TIDMXAR
RNS Number : 6387L
Xaar PLC
14 September 2021
XAAR plc
2021 INTERIM RESULTS
CONTINUED STRONG PERFORMANCE WITH POSITIVE MOMENTUM IN THE
BUSINESS
Xaar plc ("Xaar", the "Group" or the "Company"), the leading
inkjet printing technology group, today announces its interim
results for the six months ended 30 June 2021.
Summary of results for the six months ended the 30 June
2021:
2021 2020(1)
Continuing Operations
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Revenue GBP26.3m GBP23.7m
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Gross profit GBP7.6m GBP6.3m
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Gross margin % 29% 27%
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R&D investment GBP2.6m GBP2.1m
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Adjusted EBITDA(2) (GBP0.4m) GBP0.7m
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Adjusted loss before (GBP2.3m) (GBP1.3m)
tax(2)
---------- ----------
(Loss)/profit before (GBP2.1m) GBP1.3m
tax
---------- ----------
(Loss)/profit for (GBP1.8m) GBP1.0m
the period
---------- ----------
Diluted earnings
per share (2.3p) 1.3p
---------- ----------
Total Operations
---------- ----------
Loss before tax (GBP5.6m) (GBP4.8m)
---------- ----------
Loss for the period (GBP5.3m) (GBP5.2m)
---------- ----------
Diluted earnings
per share (4.8p) (5.0p)
---------- ----------
Net cash at the period GBP17.1m GBP18.0m
end(3)
---------- ----------
1 - Restated results for June 2020. See note 11
2 - Excluding the impact of share-based payment charges,
exchange differences relating to intra-group transactions, gain on
derivative financial instruments, restructuring costs and
investment expenses, research and development expenditure credit,
other operating income and discontinued operations as reconciled in
note 2
3 - Net cash at 30 June includes cash, cash equivalents and
treasury deposits, excluding Xaar 3D
Figures and percentages included in this report are subject to
rounding adjustments arising from conversion to GBPthousands or
GBPmillions 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
-- First half revenue of GBP26.3 million in line with management
expectations, representing an increase of 11% and 8% on H1 and H2
2020 respectively
-- Gross margin of 29%, up 2ppts on H1 and H2 2020
-- Printhead adjusted EBITDA improved from a GBP0.1 million loss
in H1 2020 to a GBP0.8 million profit in H1 2021
-- 25% increase in R&D spend in continuing operations to
GBP2.6 million focused on the ImagineX platform and product
roadmap
-- Strong closing balance sheet with net cash, excluding cash
from the 3D business, of GBP17.1 million
Operational and strategic highlights
-- Printhead business continues to perform well, with a growing
pipeline of new product development. Proactive measures are being
implemented to mitigate the impact from COVID-19 related supply
constraints which are being experienced across the industry
-- Successful roll out of the ImagineX platform is continuing;
o April 2021 launch of the Xaar Nitrox printhead attracting new
customers and increased opportunities
o Official launch of Xaar Irix today, strengthening our product
offering in the Coding & Marking sector
-- Engineered Printing Solutions ("EPS") underlying performance
remains on track with progress made in the modular strategy,
however H1 2021 results have been impacted by non-cash adjustments
relating to slow moving and obsolete inventory. Operational changes
are being made to ensure the business is best positioned to take
advantage of the compelling growth opportunity in the market
-- Acquisition of FFEI Limited ("FFEI") on 11 July 2021, a
leading integrator and manufacturer of industrial digital inkjet
systems and digital life science technology, as part of the
vertical integration strategy to grow Xaar's capability and help
accelerate customer adoption of our printhead technology
-- New corporate headquarters in Cambridge, UK expected to
deliver GBP0.7 million of annual cost savings. New Customer Service
Centre opened in Shenzhen, China
-- Expect to announce details of planned divestment of Xaar 3D investment soon
-- Established an ESG Committee with a view to announcing the
Sustainability Roadmap to 2030 with the full-year results
John Mills, Chief Executive Officer, commented:
"We are pleased with our continued strong performance which,
despite challenging market conditions, demonstrates the success of
our strategy and underlying strength of the business. These results
reflect the positive momentum we have generated across the
business. Our foundations remain strong, as we continue to gain new
customers and positively re-engage in our core markets. The
COVID-19 pandemic continues to cause disruption for business,
however we are determined to minimise interruption to the supply of
printheads, and we are well-positioned to withstand further
volatility caused by the pandemic.
Launching the Xaar Irix today further demonstrates our drive and
ability to deliver new products from our ImagineX platform.
Continued investment in capability and capacity, together with the
addition of FFEI will drive future growth and accelerate strong
performance."
Enquiries:
Xaar plc +44 (0) 1223 423 663
Ian Tichias, Chief Financial Officer
John Mills, Chief Executive Officer
Tulchan Communications +44 (0) 207 353 4200
James Macey White
Giles Kernick
A presentation for analysts and investors will be held via
webcast and conference call at 09:00am today. For further details,
please contact Xaar@tulchangroup.com . The results webcast and
presentation will be made available on the website (www.xaar.com)
at 10:00am (BST).
Strategy Review
We are pleased with our continued strong performance which,
despite challenging market conditions, demonstrates the positive
momentum our strategy is driving across the business, as we
continue to attract new customers and see positive re-engagement
with the Group. Investment in capability and capacity will provide
us with further opportunities to accelerate our strategy and future
growth, and the success we have experienced in the first half of
the year positions us to return the overall business to
profitability in the medium term.
Business Units
Printhead
Customer-centric business model
We have OEMs and UDIs across multiple applications developing
machines using a range of our products. Customer engagement has
remained strong in 2021, with new accounts driving revenue growth
and providing visibility of future revenue growth. We have a
growing pipeline of new machine development as a result of the
demonstrable technology advantages of Xaar's printheads. During
2021 we have seen increased activity in the glass printing, Printed
Circuit Board ("PCB") manufacture and 3D printing applications.
FFEI was acquired in July 2021 as a first step to widen the product
portfolio on offer to further engage UDIs.
As part of the customer-centric focus, our end-to-end customer
journey management is providing an enhanced level of service and
support over the entire product lifecycle. This service enables the
reduction of customer development times, and therefore time to
market, and also provides the customer with improved aftersales
support.
With sales in Asia having grown by 30% in H1 2021 compared to H1
2020, and most significantly in China where the growth was 45%,
customers continue to re-engage and our sales pipeline is
increasing. The new Customer Service Centre in Shenzhen, China is
now open and focused on providing both our existing and potential
customers across the region with a higher level of service,
including enhanced technical support and training through a
demonstration centre, waveform development and RMA facilities.
The Printhead business has seen some COVID-19 related supply
constraints causing global component shortages in the market in H1
2021. Actions have been taken to mitigate their impact and maintain
continuity of supply for the remainder of 2021 and into 2022,
incurring increased costs. This will have a modest adverse impact
on gross margins continuing into 2022. Due to ongoing uncertainty
in relation to the COVID-19 Delta variant impact in Asia, we
continue to be cautious with regards to our H2 2021 trading
outlook.
Product roadmap and ImagineX platform
The ImagineX platform, which builds upon several technology and
development programmes from our legacy Bulk and Thin Film
investment, is driving the next phase of Xaar's success by enabling
the business to increase its addressable market whilst establishing
market leading products across all sectors.
The ImagineX platform is delivering new features and
performance, and will carry on doing so over future years,
providing significant enhancements to the current product
portfolio; these include substantially improved speed and
throughput, aqueous compatibility, increased throw distance to
improve image quality on curved surfaces, increased robustness to
improve the life of the printhead and maintain image quality,
capability to operate at higher viscosities enabling a broader
range of fluids to be printed, and higher resolutions. These
features will help strengthen our position in markets where we are
already well represented and will drive improved use in several
markets where adoption levels of Xaar technology are lower, such as
Wide Format Graphics ("WFG"), Labels, 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.
In April 2021 Xaar Nitrox was launched, delivering improved
print uniformity, capable of running at higher frequencies which
increase printhead speed and productivity by 40%. These
enhancements make it ideal for Ceramics, Labels, and Advanced
Manufacturing applications. The product has been well received by
the market and is being adopted by both current and new customers
alike.
