TIDMXAR
RNS Number : 3933U
Xaar PLC
28 March 2023
28 March 2023
Xaar plc
2022 FULL YEAR RESULTS
STRATEGIC PROGRESS DELIVERING PROFITABLE GROWTH
Xaar plc ("Xaar", the "Group" or the "Company"), the leading
inkjet printing technology group, today announces its full year
results for the 12 months ended 31 December 2022.
Financial Summary:
2022 2021 Change
Continuing Operations
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Revenue GBP72.8m GBP59.3m +23%
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Gross profit GBP28.6m GBP20.2m +42%
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Gross margin % 39% 34% +5ppts
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R&D spend GBP6.7m GBP5.7m +18%
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Adjusted EBITDA(1) GBP6.2m GBP3.2m +95%
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Adjusted profit/(loss) before GBP2.8m (GBP0.6m)
tax(1)
--------- ---------- -------
Profit before tax GBP0.8m GBP1.0m
--------- ---------- -------
Profit for the year GBP1.8m GBP0.7m +157%
--------- ---------- -------
Basic earnings per share 2.3p 0.9p
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Total Operations
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Profit before tax GBP0.7m GBP14.5m
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Profit for the year GBP1.6m GBP14.2m
--------- ---------- -------
Basic earnings per share 2.1p 20.9p
--------- ---------- -------
Net cash at the year end(2) GBP8.5m GBP25.1m
--------- ---------- -------
1 - Excluding the impact of share-based payment charges,
exchange differences relating to intra-group transactions, gain on
derivative financial instruments, restructuring and transaction
expenses, research and development expenditure credit, other
operating income, fair value gain on financial assets at fair value
through profit and loss, and amortisation of acquired intangible
assets, as reconciled in note 2 to the financial statements
2 - Net cash at 31 December includes cash, cash equivalents and
treasury deposits
Financial Highlights
-- Revenue of GBP72.8 million representing year-on-year growth of 23%; 8% organically
-- Gross margin of 39% (2021: 34%), benefitting from strategic
actions and increased operational leverage
-- Increased investment in R&D spend in continuing
operations of GBP6.7 million, up GBP1.0 million on 2021, focused on
the ImagineX platform and product roadmap
-- Positive adjusted EBITDA contributions from all our businesses
-- Adjusted Group profit for the year ahead of expectations
-- Robust balance sheet with cash of GBP8.5 million (2021 -
GBP25.1m) reflecting acquisitions of Megnajet and FFEI and
investment in working capital
Strategic and Operational Highlights
-- Successful expansion of vertically integrated product range
and rollout of product roadmap, including launch of Aquinox,
delivering accelerated customer engagement
-- Further expanding business capability and vertically
integrated product offering: acquisition of Megnajet and
successfully completed FFEI integration
-- Further operational progress made in Engineered Printing
Solutions (EPS), delivering increased customer engagement and
strong revenue growth
-- Phase 1 of operational efficiency programme with factory
re-organisation completed on time and on budget delivering cost
savings and increased capacity
-- Ongoing delivery of product roadmap with successful Aquinox product launch
-- Investment in working capital ensured successful mitigation
of supply chain constraints as well as meeting customer demand
-- Sustainability roadmap embedded in business with clear strategy to reach 'net zero' by 2030
John Mills, Chief Executive Officer, commented:
"We have transformed and re-energised Xaar as demonstrated by
our good performance and further strategic progress with positive
contributions from across the Group. We have delivered strong
profitable revenue growth and the important milestone of achieving
full year profitability which represents great progress against our
plan.
From these strong foundations we will continue to invest for
growth and the rollout of our product roadmap as we enhance our
vertically integrated offer.
Aquinox has been successfully launched and is already being well
received by our customers.
While being mindful of the external environment we remain
optimistic about the future with the business in good shape to
continue to make further progress and deliver full year performance
in line with our expectations. With a substantial market
opportunity and the progress made, we remain well positioned for
the business to achieve its exciting potential.
Contacts:
Xaar plc
Ian Tichias, Chief Financial Officer +44 (0) 1223 423 663
John Mills, Chief Executive Officer
Teneo +44 (0) 207 353 4200
Giles Kernick
Olivia Lucas
A presentation for analysts and investors will be held via
webcast and conference call at 09:00 today. For further details,
please contact Xaar@teneo.com
Chairman's introduction
Into my third year as Chairman, I am delighted with the progress
that the business has made, operationally, commercially, and
strategically.
We are well positioned in growing markets, with a high-quality
leadership team, strong R&D and manufacturing capabilities, and
with technology that differentiates us from our competitors. In
addition, strong capital discipline is enabling continued
investment in growth opportunities.
Our central focus remains on our core competence of designing
and manufacturing world leading printheads. The continued
rebuilding and strengthening across all areas of our business has
resulted in a platform from which we can deliver reliable business
performance and meet the requirements of our customers.
We also have a clear focus on the value chain, placing our
customers at the centre of our business. We offer integrated
solutions in a wide number of market sectors, enabling more
consistent financial performance. The technical and competitive
advantages of the Xaar Bulk piezo product range has progressed well
with the launch of our latest printhead, Aquinox. This product
opens new markets to Xaar with its water-based capability, and we
were pleased to see the product launched to plan and on time,
reaffirming the expertise and focus we have across different teams
in the Group.
The Board is delighted with the progress that the management
team has made in re-energising the business and would also like to
thank our teams and partners worldwide for their commitment and
adaptability.
Continued strategic progress
This year's strong trading performance has been driven by all
elements of the business and momentum continues to build. A clear
strategy is now embedded across the Group with a focus on customer
needs and a drive to highlight the benefits delivered by adoption
of Xaar digital print technology.
This focus, along with our well-defined product roadmap has
increased the quality and responsiveness of the business, and
meaning we are well placed for further performance improvements. We
believe a significant opportunity exists in market sectors and
applications where Xaar technology provides commercial and
technical performance advantages.
Operational improvements have also been made. We have previously
discussed investing in our manufacturing facilities to improve
efficiency and lower costs, and the first phase of this programme
has now been completed. The Huntingdon factory re-organisation was
completed in early 2023 on time and on budget. This will enable us
to operate more efficiently, increase capacity and crucially
generates significant cost savings, especially in reducing our
energy consumption.
The acquisitions of FFEI and Megnajet have been successfully
integrated adding capability and broadening our product range. This
has increased our market opportunity and means Xaar is better
placed to support customers with the integration of our printhead
technology.
Our product print systems business, EPS, has had an excellent
year, with increased customer engagement leading to significant
revenue growth, higher gross margins and strong profitability.
Strong financial results
In what has proven to be another challenging year for the global
economy, the Group delivered strong sales growth of 23% (8%
organic) and achieved profitability for the year. We have taken
actions to build organisational strength and resilience, while
focussing on cost control and careful cash management.
Additionally, there has been investment to increase efficiency
and ensure consistency of operational performance. This will mean
the business is well placed to further deliver on the significant
opportunities ahead as external pressures ease.
As has been the case for many businesses, over the past year we
have been faced with unprecedented supply chain issues coupled with
rising global inflation. Through taking proactive measures with a
focus on managing our supply chain, investing in both raw materials
and higher levels of finished goods, we have been continually
strengthening our business resilience and maintaining uninterrupted
supply to our customers.
The Printhead business made good progress both commercially and
operationally during the year despite the ongoing impact of
COVID-19 related restrictions in China. Whilst sales volumes have
grown in the USA and remained stable in EMEA they declined
significantly in Asia. The Printhead business has nevertheless
performed well and responded to these difficulties in a proactive
and controlled manner.
As I discussed in my report last year, following challenges in
market demand and performance, a new management team was appointed
in EPS. This has led to a recovery in performance during 2022 with
a strong order book profile and excellent results. Revenue grew 41%
(24% in local currency USD), gross margin is back at pre-pandemic
levels and a full year profit delivered.
We are pleased with the progress made at FFEI and Megnajet.
Having only joined the group in July 2021 and March 2022
respectively, the integration of each business has been completed,
and performance is in line with our expectations.
Cash of GBP8.5 million and a robust balance sheet provides a
platform for further investment. This is after investment in
working capital movements of GBP12.2 million as we managed supply
chain constraints and ensured continued customer supply throughout
the factory shutdown in Q1 2023.
The Board has not declared a dividend in 2022. We continue to
believe that prioritising cash for investment in the business will
deliver more compelling returns for shareholders in the medium
term.
Committed to sustainability
We have made significant progress on ESG and the Group's
Sustainability Roadmap. The Board remains committed to the business
being carbon net zero by 2030. The Sustainability Roadmap
demonstrates clear industry leadership and establishes a firm
pathway for a more sustainable future. Decarbonisation remains a
key objective and we have started work on Scope 3 and TCFD Climate
Modelling for all Xaar Group sites which will be completed by early
2023.
