Interim / Quarterly Report • Jun 30, 2014
Interim / Quarterly Report
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A leading technology company Who we are
A world leader in the development of inkjet technology and manufacture of piezoelectric drop-on-demand industrial inkjet printheads
N+1 Singer One Bartholomew Lane London EC2N 2AX
Jefferies International Limited
Vintners Place 68 Upper Thames Street London EC4V 3BJ
Deloitte LLP City House 126–130 Hills Road Cambridge CB2 1RY
Mills & Reeve LLP Botanic House 100 Hills Road Cambridge CB2 1PH
Barclays Bank plc 9–11 St Andrews Street Cambridge CB2 3AA
Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Cambridge CB4 0XR
Company Secretary Alex Bevis
Adjusted measures exclude items from the IFRS results, such as share-based payment charges, exchange differences relating to Swedish operations, unrealised gains/losses on derivative financial instruments, research and development (R&D) expenditure credit, non-recurring royalty income in H1 2013, impairment on trade investments, and commercial agreement costs, per the reconciliation of adjusted financial measures in note 2.
*Net cash includes cash, cash equivalents and treasury deposits.
Commentary in the rest of this report is based on adjusted measures.
| H1 2014 | 60.4 |
|---|---|
| H2 2013 | 66.9 |
| H1 2013 | 67.2 |
| H2 2012 | 48.4 |
| H1 2012 | 37.9 |
| H1 2014 | 26.1 |
|---|---|
| H2 2013 | 27.7 |
| H1 2013 | 33.0 |
| H2 2012 | 23.9 |
| H1 2012 | 17.6 |
| H1 2014 | 16.1 |
|---|---|
| H2 2013 | 18.8 |
| H1 2013 | 22.3 |
| H2 2012 | 11.7 |
| H1 2012 | 6.7 |
| H1 2014 | 48.1 |
|---|---|
| H2 2013 | 53.5 |
| H1 2013 | 49.4 |
| H2 2012 | 28.9 |
| H1 2012 | 15.7 |
Phil Lawler Chairman 28 August 2014
Following the exceptional experience of 2013, our business reverted to more typical trading patterns in the first half of 2014, characterised by limited visibility of short term demand and the usual seasonal lull around Chinese New Year. Sales volumes into ceramic tile decoration, our largest application, stabilised in the first half of the year as expected, following the explosive growth of the last few years. In other applications, whilst the expected growth in sales has not yet materialised, future progress is expected as our partners continue to develop their solutions.
The geographic split of our revenue based on the location of our customers (and not necessarily end users) shifted in line with the Chinese seasonality referred to above; sales to Asia reduced to 41% of the total for H1 2014 (H1 2013: 45%), EMEA increased to 54% (H1 2013: 50%) and the Americas remained unchanged at 5% of Group sales.
In terms of market segmentation, Industrial remains dominant at 73% (H1 2013: 71%), Graphic Arts 10% (H1 2013: 11%), Packaging 11% (H1 2013: 12%) and the legacy licensee royalty income at 6% (H1 2013: 6%).
The Group continues to maintain a strong balance sheet with net cash at 30 June 2014 of £48.1 million (31 December 2013: £53.5 million). As expected, cash balances reduced during the first half of the year due to investment in manufacturing and development assets, increased working capital and dividend payments.
Revenue for the six months ended 30 June 2014 was £60.4 million (H1 2013: adjusted £67.2 million; H2 2013: £66.9 million). Product sales were £57.1 million (H1 2013: £63.9 million; H2 2013: £63.3 million). Royalty revenue was £3.3 million (H1 2013: adjusted £3.3 million; H2 2013: £3.6 million).
As previously stated, the profit margins achieved in 2013 were flattered by levels of asset utilisation that were unsustainable over the longer term. Profit margins in 2014 have therefore reduced as a result of an increase in manufacturing capacity. Gross margin declined to 47% (H1 2013: adjusted 54%; H2 2013: 52%) reflecting both the increased manufacturing capacity and also lower pricing. Similarly, adjusted operating margin reduced to 26% (H1 2013: 33%; H2 2013: 28%).