Xaar Irix is the latest product from our ImagineX platform and
is officially launched today, strengthening our product offering in
the Coding & Marking sector . The Xaar Irix delivers improved
drop placement accuracy ensuring great image quality at longer
print distances, guaranteeing reliable printing every time. The
printhead is simple to use, easy to integrate, and designed as a
non-disposable technology with a long life for minimal
environmental impact.
We are engaged with OEM partners on several programmes related
to our ImagineX platform, with products at alpha and beta trial
stages. Development of an aqueous compatible printhead is
progressing well, and is currently in alpha build test phase on
track for product launch at the end of 2022. Aqueous compatibility,
which enables the use of water based conductive inks and fluids,
will open significant new markets for Xaar.
Xaar's Bulk Printhead Technology offers several benefits over
the competition, principally with TF Technology (TM) (ink
recirculation) and ability to print with the widest range of
fluids. Benefits of Ultra High Viscosity Technology capability, as
provided by most of Xaar's printheads, including the Xaar 2002
launched in 2020, are now more apparent to end users and so driving
an increased interest in the technological advantages available
from our printheads.
Over the longer term Xaar will increasingly vertically integrate
in order to provide a more complete solution for printers in
certain markets, whilst continuing its primary business model of
selling printheads to OEMs and UDIs. The additional capabilities
required to achieve this will be added through either partnership,
development of existing capabilities or acquisition. The
acquisition of FFEI allows Xaar to widen the product portfolio on
offer to further engage UDIs, and will provide additional
opportunities for vertical integration.
Operational leverage
The efforts made by the Printhead business to focus on and
reduce its cost base, to drive improved profitability and
scalability, are reflected in improved gross margins achieved for
H1 2021 of 35%, up from 23% in H1 2020 (and 32% in H2 2020) for
continuing operations. This has been realised through increased
revenues through 2020 and in H1 2021, and increased factory
throughput, allowing us to leverage the high operational gearing in
the factory and wider business. The operational gearing and the
absorption of operating costs into inventory have seen the
Printhead business unit adjusted EBITDA improve from a GBP0.1
million loss in H1 2020 to a GBP0.8 million profit in H1 2021,
despite cost increases on certain components in short supply.
We are pleased with the progress being made in 2021 following
the implementation of efficiency programmes across operations and
IT, two areas in which we have strengthened the senior leadership
team.
Beyond the factory we continue to review our cost base, and in
June 2021 we relocated the Xaar corporate offices from the
Cambridge Science Park to the nearby Cambridge Research Park, which
will generate savings of GBP0.7 million per annum from the start of
the second half of 2021. The new global headquarters houses Xaar's
finance, HR, legal and marketing functions, as well as a new
purpose-built R&D laboratory. Specifically configured to
enhance the working environment for the team, the new offices also
embrace Xaar's commitment to flexible working for employees. The
offices also provide a significantly reduced carbon footprint for
Xaar as we focus on sustainability objectives across the
business.
EPS
Our engineering teams at EPS, Xaar's Product Print Systems
business, have continued to work on delivering standardised modular
systems, however delays in the execution of the modular strategy
led to a change in leadership of the business during H1 2021. This
new leadership has identified key areas where significant
improvements were required to address operational deficiencies, cut
project overruns and shorten lead times. As a consequence, further
restructuring of the business and consolidation of the product
range has taken place.
Revenues achieved in H1 2021 for EPS were in line with
management expectations, being below that achieved in H1 2020. Few
interruptions to the EPS manufacturing operations have been
experienced as a result of the COVID-19 pandemic. EPS has
experienced increasing lead times for certain key system
components, which is a risk we continue to manage. As an OEM and
supplier to end users, the EPS sales from Pad Printing machines and
consumables were affected throughout the second half of 2020 and
into 2021, as end user markets continued to be impacted by the
pandemic. Underlying profitability of the business is strong, and
with a healthy pipeline we see good growth potential as COVID-19
eases in the US.
Whilst the underlying performance for the EPS business remains
on track and continues to be profitable, actions taken to refocus
the business on future growth opportunities mean H1 2021 results
have been impacted by certain non-cash write down adjustments.
These are largely related to inventory we now consider to be slow
moving or obsolete inventory, and amount to $1.4 million (GBP1.0
million). Further work will continue in 2021 to enable delivery of
improved operational processes across the business addressing
concerns raised around operational and reporting controls in the
2020 audit. We expect the beneficial impact of these actions to be
reflected in the financial performance of the business from H2
2021.
3D
The 3D business unit, with operations in Nottingham, UK, and
Copenhagen, Denmark, has continued to experience some delays in the
beta programme, testing and commercialisation of the 3D printers in
the first half of 2021 as a result of COVID-19 restrictions. The
more significant restrictions causing these delays were in Denmark,
which limited the number of individuals who were allowed in the
Copenhagen facility, restricting testing capacity and the ability
to travel and resolve issues face to face with the sub-contract
manufacturer.
Negotiations to divest Xaar's interest in Xaar 3D are at an
advanced stage, and although have taken longer than expected, we
believe we are close to conclusion. In line with this intended
divestment, Xaar 3D continues to be classified as a discontinued
operation held for sale. The terms of the final agreement will be
subject to Xaar shareholder approval. The sale of the remaining
stake in Xaar 3D would provide the business with the best
opportunity to complete the commercialisation of the HSS product
range in the shortest time. Additionally, any immediate divestment
of Xaar 3D would lead to an immediate injection of cash into Xaar,
allowing the ongoing business to fully focus on its strategy.
Operating sustainably
Xaar strongly believes that operating responsibly is integral to
business success. 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 reporting year,
Xaar has established an ESG Committee and a Sustainability Team
which is comprised of colleagues from across our business
operations, chaired by the Head of Sustainability; each bringing a
different skill set and perspective to support our sustainability
journey. Backed by full Board support, sponsored by Alison Littley,
Senior Independent Director, this group will initially focus its
efforts on defining and developing our overarching sustainability
ambitions and ESG strategy, with its first objective to establish
its Sustainability Roadmap to 2030. Once in place and agreed by all
stakeholders by the end of 2021, this Sustainability Roadmap will
be a principal driver for positive change and investment within the
business, and we aim to disclose the Sustainability Roadmap in our
2021 Annual Report.
The benefits evident in Xaar's printhead technologies, including
delivery of quality, reliability, uniformity, productivity and
performance, in turn contributes to a reduction in material and
energy wastage. Digital inkjet printing is a far more sustainable
option with a smaller carbon footprint overall for users, as it
reduces and prevents excessive waste and uses less energy, versus
traditional analogue printing techniques, due to the ability to
print short runs or print direct-to-shape, and with TF Technology
(TM) in Xaar printheads, print more viscous fluids reducing the
need for energy intensive drying processes.
It has been a year since Xaar introduced new packaging across
our printhead portfolio, whereby all Xaar's printheads are shipped
in fully recyclable and biodegradable cardboard packs. Plastic
consumption is expected to reduce by more than our targeted 1.2
tonnes per year reduction in 2021.
Xaar offset all of the UK regulatory Scope 1 and 2 carbon impact
that we made and reported in 2020, making Xaar a carbon neutral
inkjet manufacturer in 2020, which we expect to continue in future
years. We still need to understand the full carbon impact from our
operations and are committed to continue reducing this impact on
the environment and maintaining our drive to achieve complete
carbon neutrality in line with the UK's 2030 goal. Scope 3
emissions across the Xaar value chain are currently under review,
with the aim to fully disclose our entire impact in the 2021 Annual
Report. The Printhead business moved electricity supply to a green
energy supply in 2020, supplementing measures that are already
being taken to improve energy efficiency across the business. The
Xaar Energy Efficiency Team has continued efforts to drive further
initiatives to minimise energy usage across the Printhead
business.
In support of our local community, we started a program of work
to establish apprenticeship and graduate schemes which we are in
the process of rolling out over 2021 and 2022. This is aligned with
our sponsorship of local charities and organisations where, amongst
other things, we continue to drive interest in STEM subjects among
school students, are sponsoring Cambridgeshire Live Environmental
Hero Awards 2021, and are hosting the closing event for Cows around
Cambridge in support of Break. In 2021, Xaar launched its
Volunteering Policy aimed at promoting volunteering across the
organisation, and we are working with local agencies to identify
environmental projects that employees can get involved in.
