REG - Xaar PLC - Final Results
28/03/2023 07:15
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RNS Number : 3933U Xaar PLC 28 March 2023
28 March 2023
Xaar plc
2022 FULL YEAR RESULTS
STRATEGIC PROGRESS DELIVERING PROFITABLE GROWTH
Xaar plc ("Xaar", the "Group" or the "Company"), the leading inkjet printing
technology group, today announces its full year results for the 12 months
ended 31 December 2022.
Financial Summary:
2022 2021 Change
Continuing Operations
Revenue £72.8m £59.3m +23%
Gross profit £28.6m £20.2m +42%
Gross margin % 39% 34% +5ppts
R&D spend £6.7m £5.7m +18%
Adjusted EBITDA(1) £6.2m £3.2m +95%
Adjusted profit/(loss) before tax(1) £2.8m (£0.6m)
Profit before tax £0.8m £1.0m
Profit for the year £1.8m £0.7m +157%
Basic earnings per share 2.3p 0.9p
Total Operations
Profit before tax £0.7m £14.5m
Profit for the year £1.6m £14.2m
Basic earnings per share 2.1p 20.9p
Net cash at the year end(2) £8.5m £25.1m
1 - Excluding 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, other operating income, fair value gain on financial
assets at fair value through profit and loss, and amortisation of acquired
intangible assets, as reconciled in note 2 to the financial statements
2 - Net cash at 31 December includes cash, cash equivalents and treasury
deposits
Financial Highlights
· Revenue of £72.8 million representing year-on-year growth of
23%; 8% organically
· Gross margin of 39% (2021: 34%), benefitting from strategic
actions and increased operational leverage
· Increased investment in R&D spend in continuing operations of
£6.7 million, up £1.0 million on 2021, focused on the ImagineX platform and
product roadmap
· Positive adjusted EBITDA contributions from all our businesses
· Adjusted Group profit for the year ahead of expectations
· Robust balance sheet with cash of £8.5 million (2021 - £25.1m)
reflecting acquisitions of Megnajet and FFEI and investment in working capital
Strategic and Operational Highlights
· Successful expansion of vertically integrated product range and
rollout of product roadmap, including launch of Aquinox, delivering
accelerated customer engagement
· Further expanding business capability and vertically integrated
product offering: acquisition of Megnajet and successfully completed FFEI
integration
· Further operational progress made in Engineered Printing
Solutions (EPS), delivering increased customer engagement and strong revenue
growth
· Phase 1 of operational efficiency programme with factory
re-organisation completed on time and on budget delivering cost savings and
increased capacity
· Ongoing delivery of product roadmap with successful Aquinox
product launch
· Investment in working capital ensured successful mitigation of
supply chain constraints as well as meeting customer demand
· Sustainability roadmap embedded in business with clear strategy
to reach 'net zero' by 2030
John Mills, Chief Executive Officer, commented:
"We have transformed and re-energised Xaar as demonstrated by our good
performance and further strategic progress with positive contributions from
across the Group. We have delivered strong profitable revenue growth and the
important milestone of achieving full year profitability which represents
great progress against our plan.
From these strong foundations we will continue to invest for growth and the
rollout of our product roadmap as we enhance our vertically integrated offer.
Aquinox has been successfully launched and is already being well received by
our customers.
While being mindful of the external environment we remain optimistic about the
future with the business in good shape to continue to make further progress
and deliver full year performance in line with our expectations. With a
substantial market opportunity and the progress made, we remain well
positioned for the business to achieve its 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)
Chairman's introduction
Into my third year as Chairman, I am delighted with the progress that the
business has made, operationally, commercially, and strategically.
We are well positioned in growing markets, with a high-quality leadership
team, strong R&D and manufacturing capabilities, and with technology that
differentiates us from our competitors. In addition, strong capital
discipline is enabling continued investment in growth opportunities.
Our central focus remains on our core competence of designing and
manufacturing world leading printheads. The continued rebuilding and
strengthening across all areas of our business has resulted in a platform from
which we can deliver reliable business performance and meet the requirements
of our customers.
We also have a clear focus on the value chain, placing our customers at the
centre of our business. We offer integrated solutions in a wide number of
market sectors, enabling more consistent financial performance. The technical
and competitive advantages of the Xaar Bulk piezo product range has progressed
well with the launch of our latest printhead, Aquinox. This product opens new
markets to Xaar with its water-based capability, and we were pleased to see
the product launched to plan and on time, reaffirming the expertise and focus
we have across different teams in the Group.
The Board is delighted with the progress that the management team has made in
re-energising the business and would also like to thank our teams and partners
worldwide for their commitment and adaptability.
Continued strategic progress
This year's strong trading performance has been driven by all elements of the
business and momentum continues to build. A clear strategy is now embedded
across the Group with a focus on customer needs and a drive to highlight the
benefits delivered by adoption of Xaar digital print technology.
This focus, along with our well-defined product roadmap has increased the
quality and responsiveness of the business, and meaning we are well placed for
further performance improvements. We believe a significant opportunity exists
in market sectors and applications where Xaar technology provides commercial
and technical performance advantages.
Operational improvements have also been made. We have previously discussed
investing in our manufacturing facilities to improve efficiency and lower
costs, and the first phase of this programme has now been completed. The
Huntingdon factory re-organisation was completed in early 2023 on time and on
budget. This will enable us to operate more efficiently, increase capacity and
crucially generates significant cost savings, especially in reducing our
energy consumption.
The acquisitions of FFEI and Megnajet have been successfully integrated adding
capability and broadening our product range. This has increased our market
opportunity and means Xaar is better placed to support customers with the
integration of our printhead technology.
Our product print systems business, EPS, has had an excellent year, with
increased customer engagement leading to significant revenue growth, higher
gross margins and strong profitability.
Strong financial results
In what has proven to be another challenging year for the global economy, the
Group delivered strong sales growth of 23% (8% organic) and achieved
profitability for the year. We have taken actions to build organisational
strength and resilience, while focussing on cost control and careful cash
management.
Additionally, there has been investment to increase efficiency and ensure
consistency of operational performance. This will mean the business is well
placed to further deliver on the significant opportunities ahead as external
pressures ease.
As has been the case for many businesses, over the past year we have been
faced with unprecedented supply chain issues coupled with rising global
inflation. Through taking proactive measures with a focus on managing our
supply chain, investing in both raw materials and higher levels of finished
goods, we have been continually strengthening our business resilience and
maintaining uninterrupted supply to our customers.
The Printhead business made good progress both commercially and operationally
during the year despite the ongoing impact of COVID-19 related restrictions in
China. Whilst sales volumes have grown in the USA and remained stable in EMEA
they declined significantly in Asia. The Printhead business has nevertheless
performed well and responded to these difficulties in a proactive and
controlled manner.
As I discussed in my report last year, following challenges in market demand
and performance, a new management team was appointed in EPS. This has led to a
recovery in performance during 2022 with a strong order book profile and
excellent results. Revenue grew 41% (24% in local currency USD), gross margin
is back at pre-pandemic levels and a full year profit delivered.
We are pleased with the progress made at FFEI and Megnajet. Having only joined
the group in July 2021 and March 2022 respectively, the integration of each
business has been completed, and performance is in line with our expectations.
Cash of £8.5 million and a robust balance sheet provides a platform for
further investment. This is after investment in working capital movements of
£12.2 million as we managed supply chain constraints and ensured continued
customer supply throughout the factory shutdown in Q1 2023.
The Board has not declared a dividend in 2022. We continue to believe that
prioritising cash for investment in the business will deliver more compelling
returns for shareholders in the medium term.
