Xaar plc

Good afternoon and welcome to the ZAR PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&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 over to John Mills, CEO. Good afternoon, sir.

Hi, thank you very much. And first of all, thank you everybody for taking the time to come along and listen to the story of Zaar. For some people who will have known Zaar from old, I just wanted to quickly run through some of the history and some of the things that would have characterised Zaar historically and hopefully how Zaar today contrasts with that. If you go back to 2013, Zaar was a FTSE 250 company, had 140 million of revenue, made 42 million profit. market cap of around about a billion dollars, but it was effectively a single product into a single market, and that was ceramics. And that market, they lost that market for various reasons and left the company really with no other revenue streams. And over the last decade, it's really been recovering from that situation. In contrast today, 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 a value proposition which is unique to SAR. And really what I would like you to take away with today 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 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 we make industrial inkjet printers and print heads. And we compete with companies like Epson and Fuji, Kyocera, Ricoh, Konica, and also Seiko. These are huge Japanese corporations with global reach and substantially lower manufacturing costs than we have. And I think that the challenge and the problem for Zara over the previous 15, maybe 20 years, is trying to compete with these companies And having joined the company back in 2019, I, having known the company for many years, really focused on the attribute that Zaha had, which was unique, which is that we can print fluids that no one else can. And 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, olive oil is 65, and yogurt all the way up at 1,000. So if you take the global number one, Epsom, they can go up to around about 8% of points. And some of the other competitors may be able to get over 20 and approaching 30, but really that will probably be a generous assessment. We've got applications well over 100, 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, the thicker the material the fluid is likely to become. So there is a correlation between functionality and viscosity. So the more functional the fluid, typically the thicker, the higher the viscosity is. therefore what we are saying at Tsar is we can print fluids that are far more functional than other printhead manufacturers and so the question then remains is well what do you do with that and what I'd like to do today is just share with you some of the applications that you So you can see the sort of the breadth of applications that we are currently operating in. So the first one is decorating of So today, if you want to post a graphic on a car, you need to use a sticker. If anybody has a Mini or knows somebody with a new Mini, typically they have some form of graphic on there that's a sticker. And those are not really well liked in the industry. So if you want to put graphics on there, that's pretty much the only way you can do it. major global suppliers of car paint to the industry and also der who make wall blocks and 50 of the world's paint shops have the robots and in them and collectively we have created a technology called next jet and this allowed you to digitally print graphics onto onto cars 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 and you would not be able 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 printhead 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. 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 to 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 through heat cycling of the battery as it's charged and then utilised 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 coating is non-flammable, it's much stronger, it doesn't crack and it has better peel strength away from the battery. So this is a better solution than the wrapping of the battery. As of today, we have three OEMs who we sell printheads to. They've built machines that print the battery. You see one of those operating on the bottom left-hand side of the video. And there are now 10 production lines in China that are making batteries on a daily basis for cars. To give you some sense of scale, we have about production line. There's 10 in there at the moment, and we expect another 10 to 15 going in this year. And overall, there are 1300 production lines in China. And so if the industry adopts this fully and changes all of the production lines to this digital core team, that would represent around about 200 million of revenue And if they did that over a five year period, that would be a good volume of revenue per year. For each of the applications that we have, there's a secondary revenue stream, which is from the replacement printhead cycle. So once you have an installed base, depending on the life of the printhead in that application, And that's a function of the type of fluid and the environment it works in. And in this application, the life of the battery may be four years. Then every year you would expect to replace 25% of million pounds worth of printheads, then 25% would get replaced on an annual basis. And that's the same across all industries. So you have revenue of printheads going in for new machines, and then depending on replacement cycle, you have an annuity revenue from the replacement and printheads. So that's the battery coating. Change attacks. If anybody has a desktop 3D printer, it's probably for those who recognise the term an FDM printer, which is like a roll of fishing line that essentially goes through a nozzle and heats up and basically an arm describes a path around and the fibre sticks to, the fiber that was previously laid down in that way you build up a 3D model And it typically is one colour or a couple of colours and it's not very high resolution. And that's the typical 3D printer that's bought today. But there are 5 million of those printers bought every year. If you want to print something high resolution in full colour, 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 £40,000 and £150,000 for an industrial machine. We've been working with Flashforge, they're one of the major suppliers of the desktop 3D printers. They sold 700,000 units last year. We have been working with them to develop the world's first desktop 3D printer. We estimate that that printer will be on sale for around about £2,500 to £3,000. the occurrence now of AI, you can take a photograph of somebody or any object, AI will render that into a 3D model and you can print it out on the printer. Equally, you can 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 fulfil their needs in their hobby. So just if you have the opportunity, if you were to Google Flashforge CJ270, you'll be able to see the pre-marketing pre-launch, which we expect to be in the next few months. 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 promotional video for the product. Thank you. Thank you.

Thank you.