Outlook
Whilst the COVID-19 pandemic continues to cause business
disruption, the Group is concentrated on securing continuity of
supply of components to eliminate any interruption to the supply of
printheads in 2022. The ongoing pandemic makes it difficult to
provide reliable guidance on the outlook for the remainder of 2021
and beyond, however the short-term outlook remains positive with a
healthy order book across the business. The success we have had in
the first half of 2021, and the strength of the Group's balance
sheet and cash position, means the business is well-positioned to
withstand further volatility caused by the pandemic. We remain
confident our full year 2021 results will be in line with
expectations.
The acquisition in July 2021 of FFEI, a leading integrator and
manufacturer of industrial digital inkjet systems and digital life
science technology, strengthens Xaar's capabilities and skills and
will accelerate Xaar's existing growth strategy. We continue to
focus on implementing our strategy by laying the foundations to
enable future growth, are committed to the delivery of the product
roadmap, and remain on-track to return to profitability in the
medium-term.
Business Performance
Due to the advanced stage negotiations to divest the remaining
shares in Xaar 3D, the business was classified as an asset held for
sale from 31 December 2020 and the business is no longer classified
as a continuing operation. Xaar's continuing operations, therefore,
consist of the Printhead and EPS businesses.
Continuing Operations
Trading for the six months ended 30 June 2021 has been in line
with management's expectations. Revenues for the period were
GBP26.3 million, representing an increase of 11% and 8% relative to
H1 2020 (GBP23.7 million) and H2 2020 (GBP24.3 million)
respectively.
Revenue by region - continuing operations
2021 H1 2020 H2 2020 H1
GBPm PH EPS Total PH EPS Total PH EPS Total
----- ---- ------ ---- ------ ----- ---- ------
Americas 3.9 6.1 10.0 3.7 5.8 9.5 3.9 6.9 10.8
Asia 5.8 - 5.8 5.1 - 5.1 4.5 - 4.5
EMEA 10.5 - 10.5 9.7 - 9.7 8.4 - 8.4
----- ---- ------ ----- ---- ------ ----- ---- ------
Total 20.2 6.1 26.3 18.5 5.8 24.3 16.8 6.9 23.7
----- ---- ------ ----- ---- ------ ----- ---- ------
Printhead revenues continue to recover half-on-half,
representing an increase of 20% and 9% relative to H1 2020 (GBP16.8
million) and H2 2020 (GBP18.5 million) respectively, representing a
steady return to growth. Revenue growth has been driven by stronger
performances in Asia and EMEA.
The growth in Printhead revenues half-on-half since H1 2020 can
be attributed to the Ceramics and Glass sector, with additional
growth improvement in the WFG and Labels sector since H1 2020. This
is partially offset by the fall in Packaging and Textiles revenues,
and a slight decline in Coding & Marking (C&M) and Direct
to Shape (DTS) sector revenues, with all other sectors remaining
relatively flat over the last three halves.
The strong performances in both Asia and EMEA mainly relates to
the Ceramics and Glass sector growing 56% H1 2020 to H1 2021, and
23% H2 2020 to H1 2021. This largely relates to the re-engagement
of customers who have started to develop or manufacture new
machines using the Xaar 2001+ and Xaar 2002 products, coupled with
the launch of the Xaar Nitrox printhead in April 2021. We have
significant increases in the number of new machines specifying our
printheads.
WFG and Labels revenue was up 21% at GBP3.5 million compared to
H1 2020 at GBP2.9 million, maintaining the improvement experienced
in H2 2020 driven by labels revenues in EMEA.
Packaging and Textiles revenues approximately halved in H1 2021
to GBP0.2 million, when compared to H1 and H2 2020. Our ability to
target this sector effectively is somewhat limited by our current
product range. Advancements in the product portfolio driven by the
ImagineX platform, such as aqueous compatibility, should make this
significant sector more accessible in the future.
Printhead revenue
--------------------------------------------------------------------------
GBPm(1) 2021 2020 2020 Var Var
H1 H2 H1 to 2020 to 2020
H2 (%)(1) H1 (%)(1)
Ceramics and Glass 9.5 7.7 6.1 23% 56%
C&M and DTS 5.9 5.5 6.0 6% (2%)
WFG and Labels 3.5 3.4 2.9 2% 21%
3D and Adv. Manufacturing 1.0 1.1 1.3 (10%) (22%)
Packaging and Textiles 0.2 0.5 0.4 (62%) (42%)
Royalties 0.1 0.2 0.2 (16%) (34%)
----- ----- ----- ----------- -----------
Total 20.2 18.5 16.8 9% 20%
----- ----- ----- ----------- -----------
1 - Figures and percentages are subject to rounding arising from
conversion to GBPm from actual figures
Revenues from the EPS business declined in line with
management's expectations by GBP0.8 million H1 2020 to H1 2021, but
improved by GBP0.3 million relative to H2 2020, principally as a
result of the timing of COVID-19 related lockdowns and general
economic activity in the sector.
Sales of digital inkjet lines improved in H1 2021 from H2 2020
by GBP0.4 million, having declined H2 2020 from H1 2020 by GBP0.8
million. Sales of machines accounted for the majority of the
improvement on H2 2020, with consumables sales remaining flat.
Sales of analogue pad printing lines declined GBP0.2 million H1
2020 to H1 2021, but stayed flat on H2 2020, with the slight
decline in sales of machines offset by an increase in sales of
consumables.
EPS revenue
GBPm(1) 2021 2020 2020 Var Var
H1 H2 H1 to 2020 to 2020
H2 (%)(1) H1 (%)(1)
Digital Inkjet 3.6 3.2 4.0 13% (10%)
Pad Printing 2.4 2.4 2.6 (2%) (10%)
Other 0.1 0.2 0.2 (29%) (40%)
----- ----- ----- ----------- -----------
Total 6.1 5.8 6.9 5% (11%)
----- ----- ----- ----------- -----------
1 - Figures and percentages are subject to rounding arising from
conversion to GBPm from actual figures
Gross profit for the period has continued to improve over the
last three half year reporting periods, having improved by GBP1.3
million to GBP7.6 million when compared to H1 2020 (H1 2020: GBP6.3
million), and by GBP0.9 million relative to the second half of 2020
(H2 2020: GBP6.7 million). Gross margin has also improved overall
to 29%, up from 27% for H1 and H2 2020, however, gross margins
across the Group have been impacted differently. Gross margins for
the Printhead business have improved since H1 2020, increasing from
23% to 35% for H1 2021. This reflects the increased volumes and
operational leverage in the business, in addition, the margin in H1
2020 was depressed by a GBP1.0 million provision for critical
spares. Gross margins for the EPS business decreased from 37% for
H1 2020 to 8% for H1 2021. Excluding the non-cash adjustments in H1
2021 mainly relating to slow moving and obsolete inventory, the
underlying gross margin had reduced to 28%, largely due to the
resetting of the modular strategy by new management . Excluding the
GBP1.2 million of adjustments recorded by EPS in H1 2021, the gross
profit for the Group would have improved to GBP8.8 million, with a
gross margin of 33%.
R&D spend increased GBP0.5 million (25%) on H1 2020 (H1
2021: GBP2.6 million; H1 2020: GBP2.1 million). This reflects the
investment in the ImagineX platform, which will be central to our
long-term growth and delivery of the product roadmap.
Sales and marketing spend is in line with H2 2020, which
reflects the continuation of travel restrictions into 2021 due to
COVID-19, which limited our ability to visit customers and led to
the cancellation of the majority of tradeshows.
General and administrative expenses on an adjusted basis,
increased by GBP1.1 million compared to H1 2020, from GBP3.0
million to GBP4.1 million in H1 2021. Of this increase, GBP0.6
million related to trading foreign exchange gains in H1 2020, as a
result of the exchange rate volatility response to COVID-19. The
remainder of the increase largely related to planned investment in
key areas of the business and infrastructure, including IT and
Finance. IFRS General and administrative expenses increased from
GBP2.3 million in the first half of 2020 to GBP4.5 million in the
first half of 2021. In addition to the GBP1.1 million increase on
an adjusted basis, the additional increase of GBP1.1 million is
largely driven by a GBP1.0 million swing in foreign exchange from a
gain to a loss in the period on intra-company balances.