Committed to sustainability
We have made significant progress on ESG and the Group's Sustainability
Roadmap. The Board remains committed to the business being carbon net zero by
2030. The Sustainability Roadmap demonstrates clear industry leadership and
establishes a firm pathway for a more sustainable future. Decarbonisation
remains a key objective and we have started work on Scope 3 and TCFD Climate
Modelling for all Xaar Group sites which will be completed by early 2023.
We are passionate about delivering solutions and products for our customers
that are cleaner and healthier. Our products are well placed to deliver
significant benefits environmentally for our customers through greater
efficiency in power consumption and reduction in 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. The majority of our sites in the UK have moved to 100%
renewable energy. We aim to switch all contracts in the UK to renewable
electricity by the end of 2023. 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 young university students and industry
placements.
Driven by our people
The Board is delighted with the progress made by the Group this year, in the
context of a volatile external environment for both businesses and
individuals. I would like to thank all our employees who have worked
tirelessly to innovate, deliver for our customers, and inspire and support
each other with passion and integrity. Xaar is a great company, and I am
excited about what we can achieve in the future.
Outlook
With strong foundations in place as a result of the progress in our strategy
over the last three years, the Board is optimistic about the opportunities
that lie ahead for the Group and for all our stakeholders including employees,
customers, and shareholders.
Andrew Herbert
Chairman
28 March 2023
Strategy Update
Introduction
Over the last 3 years the Group has been transformed, implementing a new
strategy across the business, with a new commercial model shifting our focus
to very attractive end markets; expanding our technology capabilities; and
creating a growth platform. This strategy is now delivering growth across the
business, and we are delighted the Group has returned to full year profit.
At the same time, we have also invested significantly in expanding our product
and technology capabilities and updating our infrastructure, strengthening our
key resource - people - and ensuring we have a robust platform to deliver
future profitable growth.
Despite the external macro challenges, we have delivered an impressive
performance in 2022 which is borne out in the financial metrics. Our core
Printhead business grew in all regions except China which was impacted by
COVID-19 restrictions for much of the year, and we have successfully launched
our new product Aquinox with a commercial response that has exceeded our
expectations.
During the year our US product print business, EPS, delivered its best ever
results and with the acquisition of Megnajet we now have a resilient, diverse
business well placed to meet the significant market opportunity that exists.
Excellent strategic progress
The turnaround we have described is now at the end of its first phase. We have
established a clear strategy and we are ready for the next stage to achieve
enduring profitable growth.
The first phase was focused on stabilising the business and establishing a
clear strategy. Commercially this has seen the Printhead business reduce
complexity in its routes to market by eliminating third party distributors and
selling directly to OEMs and UDIs. Our principal objective is to sell more
printheads. We provide an integrated solution for customers whereby they can
access more of the printing ecosystem, to include supporting elements such as
fluid management systems and the electronics required for printing. We help
our customers take advantage of the inkjet opportunity, demonstrating to them
that working with Xaar means a higher chance of success by being faster to
market, making our customers' investment more profitable.
Our strategy is working, we are delivering on what we promised, and the future
remains exciting. With phase 1 of the business transformation now complete.
The business is stabilised, with a strong management team, delivering
profitability and a strong platform on which to build.
Strong revenue growth, improved margin and full-year profitability
We have delivered a strong performance in 2022 in line with our expectations,
further demonstrating the operational and strategic progress across the Group.
We have improved resilience and have achieved the key milestone of delivering
an adjusted profit before tax for the year.
Despite the global macro-economic and political uncertainties, we are
successfully mitigating external challenges, principally the cost of inflation
and the ongoing COVID-19 impact in China.
Revenue for the year was £72.8 million representing growth of 23%. Organic
growth, before the impact of FFEI and Megnajet acquisitions was 8%.
Revenue grew in the US region by 54% and in EMEA by 20%. This demonstrates the
resilience we are developing in the business and helped offset the decrease in
revenue from Asia of £3.8 million (32%).
Reduced revenue in China has impacted our Ceramics sector printhead sales,
however, we are confident in returning to previous levels of trade with our
customers in the region as COVID-19 restrictions continue to be lifted. Our
commercial and technology proposition remains compelling, and we have retained
market share in the region.
We have been able to demonstrate the strength of our technology in market
sectors beyond Ceramics and continue to see strong customer engagement in
areas where we have a competitive advantage by enabling customers to reduce
their own development times.
Our new product, Aquinox, was launched in November 2022. We have received
excellent feedback and significant customer engagement, and early promising
success indicators through strong sales of development kits.
EPS has delivered an excellent performance. Revenue increased 41%, with growth
across all its product lines, and digital inkjet sales at the core of the
success growing 54%. The proactive decisions taken in the last two years to
strengthen the management team and rationalise the product range are
delivering excellent results and demonstrate the continued importance of the
business.
Our recent acquisitions, FFEI and Megnajet, are performing ahead of our
initial expectations. We are delighted with these acquisitions and as a result
we have an expanded product range providing us real traction and opportunity
in the printbar and print engine markets, along with Fluid Management Systems.
With this revenue growth and the strong operational performance, we have
increased Gross Margins in Printhead and EPS, and overall for the Group to 39%
(2021: 34%).
While profit before tax from continuing operations of £0.8m includes some
underlying business unit losses (consisting of Printhead £0.3m loss, EPS
£2.8m profit, FFEI £0.3m loss and Megnajet £0.4m profit) we can report
positive adjusted EBITDA in each of our businesses for 2022. Group adjusted
EBITDA of £6.2 million, consists of Printhead adjusted EBITDA of £2.0
million, EPS adjusted EBITDA of £3.1 million, FFEI adjusted EBITDA of £0.5
million, and Megnajet adjusted EBITDA of £0.6 million. This has enabled
delivery of full year profitability for the Group.
Investing for future growth
There has been further investment in capability and capacity enabling us to
take advantage of the opportunities which we expect to drive our future growth
ambitions.
During the year we acquired our fluid management system business, Megnajet,
for an initial consideration of £5.1 million. The net cash outflow on
acquisition was £3.5 million. This acquisition further strengthens our
ability to deliver to customer needs, enhances our technology capability and
expands the vertically integrated product offering. It is already delivering
profitable growth ahead of expectations, enabling a quick payback on the
original investment.
We have invested in inventory, holding higher levels of both raw materials and
finished goods. This investment has been undertaken in a controlled, proactive
manner to enable continued production of our products and customer supply.
This is a vital part of our strategy to ensure we meet customer demand. As
supply chains improve, we can look to reduce our raw materials holding
although we will do so in a cautious, well-managed way. Higher levels of
finished goods have enabled us to meet customer demand whilst the factory is
closed for reorganisation and will leave us well placed to meet any increase
in market demand.
R&D investment 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 the year we increased R&D
investment by £1.0 million.
Our underlying positive cash generation in the core business has also enabled
us to spend £5.4 million on maintenance and asset improvement across the
business during 2022.
Additionally, we have invested approximately £1.2 million in our factory
reorganisation project in Q1 2023. We expect a rapid return on this investment
due to the energy savings it will provide, coupled with increased
manufacturing efficiency.
This is the first phase of our transformation programme which will result in
modern, efficient and more 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 the medium and long-term
opportunity for the business remains significant. Whilst we have already grown
market share in core, mature markets such as Ceramics and Coding &
Marking, further growth opportunities exist as our technology is best-in-class
and we have a clear competitive advantage over our competitors.
We can capitalise on a number of sectors which need further digitisation of
printing to secure increased market opportunities. These opportunities are
typically in areas where fluid applications are challenging, such as Flat
Panel Display, Semiconductors, Printed Electronics and Optics. We are well
placed to succeed in these markets as Xaar technology offers an unrivalled
method of non-contact, fluid deposition with incredible precision, control and
speed. .
