Key financial highlights
Revenue in line with expectations at £60.4 million in H1 2014, largely reflecting a return to more typical trading patterns around Chinese New Year following the exceptional experience of 2013
Strong gross margin and operating margin percentages (47% and 26% respectively) but reduced versus H1 2013, as a result of increased manufacturing capacity and reduced pricing
Gross R&D investment (before capitalisation of development costs relating to the Thin Film programme) increased by 30% to £9.2 million in H1 2014
Strong balance sheet maintained with net cash of £48.1 million
Interim dividend up 20% reflecting the introduction of a sustainable and progressive dividend policy
New products announced to maintain clear leadership in ceramic tile decoration, extend inkjet into other tile manufacturing processes and increase sales in other applications
Growth in applications outside of ceramics disappointing, but future progress is expected as our partners continue to develop solutions with our technology
Pre-production activities continue within the 'Direct-to-Shape' application
Manufacturing capacity expansion programme will complete during September bringing total investment in the Huntingdon plant to c.£60 million
Thin Film programme remains on track; decision reached on the manufacturing plan
Ian Dinwoodie, Chief Executive, commented:
"Following the exceptional experience of 2013, our business reverted to more typical trading patterns in the first half of 2014, characterised by limited visibility of short term demand and the usual seasonal lull around Chinese New Year. Sales volumes into ceramic tile decoration, our largest application, stabilised in the first half of the year as expected, following the explosive growth of the last few years. Our market leading position in ceramic tiles has, as previously announced, attracted competition, which has negatively impacted pricing, but we have strengthened our offering with several new product launches.
In other applications, whilst the expected growth in sales has not yet materialised, progress is expected as our partners continue to develop their solutions. As highlighted in June, pre-production activities within the 'Direct-to-Shape' application continue, and our expectations of this opportunity for the longer term have strengthened. Our Thin Film Programme, we believe, will open up multiple further markets to Xaar, significantly broadening the scale of the opportunity over the long term.
During the third quarter, demand from the ceramic tile decoration sector has softened, which we believe relates to a slowdown in construction activity in China. In light of this, the Board's expectation for 2014 revenue has reduced to £115-125 million, with adjusted operating margin projected to be broadly in line with the 26% achieved in the first half of the year. We remain excited about Xaar's long term potential at the centre of the digital inkjet revolution."