Impairment gains on financial assets were GBP14,000 for H1 2021,
compared to GBP0.4 million for H1 2020 and GBP0.6 million for H2
2020.
Other operating income in 2020 of GBP0.8 million related to the
PPP loan taken out by the EPS business in the US which has met all
qualifying criteria to be forgiven.
Restructuring and investment expenses of GBP0.9 million in H1
2021 relate to costs associated with re-organisations made in the
business, and investment and divestment related transactional
costs.
The adjusted EBITDA from continuing operations for the period
was a GBP0.4 million loss (H1 2020: GBP0.7 million profit). The
Printhead business unit adjusted EBITDA improved from a GBP0.1
million loss in H1 2020 to a GBP0.8 million profit in H1 2021, with
the EPS business declining from a GBP0.8 million profit in H1 2020
to a GBP1.2 million loss in H1 2021, as a result of the non-cash
adjustments in H1 2021 relating to slow moving and obsolete
inventory. Excluding the adjustments recorded by EPS in H1 2021,
the adjusted EBITDA for the EPS business would have been a GBP0.1
million profit, and the adjusted EBITDA for the Group would have
improved to a GBP0.9 million profit.
The adjusted loss before tax for continuing operations in the
period was GBP2.3 million (H1 2020: GBP1.3 million). Excluding the
adjustments recorded by EPS in H1 2021, the loss before tax for
continuing operations would have been GBP1.0 million. The loss
before tax under IFRS for continuing operations was GBP2.1 million
(H1 2020: profit of GBP1.3 million) with a tax credit of GBP0.2
million (H1 2020: charge of GBP0.4 million) taking the loss for the
period to GBP1.8 million (H1 2020: profit of GBP1.0 million).
Discontinued Operations
A GBP3.4 million loss was recorded in relation to discontinued
operations for H1 2021 (H1 2020: GBP6.2 million) with cash outflows
for the period of GBP1.2 million (H1 2020: GBP6.4 million).
As a result of the intended sale of Xaar 3D, it was classified
as a discontinued operation held for sale as at 31 December 2020.
The 3D business recorded a loss of GBP3.5 million (of which GBP0.2
million is eliminated at Group level, relating to intra-group
charges) for H1 2021 (H1 2020: GBP2.9 million). The increased level
of losses in the business primarily relate to R&D expenses
recognised in the period, which increased by GBP0.5 million
compared to H1 2020.
The Thin Film business, which was classified as discontinued in
2019, recorded a loss of GBP0.2 million for H1 2021, which
primarily relates to inventory commitments.
Balance sheet
The Group retains a strong balance sheet and cash position. Net
cash at 30 June 2021, excluding cash from the 3D business (which is
classified as an asset held for sale) was GBP17.1 million. This
represents a decline of GBP1.0 million in net cash for continuing
operations since 31 December 2020, which has been primarily driven
by planned capital investment, including the relocation of Xaar's
Cambridge office which will generate GBP0.7 million of annual cost
savings going forward. The Group maintains a strong cash focus and
disciplined cost controls.
Non-current assets increased slightly from GBP24.7 million at 31
December 2020, to GBP25.0 million in the first half of the year.
Property, plant and equipment reduced overall by GBP0.7 million,
driven primarily by the depreciation of assets (GBP1.7 million) and
GBP1.0 million of capital additions. The right of use asset
increased overall by GBP0.8 million since 31 December 2020,
principally due to the inception of the new lease for the corporate
headquarters in Cambridge.
Current assets, excluding the disposal group assets held for
sale, increased overall by GBP1.8 million. Overall inventory value
has increased by GBP2.7 million, all of which relates to an
increase in inventory held by the Printhead business, whilst the
inventory value at EPS has remained flat. Trade and other
receivables reduced by GBP0.2 million driven by a strong focus on
cash collection in the Printhead business.
Current liabilities, excluding liabilities associated with Xaar
3D (held for sale), increased overall by GBP3.0 million due to an
decrease in derivative financial liabilities of GBP1.3 million and
an increase in trade and other payables of GBP4.0 million, relating
mainly to improvement of payment terms with suppliers, the timing
of the payment run processed over half year, offsetting a reduction
in the bonus accrual since year end reflecting the payment made in
H1 2021.
The 3D business is classified as held for sale, with GBP9.0
million of assets and GBP4.1 million of liabilities associated with
the disposal group as at 30 June 2021.
Non-current liabilities, mainly relating to lease liabilities
recorded under IFRS 16, increased by GBP0.7 million in the first
half of 2021, due to the relocation of the corporate headquarters
Cambridge offices.
Dividend
No interim dividend has been declared for 2021. The Board
recognises the importance of regular income to many investors, but
believes that it would be inappropriate to reinstate payment of
dividends before sustainable profits are restored.
John Mills Ian Tichias
Chief Executive Officer Chief Financial Officer
14 September 2021
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
14 September 2021
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 30
JUNE 2021
Six months Six months Twelve months
ended ended ended
30 June 31 December
2021 30 June 2020 2020
(unaudited,
(unaudited) restated) (audited)
Notes GBP'000 GBP'000 GBP'000
--------------------------------------------- ------ ------------ ------------- --------------
Revenue 3 26,302 23,672 47,984
Cost of sales (18,725) (17,335) (34,974)
--------------------------------------------- ------ ------------ ------------- --------------
Gross profit 7,577 6,337 13,010
Research and development expenses (2,619) (2,093) (4,535)
Research and development expenditure
credit 200 176 142
Sales and marketing expenses (3,106) (2,851) (5,970)
General and administrative expenses (4,507) (2,340) (8,022)
Impairment reversal of financial
assets 14 388 946
Restructuring and investment
expenses 2 (873) (170) (754)
Gain on derivative financial
liabilities 9 1,269 1,094 77
Other operating income 2 - 819 819
--------------------------------------------- ------ ------------ ------------- --------------
Operating (loss)/profit (2,045) 1,360 (4,287)
Investment income 2 24 47
Finance costs for leases (45) (51) (82)
--------------------------------------------- ------ ------------ ------------- --------------
(Loss)/profit before tax (2,088) 1,333 (4,322)
Income tax credit/(expense) 5 249 (366) (52)
--------------------------------------------- ------ ------------ ------------- --------------
(Loss)/profit for the period
from continuing operations (1,839) 967 (4,374)
Loss from discontinued operations
after tax 10 (3,419) (6,154) (10,295)
--------------------------------------------- ------ ------------ ------------- --------------
Loss for the period (5,258) (5,187) (14,669)
--------------------------------------------- ------ ------------ ------------- --------------
Attributable to:
Owners of the Company (3,699) (3,887) (11,685)
Non-controlling interest (1,559) (1,300) (2,984)
--------------------------------------------- ------ ------------ ------------- --------------
Loss for the period (5,258) (5,187) (14,669)
--------------------------------------------- ------ ------------ ------------- --------------
Earnings/(loss) per share -
Total
Basic 6 (4.8p) (5.0p) (15.2p)
Diluted 6 (4.8p) (5.0p) (15.2p)
--------------------------------------------- ------ ------------ ------------- --------------
Earnings/(loss) per share - Continuing operations
Basic 6 (2.3p) 1.3p (5.7p)
Diluted 6 (2.3p) 1.3p (5.7p)
--------------------------------------------- ------ ------------ ------------- --------------
No dividends were paid in the current or prior period.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 JUNE
2021
Six months Six months Twelve months
ended ended ended
30 June 31 December
2021 30 June 2020 2020
(unaudited,
(unaudited) restated) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- --------------
Loss for the period attributable
to shareholders (5,258) (5,187) (14,669)
---------------------------------------- ------------- ------------- --------------
Exchange differences on translation
of net investment (22) (22) 240
Tax benefit on share option and
restructuring gains - - (5)
---------------------------------------- ------------- ------------- --------------
Other comprehensive (loss)/income
for the period (22) (22) 235
---------------------------------------- ------------- ------------- --------------
Total comprehensive loss for
the period (5,280) (5,209) (14,434)
---------------------------------------- ------------- ------------- --------------
Total comprehensive loss attributable
to:
Owners of the Company (3,717) (3,913) (11,466)
Non-controlling interest (1,563) (1,296) (2,968)
---------------------------------------- ------------- ------------- --------------
(5,280) (5,209) (14,434)
--------------------------------------- ------------- ------------- --------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2021
As at As at
31 December
30 June 2021 2020
Notes (unaudited) (audited)
------------------------------------ ------ -------------- -------------