Adjusted profit before tax for the period was £16.1 million (H1 2013: £22.3 million; H2 2013: £18.8 million).
Adjusted profit before tax is stated after capitalisation of £3.3 million of internal development costs on the Group's Thin Film programme (Platform 4). Following the internal technology demonstration in December 2013, the programme met all of the criteria under IAS 38, requiring development costs to be capitalised from January 2014. The programme differs from normal Xaar product developments because the programme will establish a technology platform for a portfolio of new products, which is expected to be a very substantial investment and will take several years to complete. There has been no change in accounting policy; capitalisation of development costs on specific product developments will continue to be assessed prudently against the IAS 38 criteria.
We remain entirely focused on our market of industrial and commercial inkjet. This will always be technologically and operationally challenging, and that of course provides a significant barrier to entry. Our considerable experience can only help Xaar remain a leader in this market that offers enormous potential. To capitalise on that we must continue to develop technology and products that can successfully convert printing applications from analogue to digital processes.
We continue to lead the market in ceramic tile decoration and remain excited by the future potential offered by tile decoration and a number of other ceramic tile processes. In addition, our partners continue to develop solutions with our technology across multiple applications in both the packaging and industrial markets. As highlighted in June, pre-production activities within the 'Direct-to-Shape' application continue, and our expectations of this opportunity for the longer term have strengthened. Despite being long lived, Grand and Wide-Format Graphics remains an opportunity and we are targeting to regain share. Our Thin Film programme, we believe, will open up multiple further markets to Xaar, significantly broadening the total opportunity over the long term.
During the third quarter, demand from the ceramic tile decoration sector has softened, which we believe relates to a slowdown in construction activity in China. In light of this, the Board's expectation for 2014 revenue has reduced to £115-125 million, with adjusted operating margin projected to be broadly in line with the 26% achieved in the first half of the year.
Our rapid progress over the last few years can largely be attributed to our success in transforming the decoration process of ceramic tiles. It is estimated that approximately half of the world's 10 billion square metres of annual ceramic tile output is now decorated using digital inkjet, with Xaar's technology leading the way. Our dominant position has, as expected, attracted competition which has impacted pricing, but we have announced new products to maintain our market leadership. The ceramic tile market remains a significant opportunity for Xaar, in terms of imaging onto tiles and also other decorative and structural processes.
In May 2014, three new printheads were announced: the Xaar 1002 GS40; the Xaar 1002 SBX; and the Xaar 001, targeting ceramic tile applications beyond the current digital decoration process. Xaar's extended printhead range provides the technology to deliver even bigger advantages by achieving: higher levels of colour intensity; digital secondary glaze and special effects; and volume digital deposition for base glaze and structure. We believe that enhanced colour intensity will be very attractive to the tile industry and their customers, and this has been borne out by the reaction from our OEM (original equipment manufacturer) partners. The structure, glazing and finishing processes are all aspects of tile decoration that have yet to be 'digitalised', and provide further examples of Xaar bringing its disruptive technology to new areas, giving significant advantages to our OEMs and end customers.
In July 2014, the Group announced the Xaar 501; a product built on the success of the 1002, aimed at providing higher levels of performance in graphics and packaging. Field trials are currently in progress, which have resulted in a final round of product bug fixes. We anticipate this product will enable us to recapture some market share in the Grand and Wide-Format Graphics sector.
The labels market has not yet shown the progress we might have expected, but the potential remains strong. We remain excited about the possibilities with 'Direct-to-Shape', a process that eliminates labels and allows printing on non-flat surfaces such as bottles. This is technologically challenging and our partners have been investigating this opportunity over the past number of years. The first field trials are being undertaken during 2014 and Xaar is at the heart of these developments.
Progress continues with our Thin Film development to deliver Platform 4 (P4) aimed at opening up further market opportunities including commercial print and textiles. As
previously reported, we have substantially increased R&D headcount and this has resulted in an increasingly talented international workforce, where efforts are clearly segregated between Bulk technology and Thin Film technology.
