Xaar (LSE:XAR) — 2025 Full Year Results

0:00 Good afternoon, and welcome to the XAR PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses when it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to John Mills, CEO. Good afternoon, sir. Hi. Thank you very much. And, Damon, first of thank you everybody for taking the time to come along and listen to to this the story of XAR. Certain people who will have known XAR from from old, I just wanted to kind of quickly run through some of the the the history and some of the things that would have characterized XAR historically and hopefully how XAR today contrasts with that. So if you go back to 2013, XAR was a 4250 company.

1:03 It had 140,000,000 of revenue, made 42,000,000 profit, market cap of around about $1,000,000,000, but it was effectively a single product into a single market, and that was ceramics. And that market, they lost that market for for for various reasons and left the company really with no other revenue streams. And and over the last decade, it's really been recovering from that situation. In contrast today today, I I've been with the company now for six years, and we've really focused on making sure that we have a broad portfolio of applications based around the value proposition, which is unique to XAR.

1:51 And, really, what I would like you to take away with today is is is really two things. Firstly, that we have a unique capability to print fluids that no one else can, and that we deploy that capability across a broad range of applications, which potentially give us significant revenue opportunity and indeed quite significant resilience against any individual market problems. So in order to, first of all, explain to you what the value proposition of the business is that so we make industrial inkjet printers and print heads, And we compete with companies like Epson and Fuji, Kyocera, Ricoh, Konica, also Seiko.

2:46 These are huge Japanese corporations with with global reach and substantially lower manufacturing cost than than than we have. And I think that the challenge and the problem for XAR of the previous fifteen, maybe twenty years is trying to compete with these companies, on their home territory is incredibly difficult, and, ultimately, XAR has lost. And having joined the company in '20 so back end of twenty nineteen, I, having known the company for many years, really focused on the attribute that XAR had, which was unique, is which is that we can print fluids that no one else can. And that that parameter that's really important is viscosity, and viscosity is a measure of how thick the fluid is. So water has a viscosity of one. Cream is 22.

3:42 Olive olive oil is 65, and and yogurt all the way up at a thousand. So if you take the the the global number one, Epson, they can go up to around about eight centipoise. So and some of the other competitors may be able to get over 20 and approaching 30, but really that that'll probably be a a a generous assessment. And we've got applications well over a 100, and and therefore, we have this capability of printing fluids that no one else can print. And the way to think about that is that if you have a fluid, if you want to add things into the fluid to add functionality to the fluid, the more you add in to the fluid, the more functionality you will have. But the more you add in, the more viscous or the thicker the material, the fluid is likely to become. So there is a correlation between functionality and viscosity. So the the the more functional the fluid, typically, the thicker, the more high higher the viscosity is. And therefore, what we are saying at XAR is we can print fluids that are far more functional than other print head manufacturers.

5:02 And so the question then remains is, well, what do you do with that? And and what I'd like to do today is just share with you some of the applications that that utilize this unique capability So you can see the sort of the breadth of applications that we are currently operating in. So the first one is decorating all cars. So today, if you want to post a graphic on a car, you need to use a sticker. If anybody has a mini or know somebody with a new mini, typically, they have some form of graphic on there that's a that's a that's a sticker. And the so those are not really well liked in the the the industry. So if you want to put graphics on there, you that's the pretty much the only way you can you can do that. We started working with XAAR Paint, who are one of the major global suppliers of car paint to the to the industry, and also the who make robots in 50% of the world's paint shops after robots in them. And collectively, we have created technology called Nextjet, and this allowed you to digitally print graphics onto onto cars.

6:25 So if you see the bottom right hand corner, we're printing on the side of a door. And you could imagine that if we had a low viscosity watery fluid, then that would actually just drip and run down the side of the car. You would not be able to to print graphics on a vertical surface. And so what I hope is clear from this that you actually need to have high viscosity capability to be able to print graphics onto vertical surfaces in this application. And so there's no other print head that can that can do this, and we've enabled an industry to adopt digital technology through our ability to print high viscosity fluids. Just to go through another application.

7:14 So this is car batteries. So this is another application where we started working with the battery industry about five years ago. There are issues around battery safety. And one of the contributory factors this is that the insulation layer, the blue plastic film that goes around the battery to provide electrical insulation can be damaged through mechanical rubbing or or through heat cycling of the battery as it's charged and and then utilized. Having developed a fluid which is UV curable, you print on the battery, you shine UV light on it and it turns into a plastic. This this coating is is non flammable, it's much stronger, it doesn't crack, and it has better peel strength away from the from the battery. So this is a a better solution than the the wrapping of the the battery.

