairman of the Nomination Committee. Margaret Rice-Jones was appointed Senior Independent Director and Andrew Herbert was appointed Chairman of the Audit Committee.

·      On 21 October 2016, the Company announced that Alex Bevis, Chief Financial Officer and Company Secretary would leave the Company to pursue other opportunities, effective 29 March 2017.

·      On 24 January 2017, the Company announced the appointment of Lily Liu as Chief Financial Officer and Company Secretary, effective 2 May 2017.

 

The task remains to bring Xaar to a more broadly based position of leadership in the digital transformation of printing worldwide; 2016 took some important steps in that direction and we aim for the current year to build on this.

 

Robin Williams

Chairman

 

 

 

Chief Executive Officer's Report

 

I am pleased to report on another exciting year of achievement.  In 2016, we made further progress in our transformation to an externally focussed market led business. We have continued to improve our understanding of our markets and our customers, we have developed and successfully launched multiple new products, we have pursued and signed strategic partnerships and we have secured and integrated our first acquisition.

 

In 2015 we performed a thorough review of our strategy.  As a result, we committed to expand our horizons through transformation from an internally focussed product company to a market and customer focussed business.  We undertook to expand our offering beyond the printhead in carefully selected applications, and to access new products and new technology through partnership and acquisition.  We identified packaging as a key market for growth, and the US as a region with untapped potential.  I am pleased with our progress in 2016 against all of these elements.

 

In 2016, we established four strategic pillars to support our 2020 vision; Ceramics; Product Printing and Packaging; Thin Film; Acquisitions and Partnerships.  Progress within each of these pillars is described below.

 

Ceramics

Ceramics remained our largest application segment in 2016, where we retain a strong market position.  It is a market, which is maturing in terms of digital conversion, although opportunities to convert established analogue processes do still remain.  As anticipated, we have seen increased competition from other printhead suppliers in this application segment.  We responded with two important product launches in 2016.  The Xaar 1003, launched in March 2016, provided an improvement in the all-round performance of the well-established and market-leading Xaar 1002, and achieved the longest maintenance-free production runs in the industry.  In September 2016, we launched the Xaar 2001+ family of printheads, a high performing and extremely versatile product range, which enables tile manufacturers to easily implement new designs to respond to changing fashions and tastes, efficiently manage production changes from one day to the next and benefit from low maintenance production runs.

 

Overall, sales performance in ceramics was disappointing in 2016, through a combination of lower overall printer sales in the market, increased competition and a slower take-up of new products.  Initial demand for the 2001+ printheads was strong following the launch of those products in September, however, longer than expected customer printer re-designs and manufacturing ramp up resulted in lower than expected sales in the second half of 2016.  The products launched in 2016 position the Company well in terms of maintaining Xaar's market leading position and supporting our OEM partners in 2017 and beyond.

 

Product Printing & Packaging

Through our strategic review, we identified the potential to extend our business model beyond printheads in carefully selected applications.  In 2016, we selected two areas to focus on; product printing and 3D printing, and we have made good progress on both.

 

The product printing market is served by multiple print processes today and the fastest growing is inkjet.  Here, just as with other industry sectors, there is great potential to accelerate the adoption of inkjet.  On 1 July 2016, we acquired EPS, a leader in Product Printing equipment based in the US, to increase our influence and financial returns from this sector.  EPS successfully established itself through supplying customised and bespoke printing solutions to a wide variety of market sectors including promotional, packaging, medical, automotive, apparel, appliances, sports equipment and toys. One of its achievements has been to develop flexible and cost effective digital inkjet solutions. Through the acquisition, Xaar gained a well-established and successful business, a customer base and a footprint in North America, a region Xaar has been targeting for growth.  I am delighted with the success of the integration and subsequent performance of the business since the acquisition.

  

In December 2016, we announced an investment in 3D printing, led by Professor Neil Hopkinson, through the establishment of staff and facilities in Nottingham, UK and Copenhagen, Denmark.  We will be opening a Xaar 3D Centre in Nottingham, UK, to deliver 3D printing services and equipment to OEMs, material suppliers and end users.  In addition to the investment in Nottingham, Neil's team has recently been expanded through the acquisition of an experienced group of talented engineers working in Copenhagen, Denmark.  The Copenhagen team will provide design and process development expertise to help our partners commercialise equipment, enhancing Xaar's ability to secure further revenues in this fast growing sector. Our investments in Nottingham and Copenhagen will significantly expand our capability in this sector, helping us to achieve our growth plans.