Other markets that already use digital printing such as architectural glass
printing and 3D printing are tremendously exciting as our technology has
unique benefits that can give our customers commercial advantage in reducing
costs and lead times for their products.
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.
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, which is evidenced by the increasing number
of customers developing machines with our products. Both our current product
offering and our product development programme will help drive our success in
meeting customer demand in these fast growing sectors.
Expansion of vertically integrated product offering
The acquisition of FFEI in July 2021 and Megnajet in March 2022 further
widened our product offering for our OEM and UDI (User Developer Integrator)
customers with a broader product range including print engines for adding
effects and embellishments digitally. FFEI has been successfully integrated
and strengthens Xaar's capabilities and skills and has seen the launch of a
new print engine product, the Xaar Versatex. This will accelerate Xaar's
existing growth strategy and widen the product portfolio further engaging UDI
customers. We have a growing pipeline with a significant number of
opportunities thanks to our technology advantages. This platform provides
further opportunities for vertical integration, and we will strengthen our
offering with more products in the pipeline for 2023.
Megnajet is a global leader in the manufacture of ink supply systems. We are
delighted with the acquisition of the business which has been successfully
integrated into the Group, and we are already benefiting from the expansion of
our product offering.
The latest product powered by our ImagineX platform, our aqueous printhead,
Aquinox, was launched in November 2022. This is a significant and tremendously
exciting product for the Group and enables us to compete in new sectors, such
as Packaging and Textiles, with a product that we believe will deliver
superior performance to any currently on the market. We have received positive
feedback from customers, evidenced by high engagement and good sales of
development kits.
EPS, our product print system business is performing well, delivering high
quality products to a variety of customer sectors. As we explore further
opportunities in the US, EPS can play an increasing part in our strategy.
This approach has seen us deliver a more vertically integrated product
offering to a wider group of customers in more market sectors.
Significantly improved operational capability
We have made further progress in building a world class leadership team,
making key appointments which will drive the business in the next phase of our
transformation. This has strengthened our capability and experience across the
business, most notably in our Operations, 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. Our strong and experienced leadership throughout the
organisation is focussed on delivering a clearly articulated strategy.
During the year we have continued to work on ensuring our values are embedded
into our culture. This ongoing focus on our values is important to ensure we
have a supportive culture with employees who are engaged and empowered to
succeed.
Continued commitment to sustainability
Xaar has made significant and positive progress to drive forward its ESG
commitments across our operations. We uphold the highest of standards across
our business and comply with all relevant regulations in the territories in
which we operate whilst enhancing the working environment for our employees
and minimising the environmental impact of our products and operations.
During the year, Xaar launched its Sustainability Roadmap to 2030 which is a
principal driver for positive change and investment within the business. Led
by our ESG Committee and a Sustainability Team which is comprised of
colleagues from across our business operations, chaired by the Group
Sustainability Manager; we have been working hard to achieve our goals and
ambitions across all four sustainability pillars: Environment, People,
Innovation and Community.
Environment
Decarbonisation remains a key objective for us as we move towards our goal of
Net Zero operations by 2030. We are pleased to report that we are working with
an external partner to support us with Scope 3 and TCFD Climate Modelling.
This year we have offset our regulatory Scope 1 and 2 carbon impact, making
the Group a carbon neutral inkjet manufacturer in 2022. We are committed to
continuing this practice on our journey to achieve complete carbon neutrality
in line with our 2030 goal.
We set a target to source 100% of our power from renewable sources by the end
of 2023 and excellent progress has been made. Our move to Green energy is now
complete in the UK, and we are pleased to confirm that EPS is now also
supplied with power generated from renewable sources. We will continue to
assess ways to bring our remaining office locations in line with Green tariff
power.
All printhead packaging is now fully recyclable and we are working towards
complete packaging recyclability.
Xaar is committed to supporting decarbonisation of staff and visitors'
vehicles. In early 2022 we launched a salary sacrifice scheme, supported by
the UK government, to allow all UK staff the ability to order electric
vehicles (EV) through a company scheme. We have also completed the
installation of EV charging infrastructure across our sites.
People
Supporting young people and nurturing their skills is key to our ESG strategy
and for this reason we have placed significant emphasis on our Early Careers
programme. As part of this, Xaar's new Apprenticeship scheme is operational
and our first intake is working within our Logistics team. Further efforts are
underway to connect with local schools and colleges to allow future work
experience programmes to be developed. In the UK, Xaar supported Learning at
Work Week in May, which attracted 109 attendees across 9 events and resulted
in 131 hours of learning.
We will further strengthen this approach in 2023 and plan to hold Xaar Group
workshops bringing together a cross functional group of people with the aim of
understanding what makes Xaar an 'employer of choice'. This will help to
inform and shape our talent attraction and retention strategies feeding into
our wellbeing programmes.
Innovation
We are currently researching ways to use biodegradable structural parts in the
manufacture of our products. An area of focus is to find an alternative, more
sustainable material than Polylactic Acid (PLA) which is a biodegradable
plastic used to print the majority of our jigs and fixtures. Our Operations
team has successfully trialled the use of recycled PLA filaments generated
from returned and waste PLA. These are supplied in 100% plastic-free
sustainable packaging with easy to recycle cardboard spools.
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 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.
Product development and increased capability
Overall, 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.
The, already successful, ImagineX platform will deliver a number of 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, such as Wide Format Graphics and Labels, The
recently launched Aquinox is positioned to drive our adoption in Packaging and
Textiles. The performance enhancements in our product roadmap give a clear
path for OEMs to upgrade their products and maintain their product
differentiation.
We have made strategic bolt-on acquisitions to the Group that enable us to
strengthen our customer offering and we will continue to adopt this approach
in the future as we look to continue increasing our capability and become a
fully integrated inkjet product provider.
The strong operational gearing that exists in the business, which has already
delivered good margin growth, has greater capacity to support further margin
improvement in the medium term. The business is well placed to move into the
next phase of its transformation and to deliver sustainable profitable growth
in the medium term.
Outlook
We have maintained our policy of increased investment in inventory during H2
2021 and throughout 2022 which means we are well placed to satisfy customer
demand in 2023 and we believe we have the supply chain resilience to withstand
most disruption. We are continuing to invest in the business adding skills,
capability and capacity and continue to work on delivering efficiency gains
aimed at improving gross margins and business profitability in the medium
term.
Sales volumes in the Printhead business continue to be affected by the
uncertainty in China, which is expected to continue in the short term as Covid
cases increase. At this stage it remains unclear when normal levels of
business will return, however we can look forward to the medium-term future
with confidence.
There is a positive momentum in the business, as is reflected in our 2022
results. Customer engagement and sales orders have been maintained in the
first quarter of 2023, in line with our expectations. As previously
communicated, we expect the Huntingdon factory re-organisation to impact the
first half, however, given continued progress and exciting product launches
ahead, the Board remains confident in delivering an outturn for the full year
in line with its expectations.
Business Performance
Revenue - Continuing Operations
Revenue for the Group of £72.8 million is an excellent performance for the
year, representing a year-on-year increase of £13.5 million (2021: £59.3
million) of which Organic growth was 8% (£4.8 million).
Group revenue growth
£m 2022 2021 Var %
Printhead 39.0 40.1 (3%)
EPS 19.6 13.9 41%
FFEI 5.5 5.3 4%
Organic growth 2022 vs 2021 64.1 59.3 8%
FFEI 6.1 - -
Megnajet 2.6 - -
Inorganic growth 2022 vs 2021 8.7 - -
Total Growth 72.8 59.3 23%
This result demonstrates momentum across the business, mitigating short term
challenges due to the ongoing restrictions in China arising from COVID-19.