We are passionate about delivering solutions and products for
our customers that are cleaner and healthier. Our products are well
placed to deliver significant benefits environmentally for our
customers through greater efficiency in power consumption and
reduction in water usage.
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. The
majority of our sites in the UK have moved to 100% renewable
energy. We aim to switch all contracts in the UK to renewable
electricity by the end of 2023. 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 young
university students and industry placements.
Driven by our people
The Board is delighted with the progress made by the Group this
year, in the context of a volatile external environment for both
businesses and individuals. I would like to thank all our employees
who have worked tirelessly to innovate, deliver for our customers,
and inspire and support each other with passion and integrity. Xaar
is a great company, and I am excited about what we can achieve in
the future.
Outlook
With strong foundations in place as a result of the progress in
our strategy over the last three years, the Board is optimistic
about the opportunities that lie ahead for the Group and for all
our stakeholders including employees, customers, and
shareholders.
Andrew Herbert
Chairman
28 March 2023
Strategy Update
Introduction
Over the last 3 years the Group has been transformed,
implementing a new strategy across the business, with a new
commercial model shifting our focus to very attractive end markets;
expanding our technology capabilities; and creating a growth
platform. This strategy is now delivering growth across the
business, and we are delighted the Group has returned to full year
profit.
At the same time, we have also invested significantly in
expanding our product and technology capabilities and updating our
infrastructure, strengthening our key resource - people - and
ensuring we have a robust platform to deliver future profitable
growth.
Despite the external macro challenges, we have delivered an
impressive performance in 2022 which is borne out in the financial
metrics. Our core Printhead business grew in all regions except
China which was impacted by COVID-19 restrictions for much of the
year, and we have successfully launched our new product Aquinox
with a commercial response that has exceeded our expectations.
During the year our US product print business, EPS, delivered
its best ever results and with the acquisition of Megnajet we now
have a resilient, diverse business well placed to meet the
significant market opportunity that exists.
Excellent strategic progress
The turnaround we have described is now at the end of its first
phase. We have established a clear strategy and we are ready for
the next stage to achieve enduring profitable growth.
The first phase was focused on stabilising the business and
establishing a clear strategy. Commercially this has seen the
Printhead business reduce complexity in its routes to market by
eliminating third party distributors and selling directly to OEMs
and UDIs. Our principal objective is to sell more printheads. We
provide an integrated solution for customers whereby they can
access more of the printing ecosystem, to include supporting
elements such as fluid management systems and the electronics
required for printing. We help our customers take advantage of the
inkjet opportunity, demonstrating to them that working with Xaar
means a higher chance of success by being faster to market, making
our customers' investment more profitable.
Our strategy is working, we are delivering on what we promised,
and the future remains exciting. With phase 1 of the business
transformation now complete. The business is stabilised, with a
strong management team, delivering profitability and a strong
platform on which to build.
Strong revenue growth, improved margin and full-year
profitability
We have delivered a strong performance in 2022 in line with our
expectations, further demonstrating the operational and strategic
progress across the Group. We have improved resilience and have
achieved the key milestone of delivering an adjusted profit before
tax for the year.
Despite the global macro-economic and political uncertainties,
we are successfully mitigating external challenges, principally the
cost of inflation and the ongoing COVID-19 impact in China.
Revenue for the year was GBP72.8 million representing growth of
23%. Organic growth, before the impact of FFEI and Megnajet
acquisitions was 8%.
Revenue grew in the US region by 54% and in EMEA by 20%. This
demonstrates the resilience we are developing in the business and
helped offset the decrease in revenue from Asia of GBP3.8 million
(32%).
Reduced revenue in China has impacted our Ceramics sector
printhead sales, however, we are confident in returning to previous
levels of trade with our customers in the region as COVID-19
restrictions continue to be lifted. Our commercial and technology
proposition remains compelling, and we have retained market share
in the region.
We have been able to demonstrate the strength of our technology
in market sectors beyond Ceramics and continue to see strong
customer engagement in areas where we have a competitive advantage
by enabling customers to reduce their own development times.
Our new product, Aquinox, was launched in November 2022. We have
received excellent feedback and significant customer engagement,
and early promising success indicators through strong sales of
development kits.
EPS has delivered an excellent performance. Revenue increased
41%, with growth across all its product lines, and digital inkjet
sales at the core of the success growing 54%. The proactive
decisions taken in the last two years to strengthen the management
team and rationalise the product range are delivering excellent
results and demonstrate the continued importance of the
business.
Our recent acquisitions, FFEI and Megnajet, are performing ahead
of our initial expectations. We are delighted with these
acquisitions and as a result we have an expanded product range
providing us real traction and opportunity in the printbar and
print engine markets, along with Fluid Management Systems.
With this revenue growth and the strong operational performance,
we have increased Gross Margins in Printhead and EPS, and overall
for the Group to 39% (2021: 34%).
While profit before tax from continuing operations of GBP0.8m
includes some underlying business unit losses (consisting of
Printhead GBP0.3m loss, EPS GBP2.8m profit, FFEI GBP0.3m loss and
Megnajet GBP0.4m profit) we can report positive adjusted EBITDA in
each of our businesses for 2022. Group adjusted EBITDA of GBP6.2
million, consists of Printhead adjusted EBITDA of GBP2.0 million,
EPS adjusted EBITDA of GBP3.1 million, FFEI adjusted EBITDA of
GBP0.5 million, and Megnajet adjusted EBITDA of GBP0.6 million.
This has enabled delivery of full year profitability for the
Group.
Investing for future growth
There has been further investment in capability and capacity
enabling us to take advantage of the opportunities which we expect
to drive our future growth ambitions.
During the year we acquired our fluid management system
business, Megnajet, for an initial consideration of GBP5.1 million.
The net cash outflow on acquisition was GBP3.5 million. This
acquisition further strengthens our ability to deliver to customer
needs, enhances our technology capability and expands the
vertically integrated product offering. It is already delivering
profitable growth ahead of expectations, enabling a quick payback
on the original investment.
We have invested in inventory, holding higher levels of both raw
materials and finished goods. This investment has been undertaken
in a controlled, proactive manner to enable continued production of
our products and customer supply. This is a vital part of our
strategy to ensure we meet customer demand. As supply chains
improve, we can look to reduce our raw materials holding although
we will do so in a cautious, well-managed way. Higher levels of
finished goods have enabled us to meet customer demand whilst the
factory is closed for reorganisation and will leave us well placed
to meet any increase in market demand.
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 the year we increased R&D investment by
GBP1.0 million.
Our underlying positive cash generation in the core business has
also enabled us to spend GBP5.4 million on maintenance and asset
improvement across the business during 2022.
Additionally, we have invested approximately GBP1.2 million in
our factory reorganisation project in Q1 2023. We expect a rapid
return on this investment due to the energy savings it will
provide, coupled with increased manufacturing efficiency.
This is the first phase of our transformation programme which
will result in modern, efficient and more environmentally
beneficial manufacturing facilities across the business.
Significant market opportunity
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
the medium and long-term opportunity for the business remains
significant. Whilst we have already grown market share in core,
mature markets such as Ceramics and Coding & Marking, further
growth opportunities exist as our technology is best-in-class and
we have a clear competitive advantage over our competitors.
We can capitalise on a number of sectors which need further
digitisation of printing to secure increased market opportunities.
These opportunities are typically in areas where fluid applications
are challenging, such as Flat Panel Display, Semiconductors,
Printed Electronics and Optics. We are well placed to succeed in
these markets as Xaar technology offers an unrivalled method of
non-contact, fluid deposition with incredible precision, control
and speed. .
Other markets that already use digital printing such as
architectural glass printing and 3D printing are tremendously
exciting as our technology has unique benefits that can give our
customers commercial advantage in reducing costs and lead times for
their products.
By providing an integrated solution for customers whereby they
can access more of the printing ecosystem, w e help our customers
take advantage of the Inkjet opportunity and working with Xaar
means a higher chance of success by being faster to market, and
therefore, making our customers' investment more profitable.
Ultimately this will help us in our overriding strategy to sell
more printheads.
We have seen increased customer engagement as our printhead
product range has expanded and our ability to offer a broader
solution to customers with fluid management systems and printbars,
which is evidenced by the increasing number of customers developing
machines with our products. Both our current product offering and
our product development programme will help drive our success in
meeting customer demand in these fast growing sectors.
Expansion of vertically integrated product offering
The acquisition of FFEI in July 2021 and Megnajet in March 2022
further widened our product offering for our OEM and UDI (User
Developer Integrator) customers with a broader product range
including print engines for adding effects and embellishments
digitally. FFEI has been successfully integrated and strengthens
Xaar's capabilities and skills and has seen the launch of a new
print engine product, the Xaar Versatex. This will accelerate
Xaar's existing growth strategy and widen the product portfolio
further engaging UDI customers. We have a growing pipeline with a
significant number of opportunities thanks to our technology
advantages. This platform provides further opportunities for
vertical integration, and we will strengthen our offering with more
products in the pipeline for 2023.