 

In the various established and developing packaging applications outside of product printing, our focus remains our core business of selling printheads, and I am pleased to report good sales performance in 2016, with all areas of Packaging (Coding and Marking, Primary Labels and Direct-to-shape) delivering growth over 2015.

 

Thin Film

2016 was an exciting year for Thin Film printhead technology, with two important announcements.

 

We have made a significant investment in the development of Thin Film printhead technology, with the objective of producing a printhead, which unlocks the digital conversion of very large and established analogue industrial printing markets such as commercial printing, textiles, brochures, magazines and high-volume packaging.  This development is an important part of our 2020 vision, which pushes the boundaries of inkjet technology.  In May 2016, we were delighted to announce the launch of the Xaar 5601, our first product based on this technology platform, which has been successfully demonstrated to a number of our partners.  We had originally targeted to begin commercial sales of this product in early 2017; however, our manufacturing partner experienced a processing issue as they began to increase production levels.  The impact of this issue has limited production output of the Xaar 5601, which has delayed commercial sales volumes.  The root cause of the issue has been identified and resolution is in progress.  We are working closely with our manufacturing partner to minimise the impact of delays on our customers, and we expect to get back on-track during the second quarter of 2017 with commercial sales anticipated from the middle of the year.

 

The second announcement on Thin Film resulted from a strategic collaboration with Ricoh, which yielded a new printhead, the Xaar 1201, targeted at the already well-established digital printing market of outdoor advertising and soft signage in Asia.  Initial demand is high from our partner OEMs.  Production output is building and this printhead is expected to provide a material revenue contribution from the second half of 2017.

 

Acquisitions and Partnerships

In 2016, we were delighted to report our first acquisition.  EPS, acquired on 1 July 2016, has been successfully integrated and is performing well.  It has helped extend our business model and improve our market knowledge.  We will continue to explore acquisition opportunities in the Product Printing space and in other carefully selected target markets.

 

We made excellent progress with partnerships in 2016.  In May 2016, we announced our Thin Film piezo printhead partnership with Ricoh, and in January 2017, we announced our Bulk piezo printhead partnership with Xerox.  These partnerships are important for three reasons; they extend our product range, they produce better products more efficiently, and they expand our market access.

 

As noted above, the Ricoh partnership signed last year quickly yielded a first product, the Xaar 1201, which will contribute in 2017.  The first product from the Xerox partnership announced in January, the Xaar 5501 is already in development and is expected to be introduced in the middle of this year.

 

In 2016, we also made progress on our partnership with GIS on electronics, Megnajet on fluid supply systems, and with a number of ink companies.  Success with printhead adoption is reliant on the creation of an eco-system of technology, products and partners; launching a stand-alone printhead without the necessary supporting elements will not be successful.  Our external focus is therefore very important and we will continue to look for opportunities to partner.

  

Product and technology development

2016 was another busy year for our product development and delivery teams.  In addition to the printheads mentioned above, the Xaar 1003 and Xaar 2001+ for ceramics, and the Xaar 5601 and Xaar 1201 Thin Film products, we achieved a number of other printhead launches.

 

In February 2016, we announced the launch of the Xaar 1002 GS40 for UV applications, perfect for a range of high build varnish and textured effects for labels, packaging, graphics and wood laminate.

 

In November 2016, we announced the launch of the Xaar 502 product family of high-performance greyscale piezoelectric drop-on-demand printheads designed for a wide variety of applications, including the well established Coding and Marking application.

 

We also transferred production of the enduring Xaar 128 from Sweden to Huntingdon and achieved a successful closure of the Sweden facility, on plan and on budget.

 

Our people

I would like to thank all of our staff for their efforts during 2016, an important year in the long-term development and progression of the Company.  We have overcome a number of challenges, and together we will need to continue to challenge ourselves, and to change, to achieve our goals.  In 2017, we have a change of CFO, as Alex Bevis departs after six years of service to join Frontier Developments plc, and Lily Liu joins us from Smiths Group plc.  I'd like to thank Alex for his contribution to Xaar, particularly the last two years whilst we have been working together.  I look forward to working with Lily to continue Xaar's transformation.

 

Summary and outlook

We remain focused on our long-term opportunity, the conversion of well-established analogue manufacturing techniques to digital inkjet solutions. Our vision is to grow annual revenues to £220 million by 2020.

 

Looking nearer term, our achievements in 2016 on a number of fronts position us well for growth.   Whilst our strengthened product portfolio expands our market opportunities, execution risks remain. The expected growth of new product revenues over the course of 2017 reduces our visibility for the current year, with revenues expected to be more second half weighted than usual.  Our objective is simple, to take the necessary steps in terms of product developments, partnerships and financial performance to reach our 2020 target.

