26 March 2024

Xaar plc 

2023 FULL YEAR RESULTS

STRATEGIC PROGRESS AND WELL POSITIONED FOR MEDIUM & LONG-TERM OPPORTUNITY

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 2023.

Financial Summary:    

 1 - EBITDA is calculated as statutory operating profit before depreciation (other than that arising from IFRS 16 lease accounting), amortisation and impairment of property, plant and equipment, intangible assets and goodwill.  Adjusted EBITDA is calculated as EBITDA excluding Adjusting Items listed in Note 2 below.

2 - Excluding the impact of share-based payment charges, exchange gains or losses on  intra-group transactions,  restructuring and transaction expenses, research and development expenditure tax credits,  fair value losses on financial assets at fair value through profit and loss, and amortisation of intangible assets arising on business combinations

3 - Net cash at 31 December includes cash, cash equivalents and treasury deposits

Financial Highlights

·      Revenue of £70.6 million (2022: £72.8 million) with increased customer adoption of our technology

·      Gross margin of 38% benefitting from actions to mitigate input cost increases and increased operational leverage

·      R&D spend of £5.6 million, equating to 8% of Group Revenue, underscores the continued investment in the product roadmap, with a focus on the ImagineX platform

·      Adjusted Group profit for the year of £2.9 million in line with Board expectations

·      Healthy balance sheet with net cash of £7.1 million

Strategic and Operational Highlights

·      Increasing number of customers in development and enhanced relationships with end customers, giving rise to additional product launches expected in 2024 and anticipated recovery in key markets

·      Further operational progress made in Engineered Printing Solutions (EPS), delivering strong revenue growth and good performances from FFEI and Megnajet

·      Phase 1 of operational efficiency programme complete with factory re-organisation delivered on time and under budget delivering cost savings and increased capacity

·      Cost reduction plan in place to navigate current market conditions

·      Investment in working capital ensured successful mitigation of supply chain constraints as well as meeting customer demand

John Mills, Chief Executive Officer, commented:

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

Due to the current market conditions, adoption of our customers' products is taking longer than expected, impacting our revenue, however, we have put in place a cost action plan to mitigate this. We remain optimistic about the future, being well placed to benefit as the trading environment improves.

With a substantial market opportunity and the progress made, we remain well positioned to realise our exciting potential."

Contacts:

A presentation for analysts and investors will be held via webcast and conference call at 09:00 today. For further details, please contact [email protected]

Chairman's Statement

2023 was a challenging year.  Despite a strong start, the impact of macro-economic and geo-political factors slowed the momentum the business was building, particularly so in the fourth quarter. Global inflation and higher interest rates have led to lower demand for capital goods, and this has had an impact on our revenues.

Overall financial performance in 2023 was broadly in line with the Board's expectations with trading conditions being relatively weak, particularly in China, which is an important market for the business. In the latter part of the year, it also became clear that some customers were responding to general market conditions and geo-political events by delaying their new product launch plans, resulting in less certainty in the timing of new business for Xaar. Several customer product launches anticipated to take place at the end of 2023 and early in 2024 are now expected in mid to late 2024. 

Despite these external challenges, good progress has been made within the business as our technology and product programme continue to deliver new capabilities and enhanced performance. Our High Viscosity technology is creating significant interest across a number of markets, and we are pleased to be developing strong partnerships with leading suppliers in sectors that represent new application areas for Xaar. 

Within the business, the management team have been proactive in taking steps to manage inflationary cost pressures, streamlining internal operations, and reducing overheads.  We remain focused on our core technology and the development of strong customer partnerships as the demand for digital print capability continues to grow. 

Strategic Progress

We believe a significant opportunity exists in market sectors and applications where Xaar technology provides commercial and technical performance advantages. There is a wide range of interest in digital print across industrial sectors, in particular those using higher viscosity fluids, and the economic benefit of doing so compared to existing analogue techniques reassures us that prospects for the business remain significant. 

Our technology strategy is focused on developing product functionality and places an emphasis on delivering attributes that customers tell us they need, and our operational and commercial strategies are designed to make doing business with Xaar straight forward and cost efficient.