8:10 As of today, we have three OEMs who we sell print heads to. They've built machines that print the battery. You see one of those operated on the bottom left hand side of the of the video. And there are now 10 production lines in China that are making batteries on a daily basis for cars. And to give you some sense of scale, we have about a 150,000 worth of revenue for each production line. There's 10 in there at the moment, and we expect another tens 10 to 15 going in this year. And and overall, there are 1,300 production lines in in in China. And so if the industry adopts this fully and changes all of the production lines to this digital coating, that would represent around about 200,000,000 of revenue for for us.

9:06 And if they did that over a five year period, that would be, you know, a good volume of revenue per year. For each of the applications that that we have, there's a secondary revenue stream, which is from a replacement print head cycle. So once you have an installed base, depending on the life of the print head in that application, and that's a function of the type of fluid and the environment it works in. And in this application, the the life of the battery may be four the the life of the print head may be, say, four years, then every year, you would expect to replace 25% of your print heads. What that means is if you have an installed base of £200,000,000 worth of print heads, then 25% would get replaced on an annual basis. So and that's the same across all industries. So you have revenue of print heads going in for new machines, and then depending on replacement cycle, you have an annuity revenue from the replacement and print heads.

10:15 So that's the the battery coating. Change your tax. If anybody has a desktop three d printer, it's probably in for those who recognize the term an FDM printer, which is like a a a role of fishing line that that essentially goes through a a nozzle and heats up and and and basically an arm scribes a a path around and and the fiber sticks to the fiber that was previously laid down. And that way, you build up a three d model. And it typically is one color or a couple of colors, and it's not very high resolution. And that's that's the typical three d printer that's bought today.

11:02 But there are 5,000,000 of those printers bought every every year. If you want to print something high resolution in full color, so things like you see on the bottom of the screen, all the things on the table next to the machine and the the little farm on the left hand side. If you want to print high resolution things of that nature, you probably have to pay somewhere between 40 and £150,000 for an industrial machine. We've been working with FlashForge. They're they're one of the major suppliers of the desktop three d printers. They sold 700 something in units last year. That we have been working with them to develop the world's first desktop three d printer.

11:51 We estimate that that printer will be on sale for around about 2.5, £3,000. And with the gen the the the occurrence now of AI, you can take a photograph of of of somebody or any object. AI will render that into a three d model, and you can print it out on on the on the printer. Equally, you can describe a characters, describe something into AI, and it will create the figure for you. So hobbyists around the world will be able to print whatever they would like to to fulfill their needs in in their in their hobby. So just if you have the opportunity, if you were to Google FlashForge c j two seventy, you'll be able to see the the the pre marketing prelaunch, which we expect to be in the next few months.

12:48 So it's actually been shown at multiple trade shows to date ahead of the launch later this year. So I'll just play you the the promotional video for for the product. And just to give you some sense of

14:36 scale, 500,000 desktop printers are sold each year. If 1% of the market were to buy this machine, that would represent 25,000,000 of revenue for for XAR. What we don't know because it's a it's a brand new product into the market is exactly how many units will will be sold. So we're quite excited about about this. So but the exact number is very difficult to predict. So we will look forward to launching and and see how many does so. One of the things that's really impacted the numbers this year, we started working with the wax industry about three three years ago, four years ago. This is an industry which uses wax to create bespoke high quality jewelry in gold and platinum. And what happens here is is that the wax is actually heated up with melts, and then you inkjet print the wax in onto a substrate, and you you build up the facsimile of whatever you want in the gold or platinum in the wax.

15:51 You then take that that wax model and and encase it in in in effects with, a plaster of Paris, and it dries. And then once it's dried, you then heat it up. The wax melts and then runs out, and then you've left with the mold, and then you can pour your gold and platinum into the mold. And then once it's cooled down, you break the mold, and you've got your piece of jewelry. The we've taken that market very quickly because the again, the ability to print a wax that's much better, much stronger than the previous wax means that you can produce higher quality and more intricate jewelry.

