LemmingInvestor
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by Edward Kalfayan
10 January 2005
Sales for the full year are expected to be in excess of £35.0m (2003: £29.2m), with a profit before tax (and foreign exchange movements on inter-company loans) ahead of expectations at slightly in excess of £6.0m (2003: loss of £1.3m on a comparable basis).
Cash at the year-end was above £15.0m (2003: £8.5m).
The outlook for 2005 is positive although the group's primary trading currency, the US dollar, remains weak.
Comment
Financial implications
The concensus forecast was for a profit b.t. of £5.24m so Xaar is outperforming by at least 15%. This implies that the eps forecast of 6.39p will turn out to be at least at 7.32p and thus 48.8% up on 2003.
Since H1 produced only 1.4p. this suggests an eps for H2 above 5.92p, and an acceleration in the profitability of the business modified only by any worsening of the dollar exchange rate. Together with the impressive new product launches, and expansion in the huge market in India, this augurs well for 2005.
Driving the share price
Xaar had a difficult time for the three years 2000-2003, during which it acquired key IBM IP manufacturing unit in Stockholm, Sweden. Previously, but uneconomically, the printheads had been made in Cambridge as a by product of Xaar's own IP development. which began in 1986 as a unit of Cambridge Consultants, and which at the same time spawned the successful Domino Printing Sciences and Linx Printing Technologies, in the same city.
As the scientific output became more demanding of the manufacturing arm the scrap rate rose to ruinous proportions. At the same time commerce in Asia was in turmoil through the SARS virus and it took until 2004 for the costs and sales results to settle down. The share price fell continuously during this period, as often, confounding technical judgement at a time when it could be seen that the IP and the technical team were probable world beaters.
A candidate for Global Leadership in high tech printing
With hindsight this was the great buying opportunity, but the full potential was only hinted at in today's Statement. The full year results will no doubt draw on the excellent material already in the hands of its excellent PR team, and can provide a few hours of well illustrated and documented market success and potential at its web site. See http://www.xaar.co.uk/corporate_profile.htm. It is possible to discern from reading all of the matter that Xaar's leadership is becoming unstoppable as it pulls ahead in so many facets of this technology at the same time eg speed, quality, printing width, special inks for special surfaces, engineering design/integration support, world service cover.Of course as you would expect, the printing industry as a whole is a competitive industry, it is equitable to point out that there are competitors, but none of them have anything Xaar does not, and in some cases we have what they don’t. In addition, the market is growing strongly so there is room for all at present.
We believe that the 650% increase in share price during the last two years from 22p to yesterday's 142.5p and today's further rise to 164p reflects the beginning of Xaar's emergence as THE world leader in the field, with continuous expansion ahead for many years to come as inkjet technology covers more and more fields.
During the last 20 years inkjet printing has gradually developed speed, quality, cost reduction and flexibility to the point that, at the last four yearly DRUPA International
Printing exhibition in Duesseldorf in 2004, it had clearly become part of the main stream, and increasingly dominates the market for printing in a large number of industrial, office, and media sectors.
What's special
Xaar is a market-focused technology leader, incubated in a leading scientific university city, driving the expansion of inkjet printing into dozens of targeted industry sectors. By applying its whole effort to the extremely difficult engineering skills needed to develop and manufacture the printheads with their thousands of tiny precision nozzles and developing suitable inks, With 180 nozzles per inch of printhead width. However, on the Omnidot has two rows of nozzles one directly behind the other effectively giving 360 nozzles per inch. XAAR`s best selling 128 head (128 nozzles) and assuming a lifetime of 18 months (less in China with poor maintenance, perhaps more in the west with better maintenance) and 5 day working each head will very approximately fire 400-500 lites of ink in its lifetime. Cost of ink depends on the type, but a standard oil based ink that is the majority of ink used with our heads would cost around $40/litre.Xaar is in an increasingly strong position relative to large print machinery builders whose efforts are necessarily diluted across a wide range of activities.