Our vertical integration strategy, which concentrates on developing competence beyond the printhead itself into electronics, fluid management and integration, is also helping us gain access to new applications and is an advantage we can offer our OEM customers to enable their swift deployment of the print system element within their products. 

As previously announced, we have invested in our manufacturing facilities to improve efficiency and lower costs and the first phase of this programme was completed in early 2023 on time and under budget. This has also enabled increased capacity and generated cost savings, especially in reducing our power usage.

Our financial strategy is aimed at generating strong returns, while maintaining capital discipline and delivering strong cash generation to facilitate continued investment in technology, products and capability.

While there is no doubt that the macro-economic challenges have slowed growth, we are pleased with the progress we have made across several areas of the business this year and we have a significant pipeline of opportunities to build upon in 2024 and beyond.

Financial Results

In a year where inflation and interest rate increases have dominated the economic landscape, the Group delivered revenue of £70.6 million (2022: £72.8 million) and pre-tax profit, adjusted for non-recurring costs, of £2.9 million, slightly ahead of the prior year. The full year unadjusted loss was £2.2 million (2022: £0.8 million profit).

Our balance sheet is sound, and we remain cash positive with banking facilities undrawn. The Group has maintained higher levels of inventory over the past two years to mitigate both cost increases and disruption in the supply chain. We anticipate normalising inventory and gaining the associated positive cash benefit during 2024.

The Board has not declared a dividend in 2023 as we continue to believe that prioritising cash for investment in the business will deliver more compelling returns for shareholders in the medium term.

 People and ESG

A highlight of the year was our successful application for accreditation as a Great Place to Work.  People are at the heart of Xaar and we prioritise staff safety and well-being alongside business performance and delivery.  The Board engages with staff representatives regularly and we remain encouraged by the commitment and energy we see in action every day. On behalf of the Board, I would like to thank our entire team for their hard work and diligence.

We also seek to have a wider positive impact on society by understanding and prioritising stakeholder needs, managing our business responsibly, and reaching out to our local communities. Our teams have continued to support national STEM initiatives, encouraging young people to develop an interest in technology and business.

A focus on the environment is also important at Xaar as we make progress towards our goal of net zero by 2030. Recently we were nominated as finalists at the Edie awards for Green Project of the Year in relation to our factory re-organisation project. In addition to in-house initiatives, our products are designed to be cleaner, more efficient and generate less waste than traditional print techniques. Our development of printheads capable of reliable performance using water-based fluids is a particular area of focus. There is a clear environmental advantage in using our products as we can print highly viscous fluids, not just water based, which require much less drying time, thereby reducing significant energy usage as well as reduced water content.

Board and Governance

During the year Chris Morgan stood down from the Board and we welcomed two new non-executive Directors Richard Amos and Jacqui Sutton.

Richard Amos joined in June 2023 and is the Chair of Audit Committee. Richard also sits on the Nomination and Remuneration Committees. Jacqui Sutton joined the Board in November 2023 and sits on the Audit, Nomination and Remuneration Committees. Both Richard and Jacqui bring a wealth of experience and have relevant knowledge and skills from their previous executive and non-executive roles. 

In February 2024, Stuart Widdowson joined the Board as a non-executive Director. Stuart is appointed as a representative of Odyssean Capital LLP where he is the Managing Partner.

In a further change, Alison Littley has notified the Board of her intention to step down as a non-executive Director during 2024. Alison will stand for re-election this year but will resign from the board once her replacement is recruited. An announcement, including arrangements for chairing the remuneration committee and the senior independent director role, will be made in due course.  I have appreciated the support of both Alison and Chris Morgan over the years and would like to take this opportunity to express thanks to them both for their commitment and contribution to the business.

Looking Ahead

Having put in place strong foundations through the development of 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.

Xaar remains in a good position with unique and compelling products and a significant addressable market.  External factors mean we are cautious about the short term, but we believe the business is well positioned for growth over the medium and long term. 

We look forward with confidence.