Megnajet is a global leader in the manufacture of ink supply
systems. We are delighted with the acquisition of the business
which has been successfully integrated into the Group, and we are
already benefiting from the expansion of our product offering.
The latest product powered by our ImagineX platform, our aqueous
printhead, Aquinox, was launched in November 2022. This is a
significant and tremendously exciting product for the Group and
enables us to compete in new sectors, such as Packaging and
Textiles, with a product that we believe will deliver superior
performance to any currently on the market. We have received
positive feedback from customers, evidenced by high engagement and
good sales of development kits.
EPS, our product print system business is performing well,
delivering high quality products to a variety of customer sectors.
As we explore further opportunities in the US, EPS can play an
increasing part in our strategy.
This approach has seen us deliver a more vertically integrated
product offering to a wider group of customers in more market
sectors.
Significantly improved operational capability
We have made further progress in building a world class
leadership team, making key appointments which will drive the
business in the next phase of our transformation. This has
strengthened our capability and experience across the business,
most notably in our Operations, R&D, Finance and Human
Resources functions. This improved operational capability also
includes further and continued investment in infrastructure such as
IT, manufacturing, and supply chain management. Our strong and
experienced leadership throughout the organisation is focussed on
delivering a clearly articulated strategy.
During the year we have continued to work on ensuring our values
are embedded into our culture. This ongoing focus on our values is
important to ensure we have a supportive culture with employees who
are engaged and empowered to succeed.
Continued commitment to sustainability
Xaar has made significant and positive progress to drive forward
its ESG commitments across our operations. We uphold the highest of
standards across our business and comply with all relevant
regulations in the territories in which we operate whilst enhancing
the working environment for our employees and minimising the
environmental impact of our products and operations.
During the year, Xaar launched its Sustainability Roadmap to
2030 which is a principal driver for positive change and investment
within the business. Led by our ESG Committee and a Sustainability
Team which is comprised of colleagues from across our business
operations, chaired by the Group Sustainability Manager; we have
been working hard to achieve our goals and ambitions across all
four sustainability pillars: Environment, People, Innovation and
Community.
Environment
Decarbonisation remains a key objective for us as we move
towards our goal of Net Zero operations by 2030. We are pleased to
report that we are working with an external partner to support us
with Scope 3 and TCFD Climate Modelling. This year we have offset
our regulatory Scope 1 and 2 carbon impact, making the Group a
carbon neutral inkjet manufacturer in 2022. We are committed to
continuing this practice on our journey to achieve complete carbon
neutrality in line with our 2030 goal.
We set a target to source 100% of our power from renewable
sources by the end of 2023 and excellent progress has been made.
Our move to Green energy is now complete in the UK, and we are
pleased to confirm that EPS is now also supplied with power
generated from renewable sources. We will continue to assess ways
to bring our remaining office locations in line with Green tariff
power.
All printhead packaging is now fully recyclable and we are
working towards complete packaging recyclability.
Xaar is committed to supporting decarbonisation of staff and
visitors' vehicles. In early 2022 we launched a salary sacrifice
scheme, supported by the UK government, to allow all UK staff the
ability to order electric vehicles (EV) through a company scheme.
We have also completed the installation of EV charging
infrastructure across our sites.
People
Supporting young people and nurturing their skills is key to our
ESG strategy and for this reason we have placed significant
emphasis on our Early Careers programme. As part of this, Xaar's
new Apprenticeship scheme is operational and our first intake is
working within our Logistics team. Further efforts are underway to
connect with local schools and colleges to allow future work
experience programmes to be developed. In the UK, Xaar supported
Learning at Work Week in May, which attracted 109 attendees across
9 events and resulted in 131 hours of learning.
We will further strengthen this approach in 2023 and plan to
hold Xaar Group workshops bringing together a cross functional
group of people with the aim of understanding what makes Xaar an
'employer of choice'. This will help to inform and shape our talent
attraction and retention strategies feeding into our wellbeing
programmes.
Innovation
We are currently researching ways to use biodegradable
structural parts in the manufacture of our products. An area of
focus is to find an alternative, more sustainable material than
Polylactic Acid (PLA) which is a biodegradable plastic used to
print the majority of our jigs and fixtures. Our Operations team
has successfully trialled the use of recycled PLA filaments
generated from returned and waste PLA. These are supplied in 100%
plastic-free sustainable packaging with easy to recycle cardboard
spools.
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 TF
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.
Product development and increased capability
Overall, the market opportunity for Xaar printheads is
significant. We have a unique roadmap of product development to
ensure we offer an increasingly vertically integrated commercial
strategy to capitalise on this market opportunity.
The, already successful, ImagineX platform will deliver a number
of 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, such as
Wide Format Graphics and Labels, The recently launched Aquinox is
positioned to drive our adoption in Packaging and Textiles. The
performance enhancements in our product roadmap give a clear path
for OEMs to upgrade their products and maintain their product
differentiation.
We have made strategic bolt-on acquisitions to the Group that
enable us to strengthen our customer offering and we will continue
to adopt this approach in the future as we look to continue
increasing our capability and become a fully integrated inkjet
product provider.
The strong operational gearing that exists in the business,
which has already delivered good margin growth, has greater
capacity to support further margin improvement in the medium term.
The business is well placed to move into the next phase of its
transformation and to deliver sustainable profitable growth in the
medium term.
Outlook
We have maintained our policy of increased investment in
inventory during H2 2021 and throughout 2022 which means we are
well placed to satisfy customer demand in 2023 and we believe we
have the supply chain resilience to withstand most disruption. We
are continuing to invest in the business adding skills, capability
and capacity and continue to work on delivering efficiency gains
aimed at improving gross margins and business profitability in the
medium term.
Sales volumes in the Printhead business continue to be affected
by the uncertainty in China, which is expected to continue in the
short term as Covid cases increase. At this stage it remains
unclear when normal levels of business will return, however we can
look forward to the medium-term future with confidence.
There is a positive momentum in the business, as is reflected in
our 2022 results. Customer engagement and sales orders have been
maintained in the first quarter of 2023, in line with our
expectations. As previously communicated, we expect the Huntingdon
factory re-organisation to impact the first half, however, given
continued progress and exciting product launches ahead, the Board
remains confident in delivering an outturn for the full year in
line with its expectations.
Business Performance
Revenue - Continuing Operations
Revenue for the Group of GBP72.8 million is an excellent
performance for the year, representing a year-on-year increase of
GBP13.5 million (2021: GBP59.3 million) of which Organic growth was
8% (GBP4.8 million).
Group revenue growth
Var
GBPm 2022 2021 %
Printhead 39.0 40.1 (3%)
----- ----- -----
EPS 19.6 13.9 41%
----- ----- -----
FFEI 5.5 5.3 4%
----- ----- -----
Organic growth 2022 vs
2021 64.1 59.3 8%
----- ----- -----
FFEI 6.1 - -
----- ----- -----
Megnajet 2.6 - -
----- ----- -----
Inorganic growth 2022 vs
2021 8.7 - -
----- ----- -----
Total Growth 72.8 59.3 23%
----- ----- -----
This result demonstrates momentum across the business,
mitigating short term challenges due to the ongoing restrictions in
China arising from COVID-19. Printhead revenue was down GBP1.1
million year on year, although outside China it increased 10%, and
EPS increased revenue by 41% (24% in USD). This performance across
the business demonstrates the positive customer engagement and
trust that is being regained across our customer base.
Group revenue by geographic region
GBPm H1 2022 H2 2022 FY 2022 FY 2021
PH EPS FFEI Total PH EPS FFEI Total PH EPS FFEI MJ Total PH EPS FFEI Total
MJ MJ
----- ---- ----- ----- ------ ----- ----- ----- ----- ------ ----- ----- ----- ---- ------ ----- ----- ----- ------
Americas 5.0 9.2 2.4 0.4 17.0 5.8 10.1 2.4 0.9 19.2 10.8 19.3 4.8 1.3 36.2 7.3 13.9 2.4 23.6
----- ---- ----- ----- ------ ----- ----- ----- ----- ------ ----- ----- ----- ---- ------ ----- ----- ----- ------
Asia 4.5 - 0.1 - 4.6 3.0 0.2 - 0.4 3.6 7.5 0.2 0.1 0.4 8.2 11.9 - 0.1 12.0
----- ---- ----- ----- ------ ----- ----- ----- ----- ------ ----- ----- ----- ---- ------ ----- ----- ----- ------
EMEA 11.2 - 3.6 0.2 15.0 9.5 0.1 3.1 0.7 13.4 20.7 0.1 6.7 0.9 28.4 20.9 2.8 23.7
----- ---- ----- ----- ------ ----- ----- ----- ----- ------ ----- ----- ----- ---- ------ ----- ----- ----- ------
Total 20.7 9.2 6.1 0.6 36.6 18.3 10.4 5.5 2.0 36.2 39.0 19.6 11.6 2.6 72.8 40.1 13.9 5.3 59.3
----- ---- ----- ----- ------ ----- ----- ----- ----- ------ ----- ----- ----- ---- ------ ----- ----- ----- ------
Megnajet was acquired on 2 March 2022, figures reflected in the
table above are 10 months of post-acquisition revenue.
