Xaar to cease Thin Film activities; CEO steps down
Thursday, September 26, 2019
Xaar is set to close its Thin Film business after failing to find a strategic partner and has lined up former Inca boss John Mills to take over as chief executive as the struggling inkjet manufacturer shakes up its board.
In its interim report released today (26 September) for the six months to 30 June 2019, Xaar said its strategic review of the Thin Film business “has concluded with the decision to cease activities”. This resulted in Impairment charges of £39m.
The Cambridge-headquartered company said it is now further restructuring its printhead business, subject to employee consultation, which is expected to deliver savings of £8m a year.
Xaar chairman Robin Williams said that “despite interest from a number of parties and recognition that the technology has potential, we have not received a deliverable proposal that either shares or acquires this activity in a way that brings the cost of development down to a level which Xaar can sustain within its cashflows.”
Chief executive Doug Edwards told Printweek: “We went through a pretty thorough process [with the Thin Film business]. We had outside advisors, we spoke to more than 30 different companies and have gone through several rounds of due diligence.
“It is continuing for now, but obviously with this announcement it sets a pretty clear deadline.
“There’s a consultation process that starts today and takes 45 days and a lot of key people will have left the business at the end of 45 days.
“There are opportunities, for example, to license the technology, maybe similar to what Xaar did originally with its Bulk technology, where you take an upfront payment and have an associated royalty. So that sort of thing could continue, but development can’t if you don’t have the people to develop."
On existing users of those printheads, Edwards added: “We are looking for ways to make the transition as smooth and as painless as possible so we’re going to be in discussions over the coming days around that.”
He said the jobs affected by the move would likely be “not far north of 100”, and based globally across all functions of the business.
The manufacturer reported revenue of £22.5m in the first half of 2019, down 36% from £35.3m year-on-year, though it said that when adjusted for the Thin Film Xaar 1201 revenue reversal of £4.3m in 2019 and the one-time royalty payment of £9.7m from Seiko Instruments in 2018, revenue was up by £1.3m.
Its gross loss was £2.6m, representing a decline of £21.7m from the £19.1m profit it achieved in the first half of 2018. The company said that while this figure was largely due to the Seiko Instruments payment that boosted its 2018 results and £7.4m of Xaar 1201 related items, a further £3.9m decline was a result of “reduced factory output and an unfavourable product mix”.
“The major challenge we have in terms of the factory is the fixed costs. We need to align those costs with the volumes that are now going through, which is the major reason for the restructuring,” said Edwards.
“The biggest cash and earnings drain on the company has been our Thin Film investment, so if we deal with that we improve the profitability and the cashflow of the business very significantly.”
However, the company reported stable first-half printhead revenues, up 1% year-on-year and after adjusting for the one-time royalties and the Xaar 1201 revenue reversal.
Its Product Print Systems revenues grew by 22%, driven by growth in inkjet and pad printing equipment and consumables.
Furthermore, it said progress in 3D Printing, which Printweek reported on earlier this month, has seen Stratasys increase its investment from 15% to 45%, with an option to acquire the remaining 55%, subject to Xaar shareholder approval.
Xaar’s board has meanwhile outlined its succession plan and board changes.
The company said Edwards, who has worked with the board to find a successor after five years in post, “had informed the board of his wish to leave to explore opportunities back in the USA”.
Chair Williams, who has been a board member for over nine years, is to step down from the board following the publication of the preliminary results for the year at the end of March 2020.
Andrew Herbert, who has been non-executive on the board since June 2016, has agreed to be appointed as chairman on Williams’ retirement from the board.
Shomit Kenkare has also resigned as chief financial officer and will leave Xaar on 31 December 2019. A search for his replacement is underway.
Additionally, senior independent director Margaret Rice-Jones will step down from the board at the 2020 AGM, but remain non-executive director.
John Mills, who was most recently chief executive of Inca Digital for five years to October 2018, joined Xaar in August as head of the printhead business unit.
Mills, who has also now become chief executive designate, will continue in this role until 31 December 2019, on which date Edwards will hand over his chief executive role to Mills but will remain available to Xaar until 31 March 2020 to ensure an orderly succession. Mills has also joined Xaar’s board of directors today.
An industry source said of Mills: “He’s a good guy who can sort the mess out”.
Xaar’s share price fell by more than 40% in early trading to 40p but had since rallied slightly to 44.9p at the time of writing. Only three weeks ago they had dropped by nearly 30% to what was a then 52-week low of 61.8p.