This morning (2 October) Xaar issued a statement saying that a further decline in the Chinese ceramic tile market would hit its results. This is the third warning the PLC has made on its sales outlook since June.
Xaar said turnover in 2014 would now be 5-10% lower than the previously forecast expected lower end of £115m. And it is predicting that sales will fall below £100m next year.
Xaar’s share price tanked on the news, falling by more than 32%, or 120p, to 247p. Xaar shares are down more than 76% since the start of the year. The 52-week high is £11.62.
Chief executive Ian Dinwoodie admitted the latest announcement was “very damaging”.
He told PrintWeek that the PLC had a duty to share indications with the market as soon as it became aware of them, based on the best intelligence available: “In China things can move quite dramatically, quite quickly. This is a short-term correction. It doesn’t change our technology developments or product roadmap.
“Our revenues have more than doubled over the last four years or so. I prefer to see it as a correction for 2014/15 and then growth from 2016 onwards,” he stated.
Dinwoodie said Xaar still expects profits to be “at a reasonable level” in 2015.
Immediate action to cut costs will involve a potential 20% reduction in employees, subject to consultation. Xaar currently employs around 800 staff worldwide.
He said the restructuring actions would cost a maximum of £1m.
Its Huntingdon manufacturing site, which employs around 400, will bear the brunt of the proposed cuts, with between 100-120 jobs likely to go.
Last year the number of staff at the site grew by 57%, and Xaar took on a third building at the Cambridge Science Park.
The firm will also cut R&D spend, which last year more than doubled to £16.4m, but will protect R&D related to its new thin film project.
“We will still be investing more than 15% of revenues on R&D,” Dinwoodie stated.
Xaar’s business has become hugely reliant on the ceramic tile market, with two-thirds of revenues coming from this part of its business. China dominates this market, with almost half of worldwide the worldwide output made and consumed in China.
In March Xaar posted record revenues and profits for 2013 following a dramatic spike in sales to China, as the ceramics industry there swiftly converted from analogue to digital. At the time Xaar had predicted ‘more modest’ growth of 7%-8% in future.
But excess ceramic tile manufacturing capacity in China has resulted in some tile facilities being shuttered.
Xaar finance director Alex Bevis said future revenue potential as the industry continued to convert from analogue to digital was still there, and the Chinese government could even intervene over the situation after Chinese New Year.
“Ceramics is the first market we’ve seen that will get close to going 100% digital – it will probably get to about 80%. There is still a potential 60% of the market to convert and once installed we’re looking at a re-investment cycle every four-to-five years,” he said.
Xaar has new products aimed at the labels and wide-format markets but these are yet to penetrate the market, Dinwoodie explained.
“We are only just launching our graphic arts products in Q4. This begins as a component sell to hardware manufacturers and grows slowly over time,” he said. “Our strategy is to get a much more broad spread of applications.”
It also has a new printhead aimed at advanced manufacturing applications.
Dinwoodie had previously announced his intention to step down next year after 12 years at the helm of the business. He said he didn’t think the current difficulties would hamper the search for a replacement.
“I don’t think it will be a problem,” he said. “That process is well underway and we should be updating the market in the near future.”