Printhead revenue was down £1.1 million year on year, although outside China
it increased 10%, and EPS increased revenue by 41% (24% in USD). This
performance across the business demonstrates the positive customer engagement
and trust that is being regained across our customer base.
Group revenue by geographic region
£m H1 2022 H2 2022 FY 2022 FY 2021
PH EPS FFEI MJ Total PH EPS FFEI MJ Total PH EPS FFEI MJ Total PH EPS FFEI Total
Americas 5.0 9.2 2.4 0.4 17.0 5.8 10.1 2.4 0.9 19.2 10.8 19.3 4.8 1.3 36.2 7.3 13.9 2.4 23.6
Asia 4.5 - 0.1 - 4.6 3.0 0.2 - 0.4 3.6 7.5 0.2 0.1 0.4 8.2 11.9 - 0.1 12.0
EMEA 11.2 - 3.6 0.2 15.0 9.5 0.1 3.1 0.7 13.4 20.7 0.1 6.7 0.9 28.4 20.9 2.8 23.7
Total 20.7 9.2 6.1 0.6 36.6 18.3 10.4 5.5 2.0 36.2 39.0 19.6 11.6 2.6 72.8 40.1 13.9 5.3 59.3
Megnajet was acquired on 2 March 2022, figures reflected in the table above
are 10 months of post-acquisition revenue.
Group revenues were £36.6 million in the first half of the year and £36.2
million in the second half. This reflects the consistent performance of EPS,
which has offset the impact on Printhead revenue of the restrictions in China
in the second half of the year.
Revenue from the Americas grew year-on-year across the Group, rising £12.6
million (2022: £36.2 million, 2021: £23.6 million). The increase, driven by
the recovery in EPS revenue, along with strong growth in US printhead sales
demonstrates the wider geographic opportunity that exists for the business.
Performance in Asia, and China in particular, has been impacted by the ongoing
COVID-19 restrictions in China, which has resulted in revenue declining from
£12 million in 2021 to £8.2 million. The restrictions have delayed product
development and sales for our customers and consequently sales of printheads
for Xaar. As this region has been a key driver for growth in Printhead in the
previous two years, the impact in the second half of 2022 has been
significant. However, the work we have done in the last two years to re-engage
Chinese Ceramics OEM customers means they understand and are interested in our
new products and roadmap. Accordingly, we are well placed to meet the high
demand in the region as the COVID restrictions are lifted.
Revenue in EMEA has increased from £23.7 million to £28.4 million driven by
our wider product offering through FFEI and Megnajet, contributing to an
increase for the Group of £4.7 million (20%).
Printhead Revenue by Sector
£m H1 2022 H2 2022 FY 2022 FY 2021 Var Var %
Ceramics & Glass 9.8 7.2 17.0 19.0 (2.0) (11%)
C&M and DTS 6.8 5.8 12.6 11.1 1.5 14%
WFG & Labels 1.8 3.0 4.8 6.2 (1.4) (23%)
3D Printing & AVM 1.9 2.0 3.9 2.4 1.5 62%
Packaging & Textiles 0.1 0.4 0.5 0.8 (0.3) (38%)
Royalties, Commissions & Fees 0.2 - 0.2 0.6 (0.4) (67%)
Total 20.6 18.4 39.0 40.1 (1.1) (3%)
Printhead revenue for the year fell by £1.1 million to £39.0 million (2021:
£40.1 million). The second half of 2022 saw revenue decrease by 8% (£1.6
million) compared to H2 2021 (£19.9 million), following growth of £0.5
million in the first half of the year. This is due to the impact of customers
based in China predominantly in the Ceramics sector. Our technology offering
proved successful in a wider number of other sectors, which has partially
mitigated this decrease.
Growth in the year was achieved in 3D Printing, Coding and Marking (C&M)
and Décor sectors. This is pleasing as it further proves our core technology
can be successful in many applications and our customers increasingly benefit
from the advantages our technology brings. Despite revenue in the Ceramics and
Glass sector declining £2 million (11%) we have not lost market share during
the year as the fall can be attributed to the reduction in orders received by
our OEMs in China themselves. We have been able to consistently demonstrate
our clear technology advantages in the Chinese Ceramics market, where we have
regained trust with our customers. We have also established a market leading
position in the Glass sector. Together with our extended product portfolio we
expect to return to growth in this sector during 2023 as the negative external
market factors subside.
Coding and Marking (C&M) and Direct-to-Shape (DTS) revenues have grown by
£1.5 million (14%) further demonstrating our ability to expand our market
reach with a wider product offering.
An increasingly exciting opportunity for us is the 3D printing market, and we
expect this sector to grow significantly in the future. Revenue in 3D Printing
and Advanced Manufacturing (AVM) together grew £1.5 million (62%) in 2022.
Both 3D Printing and AVM are markets where we are well positioned to take
advantage of growth opportunities, and although development cycles can be
long, which means extended timescales for a customer to reach full production,
the market opportunity is significant.
Wide Format Graphics (WFG) and Labels revenue fell in the year from £6.2
million to £4.8 million. This is an area which has also been impacted with
delays in orders, largely COVID-19 related, and we also need further product
development.
Revenues from Packing & Textiles remain modest. Our ability to target this
sector effectively has been somewhat limited by our product range, although
the launch of the Aquinox printhead will start to address this. However,
advancements in the product portfolio driven by the ImagineX platform should
make this large sector more accessible in the future. Full year revenue of
£0.5 million was down year-on-year (2021: £0.8 million).
EPS Revenue by Sector
£M H1 2022 H2 2022 FY 2022 FY 2021 Var Var %
Digital Inkjet 5.7 6.7 12.4 8.0 4.4 +54%
Pad Printing 3.3 3.4 6.7 5.5 1.2 +22%
Other 0.2 0.3 0.5 0.4 0.1 +34%
Total 9.2 10.4 19.6 13.9 5.7 +41%
Revenue from the EPS business increased by £5.7 million to £19.6 million
(2021: £13.9 million) as the new commercial approach has seen some
significant customer order wins.
Growth has been achieved across all product groups with a particularly strong
performance in the core area of digital inkjet machine sales which have grown
£4.4 million (54%). This is particularly pleasing as it continues to be the
focus for the business in the future. Pad print machine revenue has also risen
22% and the increased focus on consumables and accessory sales have also
contributed to the growth as a result of the change in commercial approach,
with increased revenue from ink, plates and parts. The order book remains
strong and we are well placed to deliver further growth in 2023 as companies
increasingly invest in capital equipment.
Gross profit
Gross profit for the year increased by £8.4 million to £28.6 million (2021:
£20.2 million) with an increase in the gross margin to 39% (2021: 34%). This
was primarily the result of an improvement in the Printhead business unit's
gross margin which grew from 38% to 43%, and EPS which moved from 23% to 40%.
In Printhead we increased utilisation of the factory as production volumes
were increased during the year resulting in better overhead cost recovery,
supporting margin gains.
There was also continued investment to secure raw materials to reduce further
supply chain risks. Although there are indications of easing in the global
supply chain, we remain cautious and have continued to focus on meeting
customer demand. We have increased our working capital with inventory rising
£10.3 million (2021: £9.1 million increase in inventory). The higher level
of finished goods will ensure continued supply to customers during our factory
re-organisation shutdown and enable us to capitalise on any uplift in demand
across all our market sectors. This higher level of both raw materials and
finished goods is a deliberate, prudent approach which we believe will see us
well placed to both manage customer requirements and further insulate the
business from external supply chain risks.