And just to give you some sense of scale there, 500,000 desktop printers are sold each year. If 1% of the market were to buy this machine, that would represent 25 million of revenue for ZAR. What we don't know because it's a brand new product into the market is exactly how many units will be sold. So we're quite excited about this. But the exact number is very difficult to predict. So we will look forward to launch and see how many it does sell. One of the things that's really impacted the numbers this year, we started working with the wax industry about three years ago, four years ago. This is an industry which uses wax to create bespoke high quality jewellery in gold and platinum. What happens here is that the wax is actually heated up with melts and then you inkjet print the wax in onto a substrate you you build up the facsimile of whatever you want in the gold or platinum in the wax you then take that that wax model and then case it in in a face with like a plaster of paris and it dries and then once it's dried you then heat it up the wax melts and and then runs out and then you've left with the moulds and then you can pour your gold and platinum into the mould and then once it's cooled down, you break the mould and you've got your piece of jewellery. We've taken that market very quickly because, again, the ability to print a wax that's much better, much stronger than the previous wax means that you can produce higher quality more intricate jewellery. So when this was actually launched by the first company, the quality of the jewellery that was produced was so differentiated that every single other OEM looked at that and said we need to use our printheads because we won't be able to compete. So we went from zero revenue in 23, we had around about a million revenue in 24 and then 8 million in a revenue in 25. So we think we've got a sizeable share of that market now, so we expect some growth in 26, but that's an example of a market where, again, we've taken market share purely down to the fact that we can print a better fluid than what was previously printed. The final application I'll show you today is on printing of cardboard. probably all of you will receive um amazon packages these are sort of cardboard and boxes or uh sort of envelopes so you that and they will all have a plastic a white plastic label with the address and the barcodes and other things on it. 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 digitally onto cardboard because what happens is that it's low viscosity and it just soaks into the cardboard, which is what you see in the image at the top here. As it sinks in, it takes the pigment with it and into the cardboard and you can't see any of the white pigment left. Closer to a slowdown you see by contrast a high viscosity fluid and a high viscosity 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 benefit of using a high viscosity fluid. So hopefully that's been helpful. What I'll do now is hand over to Paul, who can take you through some of the financials.

Thank you, John. Yes, okay. I'm not going to plough 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 group is organised into three divisions. The largest one, one of the greatest scale, is PrintHead. And then we have Meg, the jet, which is predominantly dealing in producing ink systems. And then we have EPS in the United States, which builds machines for high-speed single-pass printing, direct-to-shape purposes. And then you look how they performed 2025 versus 2024. Overall, the group is up 12% year on year, but print head revenues stand out performance at 22% up versus the prior year. And that performance is driven, as John has alluded to, primarily from the WAC segment, the growth there. And actually that 22% revenue growth, over half of it was a volume increase. And so more about that and its effects on our numbers in a moment. Magnitude broadly flat 2%. And EPS down 10%. And the reason for that was they had a large multi-year contract, basically prints 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 sufficient pipeline to backfill that loss of contract. 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 recognised. You kind of know six months ahead of time how much revenue you're going to have. So EPS is very much back into growth mode and will, I'm sure, continue growing, continue performing financially very well. And then back to PrintHead, as we said, 22% up, and that also came with 300 basis points increase in gross margin. And that is a key attribute 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 number, how we see that, how it's going to develop over the medium term. 40% gross margin overall. I had a look back, by the way, I've been in ZAR just over a year. 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've got to be a bit careful making that comparison with them because, of course, it's apples and pears and revenue 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 all 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 procurements, best procurement initiatives, And we've also shifted part of our supply chain to China to be closer to our customers. I describe as sort of ancillary activities. It's not the core IP activities that go into China. And inkjet systems construction also in China. 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 base. So, yeah, 50% is we've set ourselves that medium-term goal to get as close to that as possible. The other thing I'd like to talk about is the balance sheet and how that's shaping up. So it's true to say that in recent years, Zara has held elevated levels of inventory. I'm not interested in why that was, but it's a fact and it does need addressing. So we are setting ourselves the goal of, and I've done this in other companies I've worked in, of, if you like, a continuous improvement goal of increasing stock turn year in, year out, minimum of a half turn increase, preferably one turn increase every year, 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, et cetera, et cetera. So that's something else perhaps you should look out for going forward with Zaar. In terms of investing in growth, a couple of things there. We spend about eight to 10% of our revenue on r d and that feels about the right number at the right level uh and then so as a capital expenditure we have had last year elevated levels of capex um but that was investing in capability uh to basically speed up sales um and to deal with some bottlenecks and i think going forward you could expect slightly higher elevated levels of capex to um you know just to invest in growth, but also perhaps also to do with some legacy issues in terms of replenishments of the asset base in the factory that we do need to address. So I hope that that gave a bit of a flavour for the business. And yeah, I'll hand back to John.