16:40 So when this was actually launched by the first company, the quality of the jewelry that was produced was so differentiated that every single other OEM looked at that and said, we need to use our print heads because we won't be able to compete. So we went from zero revenue in '23. We had around about 1,000,000 revenue in '24 and then 8,000,000 in revenue in '25. So we think we've got a sizable share of that market now. So we expect some growth in '26, but that's an example of a market where, again, we've we've we've taken market share purely down to the fact that we can print a better fluid than what was previously printed.

17:32 The final application I'll show you today is on printing of cardboard. Probably, all of you will receive Amazon packages. These are sort of cardboard boxes or sorts of envelopes that you'll that and they will all have a a plastic a white plastic label with the address and the barcodes and and other things on it. That's the the plastic label that's on it is expensive, and it also makes it more challenging to recycle. And the reason for that is you can't print white ink onto digitally onto to cardboard because what happens is that it it's it's low viscosity, and it just soaks into the the cardboard, which is what you see in the image at the top here.

18:21 As it sinks in, it takes the pigment with it, into the cardboard, and you can't see any of the white, pigment left. Closer to us lower down, you see that by contrast, a high viscosity fluid. A high viscosity fluid has less water. It's thicker. It doesn't soak into the cardboard, and therefore, the pigment stays on the surface. So this gives us the opportunity to actually print digitally onto cardboard, which would be a significantly cheaper process, but also help with recycling. So, again, this is just about the the benefit of using a a high viscosity fluid. So, hopefully, hopefully, that's been been helpful.

19:24 What I'll do now is hand over to Paul who can take you through some of the the financials. Thank you, John. Yes. Okay. I'm not going to plow through the slides slide by slide. If you want to see that, it's available on our website. But what I would like to do is just highlight some key financial numbers that we've delivered and talk about the shape of the numbers going forward over the medium term. So first of all, the the group is organized into three divisions. The largest one, one of the greatest scale is print head, And then we have Magnajet, which is predominantly dealing in producing ink systems.

20:13 And then we have EPS in The United States, which builds machines for high speed single pass printing director shape purposes. And you look how they they performed 2,000 2025 versus 2024. Overall, the group is up 12% year on year, but print head revenues stand up performance of 222% up versus the prior year. And that performance is driven, as John has alluded to, primarily from the wax segment, the growth there. And, actually, that 22% revenue growth, over half of it was was a volume increase. And so more about that and its effects on our numbers in a moment. MegaJet, broadly flat 2%, and EPS down 10. And reason for that was they had a large multiyear contract to basically print on golf balls, and that came to a sudden unexpected end at the beginning of last year. And the then management team hadn't yet built a a sufficient pipeline to backfill that loss of contract. So we have had a dip in performance there, but we brought in new management. And interestingly, despite that 10% reduction in revenue, the gross margin at EPS grew by 300 basis points, and that is as a result of restructuring, cost out initiatives, and so on and so forth. So the new manager has dealt with that. He's dealt with a number of intractable issues, and he's also rebuilt that pipeline. And one of the attributes of EPS is the way revenue is

21:44 recognized. You kind of know six months ahead of time how much revenue you're gonna have. So EPS is very much back into growth mode and and will, I'm sure, continue growing, continue performing financially very well. And then back to print head, as we said, 22% up, and that also came with 300 basis points increase in gross margin. And that is a key attribute of of this business, which is that we have a very effective operational gearing effect. If volume does increase, then margin will, increase too. So let's talk about first first number on how that's we see that, how it's gonna develop, over the medium term. 40% gross margin overall. I had a look back by the way, I've been in XAR just over a year.

22:29 I had a look back over its history, and the high watermark in terms of gross margin performance was probably about a decade ago where, it was nudging 50%, high 40 certainly. Now you gotta be a bit careful, making that comparison with them because, of course, it's apples and pears and revenue, you know, to made was made up of different constituent parts. But, nevertheless, 50% does seem to be a laudable target to get back to. And so the current management team, we're now working towards that over the medium term, increasing that gross margin. And, yes, operational gearing will help if the business grows, the volume increases. But, also, we are looking at cost out initiatives. We're looking at we'll be looking at procurement best procurement initiatives. And we've also shifted part of our supply chain to China to be closer to our customers.