We remain focussed on cost saving initiatives which will continue to deliver
efficiency gains and support our Gross Margin.
Gross profit for the EPS business grew £4.6 million in the year to £7.8
million (2020: £3.2 million). The actions taken to refocus the business which
impacted 2021 results (non-cash write down adjustments totalling £0.7
million), left the business in a good position to meet the increased market
demand for capital equipment in the US which has driven this much improved
performance.
Both FFEI and Megnajet have performed ahead of our expectations made when we
acquired the businesses. They are strong contributors to the performance of
the Group, with FFEI delivering Gross Profit of £3.5 million (at 30% gross
margin), and Megnajet £0.8 million (Gross Profit of 33%).
Research & Development spend
R&D spend of £6.7 million was up £1.0 million on 2021 (2021: £5.7
million). This spend reflects further investment in the ImagineX platform
which continues to be central to our long-term growth and ongoing product
roadmap. We increased spend in FFEI to £1.2 million (2021: £0.4 million)
which enhances the support for our vertically integrated product offering. The
total increase maintains our spend/revenue ratio in the desired range of 8-11%
and is broadly in proportion with our revenue growth.
Operating Expenses
Sales and marketing spend for the year was £6.7 million (2021: £6.3
million). The increase in spend of £0.4 million year-on-year reflects the
increased business size along with the focus on sales and business development
in the Printhead business. This has seen some increase in commercial travel
expenses although we are taking a focussed, targeted approach to managing
these costs.
General and administrative expenses increased £4.0 million from £10.1
million in 2021 to £14.1 million in 2022. The increase largely relates to
planned investment in key areas of the business and infrastructure, including
Operations, IT and Finance, partially offset by, £1.2 million related to
trading foreign exchange gains in 2022. This largely relates to key
appointments in the senior management team and infrastructure upgrades.
Restructuring and transaction costs of £0.5 million (2021: £1.4 million)
predominantly relate to re-organisation costs and acquisition-related
professional fees.
Profit for the Year
The profit before tax from continuing operations under IFRS was £0.8 million
in 2022 (2021: £1.0 million profit). Basic Earnings per share from continuing
operations was 2.3p (2021: 0.9p).
The performance of the Printhead business moved from a £2.2 million profit in
2021 to a £0.3 million loss in 2022. Despite a much-improved gross margin,
and a close control in operating expenditure, the revenue reduction and
external inflationary pressures resulted in a small loss. The EPS business
moved from a £0.9 million loss in 2021 to a £2.8 million profit in 2022 due
to the improved performance.
FFEI delivered a loss of £0.3 million (2021: Profit of £0.4 million).
Megnajet contributed a profit before tax of £0.4 million since acquisition on
3rd March 2022.
In calculating the adjusted loss before tax we have adjusted for gains on
derivative financial liabilities of £nil (2021: £2.9 million) and fair value
loss on financial assets £8,000 (2021: £1.0 million gain) alongside
restructuring costs of £0.5 million, foreign exchange gains on intra-group
loans of £0.8 million, and share-based payments of £1.7 million with an
R&D expenditure credit of £0.4 million and amortisation of acquired
intangible assets of £1.0 million.
The adjusted profit before tax from continuing operations was £2.8 million,
compared to £0.6 million loss in 2021. This is a significant step forward for
the business, emphasised by the delivery of adjusted profit in the year.
The adjusted EBITDA for continuing operations in the year was £6.2 million
(2021: £3.2 million).
The Group profit for the year was £1.6 million (2021: £14.2 million profit)
all of which is attributable to the owners of the company, (2021: £16.2
million profit with a £2.0 million loss to non-controlling interests).
Group profit for the year from continuing operations was £1.8 million
(2021: £0.7 million). The total basic earnings per share attributable to
shareholders is 2.1p (2021: profit 20.9p).
Cash generation
The Group retained a healthy cash balance of £8.5 million at the year end,
representing a decrease of £16.5 million during the year. Operating cash
flow, before working capital, was positive by £6.6 million driven by the
improved aEBITDA across the business of £6.2 million.
As a result of the managed investment in inventory, working capital saw an
outflow of £12.2 million, mainly due to the £9.5 million increase in
inventory.
During 2022 we purchased Megnajet for an initial net cash outlay of £3.5
million as well as a further deferred payment for FFEI of £1.7 million. This
investment in the business is enhancing our capabilities and supports the
strategy of selling more printheads through offering a more vertically
integrated solution to customers. Additionally, we invested £5.4 million on
key infrastructure and product development.
The business has a clear plan and strategy which the strong balance sheet and
cash position will support. There remain external development opportunities
which, if they can expand our capabilities and expertise, we will look to
potentially add to the Group. We will also continue to invest internally to
ensure we have the operational capacity and efficiency to meet future demand,
alongside investment in our product roadmap development.
The Group maintains a strong disciplined focus on cash, and this will continue
throughout 2023.
Cash Flow - Total Operations 2022 2021
£'m £'m
Operating cashflows before movement in working capital 6.6 (2.2)
Movement in working capital (12.2) -
Taxes received 0.1 0.2
Net cash (used in)/provided by investing activities (8.6) 7.8
Net cash used in financing activities (2.9) (0.7)
Effect of foreign exchange rate changes on cash balances 0.5 (0.1)
Net (decrease)/increase in cash and cash equivalents (16.5) 5.0
Strong balance sheet
Non-current assets increased £5.2 million in the year from £46.8 million to
£52.0 million. This was driven by the increase in Goodwill following the
acquisition of Megnajet of £1.3 million, along with an increase in intangible
assets of £4.7 million. The recognition of financial assets at fair value
arising from the sale of 3D assets was £11.1 million (2021: £11.9 million).
Additionally, there was a £0.1 million reduction in Property, Plant and
Equipment as new purchases were controlled in with line with the Group's cash
focus and a decrease in right of use assets of £0.8 million.
Current assets decreased £4.1 million from £54.6 million in 2021 to £50.5
million. A significant proportion of this decrease is attributable to the
decrease in cash and cash equivalents holding of £16.5 million. The increase
in Inventories of £10.3 million to £29.1 million (2021: £18.8 million) was
associated to the managed investment in our supply chain capability. Trade and
other receivables increased by £1.3 million to £11.5 million (2021: £10.2
million).
Overall, current liabilities of £20.5 million (2021: £20.5 million) remained
flat year-on-year. A reduction in Trade and other payables of £1.1 million
to £14.9 million (2021: £16 million) was offset by increases in Provisions
for restructuring and warranties by £0.1 million, an increase in current
lease liabilities of £0.3 million to £1.0 million (2021: £0.7 million) and
a £0.3 million increase in Contract Liabilities. The Group also arranged an
invoice financing facility in the year and as at 31(st) December the balance
borrowed was £0.4 million.
Non-current liabilities reduced by £2.0 million to £10.2 million (2021:
£12.2 million), which mainly relates to lease liabilities recorded under IFRS
16 for property which reduced by £0.7 million to £7.8 million (2021: £8.5
million) in the year. Additionally, further deferred consideration payments
due in 2023 have now become current, reducing the balance of other financial
liabilities from £3.4 million to £2.1 million.
Dividend
No dividend has been declared for 2022 as the Board believes that prioritising
cash for continued investment in the business will deliver more compelling
returns for shareholders in the medium term.