Non-current assets
Goodwill 5,078 5,152
Other intangible assets 109 207
Property, plant and equipment 16,441 17,147
Right of use asset 2,884 2,078
Deferred tax asset 457 139
------ -------------- -------------
24,969 24,723
------------------------------------ ------ -------------- -------------
Current assets
Inventories 13,057 10,355
Trade and other receivables 9,936 9,751
Current tax asset 574 425
Treasury deposits - 161
Cash and cash equivalents 17,079 17,956
Derivative financial instruments - 160
Assets held for sale - 43
------ -------------- -------------
40,646 38,851
------------------------------------ ------ -------------- -------------
Disposal group assets held for
sale 10 8,986 9,968
------------------------------------ ------ -------------- -------------
49,632 48,819
------------------------------------ ------ -------------- -------------
Total assets 74,601 73,542
------------------------------------ ------ -------------- -------------
Current liabilities
Trade and other payables (13,914) (9,940)
Provisions (433) (357)
Derivative financial instruments 9 (1,650) (2,919)
Lease liabilities (1,261) (1,064)
(17,258) (14,280)
------------------------------------ ------ -------------- -------------
Liabilities associated with the
disposal group 10 (4,082) (1,589)
------------------------------------ ------ -------------- -------------
(21,340) (15,869)
------------------------------------ ------ -------------- -------------
Net current assets 28,292 32,950
------------------------------------ ------ -------------- -------------
Non-current liabilities
Provisions (250) -
Lease liabilities (1,996) (1,515)
Total non-current liabilities (2,246) (1,515)
------------------------------------ ------ -------------- -------------
Total liabilities (23,586) (17,384)
------------------------------------ ------ -------------- -------------
Net assets 51,015 56,158
------------------------------------ ------ -------------- -------------
Equity
Share capital 7,834 7,833
Share premium 29,328 29,328
Own shares (1,929) (1,957)
Translation reserves 800 818
Other reserves 21,301 21,167
Retained earnings (8,527) (4,802)
------------------------------------ ------ -------------- -------------
Equity attributable to owners
of the company 48,807 52,387
------------------------------------ ------ -------------- -------------
Non-controlling interest 2,208 3,771
------------------------------------ ------ -------------- -------------
Total equity 51,015 56,158
------------------------------------ ------ -------------- -------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2021
Share Share Own Other Translation Retained Non-controlling Total
capital premium shares reserves reserve earnings Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- --------- ------------ --------- --------
Balances at 1
January 2021 7,833 29,328 (1,957) 21,167 818 (4,802) 52,387 3,771 56,158
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
Loss for the
period - - - - - (3,699) (3,699) (1,559) (5,258)
Exchange
differences on
retranslation
of net
investment - - - - (18) - (18) (4) (22)
Total
comprehensive
loss
for the period - - - - (18) (3,699) (3,717) (1,563) (5,280)
Issue of share
capital 1 - - - - - 1 - 1
Own shares sold
in the period - - 28 - - (26) 2 - 2
Credit to
equity for
equity-settled
share-based
payments - - - 134 - - 134 - 134
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
Balance at 30
June 2021 7,834 29,328 (1,929) 21,301 800 (8,527) 48,807 2,208 51,015
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
Share Share Own Other Translation Retained Non-controlling Total
capital premium shares reserves reserve earnings Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balances at 1
January 2020,
as reported 7,833 29,328 (2,676) 20,921 660 7,855 63,921 6,739 70,660
Correction of
error * - - - - (66) (257) (323) - (323)
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
Balances at 1
January 2020,
as restated 7,833 29,328 (2,676) 20,921 594 7,598 63,598 6,739 70,337
Loss for the
period, as
restated
(see note 11) - - - - - (3,887) (3,887) (1,300) (5,187)
Exchange
differences on
translation
of net
investment - - - - (26) - (26) 4 (22)
Total
comprehensive
loss
for the period - - - - (26) (3,887) (3,913) (1,296) (5,209)
Own shares sold
in the period - - 647 - - (645) 2 - 2
Credit to
equity for
equity-settled
share-based
payments - - - 103 - - 103 - 103
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
Balance at 30
June 2020 7,833 29,328 (2,029) 21,024 568 3,066 59,790 5,443 65,233
---------------- -------- -------- -------- --------- ------------ --------- -------- ---------------- --------
* The nature of the correction of error is described in Note 36
of the Group's Annual Report and Financial Statements 2020.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 30 JUNE
2021
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
---------------------------------------- ----- ------------ ------------ --------------
Net cash used in operating activities 8 (659) (743) (2,807)
---------------------------------------- ----- ------------ ------------ --------------
Investing activities
Investment income 11 45 64
Movement in treasury deposits 161 (503) 361
Purchase of derivative financial
instruments - - (130)
Purchases of property, plant
and equipment (1,221) (606) (1,098)
Proceeds on disposal of property,
plant and equipment - 136 167
Expenditure on software (10) - -
---------------------------------------- ----- ------------ ------------ --------------
Net cash used in investing activities (1,059) (928) (636)
---------------------------------------- ----- ------------ ------------ --------------
Financing activities
Proceeds from sale of own shares 6 - -
Payment of lease liabilities
and related interest (348) (720) (1,224)
---------------------------------------- ----- ------------ ------------ --------------
Net cash used in financing activities (342) (720) (1,224)
---------------------------------------- ----- ------------ ------------ --------------
Net decrease in cash and cash
equivalents (2,060) (2,391) (4,667)
Effect of foreign exchange rate
changes (155) 425 (57)
Cash and cash equivalents at
beginning of year 20,076 24,800 24,800
---------------------------------------- ----- ------------ ------------ --------------
Cash and cash equivalents at
end of period 17,861 22,834 20,076
---------------------------------------- ----- ------------ ------------ --------------
Cash and cash equivalents attributable
to assets held for sale 782 5,889 2,120
---------------------------------------- ----- ------------ ------------ --------------
Cash and cash equivalents 17,079 16,945 17,956
---------------------------------------- ----- ------------ ------------ --------------
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 MONTHSED 30 JUNE 2021
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 2020 on pages 115 to 125
(available at www.xaar.com) and were approved by the Board of
Directors on 14 September 2021. The interim financial statements
for the six months ended 30 June 2021 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 2020.
The interim financial statements have not been audited or
reviewed by the Company's auditor. 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 2020 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 consolidated Financial Statements
for the year ended 31 December 2020.
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 2020.
Government and EU Grants
Government and EU grants are not recognised until there is
reasonable assurance that the Group will comply with the conditions
attached to them and that the grant will be received. Government
and EU grants relating to research and development are treated as
income over the periods necessary to match them with the related
costs. The treatment is consistent with IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance.
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 40 to 49 of
the Xaar plc Annual Report and Financial Statements 2020, which is
available on the Group's website at www.xaar.com.
The Board has reviewed these risks and concluded that they will
continue to remain relevant for the second half of the financial
year. 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 2020, and on pages 9 to 11 of the Xaar plc
Interim Report 2021. No new risks have been identified.
Brexit and other trade barriers
The Group operates globally and the impact following the
transition phase of Brexit continues to be monitored. We have taken
action where necessary in moving to freight carriers to ensure
smooth customs clearance and to date have experienced little
impact. We will continue to evaluate all transport methods and
ensure we meet any increased burden of audit trail compliance. As
for many businesses, a greater challenge is potentially that of EU
workers and migration. As a result of Brexit, the Group is exposed
to potential currency fluctuations.
Brexit and trade barriers continue to be an integral part of the
Group's ongoing risk management and review process, for which
solutions to address the risks identified are explored and
implemented. We continue to believe that the direct consequences of
Brexit will have no material impact on the Group.
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.