Group revenues were GBP36.6 million in the first half of the
year and GBP36.2 million in the second half. This reflects the
consistent performance of EPS, which has offset the impact on
Printhead revenue of the restrictions in China in the second half
of the year.
Revenue from the Americas grew year-on-year across the Group,
rising GBP12.6 million (2022: GBP36.2 million, 2021: GBP23.6
million). The increase, driven by the recovery in EPS revenue,
along with strong growth in US printhead sales demonstrates the
wider geographic opportunity that exists for the business.
Performance in Asia, and China in particular, has been impacted
by the ongoing COVID-19 restrictions in China, which has resulted
in revenue declining from GBP12 million in 2021 to GBP8.2 million.
The restrictions have delayed product development and sales for our
customers and consequently sales of printheads for Xaar. As this
region has been a key driver for growth in Printhead in the
previous two years, the impact in the second half of 2022 has been
significant. However, the work we have done in the last two years
to re-engage Chinese Ceramics OEM customers means they understand
and are interested in our new products and roadmap. Accordingly, we
are well placed to meet the high demand in the region as the COVID
restrictions are lifted.
Revenue in EMEA has increased from GBP23.7 million to GBP28.4
million driven by our wider product offering through FFEI and
Megnajet, contributing to an increase for the Group of GBP4.7
million (20%).
Printhead Revenue by Sector
GBPm H2 2022 FY 2022 FY 2021 Var
H1 2022 Var %
Ceramics & Glass 9.8 7.2 17.0 19.0 (2.0) (11%)
-------- -------- -------- -------- ------ ------
C&M and DTS 6.8 5.8 12.6 11.1 1.5 14%
-------- -------- -------- -------- ------ ------
WFG & Labels 1.8 3.0 4.8 6.2 (1.4) (23%)
-------- -------- -------- -------- ------ ------
3D Printing & AVM 1.9 2.0 3.9 2.4 1.5 62%
-------- -------- -------- -------- ------ ------
Packaging & Textiles 0.1 0.4 0.5 0.8 (0.3) (38%)
-------- -------- -------- -------- ------ ------
Royalties, Commissions &
Fees 0.2 - 0.2 0.6 (0.4) (67%)
-------- -------- -------- -------- ------ ------
Total 20.6 18.4 39.0 40.1 (1.1) (3%)
-------- -------- -------- -------- ------ ------
Printhead revenue for the year fell by GBP1.1 million to GBP39.0
million (2021: GBP40.1 million). The second half of 2022 saw
revenue decrease by 8% (GBP1.6 million) compared to H2 2021
(GBP19.9 million), following growth of GBP0.5 million in the first
half of the year. This is due to the impact of customers based in
China predominantly in the Ceramics sector. Our technology offering
proved successful in a wider number of other sectors, which has
partially mitigated this decrease.
Growth in the year was achieved in 3D Printing, Coding and
Marking (C&M) and Décor sectors. This is pleasing as it further
proves our core technology can be successful in many applications
and our customers increasingly benefit from the advantages our
technology brings. Despite revenue in the Ceramics and Glass sector
declining GBP2 million (11%) we have not lost market share during
the year as the fall can be attributed to the reduction in orders
received by our OEMs in China themselves. We have been able to
consistently demonstrate our clear technology advantages in the
Chinese Ceramics market, where we have regained trust with our
customers. We have also established a market leading position in
the Glass sector. Together with our extended product portfolio we
expect to return to growth in this sector during 2023 as the
negative external market factors subside.
Coding and Marking (C&M) and Direct-to-Shape (DTS) revenues
have grown by GBP1.5 million (14%) further demonstrating our
ability to expand our market reach with a wider product
offering.
An increasingly exciting opportunity for us is the 3D printing
market, and we expect this sector to grow significantly in the
future. Revenue in 3D Printing and Advanced Manufacturing (AVM)
together grew GBP1.5 million (62%) in 2022. Both 3D Printing and
AVM are markets where we are well positioned to take advantage of
growth opportunities, and although development cycles can be long,
which means extended timescales for a customer to reach full
production, the market opportunity is significant.
Wide Format Graphics (WFG) and Labels revenue fell in the year
from GBP6.2 million to GBP4.8 million. This is an area which has
also been impacted with delays in orders, largely COVID-19 related,
and we also need further product development.
Revenues from Packing & Textiles remain modest. Our ability
to target this sector effectively has been somewhat limited by our
product range, although the launch of the Aquinox printhead will
start to address this. However, advancements in the product
portfolio driven by the ImagineX platform should make this large
sector more accessible in the future. Full year revenue of GBP0.5
million was down year-on-year (2021: GBP0.8 million).
EPS Revenue by Sector
GBPM H1 2022 H2 2022 FY 2022 FY 2021 Var Var %
Digital
Inkjet 5.7 6.7 12.4 8.0 4.4 +54%
-------- -------- -------- -------- ---- ------
Pad Printing 3.3 3.4 6.7 5.5 1.2 +22%
-------- -------- -------- -------- ---- ------
Other 0.2 0.3 0.5 0.4 0.1 +34%
-------- -------- -------- -------- ---- ------
Total 9.2 10.4 19.6 13.9 5.7 +41%
-------- -------- -------- -------- ---- ------
Revenue from the EPS business increased by GBP5.7 million to
GBP19.6 million (2021: GBP13.9 million) as the new commercial
approach has seen some significant customer order wins.
Growth has been achieved across all product groups with a
particularly strong performance in the core area of digital inkjet
machine sales which have grown GBP4.4 million (54%). This is
particularly pleasing as it continues to be the focus for the
business in the future. Pad print machine revenue has also risen
22% and the increased focus on consumables and accessory sales have
also contributed to the growth as a result of the change in
commercial approach, with increased revenue from ink, plates and
parts. The order book remains strong and we are well placed to
deliver further growth in 2023 as companies increasingly invest in
capital equipment.
Gross profit
Gross profit for the year increased by GBP8.4 million to GBP28.6
million (2021: GBP20.2 million) with an increase in the gross
margin to 39% (2021: 34%). This was primarily the result of an
improvement in the Printhead business unit's gross margin which
grew from 38% to 43%, and EPS which moved from 23% to 40%.
In Printhead we increased utilisation of the factory as
production volumes were increased during the year resulting in
better overhead cost recovery, supporting margin gains.
There was also continued investment to secure raw materials to
reduce further supply chain risks. Although there are indications
of easing in the global supply chain, we remain cautious and have
continued to focus on meeting customer demand. We have increased
our working capital with inventory rising GBP10.3 million (2021:
GBP9.1 million increase in inventory). The higher level of finished
goods will ensure continued supply to customers during our factory
re-organisation shutdown and enable us to capitalise on any uplift
in demand across all our market sectors. This higher level of both
raw materials and finished goods is a deliberate, prudent approach
which we believe will see us well placed to both manage customer
requirements and further insulate the business from external supply
chain risks.
We remain focussed on cost saving initiatives which will
continue to deliver efficiency gains and support our Gross
Margin.
Gross profit for the EPS business grew GBP4.6 million in the
year to GBP7.8 million (2020: GBP3.2 million). The actions taken to
refocus the business which impacted 2021 results (non-cash write
down adjustments totalling GBP0.7 million), left the business in a
good position to meet the increased market demand for capital
equipment in the US which has driven this much improved
performance.
Both FFEI and Megnajet have performed ahead of our expectations
made when we acquired the businesses. They are strong contributors
to the performance of the Group, with FFEI delivering Gross Profit
of GBP3.5 million (at 30% gross margin), and Megnajet GBP0.8
million (Gross Profit of 33%).
Research & Development spend
R&D spend of GBP6.7 million was up GBP1.0 million on 2021
(2021: GBP5.7 million). This spend reflects further investment in
the ImagineX platform which continues to be central to our
long-term growth and ongoing product roadmap. We increased spend in
FFEI to GBP1.2 million (2021: GBP0.4 million) which enhances the
support for our vertically integrated product offering. The total
increase maintains our spend/revenue ratio in the desired range of
8-11% and is broadly in proportion with our revenue growth.
Operating Expenses
Sales and marketing spend for the year was GBP6.7 million (2021:
GBP6.3 million). The increase in spend of GBP0.4 million
year-on-year reflects the increased business size along with the
focus on sales and business development in the Printhead business.
This has seen some increase in commercial travel expenses although
we are taking a focussed, targeted approach to managing these
costs.
