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Strategy update 2023


2023 was a year in which the Group delivered encouraging progress in key strategic areas despite unexpected challenges.

The Group entered 2023 having invested in inventory over the previous two years to maintain customer service levels during the period of exceptional supply chain disruption in 2022, to mitigate cost inflation and to be well positioned for several customer product launches.

Due to current geo-political and macro-economic conditions, OEM machine launches are taking longer than expected which had a significant impact in Q4 of 2023. Several of these launches were delayed, impacting revenue in the latter stage of the year and the start of 2024. However, we remain optimistic about the future, and we are well placed to benefit as trading conditions improve.

The disappointing end to the year masked some more encouraging signs. We continue to enjoy leading positions in attractive structural growth markets. We deepened our relationships with key customers helped by our widening product range, and we have grown our customer base and maintained our market share.

Strategic progress

Xaar delivered a good performance in 2023. We continue to execute our strategy of delivering compelling products in each of our market segments and remain focused on the significant opportunities that will drive profitable growth.

Our products, especially Aquinox, are generating strong interest from both existing and new customers underlining our leadership in jetting highly viscous fluids which, alongside other advantages, provide significant sustainability benefits, as well as reducing our customers' time to market.

We have seen an increase in the number of customers adopting Xaar technology and we now have clearer visibility of their product launches. This is evidenced by the twelve new customer product launches during 2023.

We expect an  increase in customer product launches that incorporate Xaar's technology during 2024, which we anticipate will drive demand for printheads.

Phase 1 of our factory upgrade has been successfully completed on time and within budget, positioning us to deliver increased efficiency and capacity, whilst realising significant cost savings. Further phases of development will see increased modernisation of our manufacturing facilities leading to greater efficiencies and scale potential. These will only be undertaken when business performance and market conditions improve.

We have seen continued good performance from EPS, FFEI and Megnajet, with EPS especially continuing to deliver excellent revenue and profit growth. As part of our strategic decision to consider options to withdraw from the Life Science part of FFEI, we sold non-core IP assets in the year delivering a profit of £2.0 million.

Financial Performance

We have delivered performance in 2023 in line with updated management expectations, demonstrating operational and strategic progress across the Group. Revenue for the period was £70.6 million representing a decrease of 3% against 2023.

The Printhead business has a clear customer-focussed strategy, and we are pleased to have grown our customer base and at least maintained our market share in key sectors. The economic challenges globally, particularly rising interest rates, have directly impacted capital equipment purchases by some customers in the year, particularly so in Q4 2023.

As a result of these pressures, revenue for the Printhead business was down 5%.  The external pressures not only impacted customers' new product launches but also existing core markets for printheads, with the ceramics sector being particularly affected, linked to the slowdown in the global construction industry.

Progress has been made in market sectors beyond Ceramics, especially the key growth area of 3D printing, and we continue to see strong customer engagement where we have a competitive advantage enabling customers' use of high viscosity fluids.

Geographically we delivered growth in Asia, when compared to the COVID-19 impacted period in 2022. This increase of £4.0 million (49%) was offset by lower revenue in the US (down £5.6 million, 15%) and EMEA (down £0.6 million, 2%). While disappointed with revenue decline in some markets, we are pleased with the broader spread of business across geographic regions and market sectors. This demonstrates the increasing resilience of the business.  We have increased diversification of customers, applications and geographies as the customer pipeline continues to grow.

EPS has delivered an excellent performance. Revenue increased 13%, with growth across all its product lines, and digital inkjet sales at the core of the success growing 15%. The proactive decisions taken in the last two years to strengthen the management team and rationalise the product range are delivering excellent results.

FFEI and Megnajet continue to perform well. These businesses provide us with an expanded product range enabling real traction and opportunity in the printbar and print engine markets, along with fluid management systems.

Our plan has been to focus on products that support our core strategy. As a result, we are considering options to withdraw from the non-core Life Sciences part of the FFEI business, and the sale of IP in this area during the year is part of this process. We delivered a one-off profit of £2.0 million through this sale which helped offset the one-off impact of Phase one of our factory re-organisation at Huntingdon completed in Q1.

Gross margin for the Group was 38% (2022: 39%) despite inflationary cost pressures and closing the Huntingdon factory for two months to complete Phase 1of the operational re-organisation. We have successfully protected our gross margins from input cost inflation which was evident in our supply chain in 2023. Our ability to pass on inflation increases underlines the strength of our products and our market position.

Group adjusted profit before tax for 2023 was £2.9 million, an increase of £0.1 million when compared to £2.8 million in 2022. The full year unadjusted loss was £2.2 million (2022: £0.8 million profit).

Healthy balance sheet and operational investment

The Group retains a healthy balance sheet and cash position. Cash at 31 December 2023 was £7.1 million, reflecting a net outflow of £1.4 million over the year.