To date the impact of COVID-19 on the Group's trading has been
minimal, however we are now seeing some COVID-19 related supply
constraints, for which actions are being taken to mitigate their
impact and therefore the Board continue to be optimistic on the
future trading environment. The Group continues to enjoy a healthy
cash position and is well positioned to cope with the current
situation. 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 equivalents and the
Group was debt free as at 30 June 2021. The Board has a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, based on the
Group's forecasts and projections for the period to 31 December
2022, taking account of reasonably possible changes in trading
performance. For this reason, the Group continues to adopt the
going concern basis in preparing the interim financial
statements.
2. Reconciliation of adjusted financial measures
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
(unaudited,
(unaudited) restated) (audited)
------------------------------------------ ------------ ------------ --------------
(Loss)/profit before tax from continuing
operations (2,088) 1,333 (4,322)
------------------------------------------ ------------ ------------ --------------
Share-based payment charges 155 87 348
Exchange differences relating to
intra-group transactions 267 (782) 347
Gain on derivative financial liabilities (1,269) (1,094) (77)
Restructuring and investment expenses 873 170 754
Other operating income - (819) (819)
Research and development expenditure
credit (200) (176) (142)
------------------------------------------ ------------ ------------ --------------
Adjusted loss before tax from continuing
operations (2,262) (1,281) (3,911)
------------------------------------------ ------------ ------------ --------------
Interest income (2) (24) (47)
Interest charge arising from IFRS
16 45 51 82
Depreciation and impairment of property,
plant and equipment 1,792 1,866 3,856
Amortisation of intangible assets 66 48 82
------------------------------------------ ------------ ------------ --------------
Adjusted EBITDA from continuing
operations (361) 660 62
------------------------------------------ ------------ ------------ --------------
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.
Share-based payment charges include the IFRS 2 charge for the
period of GBP134,000 (H1 2020: GBP103,000) and the expense relating
to National Insurance on the outstanding potential share option
gains of GBP21,000 (H1 2020: credit of GBP16,000). These costs are
included in the general and administrative expenses in the
consolidated income statement.
Exchange differences relating to the United States, Danish and
Swedish operations represent exchange gains or losses recorded in
the consolidated income statement as a result of operating in the
United States, Denmark and Sweden. These costs are included in
general and administrative expenses in the consolidated income
statement.
Gain on derivative financial instruments relate to gains and
losses made on written call option contracts. These amounts are
included in the consolidated income statement under gain on
derivative financial liabilities.
Restructuring and investment expenses in the first half of 2021
of GBP873,000 mainly relate to costs incurred and provisions made
in relation to investment related expenditure and re-organisation
costs (H1 2020: re-organisation costs of GBP170,000). Cash
expenditure arising from restructuring costs related to
restructuring and investment expenses in the first half of 2021 was
GBP396,000 (H1 2020: GBP323,000).
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. No cash was received in relation to
RDEC in the first half of 2021 (H1 2020: GBP929,000).
Other operating income of GBPnil (2020: GBP819,000) relates to a
forgivable $1.0 million loan between Engineered Print Solutions
(EPS) and TD bank and is backed by the US Federal Government (Small
Business Administration); further details are provided under note
4. The loan was taken out as part of the government backed scheme.
The Company considers that it has met the requirements of the
waiver, and therefore expects it to be waived, the loan has
therefore been treated as a government grant under IAS 20. A cash
receipt of the same amount was received.
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
pence per pence per pence per
share share share
(unaudited,
(unaudited) restated) (audited)
---------------------------------------- ------------ ------------ --------------
Basic and diluted (loss)/earnings
per share from continuing operations (2.3p) 1.3p (5.7p)
---------------------------------------- ------------ ------------ --------------
Share-based payment charges 0.2p 0.1p 0.5p
Exchange differences relating to
intra-group transactions 0.3p (1.0p) 0.5p
Gain on derivative financial liability (1.6p) (1.4p) (0.1p)
Restructuring and investment expenses 1.1p 0.2p 1.0p
Other operating income - (1.1p) (1.1p)
Tax effect of adjusting items (0.1p) 0.2p (0.3p)
---------------------------------------- ------------ ------------ --------------
Adjusted basic and diluted loss
per share from continuing operations (2.3p) (1.7p) (5.2p)
---------------------------------------- ------------ ------------ --------------
This reconciliation is provided to align with how the Board
measures and monitors the business at an underlying leve l .
3. Business segments
For management reporting purposes, the Group's operations are
analysed according to the three operating segments of 'Printhead',
'Product Print Systems' and '3D'. These three 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.
The Group's chief operating decision maker is the Chief Executive
Officer.
The Xaar 3D business, which we expect to divest in the second
half of 2021, has been reclassified as held for sale and
discontinued operations, hence the 3D segment is presented
separately in note 10 and the 2020 comparatives has been restated
accordingly.
Segment information for continuing operations is presented
below:
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited,
(unaudited) restated) (audited)
Continuing operations GBP'000 GBP'000 GBP'000
----------------------- ------------- ------------ --------------
Revenue
Printhead 20,183 16,794 35,283
Product Print Systems 6,119 6,878 12,701
Total revenue 26,302 23,672 47,984
----------------------- ------------- ------------ --------------
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited,
(unaudited) restated) (audited)
Result - Continuing operations GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------ --------------
Printheads (364) 82 (4,437)
Product Print Systems (1,526) 1,365 498
Total segment result (1,890) 1,447 (3,939)
Net unallocated corporate expenses (155) (87) (348)
------------------------------------ ------------- ------------ --------------
Operating (loss)/profit (2,045) 1,360 (4,287)
Investment income 2 24 47
Finance costs (45) (51) (82)
------------------------------------ ------------- ------------ --------------
(Loss)/profit before tax (2,088) 1,333 (4,322)
Tax 249 (366) (52)
------------------------------------ ------------- ------------ --------------
(Loss)/profit for the period (1,839) 967 (4,374)
------------------------------------ ------------- ------------ --------------
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. Government grants
The accounting policy in relation to the adopted and applicable
treatment of government grants is disclosed in note 1 to the
Interim report.
Xaar plc and its UK based subsidiaries have not taken part in
any of the Government support schemes arising from the COVID-19
crisis.
-- No employees have been placed on furlough and no claims made
via Coronavirus Job Retention Scheme (CJRS).
-- No submissions have been made for financial support via
either the Coronavirus Business Interruption Loan Scheme (CBILS) or
Bounce Back Loan Scheme (BBLS).
-- The UK entities operate primarily under a VAT repayment
position due to the significant level of export sales, so have not
utilised the government scheme in deferring VAT payments.
-- Xaar 3D ApS based in Denmark have also not taken part in any
government support measures in response to COVID-19.
-- No submission has been made for salary compensation, which
could arise due to employees being retained that could otherwise
have been released. No employees have left the business.
-- Xaar 3D ApS operates in a repayment position for Danish VAT,
and like the UK has not utilised the extension available for
payments.
A Xaar group company based in the USA, Engineered Print
Solutions (EPS), has taken part in the US Government Loan scheme
which has provided a $1.0 million Loan (GBP819,000) in 2020, which
under certain provisions linked to maintaining employment and
avoiding redundancy can be waived. The company considers that it
has met the requirements of the waiver, and therefore expects it to
be waived, the Loan has therefore been treated as a government
grant. The Group has presented this amount as exceptional income in
the consolidated income statement. Government support grants are
recognised in the consolidated income statement on a systematic
basis over the periods in which the related revenue or expense for
which the grants are intended to compensate. Further details are
provided under note 2.
5. Income tax
The major components of income tax (credit)/expense in the
income statement are as follows:
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
(unaudited,
(unaudited) restated) (audited)
-------------------------------------- ------------ ------------ --------------
Current income tax
Income tax charge 139 265 325
Deferred income tax
Relating to origination and reversal
of temporary differences (299) 173 (83)
-------------------------------------- ------------ ------------ --------------
Income tax (credit)/charge (160) 438 242
-------------------------------------- ------------ ------------ --------------
Income tax (credit)/charge reported
in the statement of profit and loss (249) 366 52
Income tax charge attributable to
discontinued operations 89 72 190
-------------------------------------- ------------ ------------ --------------
Income tax (credit)/charge (160) 438 242
-------------------------------------- ------------ ------------ --------------
Whilst the Board believes in the long term potential and
profitability of the Printhead business unit, the forecast losses
for the current year mean that the tax losses will not be utilised
in the short term. Therefore, no deferred tax asset has been
recognised relating to losses for 2021.