General and administrative expenses increased GBP4.0 million
from GBP10.1 million in 2021 to GBP14.1 million in 2022. The
increase largely relates to planned investment in key areas of the
business and infrastructure, including Operations, IT and Finance,
partially offset by, GBP1.2 million related to trading foreign
exchange gains in 2022. This largely relates to key appointments in
the senior management team and infrastructure upgrades.
Restructuring and transaction costs of GBP0.5 million (2021:
GBP1.4 million) predominantly relate to re-organisation costs and
acquisition-related professional fees.
Profit for the Year
The profit before tax from continuing operations under IFRS was
GBP0.8 million in 2022 (2021: GBP1.0 million profit). Basic
Earnings per share from continuing operations was 2.3p (2021:
0.9p).
The performance of the Printhead business moved from a GBP2.2
million profit in 2021 to a GBP0.3 million loss in 2022. Despite a
much-improved gross margin, and a close control in operating
expenditure, the revenue reduction and external inflationary
pressures resulted in a small loss. The EPS business moved from a
GBP0.9 million loss in 2021 to a GBP2.8 million profit in 2022 due
to the improved performance.
FFEI delivered a loss of GBP0.3 million (2021: Profit of GBP0.4
million).
Megnajet contributed a profit before tax of GBP0.4 million since
acquisition on 3rd March 2022.
In calculating the adjusted loss before tax we have adjusted for
gains on derivative financial liabilities of GBPnil (2021: GBP2.9
million) and fair value loss on financial assets GBP8,000 (2021:
GBP1.0 million gain) alongside restructuring costs of GBP0.5
million, foreign exchange gains on intra-group loans of GBP0.8
million, and share-based payments of GBP1.7 million with an R&D
expenditure credit of GBP0.4 million and amortisation of acquired
intangible assets of GBP1.0 million.
The adjusted profit before tax from continuing operations was
GBP2.8 million, compared to GBP0.6 million loss in 2021. This is a
significant step forward for the business, emphasised by the
delivery of adjusted profit in the year.
The adjusted EBITDA for continuing operations in the year was
GBP6.2 million (2021: GBP3.2 million).
The Group profit for the year was GBP1.6 million (2021: GBP14.2
million profit) all of which is attributable to the owners of the
company, (2021: GBP16.2 million profit with a GBP2.0 million loss
to non-controlling interests). Group profit for the year from
continuing operations was GBP1.8 million (2021: GBP0.7 million).
The total basic earnings per share attributable to shareholders is
2.1p (2021: profit 20.9p).
Cash generation
The Group retained a healthy cash balance of GBP8.5 million at
the year end, representing a decrease of GBP16.5 million during the
year. Operating cash flow, before working capital, was positive by
GBP6.6 million driven by the improved aEBITDA across the business
of GBP6.2 million.
As a result of the managed investment in inventory, working
capital saw an outflow of GBP12.2 million, mainly due to the GBP9.5
million increase in inventory.
During 2022 we purchased Megnajet for an initial net cash outlay
of GBP3.5 million as well as a further deferred payment for FFEI of
GBP1.7 million. This investment in the business is enhancing our
capabilities and supports the strategy of selling more printheads
through offering a more vertically integrated solution to
customers. Additionally, we invested GBP5.4 million on key
infrastructure and product development.
The business has a clear plan and strategy which the strong
balance sheet and cash position will support. There remain external
development opportunities which, if they can expand our
capabilities and expertise, we will look to potentially add to the
Group. We will also continue to invest internally to ensure we have
the operational capacity and efficiency to meet future demand,
alongside investment in our product roadmap development.
The Group maintains a strong disciplined focus on cash, and this
will continue throughout 2023.
Cash Flow - Total Operations 2022 2021
GBP'm GBP'm
Operating cashflows before movement in working
capital 6.6 (2.2)
------- -------
Movement in working capital (12.2) -
------- -------
Taxes received 0.1 0.2
------- -------
Net cash (used in)/provided by investing activities (8.6) 7.8
------- -------
Net cash used in financing activities (2.9) (0.7)
------- -------
Effect of foreign exchange rate changes on cash
balances 0.5 (0.1)
------- -------
Net (decrease)/increase in cash and cash equivalents (16.5) 5.0
------- -------
Strong balance sheet
Non-current assets increased GBP5.2 million in the year from
GBP46.8 million to GBP52.0 million. This was driven by the increase
in Goodwill following the acquisition of Megnajet of GBP1.3
million, along with an increase in intangible assets of GBP4.7
million. The recognition of financial assets at fair value arising
from the sale of 3D assets was GBP11.1 million (2021: GBP11.9
million). Additionally, there was a GBP0.1 million reduction in
Property, Plant and Equipment as new purchases were controlled in
with line with the Group's cash focus and a decrease in right of
use assets of GBP0.8 million.
Current assets decreased GBP4.1 million from GBP54.6 million in
2021 to GBP50.5 million. A significant proportion of this decrease
is attributable to the decrease in cash and cash equivalents
holding of GBP16.5 million. The increase in Inventories of GBP10.3
million to GBP29.1 million (2021: GBP18.8 million) was associated
to the managed investment in our supply chain capability. Trade and
other receivables increased by GBP1.3 million to GBP11.5 million
(2021: GBP10.2 million).
Overall, current liabilities of GBP20.5 million (2021: GBP20.5
million) remained flat year-on-year. A reduction in Trade and other
payables of GBP1.1 million to GBP14.9 million (2021: GBP16 million)
was offset by increases in Provisions for restructuring and
warranties by GBP0.1 million, an increase in current lease
liabilities of GBP0.3 million to GBP1.0 million (2021: GBP0.7
million) and a GBP0.3 million increase in Contract Liabilities. The
Group also arranged an invoice financing facility in the year and
as at 31(st) December the balance borrowed was GBP0.4 million.
Non-current liabilities reduced by GBP2.0 million to GBP10.2
million (2021: GBP12.2 million), which mainly relates to lease
liabilities recorded under IFRS 16 for property which reduced by
GBP0.7 million to GBP7.8 million (2021: GBP8.5 million) in the
year. Additionally, further deferred consideration payments due in
2023 have now become current, reducing the balance of other
financial liabilities from GBP3.4 million to GBP2.1 million.
Dividend
No dividend has been declared for 2022 as the Board believes
that prioritising cash for continued investment in the business
will deliver more compelling returns for shareholders in the medium
term.
