Xaar clears decks with massive write-off
Friday, April 24, 2020
Xaar has vowed to rebuild its brand and regain the trust of its OEMS and has cleared the decks after its disastrous foray into thin film printheads – posting a massive £71.9m pre-tax loss including a £60m hit related to its exit from thin film.
Under fresh CEO John Mills, who took over five months ago, the manufacturer’s new strategy will see it focus on its bulk printhead business and move to selling only through its OEM partners rather than via dual distribution.
The Cambridge-headquartered business now has a new CEO, CFO and chairman.
It is focusing its printhead efforts on six key areas: ceramic and glass, including décor; wide-format graphics and labels; packaging and textiles; coding, marking and direct-to-shape (DTS); 3D and advanced manufacturing; and licensee royalties.
Ceramics and glass (revenues of £12.2m), and Coding & Marking and DTS (revenues of £11.9m) are the two biggest business areas currently. Sales were down across all six segments with the exception of Coding & Marking and DTS, where sales were up 14%.
In the year to 31 December 2019, group sales on continuing operations fell by £11.1m to £49.4m, although the prior year sales had been boosted by a one-off licensing fee of £9.9m.
Gross profit more than halved, falling from £29.5m to £12m. R&D investment was cut by nearly £3m to £3.5m.
At an operating level the business lost nearly £1m a month, posting an operating loss of £11.9m compared with break-even the prior year.
Restructuring costs of £896,000 related mainly to redundancies.
Mills said the decision to stop the Thin Film programme was “difficult” but necessary.
He said that after carrying out a detailed evaluation of Xaar’s technology he believed the firm was in a position to capitalise on some of the USPs of its existing bulk printhead know-how.
“I have been surprised and excited to discover a range of technology projects that are at varying stages of the R&D life cycle. These are all projects that have either been put on hold because resources were redirected to Thin Film or are specific research projects undertaken by R&D team members who were not focussed purely on Thin Film.
"These technology projects provide a real opportunity to build on the current product portfolio by addressing some of the gaps whilst further enhancing the competitive advantages we have in other areas,” he said.
Mills said the business was “entering a new phase, with a new sense of focus and renewed energy”.
“In the Printhead business we have a strategy which will enable us to re-engage with our OEMs, increase market share in sectors we have a competitive advantage and an exciting product roadmap which will deliver significant growth opportunities in the long run,” he stated.
“2020 will be a year of transition setting the foundations for future growth and return to profitability. For the Printhead business this means stabilising, rebuilding relationships with key OEMs and executing on the early stages of the product roadmap. For EPS it will be to continue to grow revenue and move to a more scalable business model. Finally, in 3D the testing and validation of the design of the 3D Printer will continue and the planned commercialisation by end of 2020.”
Regarding the new printhead sales strategy focused on OEMs, he said: “A change in go-to-market strategy is critical to the future success of Xaar products. Our customers must be at the heart of our strategy.
“Whilst it is clear that Xaar has lost market share partly due to a failure to keep its Bulk product portfolio up to date, we have already seen a willingness from our customers to re-engage now we no longer use distributor channels. We will focus on helping OEMs to use Xaar printheads in their next generation products by emphasising our product's strong competitive features now they can be more certain about the impact on their own commercial models.”
Xaar has retained a “small team” of Thin Film engineers in the hope of realising some value from the technology it developed. The firm said it would retain the employees until it sold the know-how “through an asset sale or another option”.
It has also retained a small number of people to support the 'last time buy' requirements of existing customers of the Xaar 5601printhead.
At the group’s 3D printing joint venture with Stratasys Xaar said the division had the resources to accelerate and commercialise its first high-speed sintering 3D printer by the end of this year. “Technical progress is good and feedback from customer trials to date has been positive,” Xaar said.
Product printing wing EPS grew sales by 15% to £15.7m, but profitability failed to match sales growth so Xaar has started a cost-saving programme at the operation.
Xaar also commented on the Covid-19 situation. The business began 2020 with zero debt and £25.3m in cash, and said that “even in our most pessimistic scenario” it was well-placed to manage an extended period of uncertainty. It said it was reducing costs and using government support where appropriate.
Xaar’s share price rose from 31p to 43.35p following the results announcement.
Mills, CFO Ian Tichias and chairman Andrew Herbert have moved to show their confidence in the firm’s future by investing in the company, buying 275,000 Xaar shares between them.