In the reporting periods shown, the Group is claiming R&D
expenditure credit (RDEC), where the R&D credit receivable is
included in operating loss.
6. Earnings per ordinary share - basic and diluted
The calculation of basic and diluted earnings per share is based
upon the following data:
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited,
(unaudited) restated) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ------------ --------------
Earnings
Earnings for the purposes of earnings
per share being net loss attributable
to equity holders of the parent (3,699) (3,887) (11,685)
-------------------------------------------- ------------ ------------ --------------
from continuing operations (1,750) 968 (4,374)
-------------------------------------------- ------------ ------------ --------------
from discontinued operations (1,949) (4,855) (7,311)
-------------------------------------------- ------------ ------------ --------------
Number of shares
Weighted average number of ordinary
shares for the purposes of basic earnings
per share 77,514,560 77,259,359 77,103,593
Effect of dilutive potential ordinary
shares:
Share options - - -
-------------------------------------------- ------------ ------------ --------------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 77,514,560 77,259,359 77,103,593
-------------------------------------------- ------------ ------------ --------------
Earnings per Earnings per
Earnings per Share Share
Share pence per pence per
pence per share share share
31 December
30 June 2021 30 June 2020 2020
--------------------------- ----------------- ------------- -------------
Loss per share - Total
Basic (4.8p) (5.0p) (15.2p)
Diluted (4.8p) (5.0p) (15.2p)
--------------------------- ----------------- ------------- -------------
(Loss)/earnings per share
- Continuing operations
Basic (2.3p) 1.3p (5.7p)
Diluted (2.3p) 1.3p (5.7p)
--------------------------- ----------------- ------------- -------------
7. Share capital
During the six months ended 30 June 2021 a total of 9,138 new
ordinary shares of 10 pence each were issued under the Company's
LTIP schemes with a GBPnil exercise price.
8. Notes to cash flow statement
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited,
(unaudited) restated) (audited)
GBP'000 GBP'000 GBP'000
------------------------------------------ ------------ ------------ --------------
(Loss)/profit before tax from Continuing
operations (2,088) 1,333 (4,322)
Loss before tax from Discontinued
operations (3,330) (6,082) (10,105)
Total loss before tax (5,418) (4,749) (14,427)
Adjustments for:
Share-based payments 135 87 353
Depreciation of property, plant
and equipment 1,864 2,148 4,223
Depreciation of right of use assets 425 598 1,236
Amortisation of intangible assets 328 334 685
Impairment of assets - 117 391
Research and development expenditure
credit (305) (385) (454)
Investment income (2) (45) (72)
Interest expense - finance cost
for leases 50 57 94
Foreign exchange losses/(gains) 289 (1,098) 523
Gain on re-measurement of derivative
liability (1,269) (1,094) (77)
Loss on disposal of property, plant
and equipment 95 6 99
Other gains and losses - - 202
Decrease/(increase) in provisions 92 (1,278) (2,572)
------------------------------------------ ------------ ------------ --------------
Operating cash flows before movements
in working capital (3,716) (5,302) (9,796)
(Increase)/decrease in inventories (2,637) 2,558 4,849
(Increase)/decrease in receivables (882) 1,878 (1,337)
Increase/(decrease) in payables 6,741 (666) 2,011
------------------------------------------ ------------ ------------ --------------
Cash used in operations (494) (1,532) (4,273)
Income taxes (paid)/received (165) 789 1,466
Net cash from operating activities (659) (743) (2,807)
------------------------------------------ ------------ ------------ --------------
9. Derivative 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).
Relationship and
sensitivity of
Financial asset/ Valuation technique(s) Significant unobservable unobservable inputs
financial liabilities and key input(s) input(s) to fair value
----------------------- ------------------------- ------------------------- --------------------------
Derivative financial Black-Scholes model Underlying price 10% increase /
instrument (Level of the share (decrease) in price
3) would result in
a GBP571,000 increase
in the fair value
and a GBP483,000
Volatility of decrease.
the share
10% increase /
(decrease) in volatility
would result in
GBP358,000 increase
in the fair value
and GBP343,000
decrease.
--------------------------
The following variables
were taken into
consideration:
current underlying
price of the underlying
share, options
strike price, time
until expiration
(expressed as a
percent of a year),
implied volatility
of the underlying
share and LIBOR.
-------------------------
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:
The only financial liabilities measured subsequently at fair
value on Level 3 fair value measurement represent written call
options relating to a business combination. In July 2018 Xaar
signed an investment agreement with Stratasys Solutions Limited
('Stratasys') which granted Stratasys a 15% share of Xaar 3D
Limited ('Xaar 3D') and two written call options to acquire a
further 10% and 5%. These options gave Stratasys the right, but not
the obligation, to acquire GBP denominated shares in Xaar 3D for a
fixed price which was denominated, and to be settled, in USD. On 1
January 2019 the fair value of these options was GBP936,000. On 4
December 2019 Stratasys exercised the first of the two options
granting them a further 10% share in Xaar 3D. At the same time Xaar
3D and Stratasys agreed to extinguish the second option, thereby
settling both options in the year. On 4 December 2019 Xaar 3D
Holdings Limited ('Xaar 3D Holdings') sold to Stratasys a 20% share
in Xaar 3D. Consequently, Stratasys now owns 45% of Xaar 3D with
the remaining 55% owned by Xaar 3D Holdings. As part of the
agreement between Xaar 3D Holdings and Stratasys, Xaar 3D Holdings
granted Stratasys a written call option to acquire its remaining
55% shareholding in Xaar 3D for a consideration of $33m. As with
the original option agreement between the Xaar 3D and Stratasys the
new options are USD denominated giving rise to a new derivative
financial liability.
This liability was valued at a fair value of GBP2,919,000 at 31
December 2020.
A revaluation of the option was undertaken by third party
professional advisors as at 30 June 2021; the gain calculated from
the re-valuation primarily arises from a reduction in the time to
maturity, and changes in share valuations, foreign exchange rates
and volatility and the reduction in the USD Treasury rate in the
period.
Six months ended
30 June 2021
(unaudited)
GBP'000
--------------------------- -----------------
Balance at 1 January 2021 2,919
Total gains or
losses:
- in profit or
loss (1,269)
----------------------------- -----------------
Balance at 30
June 2021 1,650
----------------------------- -----------------
10. Discontinued operations
The Thin Film business, which was discontinued in 2019, incurred
costs in 2020 and 2021 which mainly related to supplier liabilities
and inventory for last time buy sales. All liabilities were settled
in 2020 and all these inventories have now been sold by 30 June
2021.
As detailed in the strategic and financial update the Xaar 3D
business, which we plan to divest in the second half of 2021, has
been reclassified as held for sale and a discontinued operation
given the disposal has been assessed as highly probable.
The results of Thin Film and 3D related activities for the
period are shown below:
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited) (unaudited) (audited)
Thin Film GBP'000 GBP'000 GBP'000
----------------------------------------- ------------- ------------ --------------
Revenue 334 28 258
Expenses (485) (3,286) (3,922)
----------------------------------------------- ------------- ------------ --------------
Loss before income
tax (151) (3,258) (3,664)
Income tax charge - (9) -
------------------------------------------- ------------- ------------ --------------
Loss after income tax from discontinued
operations (151) (3,267) (3,664)
----------------------------------------------- ------------- ------------ --------------
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited) (unaudited) (audited)
3D GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------ --------------
Revenue 1,472 56 734
Expenses (4,848) (2,880) (7,175)
---------------------------------- ------------- ------------ --------------
Loss before income
tax (3,376) (2,824) (6,441)
Income tax
charge (89) (63) (190)
----------------------------- ------------- ------------ --------------
Loss after income tax from
discontinued operations (3,465) (2,887) (6,631)
-------------------------------- ------------- ------------ --------------
Out of the GBP4,848,000 expenses, GBP197,000 relates to a
service charge from the Group undertaking which has to be
eliminated in the Group's consolidated income statement.