The Company has now finalised its strategy for the production of the first Thin Film piezo (P4) products, with sales expected to commence in late 2016. A hybrid manufacturing model combining both outsourced and in-house processing has been selected. The initial capital investment of approximately £10 million required to support the model, will be funded from existing cash resources.
Our latest manufacturing capacity expansion programme for Bulk piezo products is nearing completion ensuring we have the resources to continue with our anticipated future growth. Meanwhile we continue to host and impress our customers and partners at our excellent main manufacturing facility at Huntingdon.
Based on the Group's long term growth potential and the decision reached on the manufacturing plan for the Thin Film piezo programme, the Board has decided to adopt a sustainable and progressive dividend policy which takes into account the Group's future prospects, its underlying profitability and the future cash requirements of the business.
The Board has declared a 2014 interim dividend of 3 pence, a 20% increase over the 2013 interim dividend, which will be paid on 3 October 2014 to shareholders on the register at close of business on 5 September 2014.
For 2014 and future periods, the Board expects the ratio of interim dividend to the final dividend to be around 1:2, implying a total dividend of 9 pence for 2014, which would be a 12.5% increase over the 8 pence paid for 2013.
We were pleased to welcome Edmund Creutzmann to the Board during April 2014 as Chief Technical Officer. He has over 30 years of digital printing R&D experience spanning LED, electrophotographic and inkjet imaging technologies. He received his degree in physics and engineering from the University of Applied Sciences, Munich. Most recently he was Vice President, Printer Technology at Océ Printing Systems GmbH (Canon Group) in Germany.
As a consequence, Ramon Borrell, Director of R&D, has stepped down from the Board to fully focus his efforts on Thin Film development (P4). I take this opportunity to thank Ramon for all his contributions to the Board over the past seven years and wish him all success in bringing our
next generation of technology (P4) to market dominance.
As previously announced, our Chief Executive of over 11 years, Ian Dinwoodie, announced his intention to retire next year. Consequently a global search has commenced to locate the right calibre individual and we are confident of a timely replacement. We have also decided to increase the number of Board members and are in the process of recruiting a further Non-Executive Director to complement the existing three (including myself as Chairman).
The Directors do not consider that Xaar's principal risks and uncertainties have changed since those detailed on pages 24 and 25 of the Xaar plc Annual Report and Accounts 2013 (available at www.xaar.com), as summarised below:
As stated in note 1 to the condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.
We confirm that to the best of our knowledge:
By order of the Board
Ian Dinwoodie Chief Executive
Alex Bevis Finance Director and Company Secretary 28 August 2014
for the six months ended 30 June 2014
| Notes | Six months ended 30 June 2014 (reviewed) £'000 |
Six months ended 30 June 2013 (reviewed) £'000 |
Twelve months ended 31 December 2013 (audited) £'000 |
|
|---|---|---|---|---|
| Revenue | 3 | 60,444 | 70,230 | 137,128 |
| Cost of sales | (31,920) | (30,735) | (63,114) | |
| Gross profit | 28,524 | 39,495 | 74,014 | |
| Research and development expenses | (5,865) | (7,075) | (16,389) | |
| Research and development expenditure credit | 241 | – | 586 | |
| Sales and marketing expenses | (2,809) | (3,069) | (6,114) | |
| General and administrative expenses | (5,046) | (6,141) | (12,398) | |
| Operating profit | 15,045 | 23,210 | 39,699 | |
| Investment income | 247 | 192 | 443 | |
| Finance costs | – | (40) | (55) | |
| Profit before tax | 15,292 | 23,362 | 40,087 | |
| Tax | 4 | (2,797) | (4,642) | (8,226) |
| Profit for the period attributable to shareholders | 12,495 | 18,720 | 31,861 | |
| Earnings per share | ||||
| Basic | 5 | 16.7p | 25.5p | 43.3p |
| Diluted | 5 | 16.2p | 24.6p | 41.6p |
Dividends paid in the period amounted to £4,124,000 or 5.5p per share 2013 final dividend (six months to 30 June 2013: £2,211,000 or 3.0p per share 2012 final dividend; twelve months to 31 December 2013: £4,059,000 or 5.5p per share being 3.0p per share 2012 final dividend and 2.5p per share 2013 interim dividend).