 

Doug Edwards

Chief Executive Officer

  

 

Chief Financial Officer's Report

Revenue

The Group achieved total revenue for the year of £96.2 million (2015: £93.5 million) which was broadly in line with the Board's expectations going into 2016.  A disappointing performance in ceramics was offset by strong growth in packaging, the addition of sales from the acquired EPS business, and higher royalty income.

 

The majority of Xaar's revenue is generated by product sales, commissions and fees (£82.9 million or 86% of total sales in 2016, £87.3 million or 93% of total sales in 2015), with 14% of revenue in 2016 (2015: 7%) derived from licensee royalty income.  The significantly higher level of licensee royalty income in 2016 compared to previous years is the result of the resolution of royalty audits during the year.

 

Industrial applications (associated with the production of physical end products) continue to be the largest sector for Xaar's technology, and represented 55% of Group revenue in 2016 at £53.3 million, compared to 66% in 2015 (£62.2 million).

 

The largest revenue contributor in Industrial continues to be ceramic tile decoration.  The development and sale of printing equipment by our OEM partners continues to drive the conversion from analogue rotary systems to superior digital inkjet processes, but this sector is maturing and the replacement cycles for both printers and printheads are becoming more important.

 

Revenues from the acquired EPS business have been included in the Industrial sector and accounted for £6.7 million in 2016 (from the acquisition date of 1 July 2016).  Total sales into other Industrial applications such as advanced manufacturing, decorative laminates (artificial wood), and product printing (industrial Direct-to-Shape) grew 19%.

 

Sales into the Packaging market grew 40% in the year, and accounted for 23% of revenue in 2016 at £21.7 million (2015: 17%, £15.5 million). All three of the main sub-sectors; Coding and Marking, Primary Labels, and Direct-to-shape delivered growth over 2015.  Sales into the Coding and Marking application were boosted by some one-off last-time-buy arrangements for products previously manufactured In Sweden.

 

Sales into Graphic Arts, typically the printing of outdoor advertising and soft signage, accounted for £7.9 million for the year (2015: £9.6 million).  The Xaar 1201 printhead launched in 2016 will be an important product to enable a return to more substantial sales in this sector in 2017.

 

As a supplier of technology to OEM partners, our geographic sales split reflects where our products are integrated into the manufacturing equipment, which is not necessarily the end-user location.

 

In 2016, Europe, Middle East and Africa (EMEA) remained the Company's largest sales region at £41.7 million (2015: £47.1 million), representing 43% of Group sales. The year on year reduction in revenue is mainly the result of falling European OEM sales into ceramics.  Europe will continue to be a very important market for us, and so we are keen that efficient trading arrangements continue with the EU as the UK prepares for Brexit. 

 

Sales into Asia were also impacted by the lower sale into ceramics, but benefited from the royalty audit settlements.  Overall sales into Asia reduced to £36.4 million (2015: £39.9 million) representing 38% of total revenue.

 

The Americas remained the lowest region by sales but increased substantially following the EPS acquisition.  Revenue increased to £18.1 million from the £6.5 million recorded in 2015, representing 19% of total revenue.

  

Profitability

Overall profitability was slightly down year on year, with an adjusted operating margin in 2016 of 20%, versus the 22% recorded in 2015.  The reduction was mainly due to a lower gross profit margin, which reduced from 47.8% in 2015 to 46.4% in 2016, despite the more significant contribution provided by license income arising from the resolution of two significant royalty audits.  Gross profit margin in 2016 excluding all license related income was 37.8% compared to 44.1% recorded in 2015.  The reduction reflected lower output from the Sweden manufacturing facility in the first half of 2016, competition related pricing pressures and lower than planned production levels in the second half of the year of new products, including a slower than expected increase in the Xaar 2001+. 

 

Gross expenditure on R&D (before cost capitalisation) increased by 13% from £19.9 million in 2015 to £22.4 million in 2016. Development expenditure on the Thin Film programme of £10.2 million was capitalised in 2016 (2015: £8.4 million) as required under International Financial Reporting Standards (specifically IAS 38).  We are currently working with our manufacturing partner to resolve an issue on our first Thin Film product, the Xaar 5601, in order to increase production volumes and achieve commercial sales.  The delay of this milestone means that in 2017 we will continue to capitalise costs associated with the Thin Film platform development programme. This position will be reviewed in the middle of the year, at which time we expect to commence commercial sales.