During the year we invested £2.1 million in inventory allowing the Printhead business to increase its holding of finished goods. This has been a controlled and systematic approach over the last eighteen months giving confidence in our ability to deliver on customer orders.

As a consequence of the unexpected reduced demand in our core markets and particularly a significant slowdown in the ceramics sector in Q4 2023, we have a higher than planned finished goods holding in the Printhead business.

Whilst we have won business through the advantage of offering shorter lead times than our competition, ensuring we have been able to capitalise on commercial opportunities, we continue to monitor the product mix of finished goods to ensure it is appropriate for customer demand. Consequently, we expect to reduce inventory levels during 2024 which will have a positive impact on cash generation during the year.

We will maintain our disciplined approach to balance sheet management, as it remains a key priority to allow for further investment in the business focussing on operational capability. We have been disciplined in our management of cash expenditure focusing on improving operational capability and efficiencies, investing £1.5 million (2022: £2.4 million) in operational upgrades along with the factory upgrade completed in March 2023.

R&D investment is critical to the ongoing success of the business, and we will continue to invest in our R&D capabilities across the Group to ensure our technology remains market-leading. During 2023 we invested £5.6 million (2022: £6.7 million).

In June 2023 we successfully agreed a Revolving Credit Facility (RCF) of £5.0 million with our lead bank, HSBC, which allows for accelerated investment in the business and our operational capability.

Operational improvements driving greater efficiency and capacity

Operational improvements have been made through investment in our manufacturing facilities to increase efficiency and lower costs. The first phase of this programme has now been completed with the Huntingdon factory re-organisation completed in early 2023 on time and under budget.

This will enable us to operate more efficiently, increase capacity and yields whilst crucially generating significant cost savings, especially in reducing our energy consumption. Accordingly, this investment will deliver a rapid return and payback in less than a year.

This is the first phase of our efficiency upgrade programme. The next phase of investment will result in more modern, efficient, and environmentally beneficial manufacturing facilities across the business. This will be undertaken when business performance improves, depending on business needs and volume demand. It is anticipated between £10 million and £15 million will be invested in the next phase.

We continue to exercise tight control over our cost base whilst also seeking opportunities to drive performance. This includes establishing an internal project, named Hubble, which will provide focus for our key priorities and goals.

This project is split into 4 key streams:-

·      Commercial strategic opportunities

·      Operational efficiency

·      Organisational effectiveness

·      Customer integration

Each project stream has an appropriate Executive sponsor and project lead. The project aims to deliver cost savings on an annual basis of £2 million of which £1.2 million has already been identified and implemented. The project will be delivered with no incremental investment.

Significant market opportunity remains

We have a strong proposition across our five key market sectors. Our digital inkjet technologies provide compelling propositions to transform print processes across a wide range of applications, and we can supply our customers with the products they need to develop their printers. This means we have significant growth opportunities, incremental to printhead sales, where we can shorten our customers' product development time to market.

The medium and long-term opportunity for the business remains significant. Whilst we already have good market share in core, mature markets such as Ceramics and Coding & Marking, our market leading technologies provide further growth opportunities in applications where our capabilities offer competitive advantage.

During 2023 we have made significant progress in 3D printing, where our ability to print high viscosity fluids is transforming the industry. The 3D printing sector is experiencing a greater level of customer product launches, thereby providing greater revenue potential opportunity for our products than previously expected.

Historically Xaar has almost exclusively operated in the B2B (Business to Business) area across our product ranges and applications, however there is an emerging opportunity for 3D printing in the B2C (Business to Consumer) sector where we can facilitate growth.

We are partnering with established system providers for our Xaar Irix printhead to enable a new generation of full colour, inkjet-based desktop 3D printing systems that are higher resolution and more flexible than the existing technologies. We anticipate this new generation of 3D printers to be launched during 2024 and 2025.

Customer engagement has increased as our printhead product range has expanded.  Our ability to offer a broader solution to customers with fluid management systems and printbars has increased the number of customers developing machines with our products. During 2023 there were twelve customer product launches, and we anticipate at least a further twelve launches during 2024.

By providing an integrated solution for customers whereby they can access more of the printing ecosystem, we help our customers take advantage of the inkjet opportunity. Working with Xaar means a higher chance of success by being faster to market and increasing return on investment. Ultimately this will help us in our overriding strategy to sell more printheads and enables the business to manage volatility better, in any given market.

We are further supporting our business model with three key initiatives.

Firstly, we are diversifying the geographical spread of our customer base. By targetting OEMs in Europe and US, we gain greater regional diversity and reduce our dependence on any specific region. This has resulted in growth of new development projects in those regions and will build further resilience into our business.

The second initiative is to develop relationships with our end customers in a way that hasn't been previously achieved. By engaging with end users - in partnership with our OEMs - we are expanding our market understanding. This not only strengthens the relationship with end users and direct customers but presents us with a clear picture of the decisions that drive the adoption timing of new systems with Xaar technology.