John Mills Ian Tichias
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER
2022
2022 2021
Notes GBP'000 GBP'000
-------------------------------------- ------ --------- ---------
Revenue 3 72,782 59,254
Cost of sales (44,138) (39,064)
-------------------------------------- ------ --------- ---------
Gross profit 28,644 20,190
Other income 2 139 -
Research and development expenses (6,718) (5,706)
Research and development expenditure
credit 379 270
Sales and Marketing expenses (6,669) (6,342)
General and administrative expenses (14,050) (10,070)
(Impairment)/impairment reversal
on financial assets (28) 388
Restructuring and transaction
expenses 2 (450) (1,404)
Fair value (loss)/gain on financial
assets at FVPL (8) 987
Gain on derivative financial
liabilities - 2,919
Operating profit 1,239 1,232
Investment income 38 4
Finance costs for leases (453) (242)
-------------------------------------- ------ --------- ---------
Profit before tax 824 994
Income tax credit/(expense) 967 (299)
-------------------------------------- ------ --------- ---------
Profit for the period from
continuing operations 1,791 695
(Loss)/profit from discontinued
operations after tax 5 (159) 13,533
-------------------------------------- ------ --------- ---------
Profit / (loss) for the year 1,632 14,228
-------------------------------------- ------ --------- ---------
Attributable to:
Owners of the Company 1,632 16,219
Non-controlling interests - (1,991)
-------------------------------------- ------ ---------
Profit / (loss) for the year 1,632 14,228
-------------------------------------- ------ --------- ---------
Earnings/(loss) per share -
Total
Basic 4 2.1p 20.9p
Diluted 4 2.0p 20.6p
-------------------------------------- ------ --------- ---------
Earnings/(loss) per share - Continuing operations
Basic 2.3p 0.9p
Diluted 4 2.2p 0.9p
-------------------------------------- ------ --------- ---------
There were no dividends paid during the current and preceding
year.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER
2021
2022 2021
GBP'000 GBP'000
------------------------------------------ -------- --------
Profit / (loss) for the year 1,632 14,228
------------------------------------------- -------- --------
Items that may be reclassified subsequently to profit or
loss:
Exchange differences on translation
of net investment 617 143
Other comprehensive income/(loss)
for the year 617 143
------------------------------------------- -------- --------
Total comprehensive loss for
the year 2,249 14,371
------------------------------------------- -------- --------
Total comprehensive loss attributable
to:
Owners of the Company 2,249 16,366
Non-controlling interests - (1,995)
------------------------------------------- -------- --------
2,249 14,371
------------------------------------------ -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Restated
2022 2021
GBP'000 GBP'000
-------------------------------------- --------- ---------
Non-current assets
Goodwill 7,163 5,894
Other intangible assets 8,681 4,043
Property, plant and equipment 16,104 16,226
Right of use asset 8,068 8,829
Financial asset at FVPL 11,089 11,850
Deferred tax asset 726 -
Other non-current assets 136 -
--------- ---------
51,967 46,842
-------------------------------------- --------- ---------
Current assets
Inventories 29,148 18,839
Trade and other receivables 11,527 10,161
Current tax asset 735 531
Financial asset at FVPL 517 -
Cash and cash equivalents 8,546 25,051
--------- ---------
50,473 54,582
--------- ---------
Total assets 102,440 101,424
-------------------------------------- --------- ---------
Current liabilities
Trade and other payables (14,862) (15,971)
Provisions (405) (264)
Contract liabilities (3,799) (3,541)
Borrowings and financial liabilities (379) -
Lease liabilities (1,032) (692)
-------------------------------------- --------- ---------
(20,477) (20,498)
-------------------------------------- --------- ---------
Net current assets 29,996 34,114
-------------------------------------- --------- ---------
Non-current liabilities
Deferred tax liabilities - (1)
Lease liabilities (7,800) (8,499)
Provisions (300) (300)
Other financial liabilities (2,094) (3,354)
Total non-current liabilities (10,194) (12,154)
-------------------------------------- --------- ---------
Total liabilities (30,671) (32,622)
-------------------------------------- --------- ---------
Net assets 71,769 68,802
-------------------------------------- --------- ---------
Equity
Share capital 7,844 7,844
Share premium 29,427 29,427
Own shares (775) (1,923)
Translation reserves 1,628 1,011
Other reserves 23,379 21,820
Retained earnings 10,266 10,623
--------------------------------------
Total equity 71,769 68,802
-------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31
DECEMBER
2022
Non-controlling
Share Share Own Translation Other Retained Total
capital premium shares reserves reserves earnings Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Balance at 1
January 2021 (as
restated) 7,833 29,328 (1,957) 864 21,167 (5,564) 51,671 3,771 55,442
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Profit for the
year - - - - - 16,219 16,219 (1,991) 14,228
Tax on items - - - - - - - - -
taken directly
to
equity
Exchange
differences on
retranslation
of net
investment - - - 147 - - 147 (4) 143
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Total
comprehensive
loss for
the period as
reported - - - 147 - 16,219 16,366 (1,995) 14,371
Own shares sold
in the period - - 34 - - - 34 - 34
Share option
exercises 11 99 - - - (32) 78 - 78
Credit to equity
for
equity-settled
share-based
payments - - - - 653 - 653 - 653
Derecognition of
non-controlling
interest - - - - - - - (1,776) (1,776)
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Balance at 31
December 2021 7,844 29,427 (1,923) 1,011 21,820 10,623 68,802 - 68,802
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Profit for the
year - - - - - 1,632 1,632 - 1,632
Tax on items - - - - - - - - -
taken directly
to
equity
Exchange
differences on
retranslation
of net
investment - - - 617 - - 617 - 617
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
Total
comprehensive
income for
the period - - - 617 - 1,632 2,249 - 2,249
Own shares
purchased in the
period - - (1,000) - - - (1,000) - (1,000)
Own shares sold
in the period - - 2,148 - - - 2,148 - 2,148
Share option
exercises and
settlements - - - - - (1,989) (1,989) - (1,989)
Credit to equity
for
equity-settled
share-based
payments - - - - 1,559 - 1,559 - 1,559
Balance at 31
December 2022 7,844 29,427 (775) 1,628 23,379 10,266 71,769 - 71,769
------------------ -------- -------- -------- ------------- ---------- ---------- -------- ---------------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
2022 2021
GBP'000 GBP'000
------------------------------------------------ --------- ----------------
Profit before tax from continuing operations 824 994
(Loss)/profit before tax from discontinued
operations (159) 13,503
------------------------------------------------ --------- ----------------
Total Profit before tax 665 14,497
------------------------------------------------ --------- ----------------
Adjustments for:
Share-based payments 1,748 758
Depreciation of property, plant and equipment 2,654 3,318
Depreciation of right of use assets 1,071 871
Amortisation of intangible assets 1,067 475
Impairment of assets 147 -
Research and development expenditure credit (379) (582)
Investment income (38) (4)
Interest expense 453 252
Unrealised Foreign exchange gains (797) (23)
Gain on remeasurement of derivative liability - (2,919)
Payment of cash settled share-based payments (249) -
Fair value loss/(gain) on financial assets
at FVPL 8 (987)
Loss on disposal of property, plant and
equipment 80 77
Profit on disposal of investment in subsidiary - (17,899)
Increase/(decrease) in provisions 141 (74)
------------------------------------------------ --------- ----------------
Operating cash flows before movements
in working capital 6,571 (2,240)
------------------------------------------------ --------- ----------------
Increase in inventories (9,462) (7,964)
Decrease/(increase) in receivables (812) (1,525)
(Decrease)/increase in payables (1,914) 9,525
------------------------------------------------ --------- ----------------
Cash utilised by operations (5,617) (2,204)
------------------------------------------------ --------- ----------------
Net Taxes received 112 150
------------------------------------------------ --------- ----------------
Net cash used in operating activities (5,505) (2,054)
------------------------------------------------ --------- ----------------
Investing activities
Investment income 38 13
Treasury deposits (deposited)/withdrawn - 161
Purchases of property, plant and equipment (2,456) (1,876)
Proceeds from disposal of property, plant
and equipment 17 209
Purchases of Intangible assets (2,933) (38)
Cash earn-out received from financial assets 236 -
at FVPL
Proceeds from disposal of investment in
subsidiary - 9,272
Cash attributable to subsidiary sold - (96)
Acquisition of Megnajet net of cash acquired
(2021:acquisition of FFEI) (1,202) 168
Asset acquisition (Technomation), net of
cash acquired (2,334)
------------------------------------------------ --------- ----------------
Net cash (used in)/ provided by investing
activities (8,634) 7,813
------------------------------------------------ --------- ----------------
Financing activities
Proceeds from sale of own shares 408 150
Proceeds from sales of ordinary share capital (1,000) -
Payment of deferred consideration (1,733) -
Payment of lease liabilities and related
interest (914) (824)
Net inflows from invoice discounting facility 346 -
Other interest paid (22) -
------------------------------------------------ --------- ----------------
Net cash used in financing activities (2,915) (674)
------------------------------------------------ --------- ----------------
Net (decrease)/increase in cash and cash
equivalents (17,054) 5,085
------------------------------------------------ --------- ----------------
Effect of foreign exchange rate changes
on cash balances 549 (110)
Cash and cash equivalents at beginning
of year 25,051 20,076
------------------------------------------------ --------- ----------------
Cash and cash equivalents at end of year 8,546 25,051
------------------------------------------------ --------- ----------------
Cash and cash equivalents (which are presented as a single class
of asset on the face of the consolidated statement of financial
position) comprise cash at bank and other callable deposits with a
notice period of 3 months or less. The carrying amount of these
assets is approximately equal to their fair value.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEARED 31 DECEMBER 2021
1. Basis of preparation and accounting policies
Basis of preparation
The Group financial statements have been prepared in accordance
with UK adopted International Accounting Standards (IAS). The
financial information has been prepared on the basis of all
applicable IFRS, including all International Accounting Standards
(IAS), Standing Interpretations Committee (SIC) interpretations and
International Financial Reporting Interpretations Committee (IFRIC)
interpretations issued by the International Accounting Standards
Board (IASB) that are applicable to the financial period.
The financial statements have been prepared on the historical
cost basis, except for the revaluation of financial instruments.
The Group financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (GBP'000) except
when otherwise indicated. The principal accounting policies adopted
are set out below.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out on pages 3 to 14. Notes 21 and 22 of the Annual Report
and Accounts include a description of the Company's objectives,
policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and
hedging activities; and its exposure to credit risk and liquidity
risk. The Group's day-to-day working capital requirements are
expected to be met through the current cash and cash equivalent
resources (including treasury deposits) at the balance sheet date
of 31 December 2022 of GBP8.5 million. The Group have a GBP5m
invoice discounting facility, of which GBP0.4 million was drawn as
at the Balance Sheet date.
The Group has prepared and reviewed monthly profit and cashflow
forecasts which cover a period up to 30 June 2024, the going
concern period. This base case forecast position has been compiled
by considering the performance of the different businesses across
the Group and each of their funding requirements which represents
the current Board approved forecasts. These forecasts reflect
existing technologies and products, existing OEM adoption, the
committed order pipeline, an increasing customer install base and
demand for consumables such as fluids across the customer base and
no specific risks around creditworthiness. This creates a high
degree of predictability within the short term cashflows, which
have been factored in to the level of sensitivity testing and
reverse stress testing performed below. The operational steps
described in the Strategic Report also provide increased
predictability over future margins, which have been incorporated in
this base case forecast. Using this base case, liquidity compliance
has been assessed across the going concern period and is sufficient
to enable the Group to settle its obligations as they fall due.
