REG - Xaar PLC - 2023 Interim Results
19/09/2023 07:00
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RNS Number : 8404M Xaar PLC 19 September 2023
19 September 2023
Xaar plc
2023 INTERIM RESULTS
STRATEGIC PROGRESS WITH PERFORMANCE ON TRACK
Xaar plc ("Xaar", the "Group" or the "Company"), the leading inkjet printing
technology group, today announces its unaudited interim results for the six
months ended 30 June 2023.
Financial Summary:
H1 2023 H1 2022 Change
Continuing Operations
Revenue £34.5m £36.6m -6%
Gross profit £13.8m £14.5m -5%
Gross margin % 40% 40%
Gross R&D investment £2.6m £3.3m -21%
Adjusted EBITDA(1) £3.5m £3.0m 17%
Adjusted profit before tax(1) £1.8m £1.4m 29%
Loss before tax (£1.8m) (£0.3m)
Loss/profit for the period after tax (£1.3m) £0.7m
Basic (loss)/earnings per share (1.7p) 0.9p
Total Operations
Loss before tax (£1.8m) (£0.6m)
(Loss)/profit after tax (£1.3m) £0.4m
Basic (loss)/earnings per share (1.7p) 0.5p
Net cash at the period end(2) £7.3m £12.7m -42.5%
1 - EBITDA is calculated as statutory operating profit before depreciation,
amortisation and impairment of property, plant and equipment, intangible
assets and goodwill. Adjusted EBITDA is calculated as EBITDA excluding other
adjusting items as defined as follows. Adjusted Measures exclude the impact of
share-based payment charges, exchange differences relating to intra-group
transactions, gain on derivative financial instruments, restructuring and
transaction expenses, research and development expenditure credit, fair value
loss or gains on financial assets at FVPL, amortisation of acquired
intangibles, and discontinued operations as reconciled in note 2.
2 - Net cash at 30 June includes cash, cash equivalents and treasury deposits.
Figures and percentages included in this report are subject to rounding
adjustments arising from conversion to £millions from actual figures.
Accordingly, figures shown for the same category presented in different tables
may vary slightly, and figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures that precede them.
Financial highlights
· Revenue of £34.5 million in line with expectations
· Group adjusted profit before tax for the period year up 29% to
£1.8 million
· Gross margin of 40% is in line with H1 2022, driven by targeted
favourable sales mix and cost management offsetting the factory upgrade
investment
· R&D spend of £2.6 million, equating to 8% of Group Revenue,
underscores the continued investment on the product roadmap, with a focus on
the ImagineX platform
· Robust balance sheet with net cash of £7.3 million (2022: £12.7
million) following planned investment in working capital to ensure customer
demand is met
Strategic and operational highlights
· Increasing number of customers developing products, with
additional product launches expected in H2 2023 and expected recovery in key
markets
· Commercial partnership with Quantica announced on 5 July 2023
enhances the Group's leading position in jetting highly viscous fluids
· Phase 1 of factory efficiency programme completed on time and
within budget
· Product Print Systems business ("EPS") delivered a strong
performance in the period with both revenue and margin growth
· Sustainability roadmap embedded within the business with clear
strategy to reach 'net zero' by 2030
John Mills, Chief Executive Officer, commented:
"We remain focused on the successful delivery of our strategy and taking
advantage of the significant opportunities that will drive profitable growth.
We have seen continued positive momentum across the business, with increased
visibility over customer product launches and a robust pipeline.
Our products, especially Aquinox, are generating strong interest from existing
and new customers, underlining our leadership in printing highly viscous
fluids.
Phase 1 of our factory efficiency programme has been successfully completed on
time and within budget positioning us to deliver increased efficiency and
capacity, whilst realising significant cost savings.
Whilst being mindful of the external environment, we remain optimistic about
the future with encouraging signs of recovery in key markets and the business
in good shape to make further progress and to deliver a full year performance
in line with our expectations. With a substantial market opportunity and the
progress made, we remain well positioned to realise our exciting potential."
Contacts:
Xaar plc
Ian Tichias, Chief Financial Officer +44 (0) 1223 423 663
John Mills, Chief Executive Officer
Teneo +44 (0) 207 353 4200
Giles Kernick
Olivia Lucas
A presentation for analysts and investors will be held via webcast and
conference call at 09:00 today. For further details, please contact
Xaar@teneo.com (mailto:Xaar@teneo.com)
Significant strategic progress
Xaar has delivered a good performance in the last six months in line with our
expectations. We continue to execute our strategy of delivering compelling
products in each of our market segments and remain focused on the significant
opportunities that will drive profitable growth.
This strategy is now delivering with our products, especially Aquinox,
generating strong interest from both existing and new customers underlining
our leadership in jetting highly viscous fluids which, alongside other
advantages, provide significant sustainability benefits, as well as reducing
our customers' time to market.
Our positive momentum has continued during the reporting period. We have seen
an increase in the number of customers adopting Xaar technology and we now
have clearer visibility of their product launches, which will drive
performance in the second half of this year and beyond.
Phase 1 of our factory upgrade has been successfully completed on time and
within budget, positioning us to deliver increased efficiency and capacity,
whilst realising significant cost savings. Further phases of development,
expected to start in early 2025, will see increased modernisation of our
manufacturing facilities leading to greater efficiencies and scale potential.
We have seen continued good performance from EPS, Megnajet and FFEI, with EPS
especially continuing to drive excellent revenue and profit growth. As part of
our decision to strategically withdraw from the Life Science part of FFEI, we
sold non-core IP assets delivering a profit of £2.0 million.
Continued strong trading - in line with expectations
We have delivered performance in H1 2023 in line with management expectations,
further demonstrating the operational and strategic progress across the Group.
The Group has increased resilience with performance driven by all elements of
the business, and an ongoing focus on cost control and careful cash
management.
Revenue for the period was £34.5 million representing a decrease of 6%
against H1 2022.
The Printhead business has a clear customer-focussed commercial strategy, and
we are pleased to have grown our customer base and maintained our market
share. The economic challenges globally, particularly rising interest rates,
have directly impacted capital equipment purchases by some customers in the
period. The performance also reflects the tough comparative period in Q1 2022
where demand in China was high prior to the implementation of COVID related
restrictions.
Revenue for the Printhead business was relatively flat compared to H2 of last
year and we are now seeing encouraging signs of recovery, with the lifting of
restrictions in China along with an increase in customer product launches that
incorporate Xaar's technology, which we expect to drive demand for printheads.
We have been able to demonstrate the strength of our technology in market
sectors beyond Ceramics, especially the key growth area of 3D printing, and
continue to see strong customer engagement where we have a competitive
advantage by enabling customers to reduce their own development times.
EPS delivered an excellent performance. Revenue increased 16%, against the
equivalent period of 2022, with growth across all its product lines, driven by
digital inkjet single pass machines. We have increased customer engagement
with a strong sales pipeline which is driving revenue growth, higher gross
margins, and strong profitability.
FFEI and Megnajet, continue to perform well. These businesses provide us with
an expanded product range enabling real traction and opportunity in the
printbar and print engine markets, along with fluid management systems.
Our plan has been to focus on products that support our core strategy. As a
result, we are considering options to withdraw from the non-core Life Sciences
part of the FFEI business, and the sale of IP in this area is part of this
process. We delivered a one-off profit of £2.0 million through this sale
which helped offset the one-off impact of Phase 1 of our factory
re-organisation at Huntingdon completed in Q1.
Gross margin was maintained at 40% despite inflationary cost pressures and the
closing of the Huntingdon factory for two months to complete Phase 1 of the
operational re-organisation. This was driven by an increase in Printhead of 3
ppts to 44% helped by a favourable sales mix, and EPS which increased Gross
Margin to 40% from 39% in the comparative period.