for the six months ended 30 June 2014
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) | (reviewed) | (audited) | |
| £'000 | £'000 | £'000 | |
| Profit for the period attributable to shareholders | 12,495 | 18,720 | 31,861 |
| Exchange differences on translation of net investment | (46) | 56 | (7) |
| Tax benefit on share option gains | 850 | – | 1,379 |
| Other comprehensive income for the period | 804 | 56 | 1,372 |
| Total comprehensive income for the period | 13,299 | 18,776 | 33,233 |
as at 30 June 2014
| As at | As at | |
|---|---|---|
| 30 June 2014 |
31 December 2013 |
|
| (reviewed) £'000 |
(audited) £'000 |
|
| Non-current assets | ||
| Goodwill | 720 | 720 |
| Other intangible assets | 6,407 | 3,387 |
| Property, plant and equipment | 38,818 | 38,452 |
| Investments | 1,000 | 1,000 |
| Deferred tax asset | 1,287 | 4,308 |
| 48,232 | 47,867 | |
| Current assets | ||
| Inventories | 17,401 | 15,285 |
| Trade and other receivables | 16,732 | 15,441 |
| Current tax asset | 1,164 | 782 |
| Treasury deposits | 16,000 | 22,000 |
| Cash and cash equivalents | 32,141 | 31,485 |
| Derivative financial instruments | – | 6 |
| 83,438 | 84,999 | |
| Total assets | 131,670 | 132,866 |
| Current liabilities | ||
| Trade and other payables | (11,665) | (19,225) |
| Other financial liabilities | (45) | (57) |
| Current tax liabilities | (168) | (1,848) |
| Provisions | (549) | (1,074) |
| (12,427) | (22,204) | |
| Net current assets | 71,011 | 62,795 |
| Non-current liabilities | ||
| Deferred tax liabilities | (368) | (328) |
| Other financial liabilities | (341) | (292) |
| (709) | (620) | |
| Total liabilities | (13,136) | (22,824) |
| Net assets | 118,534 | 110,042 |
| Equity | ||
| Share capital | 7,655 | 7,589 |
| Share premium | 26,158 | 25,484 |
| Own shares | (3,796) | (4,066) |
| Other reserves | 9,668 | 8,610 |
| Translation reserve | 304 | 350 |
| Retained earnings | 78,545 | 72,075 |
| Equity attributable to shareholders | 118,534 | 110,042 |
| Total equity | 118,534 | 110,042 |
of changes in equity for the six months ended 30 June 2014
| Share capital £'000 |
Share premium £'000 |
Own shares £'000 |
Other reserves £'000 |
Translation reserve £'000 |
Retained earnings £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2014 | 7,589 | 25,484 | (4,066) | 8,610 | 350 | 72,075 | 110,042 |
| Profit for the period | – | – | – | – | – | 12,495 | 12,495 |
| Exchange differences on translation of net investment |
– | – | – | – | (46) | – | (46) |
| Tax benefit on share option gains | – | – | – | – | – | 850 | 850 |
| Total comprehensive income for the period |
– | – | – | – | (46) | 13,345 | 13,299 |
| Issue of share capital | 66 | 674 | – | – | – | (28) | 712 |
| Own shares sold in the period | – | – | 270 | – | – | (9) | 261 |
| Dividends (note 6) | – | – | – | – | – | (4,124) | (4,124) |
| Deferred tax charge on share options | – | – | – | – | – | (2,714) | (2,714) |
| Credit to equity for equity-settled share-based payments |
– | – | – | 1,058 | – | – | 1,058 |
| Balance at 30 June 2014 | 7,655 | 26,158 | (3,796) | 9,668 | 304 | 78,545 | 118,534 |
| Share capital £'000 |
Share premium £'000 |
Own shares £'000 |
Other reserves £'000 |
Translation reserve £'000 |
Retained earnings £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2013 | 7,474 | 24,406 | (4,215) | 6,507 | 357 | 39,590 | 74,119 |
| Profit for the period | – | – | – | – | – | 18,720 | 18,720 |
| Exchange differences on translation of net investment |
– | – | – | – | 56 | – | 56 |
| Total comprehensive income for the period |
– | – | – | – | 56 | 18,720 | 18,776 |
| Issue of share capital | 49 | 634 | – | – | – | (3) | 680 |
| Own shares sold in the period | – | – | 149 | – | – | (24) | 125 |
| Dividends (note 6) | – | – | – | – | – | (2,211) | (2,211) |
| Deferred tax benefit on share options | – | – | – | – | – | 2,516 | 2,516 |