 

Sales, marketing and general administrative costs increased to £13.4 million (2015: £12.7 million) on an adjusted basis, partly as a result of the acquisition of EPS.

 

Adjusted profit before tax of £19.5 million was recorded for 2016 (2015: £20.8 million). Profit before tax as reported under IFRS was £17.9 million (2015: £13.6 million).

 

The tax charge on adjusted profit before tax was £2.9 million (2015: £1.8 million), representing an effective tax rate of 15% (2015: 9%) which compares to the UK corporation tax rate for 2016 of 20%. Xaar benefits from favourable intellectual property and R&D tax incentive schemes in the UK as a result of our continued investment in R&D. The effective tax rate for 2015 was particularly low due to prior year adjustments.  The tax charge on IFRS profit before tax was £3.1 million (2015: £1.0 million) representing an effective tax rate of 17% (2015: 8%).

 

Adjusted profit after tax for 2016 was £16.6 million (2015: £19.0 million) and adjusted diluted earnings per share was 21.2 pence (2015: 24.5 pence).

 

Financial position

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

2015

 

Notes

£'000

Revenue

 

93,472

Cost of sales

 

(48,782)

Gross profit

 

44,690

Research and development expenses

 

(11,548)

Research and development expenditure credit

 

818

Sales and marketing expenses

 

(5,440)

General and administrative expenses

 

(9,254)

Restructuring and acquisition expenses

 

(6,120)

Operating profit

 

13,146

Investment income

 

426

Profit before tax

 

13,572

Tax

 

(1,043)

Profit for the year attributable to shareholders

 

12,529

Earnings per share

 

 

Basic

3

16.6p

Diluted

3

16.1p

 

The Group maintains a strong cash position, with £49.3 million of cash and treasury deposits at 31 December 2016, which is a decrease of £20.4 million compared to balances held at 31 December 2015.  Operating cash inflow, being adjusted profit before tax after adding back depreciation and amortisation, was £28.1 million. The change in working capital during the year represented a net cash outflow of £8.5 million.  An increase in receivables was the biggest change in working capital, which resulted from the phasing of revenue in the year, the establishment of terms with new customers, last-time-buy credit arrangements for products previously manufactured in Sweden, and increased receivables from sales recorded by the acquired EPS business in the latter part of 2016.  The acquisition of EPS in July 2016 accounted for an outflow of £8.0 million.  Total cash outflow relating to intangible and tangible assets was £21.1 million in the year, including £10.2 million of capitalised development expenditure.  Dividends accounted for £7.3 million of cash outflow in 2016.

 

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 6.7 pence for 2016 (2015: 6.3p) at the forthcoming Annual General Meeting (AGM), giving a total dividend for the year of 10.0 pence, a 5.8% increase over 2015 (9.45 pence). An interim dividend of 3.3 pence was paid during the year (2015: 3.15 pence). Subject to approval by shareholders at the AGM, the final dividend will be paid on 26 June 2017, with an ex-dividend date of 25 May 2017, to shareholders on the register at close of business on 26 May 2017.

 

Alex Bevis

Chief Financial Officer

 

 

 

 

Dividends paid in the year amounted to £7,328,000 (2015: £6,925,000).

All activities relate to continuing operations.

 

 

                     

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

 

2015

 

£'000

Profit for the year attributable to shareholders

12,529

Items that may be reclassified subsequently to profit and loss:

 

Exchange differences on retranslation of net investment

(27)

Tax benefit on share option

-

Other comprehensive income for the year

(27)

Total comprehensive income for the year

12,502

       

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

AS AT 31 DECEMBER 2016

 

 

 

2015

 

£'000

Non-current assets

Goodwill

-

Other intangible assets

17,795

Property, plant and equipment

31,255

Receivables

-

 

49,050

Current assets

 

Investments

1,000

Inventories

13,458

Trade and other receivables

11,947

Current tax asset

2,805

Treasury deposits

27,098

Cash and cash equivalents

42,649

 

98,957

Total assets

148,007

Current liabilities

 

Trade and other payables

(12,405)

Other financial liabilities

(68)

Provisions

(3,533)

 

(16,006)

Net current assets

82,951

Non-current liabilities

 

Deferred tax liabilities

(1,222)

Other financial liabilities

(241)

Total non-current liabilities

(1,463)

Total liabilities

(17,469)

Net assets

130,538

Equity

 

Share capital

7,764

Share premium

27,585

Own shares

(3,796)