Group Adjusted EBITDA grew from £3.0 million to £3.5 million driven by a
positive adjusted EBITDA in each of our businesses (EPS adjusted EBITDA of
£1.7 million (H1 2022: £1.2 million), FFEI adjusted EBITDA of £2.3 million
(H1 2022: £0.5 million), and Megnajet adjusted EBITDA of £0.4 million (H1
2022: £0.3 million)) other than Printhead which, due to the fall in revenue
and the Q1 closure of the factory, posted negative adjusted EBITDA of £0.9
million (H1 2022: positive £0.9 million).
Group adjusted profit before tax for H1 2023 was £1.8 million, an increase
when compared to H1 2022 (£1.4 million) and H2 2022 (£1.4 million).
Strong balance sheet and operational investment
The Group retains a strong balance sheet and cash position. Net cash at 30
June 2023 was £7.3 million, representing a net outflow of £1.2 million in
the period.
During this period we invested £3.2 million in inventory allowing the
Printhead business to increase its holding of finished goods. This systematic
approach over the last 12 months gives us confidence that we can deliver on
customer demands for the remainder of the year and into 2024. We believe that
we are winning business through the advantage of offering shorter lead times
than our competition which ensures we are well placed to capitalise on the
commercial opportunities we have.
In addition, we have invested £1.1 million (H1 2022: £1.5 million) in
operational upgrades along with the factory upgrade completed in March 2023.
R&D investment in innovation is critical to the ongoing success of the
business, and we will continue to invest in our R&D capabilities across
the Group to ensure our technology remains market leading. During H1 2023 we
invested £2.6 million (H1 2022: £3.3 million). The continued strong cash
generation across the business and prudent cash management has enabled us to
make these investments. We will maintain our disciplined approach to balance
sheet management, and it remains a key priority to allow for further
investment in the business focussing on operational capability.
In June 2023 we successfully agreed a Revolving Credit Facility (RCF) of £5
million with our lead bank, HSBC, which allows for accelerated investment in
the business and our operational capability.
Operational improvements driving greater efficiency and increased capacity
Operational improvements have been made by investing in our manufacturing
facilities to increase efficiency and lower costs. The first phase of this
programme has now been completed and the Huntingdon factory re-organisation
was completed in early 2023 on time and under budget.
This will enable us to operate more efficiently, increase capacity and yields
whilst crucially generating significant cost savings, especially in reducing
our energy consumption. Accordingly, this investment will deliver a rapid
return and payback in less than a year.
As a result of this investment, we will increase capability and capacity
enabling us to take advantage of the opportunities which we expect to drive
our future growth.
This is the first phase of our efficiency upgrade programme, and we plan to
invest a further £10-15 million over the next three to four years which we
intend to fund through operational cash generation. The next phase of
investment is expected to take place in early 2025, depending on business
needs, which will result in more modern, efficient, and environmentally
beneficial manufacturing facilities across the business.
Significant market opportunity
We have a strong proposition across our five key market sectors. Our digital
inkjet technologies provide compelling propositions to transform print
processes across a wide range of applications, and we can supply our customers
with the products they need to develop their printers. This means we have
significant opportunities for complementary revenue, incremental to printhead
sales, where we can shorten our customers' product development time to market.
The medium and long-term opportunity for the business remains significant.
Whilst we already have good market share in core, mature markets such as
Ceramics and Coding & Marking, further growth opportunities exist because
of our market leading technologies and clear competitive advantage.
During 2023 we have made the most significant progress in 3D printing, where
our ability to print high viscosity fluids is transforming the industry. The
3D printing sector is experiencing a greater level of customer product
launches, thereby providing greater revenue potential opportunity for our
products than previously expected.
Historically Xaar has almost exclusively operated in the B2B (Business to
Business) area across our product ranges and applications, however there is an
emerging opportunity for 3D printing in the B2C (Business to Consumer) sector
where we can facilitate growth.
We are partnering with established system providers for our Xaar Irix
printhead to enable a new generation of full colour, inkjet-based desktop 3D
printing systems that are higher resolution and more flexible than the
existing technologies. We anticipate this new generation of 3D printers to be
launched over the next six to twelve months.
We have seen increased customer engagement as our printhead product range has
expanded and our ability to offer a broader solution to customers with fluid
management systems and printbars, as evidenced by the increasing number of
customers developing machines with our products. Both our current product
offering and our products in development will help drive our success in
meeting this customer demand.
This is demonstrated with the high level of customer interest and adoption of
Aquinox, our new water-based fluid printhead with an increased number of
development kits sold in the period. We expect to see customer product
launches incorporating Aquinox during H2 this year.
By providing an integrated solution for customers whereby they can access more
of the printing ecosystem, we help our customers take advantage of the inkjet
opportunity and working with Xaar means a higher chance of success by being
faster to market, and therefore, making our customers' investment more
profitable. Ultimately this will help us in our overriding strategy to sell
more printheads and gives the business increased resilience over volatility in
any given market.
Product development and increased capability
The market opportunity for Xaar printheads is significant. We have a unique
roadmap of product development to ensure we offer an increasingly vertically
integrated commercial strategy to capitalise on this market opportunity.
Our Xaar 2002 printhead has double the resolution of our competitors giving
the ability for very high-quality print and incorporates our key technologies
which enable printing of very challenging fluids in harsh production
environments.
The Xaar Irix remains the flagship product in the Coding and Marking and
Direct-to-Shape sectors. It delivers increased throw distance whilst
maintaining print quality and along with our Xaar 50X printheads means we are
maintaining our position in Coding and Marking and have several opportunities
in the Direct-to-Shape market.
The recently launched Aquinox printhead is positioned to drive adoption in
Packaging and Textiles markets. The response to the product has been
exceptional due to its ability to print high viscosity water-based inks. This
gives customers the opportunity to use less energy, with a higher throughput,
and more vibrant colours and we expect the first product launches of textile
printers to happen in H2 2023.
The already successful ImagineX platform will deliver improved features over
the next few years which will provide significant enhancements to the current
portfolio, including:
· substantially improved speed and throughput (frequencies up to
150kHz, equivalent to a threefold increase in speed compared to current
products),
· increased throw distance to improve image quality on curved
surfaces,
· increased robustness to improve the life of the printhead and
maintain image quality,
· higher viscosities enabling a broader range of fluids to be
printed (above 100cP), and
· higher resolutions (up to 1440 dpi).
These features will help strengthen our position in markets where we are
already well represented and will drive improved adoption in several markets
where we are currently not participating.
The enhancements in our product roadmap support our customers with a clear
path to upgrade their products and maintain their product differentiation.
Continued commitment to sustainability
We continue to make significant progress on ESG and the Group's Sustainability
Roadmap. The Board remains committed to the business becoming carbon net zero
by 2030.
We are passionate about delivering solutions and products for our customers
that are cleaner and better for the environment. Our products are well placed
to deliver significant benefits commercially and environmentally for our
customers through reductions in power consumption and water usage.
We also seek to have a wider positive impact on society by understanding and
prioritising employee needs, doing business responsibly, and reaching out to
our local communities. All our UK sites have now moved to 100% renewable
energy. All printhead product packaging is fully recyclable. Our Apprentice
Programme is well developed across the business, and we continue to support
activities promoting STEM (Science, Technology, Engineering and Maths)
subjects amongst young people as well as several sponsorship programmes
supporting university students and industry placements.
Digital inkjet printing is inherently more sustainable compared to traditional
analogue printing with a smaller carbon footprint. It reduces and prevents
excessive waste and uses less energy due to the ability to print short runs or
direct-to-shape. With Ultra High Viscosity Technology and TF Technology ink
recirculation, Xaar printheads are capable of printing very viscous fluids
which, in the textiles sector for example, results in a reduction in energy
used in intensive drying processes. We are passionate about continuing further
adoption and understanding of the environmental benefits our products can
bring to customers.
Outlook
While remaining vigilant to broader macroeconomic conditions, the Board
remains confident of delivering full year results in line with its
expectations.
Despite the lifting of COVID related restrictions in China, sales volumes in
the Printhead business continue to be affected, but we expect market
conditions in the sectors in which we operate to improve during H2 2023 and
this, coupled with increased customer product launches, will drive higher
demand for Xaar printheads.