The net cash flows incurred by Thin Film and 3D are as
follows:
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited) (unaudited) (audited)
Thin Film GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------ --------------
Net cash inflow/(outflow) from operating
activities 120 (3,091) (5,058)
Net cash outflow from
investing activities - (25) (25)
------------- ------------ --------------
Net cash inflow/(outflow) from discontinued
operations 120 (3,116) (5,083)
--------------------------------------------------- ------------- ------------ --------------
Six months Six months Twelve months
ended ended ended
30 June 31 December
30 June 2021 2020 2020
(unaudited) (unaudited) (audited)
3D GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------ --------------
Net cash outflow from
operating activities (1,210) (2,842) (6,213)
Net cash outflow from
investing activities (41) (344) (645)
Net cash outflow from financing
activities (74) (92) (160)
---------------------------------------- ------------- ------------ --------------
Net cash outflow from discontinued
operations (1,325) (3,278) (7,018)
----------------------------------------- ------------- ------------ --------------
The major classes of assets and liabilities of 3D classified as
held for sale as at 30 June 2021 are as follows:
As at 31
As at 30 December
June 2021 2020
GBP'000 GBP'000
------------------------------------- ----------- ----------
Assets
Property, plant and equipment 988 1,041
Intangible assets 4,387 4,649
Deferred tax asset 39 68
Right of use asset 369 440
Inventory 805 919
Debtors 1,425 737
Corporate income tax 191 -
Cash and cash equivalents 782 2,120
-------------------------------------------- ----------- ----------
Assets held for sale 8,986 9,974
-------------------------------------------- ----------- ----------
Liabilities
Creditors (3,668) (1,115)
Corporate income tax - (6)
Provisions (Warranty) (27) (11)
IFRS 16 lease liability (387) (463)
Liabilities associated with
the assets held for sale (4,082) (1,595)
-------------------------------------------- ----------- ----------
Net assets associated with disposal
group 4,904 8,379
-------------------------------------------- ----------- ----------
Six months Six months Twelve months
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited,
(unaudited) restated) (audited)
------------------------------------- ------------ ------------ --------------
Earnings per
share
Basic, loss for the period from
discontinued operations (2.5p) (6.3p) (9.5p)
Diluted, loss for the period from
discontinued operations (2.5p) (6.3p) (9.5p)
----------------------------------------- ------------ ------------ --------------
Potential ordinary shares are treated as dilutive if their
conversion to ordinary shares would decrease earnings per share or
increase loss per share. Therefore, the diluted earnings per share
is not impacted by the effect of dilutive potential ordinary
shares.
11. Restatement of prior period
The financial statements include a prior period restatement in
relation to the 3D business unit as a discontinued operation. As
required under IFRS, the financial statements have been restated to
present the results from discontinued operations associated with
the planned and ongoing sale of the 3D business unit as a single
line in the comparative period, which is consistent with the
current year presentation (further information and other required
disclosures can be found in note 10).
Furthermore there was a reversal of an adjustment on
intercompany sales which had been made in April 2020 in error. The
adjustment impacts general and administrative expenses (GBP365,000)
and inventory (GBP365,000). The following tables summarise the
impact of the prior period restatement on the financial statements
of the Group for the period ended 30 June 2020:
Six months ended 30 June 2020
---------------------------------------------------------------
As reported 3D Inventory Restated
Consolidated income statement GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ --------------- ------------------ ------------
Revenue 23,728 (56) - 23,672
Cost of sales (17,359) 24 - (17,335)
----------------------------------------- ------------ --------------- ------------------ ------------
Gross profit 6,369 (32) - 6,337
Research and development expenses (4,230) 2,137 - (2,093)
Research and development expenditure
credit 336 (160) - 176
Sales and marketing expenses (2,975) 124 - (2,851)
General and administrative expenses (2,745) 770 (365) (2,340)
Impairment reversal on financial
assets 388 - - 388
Restructuring and investment
expenses (170) - - (170)
Gain on derivative financial
liabilities 1,094 - - 1,094
Other operating income 819 - - 819
----------------------------------------- ------------ --------------- ------------------ ------------
Operating (loss)/profit (1,114) 2,839 (365) 1,360
Investment income 45 (21) - 24
Finance costs (57) 6 - (51)
----------------------------------------- ------------ --------------- ------------------ ------------
(Loss)/profit before tax (1,126) 2,824 (365) 1,333
Income tax (expense)/credit (429) 63 - (366)
----------------------------------------- ------------ --------------- ------------------ ------------
(Loss)/profit for the period
from continuing operations (1,555) 2,887 (365) 967
Loss for the period from discontinued
operations (3,267) (2,887) - (6,154)
Loss for the period (4,822) - (365) (5,187)
----------------------------------------- ------------ --------------- ------------------ ------------
Attributable to:
Owners of the Company (3,522) - (365) (3,887)
Non-controlling interest (1,300) - - (1,300)
(4,822) - (365) (5,187)
----------------------------------------- ------------ --------------- ------------------ ------------
Earnings/(loss) per share - Total
Basic (4.6p) - (0.4p) (5.0p)
Diluted (4.6p) - (0.4p) (5.0p)
----------------------------------------- ------------ --------------- ------------------ ------------
Earnings/(loss) per share - Continuing
operations
Basic (0.3p) - 1.6p 1.3p
Diluted (0.3p) - 1.6p 1.3p
----------------------------------------- ------------ --------------- ------------------ ------------
Six months ended 30 June 2020
---------------------------------------------------------------
As reported 3D Inventory Restated
Consolidated statement of comprehensive
income GBP'000 GBP'000 GBP'000 GBP'000
------------ --------------- ------------------ ------------
Loss for the period (4,822) - (365) (5,187)
----------------------------------------- ------------ --------------- ------------------ ------------
Exchange differences on retranslation
of investment (22) - - (22)
----------------------------------------- ------------ --------------- ------------------ ------------
Other comprehensive loss for
the period (22) - - (22)
----------------------------------------- ------------ --------------- ------------------ ------------
Total comprehensive loss for
the period (4,844) - (365) (5,209)
----------------------------------------- ------------ --------------- ------------------ ------------
Total comprehensive loss attributable
to:
Owners of the Company (3,548) - (365) (3,913)
Non-controlling interest (1,296) - - (1,296)
----------------------------------------- ------------ --------------- ------------------ ------------
(4,844) - (365) (5,209)
----------------------------------------- ------------ --------------- ------------------ ------------
Six months ended 30 June 2020
---------------------------------------------------------------
As reported 3D Inventory Restated
Consolidated cash flow statement GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ --------------- ------------------ ------------
Loss before tax from continuing
operations (1,126) 2,824 (365) 1,333
Loss before tax from discontinued
operations (3,258) (2,824) - (6,082)
Decrease in inventories 2,193 - 365 2,558
----------------------------------------- ------------ --------------- ------------------ ------------
12. Related party transactions
During the period to 30 June 2021 transactions with related
parties who are not members of the Group were entered into. There
were both product sales between Xaar and Stratasys, and related
party transactions associated with the "go-to-market" functions
where SSYS employees have been seconded to Xaar 3D Limited and the
costs recharged:
- Sales between Xaar and Stratasys of GBP1,448,634 (outstanding
at 30 June 2021 GBP435,851)
- Purchases between Stratasys and Xaar of GBP3,737 (outstanding
at 30 June 2021 GBPnil)
- Employees seconded to Xaar from Stratasys for GBP166,305
(accrued at 30 June 2021 GBP385,506)
- Deposits paid to Xaar from Stratasys of GBP1,490,246
There have been no material changes to the related party
arrangements as reported in note 34 to the Annual Report and
Financial Statements for the year ended 31 December 2020.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
13. Non-adjusting post balance sheet event
On 11 July 2021, Xaar completed the acquisition of print systems
and printbar specialist FFEI Limited. The deal will accelerate the
Company's existing growth strategy and will enable Xaar to capture
additional opportunities in vertically integrated solutions. The
initial cash consideration of GBP3,687,000 was paid on completion,
which reflects existing FFEI free cash reserves, with an additional
GBP5,441,000 deferred consideration to be paid out over three
years. The Board expects the acquired expertise and resource to be
utilised for projects that will drive long term profitable growth
in Xaar's core printhead business.
14. Date of approval of interim financial statements
The interim financial statements cover the period 1 January 2021
to 30 June 2021 and were approved by the Board on 14 September
2021.
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.xaar.com .
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END
IR GPURABUPGPUW
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September 14, 2021 02:00 ET (06:00 GMT)
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