Other reserves

11,006

Translation reserve

99

Retained earnings

87,880

Equity attributable to shareholders

130,538

Total equity

130,538

 

  

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

 

 

 

 

 

 

 

Share

Share

Own

Other

Translation

Retained

 

 

Capital

premium

Shares

Reserves

Reserve

Earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2015

7,664

26,345

(3,796)

9,716

126

82,105

122,160

Profit for the year

-

-

-

-

-

12,529

12,529

Exchange differences on retranslation of net investment

-

-

-

-

(27)

-

(27)

Total comprehensive income for the period

-

-

-

-

(27)

12,529

12,502

Issue of share capital

100

1,240

-

-

-

(40)

1,300

Dividends

-

-

-

-

-

(6,925)

(6,925)

Tax on share option gains

-

-

-

-

-

211

211

Credit to equity for equity-settled share-based payments

-

-

-

1,290

-

-

1,290

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 31 December 2016

7,778

27,854

(3,642)

11,891

807

95,768

140,456

                           

 

 

 

 

CONSOLIDATED CASH FLOW STATEMENT

 

 

 

FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

 

 

 

2015

 

Notes

£'000

Net cash from operating activities

4

40,384

Investing activities

 

 

Investment income

 

531

Acquisition of subsidiary, net of cash acquired

6

-

Purchases of property, plant and equipment

 

(3,764)

Proceeds on disposal of property, plant and equipment

 

46

Expenditure on software

 

(187)

Expenditure on capitalised product development

 

(8,365)

Net cash used in investing activities

 

(11,739)

Financing activities

 

 

Dividends paid

 

(6,925)

Treasury deposits

 

(6,098)

Proceeds from the sale of ordinary share capital

 

-

Proceeds from issue of ordinary share capital

 

1,300

Net cash from/(used in) financing activities

 

(11,723)

Net increase in cash and cash equivalents

 

16,922

Effect of foreign exchange rate changes on cash balances

 

(236)

Cash and cash equivalents at beginning of year

 

25,963

Cash and cash equivalents at end of year

 

42,649

 

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 YEAR ENDED 31 DECEMBER 2016

 

1.             Basis of preparation

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2015 and 2016, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 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 2017.

 

2.             Reconciliation of adjusted financial measures

 

2016

2015

 

£'000

£'000

Profit before tax

17,853

13,572

Share-based payment charges

969

1,498

Exchange differences relating to the Swedish operations

60

447

Restructuring and acquisition expenses

1,205

6,120

Research and development expenditure credit

(605)

(818)

Adjusted profit before tax

19,482

20,819

 

Share-based payment charges include the IFRS 2 charge for the period of £887,000 (2015: £1,290,000) and the credit relating to National Insurance on the outstanding potential share option gains of £82,000 (2015: £208,000). These costs were included in the general and administrative expenses in the consolidated income statement.

Exchange differences relating to the USA and Swedish operations represent exchange gains or losses recorded in the consolidated income statement as a result of operating in the USA and Sweden. These costs were included in the general and administrative expenses in the consolidated income statement.

Restructuring and acquisition expenses of £1,205,000 (2015: £6,120,000) relate to costs incurred and provisions made in relation to a reorganisation and the planned closure of the manufacturing facility in Sweden in 2016 and include acquisition expenses and earn-out provisions for the acquisition of EPS.

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 consolidated income statement.

 

2016

2015

 

Pence per share

Pence per share

Diluted earnings per share

18.9

16.1

Share-based payment charges

1.2

1.9

Exchange differences relating to the Swedish operations

0.2

0.6

Restructuring and acquisition expenses

1.5

7.9

Tax effect of adjusting items

(0.6)

(2.0)

Adjusted diluted earnings per share

21.2

24.5

This reconciliation is provided to enable a better understanding of the Group's results.

 

3.             Earnings per ordinary share - basic and diluted

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

 

2016

2015

 

£'000

£'000

Earnings

 

 

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent

14,801

12,529

Number of shares

 

 

Weighted average number of ordinary shares for the purposes of basic earnings per share

76,162,226

75,572,550

Effect of dilutive potential ordinary shares:

 

 

Share options

1,994,875

2,215,736

Weighted average number of ordinary shares for the purposes of diluted earnings per share

78,157,101

77,788,286

 

 

 

 

2016

2015

 

Pence per share

Pence per share

Basic

19.4

16.6

Diluted

18.9

16.1

 

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 and the matching shares held in trust for the Share Incentive Plan.