| Credit to equity for equity-settled share-based payments |
– | – | – | 967 | – | – | 967 |
| Balance at 30 June 2013 | 7,523 | 25,040 | (4,066) | 7,474 | 413 | 58,588 | 94,972 |
for the six months ended 30 June 2014
| Six months ended |
Six months ended |
Twelve months ended |
||
|---|---|---|---|---|
| 30 June | 30 June | 31 December | ||
| 2014 (reviewed) |
2013 (reviewed) |
2013 (audited) |
||
| Note | £'000 | £'000 | £'000 | |
| Net cash from operating activities | 8 | 9,010 | 27,259 | 45,093 |
| Investing activities | ||||
| Investment income | 197 | 64 | 278 | |
| Acquisition of investment bond | – | – | (1,000) | |
| Purchases of property, plant and equipment | (7,793) | (5,592) | (16,713) | |
| Proceeds on disposal of property, plant and equipment | 8 | 2 | 42 | |
| Expenditure on capitalised product development and software | (3,453) | (17) | (245) | |
| Net cash used in investing activities | (11,041) | (5,543) | (17,638) | |
| Financing activities | ||||
| Dividends paid | 6 | (4,124) | (2,211) | (4,059) |
| Movement in treasury deposits | 6,000 | (8,000) | (18,000) | |
| Proceeds from the sale of ordinary share capital | 261 | 125 | 125 | |
| Proceeds from issue of ordinary share capital | 712 | 680 | 1,147 | |
| Finance costs | – | (40) | (55) | |
| Repayments of borrowings | – | (594) | (594) | |
| Net cash from/(used in) financing activities | 2,849 | (10,040) | (21,436) | |
| Net increase in cash and cash equivalents | 818 | 11,676 | 6,019 | |
| Effect of foreign exchange rate changes | (162) | 271 | 20 | |
| Cash and cash equivalents at beginning of period | 31,485 | 25,446 | 25,446 | |
| Cash and cash equivalents at end of period | 32,141 | 37,393 | 31,485 |
Cash and cash equivalents (which are presented as a single class of asset on the face of the condensed consolidated statement of financial position) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less at the period end.
for the six months ended 30 June 2014
These interim financial statements have been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts 2013 on pages 79 to 85 and were approved by the Board of Directors on 28 August 2014. The interim financial statements for the six months ended 30 June 2014 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The interim financial statements do not include all the information and disclosures in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2013.
The financial information in these interim financial statements for the six months ended 30 June 2014, does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The Group's Annual Report for the year ended 31 December 2013 has been delivered to the Registrar of Companies and the auditor's report on those financial statements was not qualified and did not contain statements made under section 498(2) or (3) of the Companies Act 2006.
The interim financial statements are unaudited but have been reviewed by the auditor Deloitte LLP. The report of the auditor to the Group is set out on page 13.
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2013.
An outline of the key risks and uncertainties faced by the Group was outlined in the 2013 financial statements as summarised in the Chairman's statement on page 3. It is anticipated that the risk profile will not significantly change for the remainder of the year. Risk is an inherent part of doing business and the strong cash position of the Group along with the underlying profitability of the core business leads the Directors to believe that the Group is well placed to manage business risks successfully.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, support the conclusion that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period not less than 12 months from the date of this report. Accordingly, the going concern basis of preparation has been adopted in preparing the interim financial statements.