Good, I mean it's quite difficult to judge Hopefully, that's given you a sense of the company. 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 known Zaar. One of their concerns is that Zaar has historically been boom and bust. very difficult to predict 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 unique and clear value proposition against the competition and that we now have 21 separate markets where we derive revenue and we have in most of those many customers and a So we feel confident about the business model and we feel confident about the revenue and growth over the coming years. What's very difficult to predict is the detail of when any individual application will land. And therefore, we tried to avoid talking about specifics of timing. But I think the key thing is, is that over time, the ones that are in the pipeline will come through. So for those who've got a slightly longer time horizon in the sort of three to five years, I think where we are today, it's difficult to see how we're not going to grow revenue. you substantially over that time. And with the operational gearing, we should see some of that falling through to the bottom line. So with that, I think we'll look at any questions that we have. So I can currently see four questions that have come through. So please write any questions in the thing and we'll do our best 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. So first question, do we have any collaboration with TerraView? No, we don't at the moment. It's interesting that we're now starting to see companies coming to us once they understand our capabilities, so maybe that's something we should pursue. The second question is, with the 20%, 22% increasing in printhead revenues, how much is initial system adoption versus 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 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 and then it's the replacement heads for your installed bit. would peak after a number of years and then would move into a steady state where there will be slower growth and might fall back by 20-30%. So that's how we tend to think about it and therefore when we model revenues we look at layering on different applications and so we take sort of fairly modest views of growth after the initial market size and try and layer that on so hopefully that answers the question. The second question is how visible are revenue levels over coming years from the new application areas. Again, this is a really good question and one of the fundamental ones for understanding the business. We sell printheads to OEMs and if you take the battery situation, we sell printheads 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 from the decision makers in relation to the batteries. And therefore, we're not having direct conversations with the battery a picture of what we think is going to happen. So it's incomplete. We are not selling machines directly to an end user. So in many cases, our information is not perfect in that. We do our best to try and understand forecasting and we ask our OEMs for forecasts and what they believe are going to happen and we have to interpret that in the best way that we can for planning. Typically, things usually take longer, the numbers that get delivered are usually smaller, and we try to take that into account when we look at any forecasts that we publish. Next question I have is that the revenue opportunities for battery, courting and 3D printing Are those annual revenue fit? How does the drop through margins in each section differ? Yeah, very good question. I think on the 3D 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 stops. So the revenues we talk about should be recurring revenues. The margins are quite different across different market sectors. The wax and the battery causing the margins are are quite strong. If you look at the consumer market, the desktop 3D, the margins are much lower in those areas. So we tend to try and price to value rather than looking at competitive pricing. And 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 price in many of these markets. And in terms of drop-through, this year we did 0.8 million profit on the revenues. As the top line grows, we should have, we're now at that kind of break-even point with the factory. So as we go forward, we should see more of that revenue dropping through. Okay, next question is around IP. From Paul, the IP protection, particularly as we are exposing the technology in China. Yeah, really good question. We have very strong IP, but our strategy is to patent according to range 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 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 those companies then build a printhead and sell that printhead outside of China into a territory where we have IP, then whoever uses that printhead is infringing our IP and therefore we can send a cease and desist. So our strategy is to enforce it in territories where we are able to follow up and prosecute our IP effectively. So that's really what we would do. Somehow all the questions have disappeared. Hopefully, is there any more questions that we could I'm going to let you take that one Paul.

Yeah. Okay. So we obviously have a medium term strategic plan, which we've not yet

Sorry, thanks for the reminder.

So the first question, what level of turnover and profitability would you target in three to five years? So we obviously do have a medium term strategic plan. It's been discussed at board level and all signed up to. You would expect to see the growth levels we've achieved last year of 12% for the group. According to our plans, that's not inconsistent with the sort of annual growth levels you could expect to see going forward. In fact, if you look at the consensus numbers that are out there, the revenue growth is broadly consistent with that. So a sort of, you know, 10 and a bit percent growth in revenue going forward. And as we've mentioned a couple of times, the operating leverage benefits will start to kick in as well with that volume growth. um by the way i expect at least half of that revenue growth will be volume at least um and so you as i said earlier um i am pushing for gross margins to be um heading towards as close as possible 50 and with an operating margin you know in the high teens that that that would be the sort of place i'd like to be in terms of profits and revenue I think the next question 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 will publish those responses on the Investing Company platform. 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 come and listen to the story. We're quite excited about the business. It's been a bit of a grind for five years to build the pipeline. And to do that, we do feel we're in a position now where we're kind of inflection point. that we can see growth coming over 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 application. So I wouldn't buy our shares on the basis of one particular application, but I'd encourage everybody to look at the broader value proposition of the unique capability of high viscosity fluids and the impact that has on industry and the breadth of the opportunity that we have because I think ultimately that will be the thing that drives consistent revenue growth over the coming years. So again, thank you very much for your attendance and hopefully we see some of you joining the share register in the near future. Thank you very much. Thank you.

Well, 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 will only take a few moments to complete and I'm sure will 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.