Thus Xaar first joined the ranks of the likes of Canon, Epson, Hewlett-Packard by competing with better printheads, but having won Toshiba, Konica-Minolta, Xerox etc as OEM licencees, it aims to supply the whole market as specialisation allows it to draw ahead with its IP. It is the only company, andthis is protected by patents, which can vary the size of the inkdrop to create 16 'grey scales', and thus improve photo quality gradations in the image. This year it is launching a new range of inkheads it has developed in conjunction with AGFA-Gaevert exploiting this tonal capability in colour. Once production problems inherent with this kind of advance, are resolved, Xaar should again increase market share.
By controlling the IP needed for the co-developed inks. Xaar earns increasingly important royalties from minute contributions each time an image is repeated. - even though the ink manufacture is subcontracted under licence.
Xaar offers OEM customers and licensees the capability to be market leaders, through the use of innovative state-of-the-art inkjet technologies and through a relevant range of products and services based on this technology.
Just one example demonstrates an almost invincible business model: metal inks have been developed and inkjet heads used to produce conductive tracks for PCBs (printed circuit boards)for world leaders Rohm and Haas(USA)who are licensed to integrate the printheads into their machinery and Xennia to supply the metallic inks specially developed for the purpose.
The process is used to print the outside of vehicles, and the surface of ceramics. It is built into MAN Roland presses to add digitally controlled varying text or images.at the speed of a large lithographic press. It can be used to print giant posters in a single sheet avoiding the high fixed costs of screens and printing plates.
In 2004, Xaar launched a new range of peripheral equipment including electronics to drive its printheads and ink supply systems to feed them, enabling customers to purchase a full inkjet “print engine” removing the need to design and build their own.
Their integration service in-house or from selected industry partners, allows customers to tap into specialist teams, conversant with all of their inkjet products and with a proven track record in designing successful inkjet machines. This allows customers to develope their own own applications.
Having licensed machinery building companies in China.with encouraging success, Xaar has just opened an office to try the successful formula in India .
The ink jet printing process is certainly in the ascendant conquering new fields every year and the web site gives details of the many dozens of machinery building licencees in a surprising number of different fields. It is difficult not to imagine that the technology advantage licenced to each will not lead to long term continuous growth in several dimensions of the market.
This is a field in which the author has had many years of pioneering experience, after launching the first rudimentary digital printing operation in the UK fifteen years ago.
XAAR-Lemming
10 January 2005
Sales for the full year are expected to be in excess of £35.0m (2003: £29.2m), with a profit before tax (and foreign exchange movements on inter-company loans) ahead of expectations at slightly in excess of £6.0m (2003: loss of £1.3m on a comparable basis).
Cash at the year-end was above £15.0m (2003: £8.5m).
The outlook for 2005 is positive although the group's primary trading currency, the US dollar, remains weak.
Comment
Financial implications
The concensus forecast was for a profit b.t. of £5.24m so Xaar is outperforming by at least 15%. This implies that the eps forecast of 6.39p will turn out to be at least at 7.32p and thus 48.8% up on 2003.
Since H1 produced only 1.4p. this suggests an eps for H2 above 5.92p, and an acceleration in the profitability of the business modified only by any worsening of the dollar exchange rate. Together with the impressive new product launches, and expansion in the huge market in India, this augurs well for 2005.
Driving the share price
Xaar had a difficult time for the three years 2000-2003, during which it acquired key IBM IP manufacturing unit in Stockholm, Sweden. Previously, but uneconomically, the printheads had been made in Cambridge as a by product of Xaar's own IP development. which began in 1986 as a unit of Cambridge Consultants, and which at the same time spawned the successful Domino Printing Sciences and Linx Printing Technologies, in the same city.
As the scientific output became more demanding of the manufacturing arm the scrap rate rose to ruinous proportions. At the same time commerce in Asia was in turmoil through the SARS virus and it took until 2004 for the costs and sales results to settle down. The share price fell continuously during this period, as often, confounding technical judgement at a time when it could be seen that the IP and the technical team were probable world beaters.
A candidate for Global Leadership in high tech printing
With hindsight this was the great buying opportunity, but the full potential was only hinted at in today's Statement. The full year results will no doubt draw on the excellent material already in the hands of its excellent PR team, and can provide a few hours of well illustrated and documented market success and potential at its web site. See http://www.xaar.co.uk/corporate_profile.htm. It is possible to discern from reading all of the matter that Xaar's leadership is becoming unstoppable as it pulls ahead in so many facets of this technology at the same time eg speed, quality, printing width, special inks for special surfaces, engineering design/integration support, world service cover.Of course as you would expect, the printing industry as a whole is a competitive industry, it is equitable to point out that there are competitors, but none of them have anything Xaar does not, and in some cases we have what they don’t. In addition, the market is growing strongly so there is room for all at present.