The transition to Xaar technology and revolutionary high viscosity inks can present technical challenges when customers integrate our printheads into a new system. To counter this we are developing our service offering to better support them, which is our third initiative. This involves focussing our resources to identify issues earlier and provide more direct support to resolve technical challenges. Additionally, we are developing a full printer solution in house for our key markets so that we can identify and resolve issues with system integration before they create problems in the field.

Product development and capability

We have a unique roadmap of product development to ensure we offer an increasingly vertically integrated commercial strategy to capitalise on this market opportunity.

Our Xaar 2002 printhead has double the resolution of our competitors giving the ability for very high-quality print and incorporates our key technologies which enable printing of very challenging fluids in harsh production environments.

The Xaar Irix remains the flagship product in the Coding and Marking and Direct-to-Shape sectors. It delivers increased throw distance whilst maintaining print quality and along with our Xaar 50X printheads means we are maintaining our position in Coding and Marking and have several opportunities in the Direct-to-Shape market.

The Aquinox printhead is positioned to drive adoption in Packaging and Textiles markets. The response to the product has been extremely positive due to its ability to print high viscosity water-based inks. This gives customers the opportunity to use less energy, with a higher throughput, and more vibrant colours.

The significant benefits of high viscosity inks have also recently been independently validated by the Welsh Centre for Printing at Swansea University confirming the superiority of our technology. This was demonstrated at our first, and well-received, R&D open day held in November 2023 which was attended by customers, commercial partners and potential technology adopters. They were able to witness and participate in live demonstration of the functionality that our products offer. The day was highly successful, demonstrated by the level of interest and further enquiries we have had since.

The already successful ImagineX platform will deliver improved features over the next few years which will provide significant enhancements to the current portfolio, including: 

·      substantially improved speed and throughput (frequencies up to 150kHz, equivalent to a threefold increase in speed compared to current products),

·      increased throw distance to improve image quality on curved surfaces,

·      increased robustness to improve the life of the printhead and maintain image quality,

·      higher viscosities enabling a broader range of fluids to be printed (above 100cP), and

·      higher resolutions (up to 1440 dpi).

These features will help strengthen our position in markets where we are already well represented and will drive improved adoption in several markets where we are currently not participating.  The enhancements in our product roadmap support our customers with a clear path to upgrade their products and maintain their product differentiation.

Strong commitment to sustainability

We continue to make progress on ESG and the Group's Sustainability Roadmap. The Board remains committed to the business becoming carbon net zero by 2030.

We are passionate about delivering solutions and products for our customers that are cleaner and better for the environment. Our products are well placed to deliver significant benefits commercially and environmentally for our customers through reductions in power consumption and water usage.

Digital inkjet printing is inherently more sustainable compared to traditional analogue printing with a smaller carbon footprint. It reduces and prevents excessive waste and uses less energy due to the ability to print short runs or direct-to-shape. With Ultra High Viscosity Technology and TF (ThroughFlow) Technology ink recirculation, Xaar printheads are capable of printing very viscous fluids which, in the textiles sector for example, results in a reduction in energy used in intensive drying processes. We are passionate about continuing further adoption and understanding of the environmental benefits our products can bring to customers.

During 2023 we gained full accreditation for the Great Place To Work certification. This was especially pleasing as it was gained on our first application and is testament to the hard work and engagement of colleagues across the business.

We also seek to have a wider positive impact on society by understanding and prioritising employee needs, doing business responsibly, and reaching out to our local communities. All our UK sites have now moved to 100% renewable energy. All printhead product packaging is fully recyclable. Our Apprentice Programme is well developed across the business, and we continue to support activities promoting STEM (Science, Technology, Engineering and Maths) subjects amongst young people as well as several sponsorship programmes supporting university students and industry placements.


Whilst the end of 2023 was challenging, and the current external trading environment remains so, we are focused on the delivery of our strategy and taking advantage of the significant opportunities we have that will drive profitable growth. Our products continue to generate strong interest from customers, demonstrating our leadership in printing highly viscous fluids with all the performance and sustainability benefits they deliver.

As previously announced in our November 2023 trading update, due to the current geo-political and macro-economic conditions, bringing some of our customer's products to market is taking longer than expected, meaning we are cautious on precise timing.

As we reduce our finished goods inventory during 2024, the lower volumes will impact our ability to recover production overhead costs. Together with the effect of increased input costs, as previously explained, our gross margin will be impacted this year.

Despite this, we will continue to take decisive action to manage our costs and maximise cash generation during this slower trading period whilst preserving our sources of long-term competitive advantage.

We are confident that our market position remains strong and that the Group remains well positioned to prosper as our key markets resume a trajectory of healthy long-term growth. So, despite the short-term challenge we remain hugely excited for the future of Xaar and remain confident that the unique capabilities of our printheads will drive broad adoption across all markets over the coming years.

We believe the business is well positioned for growth through both new applications and share gains in new and existing markets and our expectations for the full year remain unchanged.

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