The inkjet manufacturer announced the deal, which involves the 1201 thin film printhead developed with partner Ricoh, alongside its interim results.
“The sale is to the largest wide-format graphics OEM in China and is probably the biggest deal Xaar’s ever done,” said chief executive Doug Edwards.
In the six months to 30 June sales were £44m (2016: £44.5m), in line with the expectations it laid out earlier in the year. Gross profit margin increased from 45% to 47%, while pre-tax profits including restructuring costs slipped by nearly 26%, to £5.7m.
The group has been striving to diversify its offering in order reduce its reliance on ceramics, traditionally Xaar’s largest market but now largely converted to digital. Ceramics sales fell by 25%, resulting in a 14% fall in sales at its industrial sector. Edwards said he was “particularly pleased” that product revenues outside of ceramics were growing by 60%.
The printing of black masks for flat panel displays was also cited as a growth area for its advanced manufacturing sub-division, and it made “good progress” in 3D printing.
Graphic arts sales grew by 33%, while packaging and product printing jumped by 54%, boosted by last summer's acquisition of EPS. Excluding EPS, however, revenues in that sector were down 20%.
“By the end of the year packaging and product printing will be about a third larger than ceramics,” Edwards stated.
The 5601 printhead, which was delayed due to technical issues, has now been finalised and the design “frozen”, with developer kits sent to a number of customers, bringing in revenues of circa £2m. “They are largely textile OEMs but not exclusively,” Edwards added. “We are also shipping to some of the big players in the commercial print space, and obviously we have two major partners there in Xerox and Ricoh.”
Xaar also brought in the first revenues from the 5501 head, developed in partnership with Xerox, during the period.
Edwards said EPS, had performed ahead of plan in the first half, and Xaar is close to finalising a European master distribution arrangement for the EPS direct-to-shape digital printing range.
The group’s net cash reduced from £49.3m at the year-end, to £38.3m at the half-year due to spending on the Thin Film Platform as well as working capital.
“We are making our cash work for us. A big chunk is inventory, supporting new product launches, along with credit terms for our customers in China, although the lion’s share is inventory,” Edwards explained.
R&D spending was 22% of sales, slightly down on the prior year. Thin Film development expenditure was £4.7m during the period, and Xaar revealed it had capitalised £30.6m of costs on the development since the beginning of 2014.
Xaar’s Asian business has increased to 47% of sales from 42% the prior year; with EMEA – which used to make up 51% of sales – now down to 32% and the Americas jumping from 7% to 21% following the EPS deal.
“We are not giving up on Europe!” he added. “It’s just that the Chinese tend to adopt new technology much faster, and we needed to have a footprint in the Americas for some of our new areas of business.”
However, Edwards did say that Brexit uncertainty was a cause for concern, regarding employee sentiment and the ability to attract and keep talent.
“The biggest challenge is around employees. We employ a significant number of people from Europe and they’re a little bit anxious about what’s going to happen in the future. Today’s news [involving leaked Home Office proposals over immigration] is not going to make them any more relaxed.”
Xaar’s share price rose by 9.23p, or 2.52%, to 375.25p on the news.