We believe that the 650% increase in share price during the last two years from 22p to yesterday's 142.5p and today's further rise to 164p reflects the beginning of Xaar's emergence as THE world leader in the field, with continuous expansion ahead for many years to come as inkjet technology covers more and more fields.
During the last 20 years inkjet printing has gradually developed speed, quality, cost reduction and flexibility to the point that, at the last four yearly DRUPA International
Printing exhibition in Duesseldorf in 2004, it had clearly become part of the main stream, and increasingly dominates the market for printing in a large number of industrial, office, and media sectors.
What's special
Xaar is a market-focused technology leader, incubated in a leading scientific university city, driving the expansion of inkjet printing into dozens of targeted industry sectors. By applying its whole effort to the extremely difficult engineering skills needed to develop and manufacture the printheads with their thousands of tiny precision nozzles and developing suitable inks, With 180 nozzles per inch of printhead width. However, on the Omnidot has two rows of nozzles one directly behind the other effectively giving 360 nozzles per inch. XAAR`s best selling 128 head (128 nozzles) and assuming a lifetime of 18 months (less in China with poor maintenance, perhaps more in the west with better maintenance) and 5 day working each head will very approximately fire 400-500 lites of ink in its lifetime. Cost of ink depends on the type, but a standard oil based ink that is the majority of ink used with our heads would cost around $40/litre.Xaar is in an increasingly strong position relative to large print machinery builders whose efforts are necessarily diluted across a wide range of activities.
Thus Xaar first joined the ranks of the likes of Canon, Epson, Hewlett-Packard by competing with better printheads, but having won Toshiba, Konica-Minolta, Xerox etc as OEM licencees, it aims to supply the whole market as specialisation allows it to draw ahead with its IP. It is the only company, andthis is protected by patents, which can vary the size of the inkdrop to create 16 'grey scales', and thus improve photo quality gradations in the image. This year it is launching a new range of inkheads it has developed in conjunction with AGFA-Gaevert exploiting this tonal capability in colour. Once production problems inherent with this kind of advance, are resolved, Xaar should again increase market share.
By controlling the IP needed for the co-developed inks. Xaar earns increasingly important royalties from minute contributions each time an image is repeated. - even though the ink manufacture is subcontracted under licence.
Xaar offers OEM customers and licensees the capability to be market leaders, through the use of innovative state-of-the-art inkjet technologies and through a relevant range of products and services based on this technology.
Just one example demonstrates an almost invincible business model: metal inks have been developed and inkjet heads used to produce conductive tracks for PCBs (printed circuit boards)for world leaders Rohm and Haas(USA)who are licensed to integrate the printheads into their machinery and Xennia to supply the metallic inks specially developed for the purpose.
The process is used to print the outside of vehicles, and the surface of ceramics. It is built into MAN Roland presses to add digitally controlled varying text or images.at the speed of a large lithographic press. It can be used to print giant posters in a single sheet avoiding the high fixed costs of screens and printing plates.
In 2004, Xaar launched a new range of peripheral equipment including electronics to drive its printheads and ink supply systems to feed them, enabling customers to purchase a full inkjet “print engine” removing the need to design and build their own.
Their integration service in-house or from selected industry partners, allows customers to tap into specialist teams, conversant with all of their inkjet products and with a proven track record in designing successful inkjet machines. This allows customers to develope their own own applications.
Having licensed machinery building companies in China.with encouraging success, Xaar has just opened an office to try the successful formula in India .
The ink jet printing process is certainly in the ascendant conquering new fields every year and the web site gives details of the many dozens of machinery building licencees in a surprising number of different fields. It is difficult not to imagine that the technology advantage licenced to each will not lead to long term continuous growth in several dimensions of the market.
This is a field in which the author has had many years of pioneering experience, after launching the first rudimentary digital printing operation in the UK fifteen years ago.
XAAR-Lemming