For 2016, there were share options granted over 22,758 shares that had not been included in the diluted earnings per share calculation because they were anti-dilutive at the period end (2015: 35,678).

 

The performance conditions for LTIP awards over 1,109,652 shares (2015: 724,608 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 the Swedish operations, the gain or loss on derivative financial instruments, restructuring and acquisition expenses, is based on earnings of:

 

2016

2015

 

£'000

£'000

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent

14,801

12,529

Share-based payment charges

969

1,498

Exchange differences relating to the Swedish operations

60

447

Restructuring costs

1,205

6,120

Tax effect of adjusting items

(447)

(1,570)

Adjusted profit after tax

16,588

19,024

 

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:

 

2015

 

Pence Per Share

Adjusted basic

25.2

Adjusted diluted

24.5

 

 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

 

2015

 

£'000

Profit before tax

13,572

Adjustments for:

 

Share-based payments

1,498

Depreciation of property, plant and equipment

10,147

Amortisation of intangible assets

834

Impairment of goodwill

720

Research and development expenditure credit

(818)

Investment income

(426)

Foreign exchange (gains)/losses

149

(Profit)/loss on disposal of property, plant and equipment

75

(Decrease)/increase in provisions 

3,108

Operating cash flows before movements in working capital

28,859

Decrease in inventories

6,274

(Increase)/decrease in receivables

1,469

(Decrease)/increase in payables

2,405

Cash generated by operations

39,007

Income taxes (paid)/received

1,377

Net cash from operating activities

40,384

 

 

 

5.             Going concern

The Group has considerable financial resources and through a diverse 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. 

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 four years, 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.

  

6. Acquisition of subsidiary

On 1 July 2016, the Group obtained control of Engineered Printing Solutions ("EPS") by acquiring 100 per cent of its issued share capital. EPS, founded in 1985 as Pad Print Machinery of Vermont Inc., is a leading provider of product printing equipment in North America. EPS was acquired as part of the Company's strategic vision to achieve £220m of annual sales by 2020.

Recognised amounts of identifiable assets acquired and liabilities assumed

£'000

Other intangible assets

84

Property, plant and equipment

1,240

Inventories

2,876

Trade and other receivables

939

Cash and cash equivalents

207

Trade and other payables

(2,335)

Current tax asset

36

Current tax liability

(236)

Current financial liabilities

(501)

Deferred tax liability

(81)

Non-current financial liabilities

(242)

Total identifiable assets

1,987

Goodwill

5,776

Total consideration

7,763

 

 

Satisfied by:

 

Cash

7,763

Total consideration transferred

7,763

 

 

Net cash outflow arising on acquisition

 

Cash consideration

7,763

Less: cash and cash equivalents acquired

(207)

Total net cash outflow arising on acquisition

7,556

 

The fair value of the trade and other receivables includes trade receivables with a fair value of £674,000 and a gross contractual value of £712,000. The best estimate at acquisition date of the contractual cash flows not to be collected was £38,000.

 

The goodwill of £5,776,000 arising from the acquisition represents those characteristics and valuable attributes of the acquired business that cannot be quantified and attributed to separately identifiable assets in accounting terms. This goodwill is underpinned by a number of elements the most significant of which is the well-established, skilled and experienced management team, including the founder Julian Joffe, which will allow Xaar to accelerate the adoption of inkjet in the product printing market and provide a strategic platform for expanding Xaar's footprint in North America. None of the goodwill recognised is expected to be deductible for income tax purposes.

 

In addition to the total consideration, deferred consideration is due during the following 3-year period based on revenue and profit performance over that time. The potential undiscounted amount of all future payments that the Company could be required to make under the deferred consideration arrangement is between $nil and $7.5m.

 

Acquisition related costs (included in administrative expenses in the consolidated income statement for the period ended 31 December 2016) amounted to £399,000.

 

Separate to the Share Capital transaction set out in the table above, Xaar US Holdings Inc. injected equity, in the form of cash, into EPS. Part of this cash injection was then used by EPS to acquire the freehold land and buildings previously leased from Julian Joffe at the market value of £1,152,000.

 

EPS contributed £6,692,000 revenue and £292,000 to the Group's profit for the period 1 July 2016 to 31 December 2016. If the acquisition of EPS had been completed on the first day of the financial year, Group revenues for the 6-month period would have been £49,387,000 and the Group's profit before tax would have been £7,697,000. If the acquisition had taken place at the beginning of the reporting period, the Group Revenue would have been £101,049,000 and the Group profit before tax would have been £17,896,000. 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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