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 (reviewed) |
2013 (reviewed) |
2013 (audited) |
|
| £'000 | £'000 | £'000 | |
| Revenue | 60,444 | 70,230 | 137,128 |
| Non-recurring royalty income | – | (2,994) | (2,994) |
| Adjusted revenue | 60,444 | 67,236 | 134,134 |
| Profit before tax | 15,292 | 23,362 | 40,087 |
| Share-based payment charges | 472 | 2,014 | 4,204 |
| Exchange differences relating to the Swedish operations | 523 | (161) | 416 |
| Losses/(gains) on derivative financial instruments | 6 | 107 | (9) |
| Non-recurring royalty income | – | (2,994) | (2,994) |
| Research and development expenditure credit | (241) | – | (586) |
| Adjusted profit before tax | 16,052 | 22,328 | 41,118 |
Share-based payment charges include an IFRS 2 charge for the period of £1,058,000 (H1 2013: £968,000) and a credit relating to National Insurance on outstanding potential share option gains of £586,000 (H1 2013: charge of £1,046,000). The National Insurance credit in the period reflects a reduction in the potential liability due to the lower Xaar plc share price as at 30 June 2014 compared to as at 31 December 2013.
Exchange differences relating to the Swedish operations represent exchange gains or losses recorded in the consolidated income statement as a result of operating in Sweden.
Losses and gains on derivative financial instruments relate to the losses and gains made on forward currency contracts in 2014 and 2013.
Non-recurring royalty income related to the settlement of under-reported royalties payable by licensees for the period 2006 to 2012.
The research and development expenditure credit relates to the corporation tax relief receivable relating to qualifying research and development expenditure.
for the six months ended 30 June 2014
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) | (reviewed) | (audited) | |
| Pence per share | Pence per share | Pence per share | |
| Diluted earnings per share | 16.2p | 24.6p | 41.6p |
| Share-based payment charges | 0.6p | 2.6p | 5.5p |
| Exchange differences relating to the Swedish operations | 0.7p | (0.2p) | 0.5p |
| Losses/(gains) on derivative financial instruments | – | 0.1p | – |
| Non-recurring royalty income | – | (3.9p) | (3.9p) |
| Tax effect of adjusting items | (0.3p) | 0.3p | (0.5p) |
| Adjusted diluted earnings per share | 17.2p | 23.5p | 43.2p |
This reconciliation is provided to enable a better understanding of the Group's results.
For management reporting purposes, the Group's operations are currently analysed according to the two operating segments of 'product sales, commissions and fees' and 'royalties'. These two operating segments are the basis on which the Group reports its primary segment information and on which decisions are made by the Group's Chief Executive Officer and Board of Directors, and resources allocated. The Group's chief operating decision maker is the Chief Executive Officer.
Segment information is presented below:
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) £'000 |
(reviewed) £'000 |
(audited) £'000 |
|
| Revenue | |||
| Product sales, commissions and fees | 57,165 | 63,953 | 127,210 |
| Royalties | 3,279 | 6,277 | 9,918 |
| Total revenue | 60,444 | 70,230 | 137,128 |
| Result | |||
| Product sales, commissions and fees | 12,767 | 18,893 | 33,976 |
| Royalties | 3,279 | 6,277 | 9,918 |
| Total segment result | 16,046 | 25,170 | 43,894 |
| Net unallocated corporate expense | (1,001) | (1,960) | (4,195) |
| Operating profit | 15,045 | 23,210 | 39,699 |
| Investment income | 247 | 192 | 443 |
| Finance costs | – | (40) | (55) |
| Profit before tax | 15,292 | 23,362 | 40,087 |
| Tax | (2,797) | (4,642) | (8,226) |
| Profit for the period attributable to shareholders | 12,495 | 18,720 | 31,861 |
Unallocated corporate expense relates to administrative activities which cannot be directly attributed to any of the principal product groups, including share-based payment charges and unrealised gains or losses on derivative financial instruments.
Assets in the 'product sales, commissions and fees' segment have increased by £4.0 million over the period and assets in the 'royalties' segment have increased by £0.1 million over the period; there have been no other material movements in segment assets during the period.