We have maintained our policy of increased investment in inventory during 2022
and 2023 to ensure the Group is well placed to capitalise on our targeted
opportunities and satisfy customer demand.
There is positive momentum in the business with strong customer interest and
customer engagement. Our strategy to diversify across a range of market
sectors means further customer product launches are expected in 2024 providing
confidence in delivering our medium-term growth plans.
Business Performance
Revenue
Group revenue growth
£m H1 2023 H1 2022 Var % H2 2022 Var %
Printhead 17.6 20.7 -15% 18.3 -4%
EPS 10.7 9.2 +16% 10.4 +3%
FFEI 4.8 6.1 -21% 5.5 -13%
Organic growth H1 2023 vs H1 2022 33.1 36.0 -8% 34.2 -3%
Megnajet 1.4 0.6 +133% 2.0 -30%
Total Revenue 34.5 36.6 -6% 36.2 -5%
Revenue for the Group was £34.5 million for the first half of the year,
representing a year-on-year decline of £2.1 million (H1 2022: £36.6
million).
These results have been achieved in a difficult trading environment.
Restrictions arising from COVID-19 in China have now been lifted, however,
there has been an ongoing impact on Printhead revenue. This together with
rising costs and interest rates have impacted capital equipment sales
globally. Printhead business unit revenue declined £3.1 million when compared
to the same period last year. Q1 2022 revenue included a strong business
performance from sales in China, driving this variance. When compared to H2,
Printhead revenue is close to flat, despite the weak demand generally for
capital goods which is a strong indicator of the progress the business has
made with customer engagement. EPS revenue increased 16% when compared to H1
2022 and 3% to H2 2022, demonstrating continued excellent progress.
Printhead
Printhead Revenue by Sector
£m H1 2023 H1 2022 Var % H2 2022 Var %
Ceramics & Glass 8.0 9.8 -18% 7.1 +12%
C&M & DTS 5.1 6.9 -26% 5.8 -13%
WFG & Labels 1.7 1.8 0% 3.0 -40%
3D Printing & AVM 2.6 1.9 +37% 2.0 30%
Packaging & Textile 0.2 0.1 +100% 0.4 -50%
Royalties, Commissions & Fees - 0.2 -100% - -
Total 17.6 20.7 -15% 18.3 -4%
Printhead revenue for the half year decreased £3.1 million to £17.6 million
(H1 2022: £20.7 million), representing the current economic challenges and a
strong comparative reporting period in 2022 due to greater sales in China.
Printhead revenue in EMEA was £11.1 million compared to £11.2 million in H1
2022, although this is an increase compared to £9.5 million in H2 2022 which
is pleasing and reflects on our customer engagement across our market sectors,
whilst revenue in the Americas fell. Performance in Asia, and China in
particular, has been impacted by COVID-19 restrictions. Restrictions were not
implemented in China until Q2 2022, and before then we saw strong Printhead
revenue. Although restrictions are now lifted, the economic challenges faced
in China are impacting sales of printheads, and we have seen orders from our
customers delayed as their own product development times are taking longer.
This has particularly impacted revenue in the Ceramics sector (albeit with a
recovery in revenue when compared to H2 2022), and Coding & Marking
(C&M). Whilst this is disappointing, the underlying market demand remains,
we have retained market share, and we are confident in the medium term of
returning to the previous growth levels. The number of customer product
launches in the coming 12 months is increasing which drives this confidence.
3D printing and Additive Manufacturing (AVM) has seen consistent growth which
is pleasing as this reflects our overall customer strategy and enhanced
product portfolio.
EPS
EPS Revenue by Sector
£m H1 2023 H1 2022 Var % H2 2022 Var %
Digital Inkjet 7.3 5.7 +28% 6.7 +9%
Pad Printing 3.0 3.3 -9% 3.4 -12%
Other 0.4 0.2 +100% 0.3 +33%
Total 10.7 9.2 +16% 10.4 +3%
Revenue from the EPS business increased by £1.5 million to £10.7 million (H1
2022: £9.2 million).
This has been driven by digital inkjet machines sales with growth of 28%,
which is particularly pleasing as this is the core focus for the business and
will drive increased profitability. As our focus has been on the core
profitable single pass digital machines, we have seen some decrease in revenue
from the pad printing stream, which we would expect to recover during H2 2023.
We see a strengthening pipeline and order book and we are well placed to
deliver further growth for the full year in 2023.
FFEI and Megnajet
FFEI revenue was £4.8 million which compares to £6.1 million in H1 2022.
This results from a focus on the core activities - that of print systems -
which was the driver for the acquisition. Accordingly, the non-core activities
of the business have seen reduced revenue and we have stated that in time we
will exit the Life Science aspect of the business. We are pleased with the
growth of Megnajet which has delivered £0.8 million increase (133%), and on a
like-for like basis delivered a £0.4 million increase (Megnajet was
consolidated in March 2022). We have seen a change in stock levels for some
customers which has contributed to the decrease compared to H2 2022.
Gross profit
Gross profit for the period decreased by £0.7 million to £13.8 million (H1
2022: £14.5 million) with the gross margin remaining at 40% (H1 2022: 40%).
We have successfully mitigated overhead cost increases, together with impact
on profit from the factory shutdown, to increase the Printhead business unit's
gross margin which grew to 44% from 41% (although due to the revenue reduction
gross profit reduced from £8.5 million from £7.9 million). We were able to
do this through a combination of sales price increases and improving
utilisation of the factory, as throughput was increased during the period
resulting in better overhead cost recovery, supporting gross margin gains.
Gross profit for the EPS business increased to £4.3 million in the period
from £3.6 million with gross margin growing year-on-year (H1 2023: 40%, H1
2022: 39%). This reflects the focus we have taken on modernising the business
and adopting a modular approach to designing and building machines with a
focus on single pass digital machines.
Gross profit for H1 2023 for the FFEI business was £1.3 million (H1 2022: £2
million), and for the Megnajet business was £0.4 million (H1 2022: £0.3
million).
Research & Development
Gross R&D spend of £2.6 million was down £0.7 million in H1 2023 (H1
2022: £3.3 million). On a like-for-like basis the reduction was £0.3m. The
reduction in the period comes from reduced spend in FFEI in addition to an
internal reallocation of costs between General & Administrative costs and
other areas of the business. We are continuing to invest in the business and
will maintain the ratio of R&D investment/revenue of 8-10%.
Operating Expenses
Sales and marketing spend for the period was £3.2 million (H1 2022: £3.7
million). This decrease reflects the strong focus on cost management that we
have across the business.
General and administrative expenses increased to £10.3 million from £6.0
million in H1 2022. On a like-for-like basis, the increase was £3.1 million.
The difference in variance relates to an internal reclassification of costs of
£1.2 million (moving costs from General & Administrative expenses) made
in H1 2022 that were not made in H1 2023.
Of the £3.1m increase in General and administrative expenses, £1.1m are
operational cost increases in the business as we have continued to increase
and strengthen our capability and experience across the business, most notably
in our R&D, Finance and Human Resources functions. This improved
operational capability also includes further and continued investment in
infrastructure such as IT, manufacturing, and supply chain management.
Exceptional G&A costs (costs adjusted for adjusted profit before tax) have
increased £2.0 million principally due to an increase in the share-based
payments charge (IFRS 2) (£0.8 million increase) and £1.2m lower foreign
exchange losses on intra group transactions.
Other exceptional costs include £1.0m restructuring costs (of which £0.8m
relates to the factory efficiency programme) and £0.5m reduction in the fair
value of the contingent consideration receivable due to foreign exchange
movements.
Profit for the period
The adjusted profit before tax was £1.8 million in 2023 (H1 2022: £1.4
million).
The adjusted profit of the Printhead business decreased from a £0.4 million
loss in H1 2022 to a £2.2 million loss in H1 2023 driven by the reduction in
revenue in the period. The EPS business moved from an adjusted £1.1 million
profit in 2022 to a £1.5 million profit in H1 2023 due to the increased
trading performance. FFEI contributed an adjusted profit before tax of £2.1
million in the period, and Megnajet £0.4 million.