John Mills Ian Tichias
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £'000 £'000
Revenue 3 72,782 59,254
Cost of sales (44,138) (39,064)
Gross profit 28,644 20,190
Other income 2 139 -
Research and development expenses (6,718) (5,706)
Research and development expenditure credit 379 270
Sales and Marketing expenses (6,669) (6,342)
General and administrative expenses (14,050) (10,070)
(Impairment)/impairment reversal on financial assets (28) 388
Restructuring and transaction expenses 2 (450) (1,404)
Fair value (loss)/gain on financial assets at FVPL (8) 987
Gain on derivative financial liabilities - 2,919
Operating profit 1,239 1,232
Investment income 38 4
Finance costs for leases (453) (242)
Profit before tax 824 994
Income tax credit/(expense) 967 (299)
Profit for the period from continuing operations 1,791 695
(Loss)/profit from discontinued operations after tax 5 (159) 13,533
Profit / (loss) for the year 1,632 14,228
Attributable to:
Owners of the Company 1,632 16,219
Non-controlling interests - (1,991)
Profit / (loss) for the year 1,632 14,228
Earnings/(loss) per share - Total
Basic 4 2.1p 20.9p
Diluted 4 2.0p 20.6p
Earnings/(loss) per share - Continuing operations
Basic 2.3p 0.9p
Diluted 4 2.2p 0.9p
There were no dividends paid during the current and preceding year.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
2022 2021
£'000 £'000
Profit / (loss) for the year 1,632 14,228
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of net investment 617 143
Other comprehensive income/(loss) for the year 617 143
Total comprehensive loss for the year 2,249 14,371
Total comprehensive loss attributable to:
Owners of the Company 2,249 16,366
Non-controlling interests - (1,995)
2,249 14,371
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Restated
2022 2021
£'000 £'000
Non-current assets
Goodwill 7,163 5,894
Other intangible assets 8,681 4,043
Property, plant and equipment 16,104 16,226
Right of use asset 8,068 8,829
Financial asset at FVPL 11,089 11,850
Deferred tax asset 726 -
Other non-current assets 136 -
51,967 46,842
Current assets
Inventories 29,148 18,839
Trade and other receivables 11,527 10,161
Current tax asset 735 531
Financial asset at FVPL 517 -
Cash and cash equivalents 8,546 25,051
50,473 54,582
Total assets 102,440 101,424
Current liabilities
Trade and other payables (14,862) (15,971)
Provisions (405) (264)
Contract liabilities (3,799) (3,541)
Borrowings and financial liabilities (379) -
Lease liabilities (1,032) (692)
(20,477) (20,498)
Net current assets 29,996 34,114
Non-current liabilities
Deferred tax liabilities - (1)
Lease liabilities (7,800) (8,499)
Provisions (300) (300)
Other financial liabilities (2,094) (3,354)
Total non-current liabilities (10,194) (12,154)
Total liabilities (30,671) (32,622)
Net assets 71,769 68,802
Equity
Share capital 7,844 7,844
Share premium 29,427 29,427
Own shares (775) (1,923)
Translation reserves 1,628 1,011
Other reserves 23,379 21,820
Retained earnings 10,266 10,623
Total equity 71,769 68,802
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Non-controlling
Share Share Own Translation Other Retained Total
capital premium shares reserves reserves earnings Total interest equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 (as restated) 7,833 29,328 (1,957) 864 21,167 (5,564) 51,671 3,771 55,442
Profit for the year - - - - - 16,219 16,219 (1,991) 14,228
Tax on items taken directly to equity - - - - - - - - -
Exchange differences on retranslation of net investment - - - 147 - - 147 (4) 143
Total comprehensive loss for the period as reported - - - 147 - 16,219 16,366 (1,995) 14,371
Own shares sold in the period - - 34 - - - 34 - 34
Share option exercises 11 99 - - - (32) 78 - 78
Credit to equity for equity-settled share-based payments - - - - 653 - 653 - 653
Derecognition of non-controlling interest - - - - - - - (1,776) (1,776)
Balance at 31 December 2021 7,844 29,427 (1,923) 1,011 21,820 10,623 68,802 - 68,802
Profit for the year - - - - - 1,632 1,632 - 1,632
Tax on items taken directly to equity - - - - - - - - -
Exchange differences on retranslation of net investment - - - 617 - - 617 - 617
Total comprehensive income for the period - - - 617 - 1,632 2,249 - 2,249
Own shares purchased in the period - - (1,000) - - - (1,000) - (1,000)
Own shares sold in the period - - 2,148 - - - 2,148 - 2,148
Share option exercises and settlements - - - - - (1,989) (1,989) - (1,989)
Credit to equity for equity-settled share-based payments - - - - 1,559 - 1,559 - 1,559
Balance at 31 December 2022 7,844 29,427 (775) 1,628 23,379 10,266 71,769 - 71,769
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
£'000 £'000
Profit before tax from continuing operations 824 994
(Loss)/profit before tax from discontinued operations (159) 13,503
Total Profit before tax 665 14,497
Adjustments for:
Share-based payments 1,748 758
Depreciation of property, plant and equipment 2,654 3,318
Depreciation of right of use assets 1,071 871
Amortisation of intangible assets 1,067 475
Impairment of assets 147 -
Research and development expenditure credit (379) (582)
Investment income (38) (4)
Interest expense 453 252
Unrealised Foreign exchange gains (797) (23)
Gain on remeasurement of derivative liability - (2,919)
Payment of cash settled share-based payments (249) -
Fair value loss/(gain) on financial assets at FVPL 8 (987)
Loss on disposal of property, plant and equipment 80 77
Profit on disposal of investment in subsidiary - (17,899)
Increase/(decrease) in provisions 141 (74)
Operating cash flows before movements in working capital 6,571 (2,240)
Increase in inventories (9,462) (7,964)
Decrease/(increase) in receivables (812) (1,525)
(Decrease)/increase in payables (1,914) 9,525
Cash utilised by operations (5,617) (2,204)
Net Taxes received 112 150
Net cash used in operating activities (5,505) (2,054)
Investing activities
Investment income 38 13
Treasury deposits (deposited)/withdrawn - 161
Purchases of property, plant and equipment (2,456) (1,876)
Proceeds from disposal of property, plant and equipment 17 209
Purchases of Intangible assets (2,933) (38)
Cash earn-out received from financial assets at FVPL 236 -
Proceeds from disposal of investment in subsidiary - 9,272
Cash attributable to subsidiary sold - (96)
Acquisition of Megnajet net of cash acquired (2021:acquisition of FFEI) (1,202) 168
Asset acquisition (Technomation), net of cash acquired (2,334)
Net cash (used in)/ provided by investing activities (8,634) 7,813
Financing activities
Proceeds from sale of own shares 408 150
Proceeds from sales of ordinary share capital (1,000) -
Payment of deferred consideration (1,733) -
Payment of lease liabilities and related interest (914) (824)
Net inflows from invoice discounting facility 346 -
Other interest paid (22) -
Net cash used in financing activities (2,915) (674)
Net (decrease)/increase in cash and cash equivalents (17,054) 5,085
Effect of foreign exchange rate changes on cash balances 549 (110)
Cash and cash equivalents at beginning of year 25,051 20,076
Cash and cash equivalents at end of year 8,546 25,051
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 callable deposits with a notice period of 3 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 2021
1. Basis of preparation and accounting policies
Basis of preparation
The Group financial statements have been prepared in accordance with UK
adopted International Accounting Standards (IAS). The financial information
has been prepared on the basis of all applicable IFRS, including all
International Accounting Standards (IAS), Standing Interpretations Committee
(SIC) interpretations and International Financial Reporting Interpretations
Committee (IFRIC) interpretations issued by the International Accounting
Standards Board (IASB) that are applicable to the financial period.