To support the going concern conclusion, a sensitivity analysis
has been performed which models a 10% reduction in revenue and 2%
reduction in gross margin in comparison to the base case and is
below the reported FY22 actual result. The outcome of this
sensitivity analysis is that the Group maintain liquidity across
the going concern period and are able to meet all forecasted
obligations as they fall due. A reverse stress scenario has also
been performed to model the circumstances required to eliminate
available liquidity during the going concern period. This includes
reducing revenues and reducing gross margin. This reverse stress
scenario requires a reduction in revenue in excess of 25% in
comparison to the base case and is below the reported FY22 actual
result, as is the assumed margin. The Directors believe the
possibility of this combination of severe downsides arising to be
remote given the recurring revenue base and predictability of
forecasts, and that there are numerous controllable mitigating
actions such as deferring non-committed capital expenditure and
reducing performance related pay which could be taken to avoid a
liquidity breach.
Should extreme downside scenarios occur, the Group has further
options within their control to mitigate a cash shortfall which
have not been factored into the above forecasts and stress testing,
such as staffing reductions, further delaying/stopping capital and
research and development expenditure and aligning performance
related pay to actual results. The Group also have received credit
pre-approval for a GBP5 million revolving credit facility. No
drawdowns have been assumed during the going concern period, nor
are they required in the sensitivity or reverse stress scenarios
described above and as such the facility would provide additional
liquidity headroom to the Group across the going concern
period.
Based on the above, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the period to 30 June 2024. For this reason, we
continue to adopt the going concern basis in preparing the
financial statements.
2. Reconciliation of adjusted financial measures
2022 2021
GBP'000 GBP'000
-------------------------------------------- --- -------------------- -------------------
Profit before tax from continuing
operations 824 994
------------------------------------------------- -------------------- ---------------------
Share-based payment charges 1,748 758
Exchange differences on intra-group
transactions (811) 95
Gain on derivative financial liabilities - (2,919)
Restructuring and transaction expenses 450 1,404
R&D Expenditure credit (379) (270)
Fair value gain on financial assets
at FVPL 8 (987)
Amortisation of acquired intangible
assets 982 354
Adjusted profit/(loss) before tax
from continuing operations 2,822 (571)
Interest income (38) (4)
Finance costs 453 242
Depreciation of property, plant and
equipment 2,654 3,318
Amortisation of intangible assets
(other than acquired intangibles) 85 121
Profit on asset disposal 80 77
Impairment of assets 147 -
-------------------------------------------- --- -------------------- -------------------
Adjusted EBITDA from continuing operations 6,203 3,183
------------------------------------------------- -------------------- -------------------
EBITDA is calculated as statutory operating profit before
depreciation (other than that arising from IFRS16 accounting),
amortisation and impairment of property, plant and equipment,
intangible assets and goodwill. Adjusted EBITDA is calculated as
EBITDA excluding other adjusting items as defined.
Adjusted financial measures are alternative performance
measures, which adjust for recurring and non-recurring items that
management consider to have a distorting effect on the underlying
results of the Group.
Share-based payment charges include the IFRS 2 charge for the
period of GBP1,559,000 (2021: GBP653,000) and the debit relating to
National Insurance on the outstanding potential share option gains
of GBP189,000 (2021: GBP105,000).
Exchange differences relating to the United States and Swedish
operations represent exchange gains or losses recorded in the
consolidated income statement as a result of intragroup
transactions in the United States and Sweden. These costs were
included in general and administrative expenses in the consolidated
income statement.
Gain on derivative financial instruments relates to gains made
on call option contracts which were exercised in 2021. These
amounts are included on the consolidated income statement under
gain on derivative financial liabilities.
Restructuring and transaction expenses of GBP450,000 (2021:
GBP1,404,000) relate to costs incurred and provisions made in
relation to acquisition transactions of GBP194,000 (2021:
GBP961,000) and re-organisation costs. The calculated impact of the
restructuring and transaction expenses at the corporation tax rate
of 19% would be GBP32,000 based on the expenses included that would
be treated as tax deductible (2021: GBP52,000). The cash paid
related to restructuring and investment expenses is GBP792,000
(2021: GBP992,000).
The research and development expenditure credit relates to the
corporation tax relief receivable relating to qualifying research
and development expenditure. This item is shown on the face of the
consolidated income statement. Cash receipts of GBP198,000 received
during the year were in relation to the Xaar RDEC claim which
related to the claim for the year ended 31 December 2020. In 2021
GBP219,000 was received in relation to the FFEI RDEC and R&D
claim which related to their financial year 1 April 2020 to 31
March 2021.
The fair value loss of GBP8,000 (2021: GBP987,000 gain) on
financial assets at fair value through profit and loss relates to
the sale of Xaar 3D Limited. The net consideration includes
contingent consideration that is valued and reported at fair value.
The fair value movement is recognised in the income statement as
fair value loss on financial assets at fair value through profit
and loss.
The amortisation of acquired intangible assets relates to the
acquisition of FFEI Limited in 2021 and the acquisition of Megnajet
Limited and Technomation Limited in 2022. These include software,
patents and customer relationships for FFEI which are being
amortised over six years and IP, brand and customer relationships
for Megnajet and Technomation which are being amortised over eight
to ten years. These costs were included in general and
administrative expenses in the consolidated income statement.
2022 2021
Pence per Pence per
Notes share share
Basic earnings per share continuing
operations 4 2.3p 0.9p
------------------------------------------ ------ ---------- ----------
Share-based payment charges 2.3p 1.0p
Exchange differences on intra-group
transactions (1.1p) 0.1p
Gain on derivative financial liabilities - (3.8p)
Restructuring and transaction expenses 0.6p 1.8p
Research and Development Credit (0.5p) -
Fair value gain on financial assets
at FVPL - (1.3p)
Amortisation of acquired intangible
assets 1.3p 0.5p
Tax effect of adjusting items (0.1p) (0.2p)
Adjusted basic earnings/(loss) per share 4.8p (1.0p)
------------------------------------------ ------ ---------- ----------
This reconciliation is provided to align with how the Board
measures and monitors the business at an underlying level, and is a
measure used in establishing remuneration.
3. Business segments
For management reporting purposes, the Group's operations are
analysed according to the four operating segments of 'Printhead',
'Product Print Systems', 'Digital Imaging' and 'Ink Supply
Systems'. These four 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. Each business unit is run
independently of the others and headed by a general manager. The
Group's chief operating decision maker is the Chief Executive
Officer. There is no aggregation of segments for disclosure
purposes.
Digital Imaging was added in the second half of 2021 as a result
of the acquisition of FFEI and Ink Supply Systems was added in the
first half of 2022 as a result of the acquisition of Megnajet on 2
March 2022.
Segment information for continuing operations is presented
below:
Product
Print Digital Ink Supply
Printhead Systems Imaging Systems Unallocated Consolidated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2022
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
Revenue
Total segment revenue 39,042 19,624 11,633 2,483 - 72,782
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
Result from continuing
operations
Adjusted (loss) / gain
before tax (754) 2,756 198 622 - 2,822
Share-based payment
charges - - - - (1,748) (1,748)
Exchange differences
on intra-group transactions 811 - - - - 811
Restructuring (429) - - (21) - (450)
Gain on derivative - - - - - -
financial liabilities
Research & development
expenditure credit 83 - 296 - - 379
Fair value gain on
financial assets at
FVPL (8) - - - - (8)
Amortisation of acquired
intangible assets - - (775) (207) - (982)
Profit/(loss) before
tax from continuing
operations (297) 2,756 (281) 394 (1,748) 824
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
Product
Print Digital Ink Supply
Printhead Systems Imaging Systems Unallocated Consolidated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2021
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
Revenue
Total segment revenue 40,104 13,900 5,250 - - 59,254
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
Result from continuing
operations
Adjusted (loss) / gain
before tax (526) (766) 721 - - (571)
Share-based payment
charges - - - - (758) (758)
Exchange differences
on intra-group transactions (95) - - - - (95)
Restructuring (1,288) (116) - - - (1,404)
Gain on derivative financial
liabilities 2,919 - - - - 2,919
Research & development
expenditure credit 227 - 43 - - 270
Fair value gain on financial
assets at FVPL 987 - - - - 987
Amortisation of acquired
intangible assets - - (354) - - (354)
Profit/(loss) before
tax from continuing
operations 2,224 (882) 410 - (758) 994
------------------------------ ---------- --------- ---------- ------------- ------------ ---------------
In addition to the external revenue reported by operating
segments, the Printhead segment made GBP1,399,000 (2021:
GBP1,092,000) of intercompany sales, the Product Print Systems
segment made nil (2021: GBP312,000) intercompany sales and the Ink
Supply Systems segment made by GBP538,000 (2021: nil) of
intercompany sales.