In calculating the adjusted profit before tax, we have adjusted for fair value
losses on financial assets of £0.5 million alongside restructuring costs of
£1.0 million, foreign exchange losses on intra-group loans of £0.4 million,
share-based payments of £1.3 million and amortisation of acquired intangible
assets of £0.5 million.
The adjusted EBITDA in the period was £3.5 million (H1 2022: £3.0 million).
This was aided by the one-off profit arising from the sale of non-core IP.
The total unadjusted loss for the period before tax was £1.8 million (H1
2022: £0.3m). Loss after tax was £1.3 million (H1 2022: profit of £0.4
million).
Balance sheet
The Group retains a strong balance sheet and a net cash position at 30 June
2023 of £7.3 million. This represents a reduction of £1.2 million in net
cash since 31 December 2022, which has been driven by planned capital
investment and working capital investment.
Non-current assets decreased slightly from £52.0 million at 31 December 2022,
to £50.0 million in the first half of the year. Property, plant, and
equipment decreased by £0.6 million, driven primarily by the depreciation of
assets (£1.4 million), and £1.0 million of capital additions. Goodwill and
intangible assets increased by £0.8 million which primarily related to
foreign currency exchange movements and the purchase of intangible assets. The
fair value of the non-current financial asset at fair value through profit or
loss which represents deferred contingent consideration decreased by £0.7
million.
Current assets decreased by £1.7 million. Inventory value has increased by
£3.1 million, £1.7 million of which relates to an increase in inventory held
by the Printhead business. Trade and other receivables decreased by £0.1
million. The fair value of the current financial asset at fair value through
profit or loss decreased by £0.4 million.
Current liabilities increased by £0.9 million due mainly to the change in
current lease liability.
The Group maintains a strong disciplined focus on cash, and this has continued
through H1 2023. During H1 2023 investing activities saw cash inflow of £1.7
million. As a result of the continued managed investment in inventory, working
capital saw an outflow of £2.9 million. Maintenance capital additions were
£1.2 million in the period which together with the inventory investment was
funded by the IP sale proceeds of £2.3 million and £0.6 million of cash
earnout received on the sale of 3D Limited to Stratasys.
The business has a clear plan and strategy which the strong balance sheet and
cash position will support. Currently we are focussing investment on internal
opportunities to ensure we have the operational capacity and efficiency to
meet future demand, alongside investment in our product roadmap development.
Dividend
The Board regularly reviews capital allocation and believes that prioritising
investment to enable profitable growth for the business is currently the most
appropriate use of capital, therefore, no interim dividend has been declared
for 2023.
John Mills Ian Tichias
Chief Executive Officer Chief Financial Officer
19 September 2023
Directors' responsibilities statement
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with International Accounting Standard 34 - Interim Financial
Reporting as adopted by the UK
· the interim management report includes a fair review of the
information required by:
o DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
o DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
By Order of the Board
John Mills
Chief Executive Officer
19 September 2023
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2023
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Revenue 3 34,515 36,608 72,782
Cost of sales (20,693) (22,118) (44,138)
Gross profit 13,822 14,490 28,644
Research and development expenses (2,617) (3,319) (6,718)
Research and development expenditure credit - 79 379
Sales and marketing expenses (3,213) (3,665) (6,669)
General and administrative expenses (10,280) (5,954) (14,050)
Impairment losses of financial assets (38) (46) (28)
Restructuring and transaction expenses 2 (978) (226) (450)
Fair value loss on financial assets at FVPL 10 (514) (1,469) (8)
Other income 4 2,201 - 139
Operating (loss)/profit (1,617) (110) 1,239
Investment income 5 37 22 38
Finance costs 5 (235) (213) (453)
(Loss)/profit before tax (1,815) (301) 824
Income tax credit 6 467 990 967
(Loss)/ profit for the period from continuing operations (1,348) 689 1,791
Loss from discontinued operations after tax 12 - (338) (159)
(Loss)/profit for the period (1,348) 351 1,632
(Loss)/earnings per share - Total
Basic 7 (1.7p) 0.5p 2.1p
Diluted 7 (1.7p) 0.4p 2.0p
(Loss)/earnings per share - Continuing operations
Basic 7 (1.7p) 0.9p 2.3p
Diluted 7 (1.7p) 0.9p 2.2p
No dividends were paid in the current or prior period.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2023
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
(Loss)/profit for the period attributable to shareholders (1,348) 351
1,632
Exchange differences on translation of net investment (315) 623 617
Other comprehensive (expense)/income for the period (315) 623 617
Total comprehensive (expense)/income for the period (1,663) 974 2,249
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2023
As at As at
30 June 2023 31 December 2022
Notes (unaudited) (audited)
Non-current assets
Goodwill 9 6,903 7,163
Other intangible assets 8,184 8,681
Property, plant and equipment 15,536 16,104
Right of use asset 8,367 8,068
Financial asset at fair value through profit or loss 10 10,438 11,089
Deferred tax asset 389 726
Other non-current assets 136 136
49,953 51,967
Current assets
Inventories 32,168 29,148
Trade and other receivables 11,397 11,527
Current tax asset 1,182 735
Financial asset at fair value through profit or loss 10 104 517
Cash and cash equivalents 7,303 8,546
52,154 50,473
Total assets 102,107 102,440
Current liabilities
Trade and other payables (14,006) (14,862)
Provisions (430) (405)
Contract liabilities (4,090) (3,799)
Borrowings and financial liabilities 10 (1,060) (379)
Lease liabilities (1,823) (1,032)
(21,409) (20,477)
Net current assets 30,745 29,996
Non-current liabilities
Lease liabilities (7,315) (7,800)
Provisions (300) (300)
Other financial liabilities (1,740) (2,094)
(9,355) (10,194)
Total liabilities (30,764) (30,671)
Net assets 71,343 71,769
Equity
Share capital 7,858 7,844
Share premium 29,443 29,427
Own shares (566) (775)
Translation reserves 1,313 1,628
Other reserves 24,563 23,379
Retained earnings 8,732 10,266
Total equity 71,343 71,769
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2023
Share Share Own Translation Other Retained Total
capital premium shares reserve reserves earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balances at 1 January 2023 7,844 29,427 (775) 1,628 23,379 10,266 71,769
Loss for the period - - - - - (1,348) (1,348)
Exchange differences on retranslation of net investment - - - (315) - - (315)
Total comprehensive expense for the period - - - (315) - (1,348) (1,663)
Own shares sold in the period - - 209 - - (178) 31
Share option exercises 14 16 - - - (8) 22
Credit to equity for equity-settled share-based payments - - - - 1,184 - 1,184
Balance at 30 June 2023 7,858 29,443 (566) 1,313 24,563 8,732 71,343
Share Share Own Translation Other Retained Total
Capital premium shares reserve reserves earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balances at 1 January 2022 7,844 29,427 (1,923) 1,011 21,820 10,623 68,802
Profit for the period - - - - - 351 351
Exchange differences on translation of net investment - - - 623 - - 623
Total comprehensive income for the period - - - 623 - 351 974
Own shares sold in the period - - 353 - - (200) 153
Own shares acquired in the period - - (500) - - - (500)
Cash-settled share-based payments - - - - - (249) (249)
Credit to equity for equity-settled share-based payments - - - - 344 - 344
Balance at 30 June 2022 7,844 29,427 (2,070) 1,634 22,164 10,525 69,524
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2023
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
(Loss)/profit before tax from Continuing operations (1,815) (301) 824
Profit/(loss) before tax from Discontinued operations - (338) (159)
Total (loss)/profit before tax (1,815) (639) 665
Adjustments for:
Share-based payments 1,274 435 1,748
Depreciation of property, plant and equipment 1,438 1,293 2,654
Depreciation of right of use assets 542 518 1,071
Amortisation of intangible assets 581 506 1,067
Impairment of assets - - 147
Research and development expenditure credit - (79) (379)
Investment income (37) (22) (38)
Interest expense 235 213 453
Unrealised foreign exchange loss/(gain) 280 (838) (797)
Payment of cash settled share-based payments - (249) (249)
Fair value loss on financial assets at FVPL 514 1,469 8
(Gain)/loss on disposal of property, plant and equipment (11) 85 80
(Gain)/loss on disposal of intangible assets (2,036) - -
Increase in provisions 25 20 141
Operating cash flows before movements in working capital 990 2,712 6,571
Increase in inventories (3,167) (5,047) (9,462)
Increase in receivables (6) (3,383) (812)
Decrease in payables (1,044) (1,685) (1,914)
Cash used in operations (3,227) (7,403) (5,617)
Net income taxes received 340 211 112
Net cash used in operating activities (2,887) (7,192) (5,505)
Investing activities