The financial statements have been prepared on the historical cost basis,
except for the revaluation of financial instruments. The Group financial
statements are presented in Sterling and all values are rounded to the nearest
thousand pounds (£'000) except when otherwise indicated. The principal
accounting policies adopted are set out below.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out on pages 3 to
14. Notes 21 and 22 of the Annual Report and Accounts include a description of
the Company's objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments and
hedging activities; and its exposure to credit risk and liquidity risk. The
Group's day-to-day working capital requirements are expected to be met through
the current cash and cash equivalent resources (including treasury deposits)
at the balance sheet date of 31 December 2022 of £8.5 million. The Group have
a £5m invoice discounting facility, of which £0.4 million was drawn as at
the Balance Sheet date.
The Group has prepared and reviewed monthly profit and cashflow forecasts
which cover a period up to 30 June 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. These forecasts reflect
existing technologies and products, existing OEM adoption, the committed order
pipeline, an increasing customer install base and demand for consumables such
as fluids across the customer base and no specific risks around
creditworthiness. This creates a high degree of predictability within the
short term cashflows, which have been factored in to the level of sensitivity
testing and reverse stress testing performed below. The operational steps
described in the Strategic Report also provide increased predictability over
future margins, which have been incorporated in this base case forecast. Using
this base case, liquidity compliance has been assessed across the going
concern period and is sufficient to enable the Group to settle its obligations
as they fall due.
To support the going concern conclusion, a sensitivity analysis has been
performed which models a 10% reduction in revenue and 2% reduction in gross
margin in comparison to the base case and is below the reported FY22 actual
result. The outcome of this sensitivity analysis is that the Group maintain
liquidity across the going concern period and are able to meet all forecasted
obligations as they fall due. A reverse stress scenario has also been
performed to model the circumstances required to eliminate available liquidity
during the going concern period. This includes reducing revenues and reducing
gross margin. This reverse stress scenario requires a reduction in revenue in
excess of 25% in comparison to the base case and is below the reported FY22
actual result, as is the assumed margin. 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.
Should extreme downside scenarios occur, the Group has further options within
their control to mitigate a cash shortfall which have not been factored into
the above forecasts and stress testing, such as staffing reductions, further
delaying/stopping capital and research and development expenditure and
aligning performance related pay to actual results. The Group also have
received credit pre-approval for a £5 million revolving credit facility. No
drawdowns have been assumed during the going concern period, nor are they
required in the sensitivity or reverse stress scenarios described above and as
such the facility would provide additional liquidity headroom to the Group
across the going concern period.
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
30 June 2024. For this reason, we continue to adopt the going concern basis in
preparing the financial statements.
2. Reconciliation of adjusted financial measures
2022 2021
£'000 £'000
Profit before tax from continuing operations 824
994
Share-based payment charges 1,748 758
Exchange differences on intra-group transactions (811) 95
Gain on derivative financial liabilities - (2,919)
Restructuring and transaction expenses 450 1,404
R&D Expenditure credit (379) (270)
Fair value gain on financial assets at FVPL 8 (987)
Amortisation of acquired intangible assets 982 354
Adjusted profit/(loss) before tax from continuing operations 2,822 (571)
Interest income (38) (4)
Finance costs 453 242
Depreciation of property, plant and equipment 2,654 3,318
Amortisation of intangible assets (other than acquired intangibles) 85 121
Profit on asset disposal 80 77
Impairment of assets 147 -
Adjusted EBITDA from continuing operations 6,203 3,183
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 to have a
distorting effect on the underlying results of the Group.
Share-based payment charges include the IFRS 2 charge for the period of
£1,559,000 (2021: £653,000) and the debit relating to National Insurance on
the outstanding potential share option gains of £189,000 (2021: £105,000).
Exchange differences relating to the United States and Swedish operations
represent exchange gains or losses recorded in the consolidated income
statement as a result of intragroup transactions in the United States and
Sweden. These costs were included in general and administrative expenses in
the consolidated income statement.
Gain on derivative financial instruments relates to gains made on call option
contracts which were exercised in 2021. These amounts are included on the
consolidated income statement under gain on derivative financial liabilities.
Restructuring and transaction expenses of £450,000 (2021: £1,404,000) relate
to costs incurred and provisions made in relation to acquisition transactions
of £194,000 (2021: £961,000) and re-organisation costs. The calculated
impact of the restructuring and transaction expenses at the corporation tax
rate of 19% would be £32,000 based on the expenses included that would be
treated as tax deductible (2021: £52,000). The cash paid related to
restructuring and investment expenses is £792,000 (2021: £992,000).
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 £198,000 received during the year were in relation to the Xaar
RDEC claim which related to the claim for the year ended 31 December 2020. In
2021 £219,000 was received in relation to the FFEI RDEC and R&D claim
which related to their financial year 1 April 2020 to 31 March 2021.
The fair value loss of £8,000 (2021: £987,000 gain) 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.
The amortisation of acquired intangible assets relates to the acquisition of
FFEI Limited in 2021 and the acquisition of Megnajet Limited and Technomation
Limited in 2022. These include software, patents and customer relationships
for FFEI which are being amortised over six years and IP, brand and customer
relationships for Megnajet and Technomation which are being amortised over
eight to ten years. These costs were included in general and administrative
expenses in the consolidated income statement.
2022 2021
Notes Pence per share Pence per
share
Basic earnings per share continuing operations 4 2.3p 0.9p
Share-based payment charges 2.3p 1.0p
Exchange differences on intra-group transactions (1.1p) 0.1p
Gain on derivative financial liabilities - (3.8p)
Restructuring and transaction expenses 0.6p 1.8p
Research and Development Credit (0.5p) -
Fair value gain on financial assets at FVPL - (1.3p)
Amortisation of acquired intangible assets 1.3p 0.5p
Tax effect of adjusting items (0.1p) (0.2p)
Adjusted basic earnings/(loss) per share 4.8p (1.0p)
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', 'Digital Imaging' and 'Ink Supply Systems'. 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.
Digital Imaging was added in the second half of 2021 as a result of the
acquisition of FFEI and Ink Supply Systems was added in the first half of 2022
as a result of the acquisition of Megnajet on 2 March 2022.
Segment information for continuing operations is presented below:
Printhead Product Print Systems Unallocated
Digital Imaging Ink Supply Systems
Consolidated
Year ended 31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Total segment revenue 39,042 19,624 11,633 2,483 - 72,782
Result from continuing operations
Adjusted (loss) / gain before tax (754) 2,756 198 622 - 2,822
Share-based payment charges - - - - (1,748) (1,748)
Exchange differences on intra-group transactions 811 - - - - 811
Restructuring (429) - - (21) - (450)
Gain on derivative financial liabilities - - - - - -
Research & development expenditure credit 83 - 296 - - 379
Fair value gain on financial assets at FVPL (8) - - - - (8)
Amortisation of acquired intangible assets - - (775) (207) - (982)
Profit/(loss) before tax from continuing operations (297) 2,756 (281) 394 (1,748) 824
Printhead Product Print Systems Unallocated
Digital Imaging Ink Supply Systems
Consolidated
Year ended 31 December 2021 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Total segment revenue 40,104 13,900 5,250 - - 59,254
Result from continuing operations
Adjusted (loss) / gain before tax (526) (766) 721 - - (571)
Share-based payment charges - - - - (758) (758)
Exchange differences on intra-group transactions (95) - - - - (95)
Restructuring (1,288) (116) - - - (1,404)
Gain on derivative financial liabilities 2,919 - - - - 2,919
Research & development expenditure credit 227 - 43 - - 270
Fair value gain on financial assets at FVPL 987 - - - - 987
Amortisation of acquired intangible assets - - (354) - - (354)
Profit/(loss) before tax from continuing operations 2,224 (882) 410 - (758) 994
In addition to the external revenue reported by operating segments, the
Printhead segment made £1,399,000 (2021: £1,092,000) of intercompany sales,
the Product Print Systems segment made nil (2021: £312,000) intercompany
sales and the Ink Supply Systems segment made by £538,000 (2021: nil) of
intercompany sales.