Andrew Herbert

Chairman

26 March 2024

Strategy Update

Introduction

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

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

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

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

Strategic progress

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

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

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

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

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

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

Financial performance

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

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

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

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

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

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

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

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

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

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

Healthy balance sheet and operational investment

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

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

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

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

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

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

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

Operational improvements driving greater efficiency and capacity  

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

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

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

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

This project is split into 4 key streams:-

·      Commercial strategic opportunities

·      Operational efficiency

·      Organisational effectiveness

·      Customer integration

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

Significant market opportunity remains

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

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

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

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

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

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

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

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

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

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

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

Product development and capability

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

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

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

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

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

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

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

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

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

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

·      higher resolutions (up to 1440 dpi).

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

Strong commitment to sustainability

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

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

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

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

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

Outlook

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

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

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

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

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

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

Business Performance

Revenue

Despite trading conditions becoming more challenging in the latter part of the year, the Group achieved revenue of £70.6 million, representing a marginal £2.2 million (3%) decline on 2022 revenues of £72.8 million. Group revenues were £34.5 million in the first half of the year and £36.1 million in the second half.

Whilst a lack of growth is disappointing, underlying market demand remains and we have retained market share. Therefore, we are confident in the medium term of returning to previous levels of organic growth. The pipeline of anticipated customer product launches in the coming twelve to eighteen months drives this confidence.

Revenue generated by the Digital Imaging operating segment totalled £8.7 million in the year (2022: £11.6 million), representing a decline of 25% compared to the prior year. In accordance with previous statements, as part of the ongoing integration this year, we have maintained focus on the core print systems activities acquired and commenced the strategic exit from the non-core Life Sciences activities that also formed part of the acquired business. This has resulted in an aggregate reduction in revenue whilst synergies are built in core activities.

The year ended 31 December 2023 represents the first full year of trading in the Ink Supply Systems operating segment following the Group's entrance into this market in Q1 2022 via the acquisition of Megnajet Limited.

Group revenue by geographic region

* Megnajet Limited was acquired on 2 March 2022 - comparative figures in the table above reflect ten months of post-acquisition revenue.

PH - Print-head           DI - Digital Imaging     ISS - Ink Supply Systems

Whilst the Americas remains the Group's primary geographical market representing 43% of total Group revenue (2022: 50%), revenue from the Americas experienced a decline of £5.6 million (15%) year-on-year, due to a £2.8 million reduction in printhead revenue primarily in the Coding & Marking (C&M) sector, and a £1.8 million reduction in Digital Imaging revenue.

These reductions in revenue were partially offset by increased income generation from customers in Asia, with revenue increasing by £4.0 million to total £12.2 million for the year. This was driven by single-pass machine sales in Asia by EPS.

Revenue generated from customers located in EMEA regions remained largely stable year-on-year at £27.8 million (2022: £28.4 million) which is pleasing and reflects continued customer engagement across our product offering in recently entered market sectors.

Printhead revenue by sector (Figures (£m) and percentages (%) are subject to rounding)

Whilst COVID-19 restrictions in China have now been lifted, a trailing impact on demand is still being suffered by the Group within the Printhead segment. Suppressed demand has been exacerbated by the impact of inflationary cost pressures and interest rate rises on capital equipment sales globally. These constraints on demand have translated into a £1.9 million (5%) year-on-year reduction in Printhead revenue.

Growth has been achieved again this year in the 3D Printing and Advanced Manufacturing (AVM) sectors, which is pleasing as this reflects our overall customer strategy and enhanced product portfolio. The 3D printing market remains an exciting opportunity for us and is a sector we continue to expect to grow significantly in the future. Revenue from 3D Printing and AVM grew £2.5 million (64%) year-on-year. Both 3D Printing and AVM are markets where we are well positioned to take advantage of growth opportunities and although OEM machine development cycles can be long, which means extended timescales for a customer to reach full production, the market opportunity is significant.

As anticipated, revenue in the Ceramics and Glass market has reduced, due to the significant slowdown in the sector, with growth of 9% fall in the year.