Investment income 37 22 38
Purchases of property, plant and equipment (942) (1,470) (2,456)
Proceeds on disposal of property, plant and equipment - 11 17
Purchase of intangible assets (257) - (2,933)
Proceeds on disposal of intangible asset 2,312 - -
Cash earn-out received from financial asset at FVPL 550 101 236
Acquisition of subsidiary (Megnajet), net of cash acquired - (1,202) (1,202)
Asset acquisition (Technomation), net of cash acquired - (2,334) (2,334)
Net cash generated from/(used in) investing activities 1,700 (4,872) (8,634)
Financing activities
Proceeds from sale of own shares 32 181 408
Payment for own shares acquired - (500) (1,000)
Proceeds from issue of shares 30 - -
Payment of deferred consideration 11 - - (1,733)
Payment of lease liabilities and interest 11 (591) (422) (914)
Net inflows from invoice discounting facility 11 649 - 346
Other interest paid 11 - - (22)
Net cash generated from/(used in) financing activities 120 (741) (2,915)
Net decrease in cash and cash equivalents (1,067) (12,805) (17,054)
Effect of foreign exchange rate changes on cash balances (176) 443 549
Cash and cash equivalents at beginning of year 8,546 25,051 25,051
Cash and cash equivalents at end of period 7,303 12,689 8,546
Cash and cash equivalents (which are presented as a single class of asset on
the face of the condensed 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 CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 30 JUNE 2023
1. Basis of preparation and accounting policies
Basis of preparation
These interim financial statements have been prepared in accordance with the
accounting policies set out in the Group's Annual Report and Financial
Statements 2022 on pages 122 to 129 (available at www.xaargroup.com) and were
approved by the Board of Directors on 19 September 2023. The interim financial
statements for the six months ended 30 June 2023 have been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by the United
Kingdom. The interim financial statements do not include all the information
and disclosures in the annual financial statements and should be read in
conjunction with the Group's annual financial statements as at 31 December
2022.
The interim financial statements are unaudited, and they do not constitute
statutory financial statements as defined in section 434 of the Companies Act
2006. The comparative figures for the financial year ended 31 December 2022
are derived from the Group's statutory accounts for that financial year. Those
accounts have been reported on by the Company's auditor and delivered to the
Registrar of Companies. The report of the auditor was (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying their report, and (iii) did not contain
a statement under section 498(2) or 498(3) of the Companies Act 2006.
Judgements and estimates
In preparing these interim financial statements, the significant judgements
made by management in applying the Group's accounting policies and the key
sources of estimation uncertainty were the same as those that applied to the
Group's consolidated Financial Statements for the year ended 31 December 2022,
with the addition of an estimate of the split of the carrying value of
technology-based intangible asset which was part-disposed during the period
and the change in estimate of its remaining useful economic life as detailed
below.
On 23 June 2023 FFEI sold patents relating to its Life Science business to a
customer for £2,312,000, together with a transfer of associated software and
technological know-how over the course of the following 18 months to 31
December 2024 for a separate consideration. The patents sold were acquired by
the Group on its acquisition of FFEI in July 2021 and were not separately
valued at the time. Splitting the fair value of registered and unregistered
patents from their corresponding software and technological know-how requires
a significant degree of judgement. Management used product gross margins and
replacement cost estimates prepared by external valuation experts at the
original acquisition date to estimate that, as at the date of disposal, the
portion of the carrying value of the technology-based intangible asset that
relates specifically to the patents sold was £276,000, leading to a gain on
disposal of £2,036,000 to be recognised in other income note 4 in the
consolidated income statement.
The remaining useful economic life of the remaining technology-based
intangible asset was reduced from 4 years to 1.5 years to align with terms of
contract with the customer. This change in estimate is accounted for
prospectively and had an immaterial impact on these interim financial
statements.
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2022.
Principal risks and uncertainties
The Board has overall responsibility for the establishment and oversight of
the Group's risk management framework. The Board has an established,
structured approach to risk management, which includes continuously assessing
and monitoring the key risks and uncertainties of the business. An outline of
the key risks and uncertainties faced by the Group is detailed on pages 48 to
57 of the Xaar plc Annual Report and Financial Statements 2022, which is
available on the Group's website at www.xaargroup.com.
The Board has reviewed these risks as part of half year risk assessment update
including several changes which are reflected in the Xaar plc Interim Report
2023. The potential impact of these risks on our strategy and financial
performance, together with details of our specific mitigation actions, are set
out in the Xaar plc Annual Report and Financial Statements 2022, and at the
back of this Interim Report 2023 which includes all the key changes since the
Xaar plc Annual Report and Financial Statements 2022.
Going concern
The Board continuously reviews the performance of the business and its future
prospects, together with other factors likely to affect its future
development, performance and position. The Board remains confident in the
long-term future prospects for the Group and its ability to continue as a
going concern for the foreseeable future.
The Group's day-to-day working capital requirements are expected to be met
through the current cash and cash equivalent resources at the balance sheet
date of 30 June 2023 of £7.3 million. As set out in note 10, the Group has a
£3 million invoice discounting facility, of which £1.1 million was drawn as
at 30 June 2023. The Group also has access to a £5 million rolling credit
facility with a further £2.5 million accordion of which none has been
utilised as of 30 June 2023.
The Group has prepared and reviewed monthly profit and cashflow forecasts
which cover a period up to 31 December 2024, the going concern period. This
base case forecast position has been compiled by considering the performance
of the different businesses across the Group and each of their funding
requirements which represents the current Board approved forecasts.
To support the going concern conclusion, a sensitivity analysis has been
performed, sensitising assumptions in revenue performance. The outcome of this
sensitivity analysis is that the Group can maintain liquidity across the going
concern period and will be able to meet all forecasted obligations as they
fall due. In addition, covenant requirements on the rolling credit facility,
namely interest cover not falling below 4:1 and the leverage ratio not
exceeding 2.5 will continue to be met. A reverse stress scenario has also been
performed to model the circumstances required to eliminate available liquidity
during the going concern period. The Directors believe the possibility of this
combination of severe downsides arising to be remote given the recurring
revenue base and predictability of forecasts, and that there are numerous
controllable mitigating actions such as deferring non-committed capital
expenditure and reducing performance related pay which could be taken to avoid
a liquidity breach.
Based on the above, the Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the period to
31 December 2024. For this reason, they have adopted the going concern basis
in preparing the financial statements.
2. Reconciliation of adjusted financial measures
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
(Loss)/profit before tax from continuing operations (1,815) (301) 824
Share-based payment charges 1,274 435 1,748
Exchange differences relating to intra-group transactions 362 (792) (811)
Restructuring and transaction expenses 978 226 450
Research and development expenditure credit - (79) (379)
Fair value loss on financial assets at FVPL 514 1,469 8
Amortisation of acquired intangible assets 519 486 982
Adjusted profit before tax from continuing operations 1,832 1,444 2,822
Interest income (37) (22) (38)
Finance costs 235 213 453
Depreciation of property, plant and equipment 1,438 1,293 2,654
Amortisation of intangible assets (other than acquired intangibles) 62 20 85
Loss on asset disposal - 85 80
Impairment of assets - 147
Adjusted EBITDA from continuing operations 3,530 3,033 6,203
EBITDA is calculated as statutory operating profit before depreciation (other
than that arising from IFRS16 accounting), amortisation and impairment of
property, plant and equipment, intangible assets and goodwill. Adjusted EBITDA
is calculated as EBITDA excluding other adjusting items as defined.