4. Earnings per share - basic and diluted
The calculation of basic and diluted earnings per share is based on the
following data:
2022 2021
£'000 £'000
Earnings
Earnings for the purposes of basic earnings per share being net profit/(loss) 1,632 16,219
attributable to equity holders of the parent
from continuing operations 1,791 695
from discontinued operations (159) 15,524
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings 77,549,264 77,528,064
per share
Effect of dilutive potential ordinary shares:
Share options 4,085,096 1,261,215
Weighted average number of ordinary shares for the purposes of diluted 81,634,360 78,789,279
earnings per share
2022 2021
Pence per share Pence per share
Basic 2.1p 20.9p
Diluted 2.0p 20.6p
Continuing operations
Basic 2.3p 0.9p
Diluted 2.2p 0.9p
Discontinued operations
Basic (0.2p) 20.0p
Diluted (0.2p) 19.7p
Potential ordinary shares are treated as dilutive if their conversion to
ordinary shares would decrease earnings per share or increase loss per share.
The weighted average number of ordinary shares for the purposes of basic
earnings per share is calculated after the exclusion of ordinary shares in
Xaar plc held by Xaar Trustee Ltd, the Xaar plc ESOP Trust and the matching
shares held in trust for the Share Incentive Plan.
For 2022, there were share options granted over 276,547 shares that had not
been included in the diluted earnings per share calculation because they were
anti-dilutive at the period end (2021: 107,490 shares that would not have been
included).
The performance conditions for LTIP awards over 172,492 shares (2021:
1,510,685 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 has not been included in the diluted earnings per share
calculation.
5. Business Combination
On 2 March 2022, Xaar completed the acquisition of 100% of the share capital
of Megnajet Ltd and Technomation Ltd. The companies trade together under the
name of Megnajet, and design and manufacture industrial ink management and
supply systems for digital inkjet. The acquisitions will accelerate the
Company's growth strategy by creating a more integrated inkjet solution
whereby customers can access more of the printing ecosystem (such as ink
supply systems and the electronics) from Xaar.
Technomation Ltd was acquired for its Intellectual Property and know-how. The
acquisition has been accounted for as an asset acquisition using the optional
concentration test within IFRS 3. The purchase price of £3,038,000, which
includes £187,000 deferred consideration, was allocated to its Intellectual
Property amounting £1,990,000 (being the purchase price net of £517,000 cash
balance and £531,000 balance relating to working capital consisting of
£816,000 receivables, £130,000 Corporation Tax creditor and £155,000 VAT
creditor). Whilst Megnajet Ltd was accounted for as a business combination and
the details of the net assets acquired, goodwill and purchase consideration
are as follows:
Recognised amounts of identifiable assets acquired and liabilities assumed Fair value
£'000
Cash 1,067
Trade & other receivables 487
Corporate tax payable (27)
Inventories 503
Property, plant and equipment 53
Intangible assets 703
Trade & other payables (821)
Deferred Tax liability (170)
Total net identifiable assets 1,795
Goodwill 661
Total consideration 2,456
Satisfied by:
Cash 2,269
Deferred consideration 187
Total consideration transferred 2,456
Net cash inflow arising on acquisition
Cash consideration (2,269)
Less: cash and cash equivalents acquired 1,067
Total net cash outflow arising on acquisition (1,202)
The fair value of acquired receivables is £250,000. The gross contractual
amount for trade receivables due is £252,000, with a loss allowance of
£2,000 recognised on acquisition. Other receivables relate to VAT amounting
to £237,000.
The goodwill of £661,000 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 assembled workforce
and potential new customer relationships and contracts which enable Megnajet
to accelerate the development of Ink Management and Supply Systems through the
shared expertise, technologies and resources across
the Group. None of the goodwill recognised is expected to be deductible for
income tax purposes.
The fair value of the intangible assets attributed to the acquisition of the
business relates to customer relationships (£422,000) and brand (£281,000).
These have an estimated useful life of eight and ten years respectively.
In addition to the cash consideration, deferred consideration shall be paid in
the second year anniversary from the date of acquisition. The undiscounted
amount of all future payments that the Company is required to make under the
deferred consideration arrangement is £200,000.
Acquisition related costs which are included in administrative expenses in the
consolidated income statement for the period ended 31 December 2022 amounted
to £193,000.
The acquired business contributed revenues of £2,483,000 and net profit of
£758,000 to the Group for the period from 2 March 2022 to 31 December 2022.
If the acquisition had occurred on 1 January 2022, consolidated pro-forma
revenue and profit for the period ended 31 December 2022 would have been
£3,038,000 and £832,000 respectively. These amounts have been calculated
using the subsidiary's results and adjusting them for differences in the
accounting policies between the Group and the subsidiary; and the additional
depreciation and amortisation that would have been charged assuming the fair
value adjustments to property, plant and equipment and intangible assets had
applied from 1 January 2022, together with the consequential tax effects.
During the prior year, on 11 July 2021, Xaar acquired 100% of the issued share
capital of FFEI Limited for a total consideration of £8,762,000, comprising
£3,907,000 in initial cash and deferred consideration of £4,4855,000 (which
is £5,200,000 discounted using 3.49% discount rate). Net assets acquired
totalled £8,073,000, and goodwill of £689,000 arose on the acquisition. The
fair value of the intangible assets attributed to the acquisition related to
patents and software (£3,044,000) and customer relationships (£1,204,000)
with an estimated useful life of six years. Net cashflow arising on the
acquisition was an inflow of £168,000, being cash equivalents acquired of
£4,075,000 minus the cash consideration paid.
The deferred consideration is payable in three annual instalments, of which
one instalment was paid during the year ended 31 December 2022 (£1,733,000).
Acquisition costs included in the consolidated income statement for the prior
year amounted to £618,000.
6. Restatement of prior period
The financial statements include prior period restatements in relation to
leases and contract assets and liabilities.
Right of use asset and Lease liabilities were both overstated by £539,000 due
to an error in recording the renewal on one lease with no impact on net
assets, cashflows or profit for the period. Since 2022 additional finance
reviews have been introduced for all legal contracts. With the current control
introduced in 2022, we believe the likelihood of such errors is substantially
reduced.
Additionally, EPS division had not been netting contract assets and
liabilities and both balances were shown gross in the prior period. This error
was identified by management in the current year and was corrected resulting
in changes in processes and systems to ensure correct accounting is in place
going forward. The respective adjustment for the prior year amounted to
$2,672,000 (£1,977,000) with no impact on net assets, cashflows or profit for
the period.
The following tables summarise the impact of the prior period restatement on
the financial statements of the Group for the periods ended 31 December 2021:
Consolidated statement of financial position 2021 IFRS 16 Leases Contract assets/liabilities 2021
as reported Correction correction restated
£'000 £'000 £'000 £'000
Non-current assets
Right of use assets 9,368 (539) - 8,829
Current assets
Trade and other receivables 12,138 - (1,977) 10,161
Total assets 103,940 (539) (1,977) 101,424
Current liabilities
Contract liabilities (5,518) - 1,977 (3,541)
Lease liabilities (1,231) 539 - (692)
Total liabilities (35,138) 539 1,977 (32,622)
Net assets 68,802 - - 68,802
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