Xaar has posted a 39% slump in underlying revenues and £1.1m loss for the first half of the year, leading chief executive Doug Edwards to admit that his 2020 growth target of £220m turnover is now “unrealistic" for the business, which has been flagged as a potential takeover target.
The inkjet manufacturer had already flagged that its first-half results would be below expectations and issued a further warning last month that the outlook for the rest of the year had worsened.
Xaar has been hit by a bigger than expected decline in sales to the ceramics market, alongside delays to the roll-out of new printheads.
Sales in the six months to 30 June fell from £44m to £35.3m, including £10.4m of licensing royalties, and representing a 39% decline in underlying sales.
Adjusted operating margins halved to 9%, although on a statutory basis the business posted an operating loss of £1.2m (2017 operating profit: £5.5m). The pre-tax loss was £1.1m.
Cost saving actions to save the business around £4m a year have resulted in 90 job losses, mostly in the UK.
“The financial performance is disappointing, we can’t hide that,” Edwards said. “Ceramics has declined much faster than we expected and the delay to our 5601 printhead means that there’s a quite significant chunk of revenue that we won’t have in 2020. Do we believe that we can get to a couple of hundred million turnover? Yes we do, but not by 2020,” he stated.
“I’m hoping that ceramics has bottomed out and is as low as it will get, but we are not planning on it ramping back up again.”
Integration issues have delayed the roll-out of the firm’s 1201 printhead, Edwards added.
On a more positive note, he highlighted the fact that flexible packaging specialist Windmöller & Hölscher has just announced that its first single-pass digital press will use Xaar’s 5601 heads, and pointed to growth in areas such as décor, glass and coding with existing products.
Xaar has also instigated a strategic review of its printhead business with the aim of achieving “more extensive partnering”. Its two key partners are currently Xerox for bulk printheads and Ricoh for thin film printheads.
“We are reviewing our options around the printhead business,” Edwards said. “We think we have a powerful portfolio but on our own it is difficult to realise the full potential so we are looking at partnership options.
“We need to be aligned with people with muscle and go-to-market power,” he added, and stated that it was not Xaar’s intention to sell the printhead business.
However, Edwards acknowledged that the company’s share price, which recently fell to a five-year low, could make the business a takeover target.
“For any public company that’s always an option if someone puts enough cash on the table, and the share price does make us potentially vulnerable,” he said.
While admitting that some of the group’s existing shareholders are “definitely not happy”, he said the low share price had also resulted in fresh interest in the business. “A lot of new people are interested in the business and see it as an opportunity to get in,” he said.
As previously announced, Xaar chief financial officer Lily Liu will take up a new role in November. Edwards said the business had made an offer to a potential replacement for Liu.
The group’s share price rose by 5.20p, or 2.83%, to 189.2p on the news (52-week high: 509.05p, low: 160.80p).