Adjusted financial measures are alternative performance measures, which adjust
for recurring and non-recurring items that management consider are not
reflective of the underlying performance of the Group. Recurring items are
adjusted each year irrespective of materiality to ensure consistent treatment.
Non-recurring items are identified and adjusted for by virtue of their size or
nature.
Share-based payment charges include the IFRS 2 charge for the period of
£1,184,000 (H1 2022: £344,000) and the expense relating to National
Insurance on the outstanding potential share option gains of £90,000 (H1
2022: £91,000). These costs were included in the general and administrative
expenses in the consolidated income statement.
Exchange differences relating to the operations in the United States of
America represent exchange gains or losses recorded in the consolidated income
statement as a result of intra-group transactions in the United States of
America. These costs were included in general and administrative expenses in
the consolidated income statement.
Of the restructuring and transaction expenses in the first half of 2023,
£255,000 (2022: £226,000) relates to restructuring costs. Cash expenditure
arising from restructuring costs in the first half of 2023 was £194,000 (H1
2022: £657,000). The remaining cost of £753,000 in the period to 30 June
2023 relates to the factory efficiency project (2022: nil), all of which is
cash expenditure.
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. Cash
receipts of £361,000 received during the period were in relation to the
XaarJet Limited RDEC claim which related to the financial year 31 December
2021 (£222,000) and the FFEI Limited RDEC claim for the nine-month period to
31 December 2021 (£139,000).
The fair value loss on financial assets at fair value through profit and loss
relates to the sale of Xaar 3D Limited. The net consideration includes
contingent consideration that is valued and reported at fair value. The fair
value movement is recognised in the income statement as fair value loss on
financial assets at fair value through profit and loss. In the period to 30
June 2023, the movement on the financial asset represents foreign exchange
loss on retranslation of the asset at the period end.
The amortisation of acquired intangible assets relates to the acquisition of
FFEI Limited in 2021 and the acquisition of Megnajet Ltd and Technomation Ltd
in 2022. These include patents and customer relationships for FFEI which are
being amortised over 3.5 to 6 years for FFEI and IP, brand and customer
relationships for Megnajet and Technomation which are being amortised over 8
to 10 years. These costs were included in general and administrative expenses
in the consolidated income statement.
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Basic (loss)/earnings per share from continuing operations (1.7p) 0.9p
2.3p
Share-based payment charges 1.6p 0.6p 2.3p
Exchange differences relating to intra-group transactions 0.5p (1.1p) (1.1p)
Restructuring and transaction expenses 1.3p 0.3p 0.6p
Research and development credit - - (0.5p)
Fair value gain on financial assets at FVPL 0.7p 1.9p -
Amortisation of acquired intangible assets 0.7p 0.6p 1.3p
Tax effect of adjusting items(1) - 0.1p (0.1p)
Adjusted basic earnings per share from continuing operations 3.1p 3.3p
4.8p
(1)Tax effect of adjusting items is nil in 2023 due to all adjustments being
in UK tax jurisdiction which has unrecognised accumulated tax losses so an
effective tax rate of zero.
This reconciliation is provided to align with how the Board measures and
monitors the business at an underlying level, and is a measure used in
establishing remuneration.
3. Business segments
For management reporting purposes, the Group's operations are analysed
according to the four operating segments of 'Printhead', 'Product Print
Systems' (EPS), 'Digital Imaging' (FFEI) and 'Ink Supply Systems' (Megnajet).
These four operating segments are the basis on which the Group reports its
primary segment information and on which decisions are made by the Group's
Chief Executive Officer and Board of Directors, and resources allocated. Each
business unit is run independently of the others and headed by a general
manager. The Group's chief operating decision maker is the Chief Executive
Officer. There is no aggregation of segments for disclosure purposes.
Ink Supply systems was added from 2 March 2022 as a result of the Megnajet
acquisition.
Segment information for continuing operations is presented below:
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Continuing operations £'000 £'000 £'000
Revenue
Printhead 17,618 20,658 39,042
Product Print Systems 10,697 9,227 19,624
Digital imaging 4,769 6,108 11,633
Ink supply systems 1,431 615 2,483
Total revenue 34,515 36,608 72,782
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Continuing operations £'000 £'000 £'000
Result
Printhead (2,852) (1,149) (12)
Product Print Systems 955 1,115 2,756
Digital imaging 1,258 43 (142)
Ink supply systems 296 316 385
Total segment result (343) 325 2,987
Net unallocated corporate expenses (1,274) (435) (1,748)
Operating (loss)/profit (1,617) (110) 1,239
Investment income 37 22 38
Finance costs (235) (213) (453)
(Loss)/profit before tax (1,815) (301) 824
Tax 467 990 967
(Loss)/profit for the period (1,348) 689 1,791
Unallocated corporate expense relates to administrative activities which
cannot be directly attributed to any of the principal product groups,
consisting of share-based payment charges.
4. Other income
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Government grants - - 139
Profit from sale of patent intangible assets 2,036 - -
Other 165 - -
Total other income 2,201 - 139
On 23 June 2023, FFEI sold patents relating to its Life Sciences business to a
customer for £2,312,000. These Patents had a NBV in the group consolidated
accounts of £276,000 and as such a profit on disposal of £2,036,000 has been
recognised.
Other, comprises compensation received due to a legal claim.
In 2022, government grants were received from the UKRI Future Leaders
Fellowship scheme by FFEI. Further details can be obtained by referring to
note 7 within the Group's financial statements for the year ended 31 December
2022.
5. Interest receivable and payable
Investment income
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Interest receivable on cash and bank balances, and treasury deposits 37 22 38
Finance costs
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Interest on invoice securitisation/discounting 32 3 33
Interest on leases 131 118 242
Interest on borrowing costs 6 - -
Other interest costs 66 92 178
235 213 453
6. Income tax
The major components of income tax (credit)/charge in the income statement are
as follows:
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Current income tax
UK (306) - (269)
Overseas 46 9 87
(260) 9 (182)
Adjustment in respect of prior year (501) 96
Total current income tax (credit)/charge (761) 9 (86)
Deferred income tax -
Relating to origination and reversal of temporary differences 294 (999) (881)
Total deferred tax charge/(credit) 294 (999) (881)
Income tax (credit)/charge reported in the statement of profit and loss (467) (990) (967)
Income tax (credit)/charge attributable to discontinued operations - - -
Total Income tax credit (467) (990) (967)
The Finance Act 2021, which was substantively enacted on 10 June 2021, amended
the main rate of corporation tax in the UK from 19% to 25% from 1 April
2023. The H1 taxation has been computed on a blended tax rate for 2023.
However, due to the unrecognised accumulated tax losses and the R&D tax
credits, the effective tax rate in UK jurisdiction Group companies is
negative. The UK tax credit is in relation to R&D tax credits.
The overseas tax charge is in relation to the USA EPS business unit where the
federal tax rate is 21% and the effective tax rate is 19%.
The closing deferred tax asset as at 31 December 2022 and 30 June 2023 is due
to the accumulated tax losses of the Group's USA companies and has been
calculated using the US tax rates at which the deferred tax asset is expected
to be reversed in future periods.
Whilst the Board believes in the long-term potential and profitability of the
Printhead business unit, the forecast taxable losses over the next couple of
years mean that the UK tax losses will not be utilised in the short term.
Therefore, no deferred tax asset has been recognised relating to UK losses for
30 June 2023. As at 31 December 2022, the Group has unused capital losses of
£1.1 million available for offset against future gains. These losses may be
carried forward indefinitely.
In the year ending 31 December 2022, the Group claimed R&D tax relief and
R&D expenditure credit (RDEC), where the R&D credit receivable is
included in operating loss. In the current reporting period, the Group is
claiming only R&D tax relief, though there may be RDEC to claim in H2
2023.
7. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based upon the
following data:
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Earnings 351 1,632
(Loss)/earnings for the purposes of earnings per share being net (loss)/profit
attributable to equity holders of the parent
(1,348)
from continuing operations (1,348) 689 1,791
from discontinued operations - (338) (159)
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings 78,117,147 77,657,189 77,549,264
per share
Effect of dilutive potential ordinary shares:
Share options 726,499 1,481,799 4,085,096
Weighted average number of ordinary shares for the purposes of diluted 81,634,360
earnings per share
78,843,646 79,138,988
Pence per share Pence per share Pence per share
30 June 2023 30 June 2022 31 December 2022
Basic (1.7p) 0.5p 2.1p
Diluted (1.7p) 0.4p 2.0p
Continuing operations
Basic (1.7p) 0.9p 2.3p
Diluted (1.7p) 0.9p 2.2p
Discontinued operations
Basic - (0.4p) (0.2p)
Diluted - (0.4p) (0.2p)
Adjusted
Basic 3.1p 3.3p 4.8p
Diluted 3.1p 3.2p 4.5p
Potential ordinary shares are treated as dilutive if their conversion to
ordinary shares would decrease earnings per share or increase loss per share.
Adjusted earnings per share is earnings per share adjusted for the items as
indicated in note 2.
8. Share capital and own shares
During the six months ended 30 June 2023 a total of 137,552 new ordinary
shares of 10 pence each were issued under the Company's LTIP and Share option
schemes for £29,507. During the six months ended 30 June 2022, there were
no new ordinary shares issued.
During the six months ended 30 June 2023, 85,459 shares (H1 2022: 128,533)
were used by the ESOP to satisfy share award exercises with no shares
purchased by the ESOP (H1 2022: ESOP purchased 221,751 shares for £0.5
million).
9. Goodwill
The carrying amount of goodwill at 30 June 2023 was £6,903,000 (31 December
2022: £7,163,000).
Goodwill acquired in a business combination is allocated, at acquisition, to
the cash-generating units (CGUs) that are expected to benefit from that
business combination. Goodwill occurred from the acquisition of Engineered
Printing Solutions (EPS) in July 2016, FFEI Limited in July 2021 and Megnajet
in March 2022.
30 June 2023 31 Dec 2022
£'000 £'000
Balance at the beginning of the year 7,163 5,894
Addition - acquisition of Megnajet (2021: FFEI) - 661
Foreign currency translation (260) 608
Balance at the end of the year 6,903 7,163
As part of the reportable segments, goodwill amounting to £5,553,000 is
attributed to Product Print Systems (a single CGU), £689,000 is attributed to
FFEI (a single CGU), and £661,000 is attributed to Megnajet (a single CGU).
The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill might be impaired. No impairment has been
identified and therefore no impairment loss has been recognised during the
current and preceding period.
The recoverable amount of the CGU is determined from a value-in-use
calculation. The annual impairment review for Product Print Systems and
Megnajet will continue to be performed on 31 December each year.
FFEI Limited goodwill impairment review:
As at 30 June 2023, due to an agreement to transfer a material portion of the
Life Sciences business to client, over the period 23 June 2023 to 31 December
2024, an impairment indicator was identified in respect of goodwill allocated
to FFEI Limited. As a result, a review for impairment was performed on a value
in use basis. Following this review, no impairment was recognised. A cash flow
forecast was prepared for a period to 31 December 2027 based upon the
strategic plan for the business and a terminal value determined using a 2%
growth rate in FFEI Limited, based on the Bank of England Long term target
inflation rate.
To evaluate the risk of impairment, the Group adjusted its cash flows over the
forecast period to reflect constraints on key assumptions including new
product introductions, regional expansion and growth rates of existing
products. These adjusted cash flows are based on the forecast as described and
bring a reduction of £3 million to the 31 December 2022 value in use. The
discount rate applied to the cash flow projections is 15.3%, this was
calculated by updating the year end rate obtained from external third-party
advice for observable market inputs. Where market observable inputs were not
available consideration was given to the historic performance of the input and
the sensitivity of the input to market changes since year end. The discount
rate reflects the risk-free rate, equity beta and local market premium as
calculated at 30 June 2023 with an additional 1% company specific risk
premium.
The recoverable amount calculated based on the base case forecast set out
above exceeds the carrying value of the FFEI Limited CGU by £2.6 million.
Sensitivity analysis has been performed, flexing assumptions regarding
expected sales volumes, sales mix and margins to determine the recoverable
amount of the CGU. Further stress testing has been completed on each key
assumption (Revenue, Discount Rate and Long-Term Growth Rate) for the FFEI
Limited business.
The carrying amount of goodwill would exceed its recoverable amount, when
compared to the adjusted cash flows, if the following 'reasonably possible
changes' were to occur:
• An average decline of 35% in forecast volumes of Printbar sales
over the forecast period; or
• An increase in the discount rate by 3.2%
10. Financial instruments
Fair value of the Group's financial assets and financial liabilities that are
measured at fair value on a recurring basis:
Some of the Group's financial assets and financial liabilities are measured at
fair value at the end of each reporting period. The following table gives
information about how the fair value of these financial assets and financial
liabilities are determined (in particular the valuation technique(s) and
inputs used).
Financial asset/ financial liabilities Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship and sensitivity of unobservable inputs to fair value
Financial asset at fair value through profit or loss (Level 3) Monte Carlo Simulation model Revenue volatility 10% increase/(decrease) in revenue volatility would result in £7,000 and
£11,000 decreases in fair value respectively.
1% increase/(decrease) in discount rate would result in £12,000 decrease and
£14,000 increase in fair value respectively.
Risk-adjusted discount rate
The following variables were taken into consideration: revenue projections,
management forecast and discount rate.
The milestone consideration and 3% earn-out consideration are calculated based
on the terms of the proposed transaction and by reference to simulated
revenue. This is then discounted back to the valuation date using a discount
rate over a period commensurate with the year in which payments are payable.
There were no transfers between Level 1 and 2 during the current or prior
year.
Reconciliation of Level 3 fair value measurements of financial instruments:
On 1 November 2021, the sale of Xaar 3D Limited to Stratasys was completed and
Xaar received net cash of £9,272,000 and contingent consideration of
£10,863,000. The contingent consideration had a fair value of £11,606,000 as
at 31 December 2022. The contingent consideration is recognised as financial
asset at fair value through profit or loss. During the period, Xaar received
an earn-out income amounting to $691,000 or £550,000. The fair value of the
contingent consideration as at 30 June 2023 is £10,542,000. All of the fair
value loss in the currently reporting period is due to the weakening of the
USD against the British pound.
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Balance at 1 January 11,606 11,850 11,850
Earn out received (550) (101) (236)
Fair value loss on financial assets at FVPL (514) (1,469) (8)
Balance at period end 10,542 10,280 11,606
Current asset 104 684 517
Non current asset 10,438 9,596 11,089
10,542 10,280 11,606
Short-term borrowings
Short term borrowings include an advance against customer invoices assigned to
a third party as part of an invoice discounting arrangement. At the reporting
date the carrying value of the customer invoices assigned and associated
liabilities were:
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Invoice discounting facility £'000 £'000 £'000
Gross invoice value assigned 1,774 - 2,851
Advance drawn (1,060) - (379)
Net position 714 - 2,472
Interest on the invoice discounting facility is charged daily when the
facility is in an overdrawn position at a rate equivalent to the appropriate
base rate +1.75% pa. There is an annual service fee of £25,000 charged
monthly, and there was a one-off arrangement fee to open the facility of
£10,000. No interest is payable on the unutilised element on the facility.
The facility limit was £5 million as at 30 June 2023 and operates for a
minimum of twelve months from inception (September 2022). The facility can be
cancelled with a three-month notice period. There are no covenants attached to
the invoice discounting facility. Subsequent to the reporting date, the
facility limit was reduced to £3 million which is still in excess of the
eligible invoice value expected for the foreseeable future.
