Xaar eyes growth in second half as R&D begins to pay off

Revenue in the first half of the year of £44.5m was down 7% on the same period last year, as the board's had flagged last month, with sales by product more consistent with the second half of 2015 after allowing for the expected impact of Chinese New Year.

Profit before tax dropped 3% to £8.8m, with gross margin remaining at 45% and adjusted operating profit margin at 19%, while earnings per share slipped by a penny to 10p and the interim dividend was hiked 5% to 3.3p per share.

Net cash was almost unchanged at £69m at period-end, before the acquisition of Engineered Printing Solutions on 1 July 2016.

By market segment, the group share of revenue from industrial reduced to 59% from 70%, Packaging and Product Printing increased to 19% from 15%, Graphic Arts was slightly lower at 8% from 9%, and licensee royalty revenue was higher at 14% up from 6% due to a one-off contractual payment.

Ceramic tile printing continues to provide the majority of the revenue within the Industrial segment, though increasing global competition has put pricing under pressure, Xaar still maintains market leader status, helped by the launch of the 1003 printhead in March.

"Our portfolio will be significantly strengthened with a new product which will launch at Tecnargilla, a leading technology exhibition for the ceramics industry, in the last week of September," Xaar said.

Moreover, the new Thin Film piezo family of printheads also launched in June 2016, with China OEM Xucheng having already launched a wide-format graphics printer incorporating this new printhead.

Chief executive Doug Edwards, who launched a strategic vision in March to make £220m revenue by the year 2020, said he was pleased with progress.

"We have successfully launched major new products, announced a strategic partnership with Ricoh and completed our first acquisition, whilst continuing to run an efficient manufacturing operation in Huntingdon and closing our Swedish facility."

For the second half, he anticipates revenue growth compared to the first six months, before the addition of the newly acquired EPS business which contributes from 1 July.

Joint house broker Jefferies forecasts £97.5m full year revenue and PBT of £17.7m, before sales rise to £110.5m and PBT falls to £11.3m in 2017.

"The group needs to have a decent 2H16 result in order to achieve our forecasts, but there are a number of potential drivers (the acquisition of EPS, new products, last time buy out of Sweden, etc) but we would flag new product demand in 4Q16 as being important for the group."

Fellow house broker Singer forecasts £18.7m PBT falling to £10.8m in 2017, while independent Peel Hunt foresees £19.3m for the full year sliding to £15.4m next year.

Shares in Xaar rose 4% to 505p by 1330 BST on Wednesday.