4. Earnings per share - basic and diluted
The calculation of basic and diluted earnings per share is based
on the following data:
2022 2021
GBP'000 GBP'000
------------------------------------------------- ----------- -----------
Earnings
Earnings for the purposes of basic earnings
per share being net profit/(loss) attributable
to equity holders of the parent 1,632 16,219
------------------------------------------------- ----------- -----------
from continuing operations 1,791 695
------------------------------------------------- ----------- -----------
from discontinued operations (159) 15,524
------------------------------------------------- ----------- -----------
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 77,549,264 77,528,064
Effect of dilutive potential ordinary shares:
Share options 4,085,096 1,261,215
------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 81,634,360 78,789,279
------------------------------------------------- ----------- -----------
2022 2021
Pence per Pence per
share share
------------------------------------------------- ----------- -----------
Basic 2.1p 20.9p
Diluted 2.0p 20.6p
------------------------------------------------- ----------- -----------
Continuing operations
Basic 2.3p 0.9p
Diluted 2.2p 0.9p
------------------------------------------------- ----------- -----------
Discontinued operations
Basic (0.2p) 20.0p
Diluted (0.2p) 19.7p
------------------------------------------------- ----------- -----------
Potential ordinary shares are treated as dilutive if their
conversion to ordinary shares would decrease earnings per share or
increase loss per share.
The weighted average number of ordinary shares for the purposes
of basic earnings per share is calculated after the exclusion of
ordinary shares in Xaar plc held by Xaar Trustee Ltd, the Xaar plc
ESOP Trust and the matching shares held in trust for the Share
Incentive Plan.
For 2022, there were share options granted over 276,547 shares
that had not been included in the diluted earnings per share
calculation because they were anti-dilutive at the period end
(2021: 107,490 shares that would not have been included).
The performance conditions for LTIP awards over 172,492 shares
(2021: 1,510,685 shares) have not been met in the current financial
period or are not expected to be met in future financial periods,
and therefore the dilutive effect of those shares has not been
included in the diluted earnings per share calculation.
5. Business Combination
On 2 March 2022, Xaar completed the acquisition of 100% of the
share capital of Megnajet Ltd and Technomation Ltd. The companies
trade together under the name of Megnajet, and design and
manufacture industrial ink management and supply systems for
digital inkjet. The acquisitions will accelerate the Company's
growth strategy by creating a more integrated inkjet solution
whereby customers can access more of the printing ecosystem (such
as ink supply systems and the electronics) from Xaar.
Technomation Ltd was acquired for its Intellectual Property and
know-how. The acquisition has been accounted for as an asset
acquisition using the optional concentration test within IFRS 3.
The purchase price of GBP3,038,000, which includes GBP187,000
deferred consideration, was allocated to its Intellectual Property
amounting GBP1,990,000 (being the purchase price net of GBP517,000
cash balance and GBP531,000 balance relating to working capital
consisting of GBP816,000 receivables, GBP130,000 Corporation Tax
creditor and GBP155,000 VAT creditor). Whilst Megnajet Ltd was
accounted for as a business combination and the details of the net
assets acquired, goodwill and purchase consideration are as
follows:
Fair value
----------------------------------------------------
Recognised amounts of identifiable assets acquired
and liabilities assumed GBP'000
------------------------------------------------------- -----------
Cash 1,067
Trade & other
receivables 487
Corporate tax
payable (27)
Inventories 503
Property, plant and equipment 53
Intangible assets 703
Trade & other
payables (821)
Deferred Tax liability (170)
----------------------------------------------------- -----------
Total net identifiable
assets 1,795
Goodwill 661
Total consideration 2,456
----------------------------------------------------- -----------
Satisfied by:
Cash 2,269
Deferred consideration 187
Total consideration transferred 2,456
------------------------------------------------------ -----------
Net cash inflow arising
on acquisition
Cash consideration (2,269)
Less: cash and cash equivalents
acquired 1,067
Total net cash outflow arising on acquisition (1,202)
------------------------------------------------------- -----------
The fair value of acquired receivables is GBP250,000. The gross
contractual amount for trade receivables due is GBP252,000, with a
loss allowance of GBP2,000 recognised on acquisition. Other
receivables relate to VAT amounting to GBP237,000.
The goodwill of GBP661,000 arising from the acquisition
represents those characteristics and valuable attributes of the
acquired business that cannot be quantified and attributed to
separately identifiable assets in accounting terms. This goodwill
is underpinned by a number of elements, the most significant of
which is the well established, skilled and assembled workforce and
potential new customer relationships and contracts which enable
Megnajet to accelerate the development of Ink Management and Supply
Systems through the shared expertise, technologies and resources
across
the Group. None of the goodwill recognised is expected to be
deductible for income tax purposes.
The fair value of the intangible assets attributed to the
acquisition of the business relates to customer relationships
(GBP422,000) and brand (GBP281,000). These have an estimated useful
life of eight and ten years respectively.
In addition to the cash consideration, deferred consideration
shall be paid in the second year anniversary from the date of
acquisition. The undiscounted amount of all future payments that
the Company is required to make under the deferred consideration
arrangement is GBP200,000.
Acquisition related costs which are included in administrative
expenses in the consolidated income statement for the period ended
31 December 2022 amounted to GBP193,000.
The acquired business contributed revenues of GBP2,483,000 and
net profit of GBP758,000 to the Group for the period from 2 March
2022 to 31 December 2022. If the acquisition had occurred on 1
January 2022, consolidated pro-forma revenue and profit for the
period ended 31 December 2022 would have been GBP3,038,000 and
GBP832,000 respectively. These amounts have been calculated using
the subsidiary's results and adjusting them for differences in the
accounting policies between the Group and the subsidiary; and the
additional depreciation and amortisation that would have been
charged assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from 1 January 2022,
together with the consequential tax effects.
During the prior year, on 11 July 2021, Xaar acquired 100% of
the issued share capital of FFEI Limited for a total consideration
of GBP8,762,000, comprising GBP3,907,000 in initial cash and
deferred consideration of GBP4,4855,000 (which is GBP5,200,000
discounted using 3.49% discount rate). Net assets acquired totalled
GBP8,073,000, and goodwill of GBP689,000 arose on the acquisition.
The fair value of the intangible assets attributed to the
acquisition related to patents and software (GBP3,044,000) and
customer relationships (GBP1,204,000) with an estimated useful life
of six years. Net cashflow arising on the acquisition was an inflow
of GBP168,000, being cash equivalents acquired of GBP4,075,000
minus the cash consideration paid.
The deferred consideration is payable in three annual
instalments, of which one instalment was paid during the year ended
31 December 2022 (GBP1,733,000). Acquisition costs included in the
consolidated income statement for the prior year amounted to
GBP618,000.
6. Restatement of prior period
The financial statements include prior period restatements in
relation to leases and contract assets and liabilities.
Right of use asset and Lease liabilities were both overstated by
GBP539,000 due to an error in recording the renewal on one lease
with no impact on net assets, cashflows or profit for the period.
Since 2022 additional finance reviews have been introduced for all
legal contracts. With the current control introduced in 2022, we
believe the likelihood of such errors is substantially reduced.
Additionally, EPS division had not been netting contract assets
and liabilities and both balances were shown gross in the prior
period. This error was identified by management in the current year
and was corrected resulting in changes in processes and systems to
ensure correct accounting is in place going forward. The respective
adjustment for the prior year amounted to $2,672,000 (GBP1,977,000)
with no impact on net assets, cashflows or profit for the
period.
The following tables summarise the impact of the prior period
restatement on the financial statements of the Group for the
periods ended 31 December 2021:
Consolidated statement of IFRS Contract
financial position 2021 16 Leases assets/liabilities 2021
as reported Correction correction restated
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------ ----------- -------------------- ---------
Non-current assets
Right of use assets 9,368 (539) - 8,829
Current assets
Trade and other receivables 12,138 - (1,977) 10,161
----------------------------- ------------ ----------- -------------------- ---------
Total assets 103,940 (539) (1,977) 101,424
----------------------------- ------------ ----------- -------------------- ---------
Current liabilities
Contract liabilities (5,518) - 1,977 (3,541)
Lease liabilities (1,231) 539 - (692)
----------------------------- ------------ ----------- -------------------- ---------
Total liabilities (35,138) 539 1,977 (32,622)
----------------------------- ------------ ----------- -------------------- ---------
Net assets 68,802 - - 68,802
----------------------------- ------------ ----------- -------------------- ---------
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END
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March 28, 2023 02:00 ET (06:00 GMT)
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