The major components of income tax expense in the income statement are as follows:
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) | (reviewed) | (audited) | |
| £'000 | £'000 | £'000 | |
| Current income tax | |||
| Income tax charge | 2,448 | 4,391 | 8,172 |
| Deferred income tax | |||
| Relating to origination and reversal of temporary differences | 349 | 251 | 54 |
| Income tax expense | 2,797 | 4,642 | 8,226 |
The calculation of basic and diluted earnings per share is based upon the following data:
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) | (reviewed) | (audited) | |
| £'000 | £'000 | £'000 | |
| Earnings | |||
| Earnings for the purposes of earnings per share being net profit attributable to equity holders | |||
| of the parent | 12,495 | 18,720 | 31,861 |
| Number of shares | |||
| Weighted average number of ordinary shares for the purposes of basic earnings per share | 74,667,645 | 73,383,574 | 73,652,808 |
| Effect of dilutive potential ordinary shares: | |||
| Share options | 2,538,590 | 2,777,281 | 2,989,912 |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 77,206,235 | 76,160,855 | 76,642,720 |
| Six months ended 30 June 2014 (reviewed) |
Six months ended 30 June 2013 (reviewed) |
Twelve months ended 31 December 2013 (audited) |
|
|---|---|---|---|
| Amounts recognised as distributions to equity holders in the period: | £'000 | £'000 | £'000 |
| Final dividend for the year ended 31 December 2013 of 5.5p (2012: 3.0p) per share | 4,124 | 2,211 | 2,211 |
| Interim dividend for the year ended 31 December 2013 of 2.5p per share | – | – | 1,848 |
| Total distributions to equity holders in the period | 4,124 | 2,211 | 4,059 |
The interim dividend of 3.0 pence per share has been approved by the Board and will be paid on 3 October 2014 to shareholders on the register at close of business on 5 September 2014. The interim dividend has not been included as a liability at 30 June 2014.
for the six months ended 30 June 2014
During the six months ended 30 June 2014 a total of 654,249 new ordinary shares of 10 pence each were issued under the Company's share option schemes for £712,000.
| Six | Six | Twelve | |
|---|---|---|---|
| months | months | months | |
| ended | ended | ended | |
| 30 June | 30 June | 31 December | |
| 2014 | 2013 | 2013 | |
| (reviewed) £'000 |
(reviewed) £'000 |
(audited) £'000 |
|
| Profit before tax | 15,292 | 23,362 | 40,087 |
| Adjustments for: | |||
| Share-based payments | 472 | 2,014 | 4,204 |
| Depreciation of property, plant and equipment | 4,700 | 3,585 | 7,410 |
| Amortisation of intangible assets | 433 | 308 | 889 |
| Research and development expenditure credit | (241) | – | (586) |
| Investment income | (247) | (192) | (443) |
| Finance costs | – | 40 | 55 |
| Foreign exchange losses/(gains) | 537 | (362) | (26) |
| Unrealised losses/(gains) on forward contracts | 6 | 107 | (9) |
| Loss on disposal of property, plant and equipment | 42 | 39 | 250 |
| Decrease in provisions | (526) | (243) | (555) |
| Operating cash flows before movements in working capital | 20,468 | 28,658 | 51,276 |
| (Increase)/decrease in inventories | (2,255) | 1,970 | (2,121) |
| Increase in receivables | (1,301) | (5,021) | (2,945) |
| (Decrease)/increase in payables | (4,569) | 3,045 | 4,091 |
| Cash generated by operations | 12,343 | 28,652 | 50,301 |
| Income taxes paid | (3,333) | (1,393) | (5,208) |
| Net cash from operating activities | 9,010 | 27,259 | 45,093 |
The interim financial statements cover the period 1 January 2014 to 30 June 2014 and were approved by the Board on 28 August 2014. Further copies of the interim financial statements are available from the Company's registered office, 316 Science Park, Cambridge CB4 0XR, and can be accessed on the Xaar plc website, www.xaar.com.
for the six months ended 30 June 2014
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes 1 to 9. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP Chartered Accountants and Statutory Auditor Cambridge, United Kingdom 28 August 2014
Xaar plc
316 Science Park Cambridge CB4 0XR
Telephone +44 (0) 1223 423663
Facsimile +44 (0) 1223 423590 [email protected] www.xaar.com
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