Eligible debts in GBP and USD denomination are legally assigned to the
facility provider as, or soon after, they are raised. The facility makes
available 90% of the debts to Xaar Jet Limited, subject to certain monetary
funding limits and concentration percentages by customer. XaarJet Limited
remain responsible for collecting the debts as the collection agent for the
finance provider and the remittances are made into an account held for the
benefit of the finance provider, the balance of which is held as a liability
in XaarJet Limited.
No fair value adjustments are deemed necessary for these amounts; however, the
receivables are subject to an allowance for doubtful debt. The invoice
discounting facility is secured with fixed rate charges over purchased debts
and a floating charge over the assets of Xaar Jet Ltd.
It remains the entity's responsibility to appropriately insure, manage and
recover the debts assigned under the arrangement, and the transferred assets
are subject to recourse at any time. This means the Group retained
substantially all the risks and rewards and the control over the assets, thus
derecognition criteria of accounts receivable were not met.
Revolving Credit Facility
On 14 June 2023, Xaar PLC entered into a Revolving Credit Facility (RCF)
agreement of £5 million, which matures on 14 June 2025, with an option to
extend for a further year, subject to lender approval. The agreement includes
an accordion option of a further £2.5 million which can be requested at any
time during the facility period, subject to lender approval and relevant fees.
Issue costs of £125,000 associated with the implementation of the facility
have been recorded in the balance sheet and will be amortised across the life
of the facility (24 months).
The facility bears an interest rate of the Sterling Overnight Indexed Average
(SONIA) rate plus 2.35% margin, with a charge of 40% of the margin chargeable
on undrawn and uncancelled amounts of the RCF.
The facility is secured by fixed and floating charges over the assets of the
Group.
Interest cover, leverage and capital expenditure covenants are in place which
are measured quarterly, based on the Group financial statements. The Group
monitors compliance of the covenants on an ongoing basis. As at 30 June 2023,
the Group remains compliant with the covenants.
At 30 June 2023, no drawings had been made under the RCF.
11. Reconciliation of liabilities arising from financing activities
As at Cash flows Additions Interest Foreign exchange movement As at
31 Dec 2022 30 June 2023
Lease liabilities 8,832 (591) 825 131 (60) 9,137
Deferred consideration 3,740 - - 66 - 3,806
Invoice discounting facility 379 649 - 32 - 1,060
Other interest incurred and paid - - - 6 - 6
12,951 58 825 235 (60) 14,009
As at 31 Dec 2021 Cash flows Additions Interest Foreign exchange movement As at
31 Dec 2022
Lease liabilities 9,191 (914) 323 242 (10) 8,832
Deferred consideration 4,943 (1,733) 374 156 - 3,740
Invoice discounting facility - 346 - 33 - 379
Other interest incurred and paid - (22) - 22 - -
14,134 (2,323) 697 453 (10) 12,951
12. Discontinued operations
The Thin Film business which was discontinued in 2019 incurred costs in 2021
and 2022 which mainly related to supplier and customer liabilities and
inventory for last time buy sales. All liabilities have now been settled and
we maintain an amount of inventory that is fully provided and not likely to be
sold.
The results of Thin Film related activities for the period are shown below:
Six months ended Six months ended Twelve months ended
30 June 2023 30 June 2022 3 December 2022
(unaudited) (unaudited) (audited)
Thin Film £'000 £'000 £'000
Expenses - (338) (159)
Loss after income tax from discontinued operations - (338) (159)
The net cash flows incurred by Thin Film are as follows:
Thin Film £'000 £'000 £'000
Net cash outflow from operating activities - (394) (150)
Net decrease in cash generated from discontinued operations - (394) (150)
Loss per share
Basic loss for the period from discontinued operations - (0.4p) (0.2p)
Diluted loss for the period from discontinued operations - (0.4p) (0.2p)
13. Date of approval of interim financial statements
The interim financial statements cover the period 1 January 2023 to 30 June
2023 and were approved by the Board on 19 September 2023.
Further copies of the interim financial statements are available from the
Company's registered office, 3950 Cambridge Research Park, Waterbeach, CB25
9PE, and can be accessed on the Xaar plc website, www.xaargroup.com
(http://www.xaargroup.com) .
Risks and uncertainties
Several potential risks and uncertainties exist which could have a material
impact on the Group's performance over the second half of the financial year
and could cause actual results to differ materially from expected and
historical results.
The Group has continued identifying, evaluating, and managing the key risks
which could impact the Group's performance over the six months to 30 June
2023.
The full list of principal risks identified at the year-end and a description
of how they relate to the Group's strategy and the approach to managing them
are set out on pages 52 to 57 of the Xaar plc Annual Report and Financial
Statements 2022, which is available on the Group's website at www.xaar.com.
(http://www.xaar.com.)
Management and the Board have reviewed these risks and concluded they will
continue to remain relevant for the second half of the financial year. The
principal risks as at 30 June 2023, showing any changes from the 2022 year-end
disclosure, are summarised in the table below:
Risk Area: Market
Description Likelihood/Magnitude Changes since 31 December 2022
1. Competition Unlikely/Very high No change
Monitoring and adjusting to competitive dynamics such as pricing/promotion,
innovation, resource investments and market share changes
2. Failure to identify market requirements Unlikely/Very high No change
Successfully developing products with the characteristics that meet market
requirements within the necessary timescale.
3. Commercialising and Possible/High No change
maintaining products with
cutting edge technology
Creating value by generating innovative products that deliver significant
customer benefit.
4. Merger and acquisition opportunities Possible/Medium Reduced
Our strategy is predicated primarily on organic growth.
Less M&A activity in the period.
Seek opportunities to expand, create synergies and generate greater
shareholder value.
Coronavirus (COVID-19 Removed All travel and trade restrictions lifted following the end of the pandemic.
and variants)
External tracking and adjusting to the potential global impact and external
risks arising from pandemic response and impact on customers/supply chain.
Risk Area: Operational
Description Likelihood/Magnitude Changes since 31 December 2022
5. Climate change Possible/Medium No change
Identifying risks and scenario planning of physical and transition impact upon
operations and developing mitigating actions.
6. Organisational capability Possible/Medium No change
Having the right people in the right roles.
7. Partnerships and alliances Possible/Medium No change
Working with the right companies, at the right time on the right terms to
deliver long-term value.
8. Supply chain Unlikely/High No change
Optimising sourcing and supply chain relationships to drive performance and
minimise operational issues.
9. War in Ukraine and the Possible/Medium Reduced
world economy
The war in Ukraine has materially altered the near-term outlook for the UK and The consequences are better understood, and the work is completed to mitigate
global economies and increased uncertainty over the path ahead. Energy prices the impact of the war on the global economy.
are by far the greatest concern for the UK economy which also result in
further upward pressure on inflation and a potential hit to GDP growth over
the next two years.
10. Laws and regulations Compliance with key laws and regulations in all Possible/High Increased
countries Group operates in.
The new Company Secretary undertook a more detailed assessment than conducted
in the past, of the impact of the relevant laws and regulations to better
understand the risks to the Group
Risk Area: IT
Description Likelihood/Magnitude Changes since 31 December 2022
11. IT systems and Possible/High No change
control environment
Strengthen IT infrastructure and key IT systems. Enhance and build resilience
by investing in and implementing new IT infrastructure or IT systems.
12. Cyber security risk Possible/Medium No change
Loss of systems or confidential data due to a malicious cyber-attack, leading
to disruption to business operations and loss of data.
Risk Area: Financial
Description Likelihood/Magnitude Changes since 31 December 2022
13.Ability to access Unlikely/High No change
sufficient capital
Ability to access sufficient capital to fund growth opportunities.
14. Customer credit exposure Possible/Low No change
Offering credit terms ensuring recoverability is reasonably assured.
15. Inventory obsolescence Probable/High No change
Holding excess inventory levels when compared to demand, that leads to
increased risk of obsolescence and write-off before consumption.
16. Exchange rates Probable/Medium No change
Monitoring global economic events and mitigating any resulting significant
exchange rate impacts
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