23:21 I describe it as sort of ancillary activities. It's not the core IP activities that go into China and the inkjet systems construction also in China. So two benefits of that will be close to the customer base, the Chinese customer base, but also it will take a lot of cost out of our our our base. So, yeah, 50% is we've set ourselves that medium term goal to get as close to that as possible. The another thing I'd like to talk about is is, the balance sheet, and how that's shaping up. So it's true to say that in recent years, XAAR has held elevated levels of inventory. Not interested why that was, but it's a fact, and it it does need addressing. So we are setting ourselves the goal of and I've I've done this in other companies I've worked in of a, if you like, a continuous improvement goal of increasing stock turn year in, year out. Minimum of half turn increase, preferably a one turn increase every year.

24:24 And rather than just obsessing about a particular absolute number, stock term has the benefit of being linked to how the business is performing, how the business is growing. And I see that as a way to free up more cash and get into that sort of virtuous circle of investing more, growing more, etcetera, etcetera. So that's something else perhaps you should look out for going forward with XAR. In terms of investing in growth, couple of things there. We spend about eight to 10% of our revenue on r and d, and that feels about the right number or the right level. And in terms of capital expenditure, we have had, last year, elevated levels of CapEx, but that was investing in capability to basically speed up sales and to deal with some bottlenecks.

25:15 And I think going forward, you could expect slightly higher elevated levels of CapEx to you know, just to invest in growth, but also perhaps also to deal with some legacy issues in terms of replenishments of the asset base in the factory that we do need to address. So, look, I hope that that gave a bit of a flavor for the business. And, yeah, I'll I'll hand back to John. Good. I mean, it's it's quite difficult to to to judge these things when there's you can't see see the audience. So, hopefully, that's giving you a sense of the the company.

26:03 I think the summary for me about the business is that when I go around and talk to particularly institutional investors, many of them have have known XAR. And one of their concerns is that XAR has historically been boom and bust and very difficult to predict the the future revenues. I think what we'd say today is that we've worked hard on making sure that we have a very clear value proposition, and we only enter into markets where we have a a unique and clear value proposition against the competition. And that we now have, you know, 21 separate markets where we derive revenue, and we have, you know, in most of those many customers and and and a strong pipeline of applications that that are coming through.

26:53 So we feel confident about the the the business model, and we feel confident about the the the revenue growth over the coming years. What's very difficult to predict is is the detail of when any individual application will will will land. And therefore, we try to avoid talking about specifics of timing, but I think the key thing is is that over time, the the ones that are in the pipeline will come through. So for those who've got a slightly longer time horizon in the source of three to five years, I think, you know, the the it'd be where we are today, it's difficult to see how we're not gonna grow revenue substantially over that that that time. And with the operational gearing, we should see some of that falling through to the to the bottom line.

27:46 So with that, I think we'll look at any questions that that we have. So I can currently see four questions that that have come through. So please write any questions in the thing, and we'll do our best to to answer them. We have a bit of time left over so we can hopefully answer those questions as we go through. So I'll take them some first question, do we have any collaboration with tariff tariff? You know, we don't at the moment. It's interesting that we we're now starting to see companies coming to us once they understand our capabilities. So maybe that's something we should we should pursue.

28:32 The second question is is that with the with the 20% 22% increasing in print head revenues, how much is initial system adoption versus recurring? And that's from and Matt Matt, I think the the revenues that we see coming in, we would describe as all recurring revenues. What we would normally see is that you have several years where you sell print heads into into an OEM as they start developing machines and selling machines. Then eventually, you get to a level of saturation where everybody who needs a machine has got one, and then you're left to replacement, recycle of the machine, and you're left to growth within that market.

29:22 And then it's the replacement heads for for your installed base. So the the revenue would peak after a number of years, and then would move into a steady state where there will be slower growth. It might fall back by 30%. So that's how we tend to think about it. And therefore, what we when we model revenues, we we we look at layering on different applications. And so we take sort of fairly modest views of growth after the initial market size but and try and layer that on. So, hopefully, that answers the the the question. The the second question is is how visible are revenue revenue levels over coming years from the new application areas?

30:14 And again, this is this is a it's a really good question and and one of the fundamental ones for for understanding the business. We sell print heads to OEMs, and if you take the battery situation, we sell print heads to OEMs who make the digital printers. They sell the digital printers to companies that develop production lines for the battery manufacturers, and the battery manufacturers buy the production line. So we're we're we're three companies removed from the decision makers in relation to the to the to the batteries. And therefore, we are we're not having direct conversations with the battery companies. We we take our information from a number of sources and try and integrate that together to create a picture of what we think is going to to happen.