Coding and Marking (C&M) and Direct-to-Shape (DTS) revenues declined by £1.4 million (11%) in the year. Revenue from the Wide Format Graphics (WFG) and Labels market fell 25% in the year from £4.8 million to £3.6 million. Challenges faced with customer deferrals of orders in the prior year have continued to postpone revenue recognition for the Group.

Revenue from Packaging and Textiles continues to be modest. Our ability to target this sector effectively has been somewhat limited by our product range, although the launch of the Aquinox printhead has started 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 has remained consistent year-on-year at £0.5 million.

Product Print Systems revenue by sector

Figures (£m) and percentages (%) are subject to rounding.

Revenue from the Product Print Systems business achieved another year of significant growth of £2.5 million (13%) in 2023, totaling £22.1 million (2022: £19.6 million) for the year. Growth has again been achieved across all product groups this year, predominantly in the core area of digital inkjet machine sales, which have grown by £1.9 million (15%). This is particularly welcome seeing as this is the core focus in this segment and will drive increased profitability.

The anticipated full year increase in Pad Printing Machine revenue has been achieved. We see a strengthening demand pipeline due to the easing of the backlog of customers' deferred investment in capital equipment and we are well placed to deliver further growth in 2024.

The change in commercial strategy, increasing focus on consumables and accessory sales has also contributed to the revenue growth seen in this segment, with increased revenue (60%) achieved from ink, plates and parts sales.

Gross profit

The Group maintained a consistent gross profit margin of 38% (2022: 39%), with gross profit reducing to £26.9 million (2022: £28.6 million) in line with the reduction in revenue in the year. The margin structure across all the Group's operating segments has remained stable year-on-year, cemented by the actions taken in prior years to deliver efficiency gains and secure raw material cost-savings to support gross margin.

The impact on profitability resulting from the temporary suspension of activity at the Group's production facility in Huntingdon (the first phase of the Group's efficiency upgrade programme) was largely successfully mitigated by the improvements in overhead recovery gained as a consequence of the resultant increased throughput following the production facility reorganisation.

Research and development expenses

The Group maintained its R&D spend to revenue ratio in the desired region of 8-11% with gross, pre-tax investment in R&D totalling £5.6 million for the year (2022: £6.7 million). This underscores the Group's continued commitment to the strategic goal of offering customers a fully vertically integrated product offering within all product sectors as set out in the Group's product roadmap; with focus in the year having been on the ImagineX platform.

We will continue to invest in our R&D capabilities across the Group to ensure our technology remains market leading.

Operating expenses

There has been a strong focus on the management of costs across the Group in response to broader macro-economic conditions and the headwinds faced in the trading environment in which the Group is operating.

Sales and marketing spend for the year of £5.4 million represents a 19% reduction on prior years (2022: £6.7 million), demonstrating the Group's focused, targeted approach to managing these costs.

General and administrative expenses of £20.2 million were £5.7 million higher than the prior year (2022: £14.5 million). Of this increase, £3.1 million arose from adjusting items resulting from restructuring and integration activities.

The remaining £2.6 million year-on-year increase in adjusted general and administrative expenses was broadly offset by the £2.2 million increase in other operating income. This was predominantly generated on disposal of the intangible assets associated with the non-core Life Sciences activities in the context of the ongoing integration of the FFEI Limited business during the year (2023 £2.2 million, 2022: £0.1 million).

Total adjusting items affecting the operating result were £5.3 million (2022: £2.0 million). Of the total £3.3 million year-on-year increase, £1.6 million was driven by unfavorable movements in exchange rates and fair value measurement. A further £1.0 million of this increase compared to the prior year was driven by increased spend on restructuring and efficiency upgrade programmes. Finally, a further £0.4 million increase in adjusting items resulted from the ongoing integration of previously acquired businesses.

Result for the year

The total reported result for the year consisted of a loss before tax of £2.4 million (2022: profit before tax of £0.8 million). All of which resulted from continuing operations and is attributable to the owners of the Group. Consequently, basic (loss)/earnings per share was (2.8)p (2022: 2.1p).