31:02 So it's incomplete. We're not you you we are not selling machines directly to an end end user. So so so in many cases, our information is not is not perfect in in in that. We we do our best to try and understand forecasting, and we ask our OEMs forecast and what they believe are going to happen. And we have to interpret that in the best way that we that we can for for for planning. Typically, things usually take longer. The numbers that get delivered are usually smaller, and we try to we try to take that into into account when we we look at any forecast that we we publish.

31:49 Next question I have is the the the revenue opportunities for battery causing in three d printing. Are those annual revenue fee? How does the drop through margins in each section stiffer? Yeah. Very good question. I think on the the the three d back on all of the as I said earlier, on all of the applications, we really are looking at recurring revenue. We don't see any revenue that comes in for a single year and then and then stops. So so the revenues we talk about should be recurring revenues. The margins are quite different across different market sectors. The the the the wax and the battery caught in the margins quite are quite strong. If you look at the consumer market, the desktop three d, the margins are much lower in those those areas. So we tend to try and price to value rather than looking at competitive pricing.

32:53 And we we try to maintain margins on the basis that we are enabling industries to do things they previously couldn't do. We're not competing on them on on on price in many of these markets. So and in terms of drop through, know, this year, we did 800,000 in profit on the revenues. As the top line grows, we should have been without that kind of breakeven point in in with with the factory. So as we go forward, we should see more of that revenue dropping through. Okay. And next question is is around IP from Paul.

33:38 The IP protection, particularly as we are exposing the technology in in China. And yeah. Really good question. We we have very strong IP, but our strategy is to patent in according to GDP. So we take the top six, seven countries excluding China, and we patent in those countries. And the reason we do that is that I think if if we have a Chinese company, for instance, that did infringe our IP, we may find it difficult to enforce our IP in China. However, if Evdol's company then build a printhead and sell that printhead outside of China into a territory where we have IP, then whoever uses that print head is infringing our IP, and therefore, we can send the cease and desist.

34:39 So our strategy is to is to enforce it in territories where we are able to to to to kind of follow-up and prosecute our IP effectively. So that's really what we would we would do. Somehow, all the questions have disappeared. You've them, I think. Hopefully, is that is there is there any more questions that we could I'm gonna let you take that one, Paul. Yep. Okay. So we obviously have a medium term strategic plan, which we've not yet see the questions, Paul. She probably has to read the question. Oh, yeah. Sorry. Thanks for the reminder. So the first question, what level of turnover and profit profitability would you target in three to five years? So we obviously do have a a medium term strategic plan.

35:39 It's been discussed at board level and all signed up to. You you would expect to see the the growth levels we've we've achieved last year of 12% for the group. According to our plans, that's not inconsistent with the sort of annual growth growth levels you could could expect to see going forward. And in fact, if you look at the consensus numbers that are out there, the revenue growth is is broadly consistent with that. So a sort of, you know, 10 and a bit percent growth in revenue going forward. And then as as we've mentioned a couple of times, the operating leverage benefits will start to kick in as well with that volume growth.

36:25 By the way, I expect at least half of that revenue growth will be volume at least. And so you as I said earlier, I am pushing for gross margins to be heading towards as close as possible 50%. And with an operating margin, you know, in the high teens, that that that would be a sort of place I'd like to be in terms of profits and revenue. I think the next question is a is a congratulatory note, I think. That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investment company platform.

37:13 Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, John, could I please just ask you for a few closing comments? Yeah. Well, thank you very much for taking the time to to come and listen to to the story. We're we're quite excited about the business. It's been a it's been a bit of a grind for five years to build the pipeline and and to do that, we we do feel we're in a position now where we're we're at the kind of inflection point, and we can see we can see growth coming over the the the coming years. It's important to say with any of these applications, it's very, very difficult for us to predict the exact timing or volume of any individual applications. So I wouldn't buy our shares on the basis of one particular application, but I'd I'd encourage everybody to look at the broader value proposition of the the the the unique capability of high viscosity fluids and and the impact that has on industry and the breadth of the opportunity that that that we have because I think, ultimately, that will be the thing that drives consistent revenue growth over the the the coming years. So, again, thank you very much for your attendance, and hopefully, we see some of you joining the the share register in the the near future.

38:40 Great. Thank you very much. Thank you. That's great. Thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete, and I'm sure be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.