After factoring in the impact of adjusting items, the Group achieved an adjusted profit before tax of £2.9 million (2022: £2.8 million). This equates to adjusted, basic earnings per share of 3.6p (2022: 4.8p). This is a pleasing result in light of the deterioration in the wider macro-economic environment and trading headwinds encountered during the year.

Whilst not being measures defined under IFRS, we believe that the 'adjusted profit before tax' and 'adjusted earnings per share' measures presented, provide shareholders with a consistent presentation of the Group's underlying, operational performance. For full details of the nature and quantum of items added back as 'adjusting' when calculating these alternative performance measures, please refer to Note 9 of the consolidated financial statements.

Cash generation

The Group continued its robust, disciplined focus on cash, ensuring the maintenance of sufficient financial resources during the year. The Group holds a healthy cash balance of £7.1 million as at 31 December 2023 (2022: £8.5 million). This represents a reduction of £1.4 million year-on-year, which has been driven by planned working capital investment.

Operating cash inflows, before movements in working capital, generated during the year were £4.6 million (2022: £6.6 million).

In the context of market headwinds, we continued a proportionate level of investment in operational infrastructure and product development in the year of £1.9 million (2022: £5.4 million). This included maintenance capital expenditure and the completion of the first phase of the efficiency upgrade programme (namely the Huntingdon factory reorganisation) in the first half of the year; which was delivered on time and on budget. 

This now enables us to operate more efficiently by increasing capacity and yields, whilst crucially generating significant cost savings, especially in the form of reduced energy consumption. Accordingly, this investment is anticipated to deliver a rapid return, with payback expected in less than a year.

In June 2023, we secured a Revolving Credit Facility of £5 million with our lead bank, HSBC. Access to these funds allows for accelerated investment in the business and in our operational capability. As at 31 December 2023, no amounts were drawn under this facility.

Healthy balance sheet

The Group has maintained a healthy balance sheet throughout the year with a consistent net current assets position of £33.5 million (2022: £30.0 million).

Non-current assets of £45.5 million decreased by £6.5 million during the year. In line with the Group's cash focus, there was a £1.6 million reduction in property, plant and equipment as new purchases were controlled. A £2.8 million reduction in the non-current element of the contingent consideration receivable resulted from the progression of this arrangement through its ongoing term. The remaining reduction in the carrying value of non-current assets being the annual depreciation and amortisation of assets in line with their useful economic life for the business.

Current assets increased by £1.3 million from £50.5 million as at 31 December 2022 to £51.8 million. Working capital balances remained broadly flat year-on-year, with the £1.9 million (7%) increase in inventory being offset by a reduction in cash and cash equivalents. The increase in current assets year-on-year predominantly results from the £1.8 million increase in the contingent consideration receivable following the re-aging of this balance based on assessments of the earn-out and milestone consideration expected to meet the conditions for payment to the Group during the year ending 31 December 2024.

Non-current liabilities totalled £7.2 million, following a £3.0 million reduction year-on-year. All remaining deferred consideration payable in respect of business combinations from prior years falls due for payment during the year ending 31 December 2024, reducing the non-current deferred consideration balance by £2.0 million compared to the prior year. The balance now being £nil as at 31 December 2023. The remainder of the reduction in non-current liabilities results from changes in the average remaining lease term of the Group's lease portfolio.

Current liabilities of £18.2 million have reduced by £2.3 million compared to the prior year (2022: £20.5 million). This movement is driven by a £3.6 million reduction in trade and other payables, which is partially offset by a £1.0 million increase in amounts borrowed under the Group's invoice discounting facility.

The business has a clear plan and strategy which its healthy 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. At present, we are focusing investment internally to ensure we have the operational capacity and efficiency to meet future demand, alongside investment in our product roadmap development.

Dividend

No dividend has been declared in respect of the year. The Board regularly reviews its capital allocation policy and believes that prioritising investment to enable profitable growth for the business is currently the most appropriate use of capital and is expected to achieve more compelling medium-term returns for shareholders.

* Further information on adjusting items is included in Note 4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME