Xaar plc

good afternoon and welcome to the zaar plc investor presentation throughout this recorded presentation investors will be in this lonely mode questions are encouraged and could be submitted at any time by 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 where it's appropriate to do so before we begin i'd like to submit the following poll i'd now like to hand you to john mills ceo good afternoon sir

hey good morning and good afternoon and welcome to everybody out here i'm john mills ceo exam john white paul james who's our cfo today i'd like to take you through the uh 2026 interim results presentation and then give you an overview of where we are and so i think so far this year has been a good year we've seen some disruptions in markets due to the war in iran we have seen that when when there's disruption and uncertainty in the world cash equipment purchases are affected and we sell prepared teams who will be in to build equipment and what happens is that they they sell less machines and we sell less as a result of that there are certain markets where we've actually seen some decline in the markets. However, we're pleased to report that Brent Head Revenue is actually up by 5.5% and the reason for that is actually because there's quite a lot of new business that's come through. So whilst we've seen some headwinds because of the global economic challenges, the growth has been there by these new applications that have come through. and we'll talk more about that later on in the uh the presentation and combined with that mega jet and eps will please overall to report 9.2 so increase uh like like year on year also we've continued to control expenditure and that's a little bit margin improvement of 2.2 cents and one of the things that has been some frustrating and disappointing in the first half is that six months ago when we were doing the full year results we were pretty sure that Flashforge could be launching the desktop 3D within days if not weeks of that time. Since that point they've encountered a few technical issues that have delayed the mulch and we've helped them resolve those technical issues and today we have a team on site with them as they ramp up their pre-manufacturing of mulch. we're fairly confident that they will actually launch in the next couple of months the remaining challenges I think have largely been resolved and we're now supporting them in their production goals so we hopefully will see that launch happening before the end of this year and it's an interesting area because the opportunity with the desktop 3D is significant So, the business themselves are, we are a small company, we compete against very large companies like Epson, Ricoh, Fuji, and these companies have huge geographical reach, they have huge reputations and significant manufacturing capabilities. and so how do we win? well we win as a small company by being able to print with fluids that no one else can print and that as many of you may have already heard themselves that that's about printing materials which have a much higher viscosity or a higher pigment loading so for instance an epsom haze can bring 8cps 1cps is water 20cps would be cream 50cps is olive oil and so the thicker you get the higher the number an epsom pops out around about 8cps and what that means is they're limited to very low viscosity fluids So if you wanted to print out an application where a lot of viscosity fluid is, it's fine, you're absolutely going to choose Epsom. However, for us, what we focus on is the high viscosity applications where if the fluid that you need to deposit is a much higher viscosity, then really you need to be using the Zahaid. and that is the differentiation and that differentiation capability comes from our fundamental architecture which delivers a much broader operating window and that architecture is protected by a significant number of patents 30 years of manufacturing know-how and increasing the application expertise as well for how you actually use the printhead given application and what that means is that for the print heads into the market we can print with much higher pigments and we have a much wider range of fluids that we can print and we can operate at a much higher temperature and what that means is that customers can typically print the fluid that they want to print and ultimately means that they can print with reduced energy, reduced weight and higher precision and the route to market is actually quite complex and it's one of the things that I think if you look at our followers for a number of years you might say well we've been talking about certain applications for many years and that's absolutely true we sell a printhead into an OEM they develop and build the machine they then test it in that application and in many cases the application requires other regulatory approval it might require other investment in processes to adopt in a broader manufacturing sense and all of this means that the time frame to actually get the product into volume manufacturing in the low end application can be very difficult to and actually often sometimes can be many many years the benefit is that once you're in and once you're actually the printhead of choice all of those things have made it difficult to get in and it's very tricky and so it's it's for us we believe that as we enter these markets then we believe that we can sustain the position within that market on this three sources of revenue this protest that we sell to all the ends of the machines that go into the application and then as you build that install base all the time you there will be print head replacement and the replacement cycle depends on the application in in more extreme applications like so we can look so we might see a replacement on an annual cycle in more of the the less demanding areas you might see a replacement every 6-7 years so if the replacement is every 5 years then that means 20% of your installed base is actually effectively a USC revenue going forward so it's key to actually build that installed base and grow that replacement revenue Increasingly we're seeing there's access in the ink revenue and if we've been involved in developing the solution there's often opportunities to share in some ink revenue in the application. So with that I'll hand over to Paul to take you through the financial summary.

Thank you John. So I'm actually pleased to present these results for the first half, where we had year-on-year growth in all parts of our business. The group revenues, as John said, up 9.2%. And I'm particularly pleased about the recovery in our US business called EPS under new leadership, which has come with an ever-expanding pipeline. core of our business is printhead and that was up five and a half percent uh and that's prior to the launch of flashforges desktop 3d offering so that is actually in of itself an impressive performance for the first half uh the revenue performance translates to a profitable first half really for the first time in at least three years and we're in line to achieve a consensus on profit The balance sheet is almost net neutral with a net deposition of 0.1 million and an adjusted free cash outflow of 4.3 million. And that was primarily driven by the need to build inventory to support the launch of Flashforge's desktop 3D product. So that's the overall shape of the numbers. Let's have a look now at the divisional performance. So as you can see, I'm pleased with the growth in PrintHead and with the expected launch of FlashForge desktop 3D in the second half. Year-to-year revenue performance for the second half is expected to be much stronger. The growth has been driven by new business, new applications and uses for our unique technology. Within all of this we've seen the legacy ceramics market stabilize after many years decline and that's been helped by the development of new so-called ceramic glaze technology. And as such, this decline that we've experienced for a long time now, many years, no longer represents the headwind for us in our growth going forward. Now, there's a wider important point here. The czar today has broadened its appeal to many different sectors and continues to expand. And as such, there is now a de-risk portfolio effect compared to the czar of old. Operational gearing effects show an enhanced adjusted profit before tax profitability that's improved by some 100 basis points year-on-year and Magnajet gross margin is up 120 basis points built on revenue increase of 27% year-on-year and the Magnajet business underlies the importance of supporting systems or system components for our core offering supporting our customer base The growth comes from new customers as well as increased demand from the existing customer base. And then back to EPS, much hard work has been done to rebuild a durable pipeline, address the cost base, and that's the work that's been ongoing some time now, and solve some long-term intractable problems. So I expect EPS's recovery path to continue into next year. So let's have a look at a bit of detail at the adjusted income statement. So, taking it as a whole, the group grew revenue by 9.2%, a performance that would be the envy of many companies in the current global climate, and growing gross margin performance by 220 basis points. The development of operation expenditure is worthy of mention. Now, it's up just 5.7% year on year, but this increase is driven by building, and some would say rebuilding, capability in the front end, sales and marketing. And the sharp end, which is how I term research and development, and that's to drive growth in the innovation pipeline, which is our lifeblood after all. So general and admin expenses have actually declined by 1.6% note, a contraction in the cost of back office roles. Putting that all together, we now see a business that grew profitability substantially in the first half to achieve an adjusted profit before tax of 0.2 million, compared to the loss of 0.7 million last year and similar losses, I must say, for the first half of the years before that. Then just take a look at cash flow and turning our attention to cash. The group's adjusted free cash flow was an outflow of 4.3 million. This was primarily driven by temporarily building inventory to support the launch of desktop 3D by CashForge. And once this launch has happened, we expect this to sharply reverse. In addition, the group has upped capital expansion in the first half compared to last year, again driven by building out capability to support anticipated higher volume levels in the future, particularly with our new manufacturing facility in Dongguan, China, that is in itself enhancing supply chain resilience. Now, I want to emphasise, and I've done this many times already since I joined Czar, that the days of storing large amounts of cash in what is essentially a current account are over. We have entered into an expanded rolling code facility, increasing it from £5 to £10 million with an EBITDA covenant of three times, whereas previously it was two times. And in addition, we have an uncommitted accordion facility of £5 million and an increased invoice discounting facility of £5 million. So at the moment, our liquidity is substantial. So that's it from me for now. I'll hand back to John.

okay so in terms of um the the strategy um going forward we you know as i said earlier we compete against very large uh japanese companies and our key strategy is to maintain a differential in capability the the the the the the the the the the advantage. The other key thing is that if you go back 10-15 years Zaar was pretty much a single product in a single market of ceramics and when I joined 6-7 years ago there were very very few applications for Zaar technology. we've done over the last five six years is really to focus on how we diversify and have a broader set of market applications and today i'm pleased to say we have 21 separate markets where we are generating revenue across across the many many territories and many applications and so the route to market through the OEMs OEMs build machines and sell them into a specific application we have another category for user developer integrators so these are companies that actually buy the printers or systems for their own use and we see that increasingly as very large companies start to adopt our technology in their process and that's simply true in the semiconductor space and what we typically do as we enter into a new market is that we have a halo partner, somebody who will give preferential pricing and significant support to get them to market knowing that once they're in the market and gain market share because of the advantage of our printheads then their competitors will come to zaar and at that point we will have much more flexibility on pricing and how we would charge for around supporting them and so if you look overall the four phases of development we would work a company would come along saying really want to use inkjet in this application we that can jet through to our print heads and our print has the widest range of parameters that we can deploy And then we move into a machine development phase. So they will actually develop a machine that will actually function and print whatever is the item that they're printing. Once they've done that, they can then use that to go into customer accreditation. And that can vary significantly for the car battery application. the machines were built took about a year and a half to build and develop the machines then they started producing batteries and those batteries went through a substantial amount of testing with the car manufacturers putting them into cars testing them in environmental tests so that took about another year and a half to do those testing before the batteries were actually accepted into the water circuit version so from the point where we celebrate because the company has chosen our print pay to the point where they launch a number of machines and we get repeat orders uh for the mission so printers for those machines can be a number of years and so over the last five to six years we've built a pipeline of applications that start to come through now and we talked a lot about desktop 3d and car batteries and screenpins and cars and racks but there are others that are starting to come through and deliver revenue now so it can form a course in the PCBs so this is putting a waterproof coating onto a PCB so for instance you might remember a number of years ago if you dropped your iPhone into water it would probably never work again now if you drop it into water it survives and a lot of that is down to putting a formal coating on the PCP this is an increasing market and the same coating that's used on the car battery can be used on the PCBs and is much quicker and more efficient than the incumbent method and we're starting to see that now grow in Sicily and China we've also developed a new method of putting structure on top of ceramic tiles to make the tiles look more like natural stone or granite I'm I'm I'm I'm I'm I'm I'm I'm and the industry. Semiconductors, we're seeing a number of companies actually adopting our print head largely for the replacement of spin coating. So spin coating is a very widely used process in semiconductor manufacturing where to put a layer of fluid onto the silicon wafer, you would spin the wafer, you would then put the fluid in the middle and the forces basically move the material out and physics gives you a very uniform fill the challenge here is that when the fluid gets to the edge a lot of it flies off the edge and is wasted some of these materials that we are working with now can be $50,000 per kilo so wasting includes that that expensive you can see that with inkjet where the waste is effectively zero there's a very attractive ROI in that sector so the number of companies are testing it the question will be can we actually deliver the performance the accuracy and the reliability there are several machines now in large companies that are under test and similar in solar panels we're actually now there's three test machines that have been developed that are in pilot lines looking at how we can replace some of the laser patterning steps we inject in solar panel manufacturing so the thing that is consistent against those four applications is that the fluid that we deposit you can't compromise on the fluid and the reason why they're using our head is because those fluids just will not print in any other printhead and that's why we've come in using our printhead for the applications into the sectors and those are four as i said earlier there are 21 sectors all together where we have revenue either revenue already from machines launched or machines actually developing to launch and one of the key things is getting our customers to market as quickly as possible and then what we have done is we've built an ecosystem of supporting products around the printheads so the customer now could buy a fully integrated printhead or print engine so instead of actually taking the individual printhead and developing everything themselves which would take many years because there's a now what team to buy a free power pretend you want to make sure that they get to market within months rather than years and so safely in the US and with the 70s companies they're actually just buying a print engine that they put into their to their machine so if you look at the the plc plc plc plc and if you look at the numbers the percentages look quite big if you actually look in the actual numbers some of these numbers are quite small the categories are split up really by the type of ink that it's producing so ceramics and glass up 11% really pleasing because for the last 10 years that market has been in decline as far as we see going forward that the ceramic glaze application we should see some growth within the ceramics market going forward and according to marking uh that negative there is a is really just timing around um half year uh there were some issues around payment with some of our key customers at the half year so we didn't ship product to them uh they've all caught up now we expect that to be on track by the end of the year uh quite fast format graphics and labels up by eight tenths but the real activity is in the 3D and advanced manufacturing which is really where some of those applications we just talked about would sit. action textiles small numbers but one of our key customers bought a significant number of print systems at the back end of 2025 we believed that they would install all of them they went into the start of this year we still have quite a few in stock and they've burnt through the doors in the first half so that tends to actually finish them more in the first half of the year which is why it's down still expected to be down at the end of the year compared to 2025 and then it will come back up again as we go through it to 2027 so overall really I'm pleased with the growth in the new markets so summary we've seen really strong demand across all these applications and the rate at which we are now being contacted for new applications is growing significantly the desktop 3d application with flashforges it is delayed but we do expect that to launch in the coming months and we have received initial orders for production volumes and we're helping them with their production ramp up with a team in China and what this means is that I think ZAR very much as I said earlier was a single product in a single application now revenue stream is much broader and as we build the installed base that just builds an ongoing replacement revenue which will grow as the installed base grows So despite the economic headwinds, despite the turbulence in the markets, with the new applications coming through, ourselves and the board look forward to the future with some confidence. And with that we will take any questions.

That's great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab situated on the right-hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and a published Q&A can be accessed via Investor Dashboard. Now, please ask me to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Yeah, okay, so we take the same questions in order. So, you recently opened an office in China, what was the reason for this, you know, you talked about the growth in the region. actually the we've opened and facility in china has multiple functions uh it's a sales office um training center engineering center and book demo center and we've actually opened up the manufacturing facility so the print head that is in the desktop 3d the front end is actually built in in the UK where we will retain all of the IP and all of the technology and then the assembly of the print head with all of the PCBs and the tubes and the pipes and the cases is then done in the manufacturing facility in China where we've got an automated line in what that means is that as the volume for that product increases we have the capacity and the margin will be substantially better out of the facility in China uh... so the question is which will talk to you most excited about one and i think it's it's very much that that's what we did market size so that's what we need to do with eight point eight million at school last year high-resolution 4 core machines using our premise and two of the significant ones, one being Plushforge have told us that they expect 10 cents of the market to be switched to this product category which is therefore about £88,000 and our revenue from each machine is about £5,000 so in the eight-thousand machines on the front of the fortune which is a crazy number so even if that number turns out to be one percent that's awesome and then so i think that the desktop 3d category and which is our first real b2c type application is potentially transformative we anticipate the launch over the next couple of months and we will see if the reception of the product does the product work do the consumers love it and do they buy it and if the answers to those questions are yes then we will do very well and uh... question is what do you think is most misunderstood about uh... and i think the thing that's really difficult to get to really get your head round is tiny little companies like zaar has this capability to print this fluid to northern elskan why on earth wouldn't a giant like epsom be able to just do the same thing and the reality is that their technology, and I use the analogy that they effectively developed a Formula 1 car so all of the big companies that have developed Formula 1 cars are very good at printing, loads of software solutions with high resolution and high speed a bit like a Formula 1 car what we've done is we've developed a Volvo estate which isn't as fast, it's not as good as going round the track But if you want to actually fix the family reciting in terms of not setting the distance field, then you've absolutely got the right chart. And what you can't do is you can't start off with a Formula 1 car and evolve it into a Formula State. What you have to do is you have to start again. You have to develop a new product category. And if you do that, then you're going to trip over our IP. so I think that's the thing that is the hardest thing for investors to understand is how different our IP and our quality is compared to the big companies and how difficult it would be for them just to switch to something like Google the next question is do you expect further innovations to come from internal R&D or external R&D collaborations very much the innovation in the printhead is very much from us so we have a very clear R&D pipeline of technology that moves our products significantly further forward and so we can see what the market requires and the developing products need what they require what's interesting is that our customers are finding new applications that we couldn't even have thought of and it's not in the presentation but there's three new applications that if everybody on this call we all went down the pub and had a few beers and tried to think of things that you could use Inject for you just wouldn't have come up with these three applications So it's quite extraordinary the breadth of industries and the breadth of applications that we're now looking at. But it's pretty much anywhere where you have a positive fluid and you want to reduce waste and you want to reduce costs and you want to actually do it more accurately. So I think that's going to be extremely interesting. Next question is, could you kindly expand on working capital dynamics as you work with customers to work product launches? Is there any use of customer upfront payments to invoice discounting to help alleviate any short term stress on the sales of working capital? I'm going to let Paul deal with that.

My turn is back on. So, you've noticed the fact that we grew inventory by 3 million since January. and 29 30 million and that was primarily driven by the need to support the flash forge desktop 3d launch and we have about 27 30 000 print heads in stock to support that we do anticipate that once the launch happens to reverse very sharply so the first thing that happens is our chinese customers are payment in advance so really as soon as the order comes in the cash will come in and then we'll be shipping those print heads quickly so that will reverse reverse quite quickly so uh yeah selling to the chinese is actually from a cash flow point of view the pia payment advance um uh a very useful thing so um the other thing i just want to emphasize is that at the start of the year anticipating that this this growth we did expand quite substantially our facilities so our revolving credit facility was increased from five to ten million pounds with a uh either gearing covenant increase from twice two times even data three uh we have an uncommitted accordion facility of five million uh and we have a expanded invoice discount facility from three to five million so our total facilities are 20 million so our um our liquidity is is comfortable right now and sufficient to support this launch and others um and uh yeah it's it's uh It's a good position to be in. I'm sort of looking forward to this year, around this year and the launch, and I think it will be a transformative experience for us.

Okay. And then a final question. Could you please provide a sense of the broader market opportunity within all sort of things and given operations such as Exalta and Exjet seem revolutionary? Yeah, absolutely they are revolutionary. at the game he's like all of the applications we've done work we I'm it's not good the group they might be 10 I'm you simple to copy around world I'm like I'm really felt that I'm we want to tell you about any mission how means I mean I'm great Colossus in and they've done trials with pretty much every western car manufacturer to look at how they can deploy the technology and I've seen pictures of cars with graphics on it which I think are really cool There are a couple of frontrunner projects which are going to deploy this technology onto cars and I think it's fair to say that we were already expecting that to be announced publicly but I think that the challenge is that the first target is for all European car manufacturers and I think the reality is that with the influx of Chinese cars the European car industry is in a bit of turmoil at the moment and I don't think that investing in new technology as much as maybe some people might think that this is the time to do it to try and keep the hay I think they've got other things to do So we are waiting for a public announcement of the first project which we hope will be in the distant future. The scale of it, the excitement from the car companies is real. The thing you can do with it change the look of certain car brands and i think it will be deeper i think that the time frame that i would be looking more now in a three to five year time frame rather than any significant revenue over the next 12 18 months

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 InvestMeet company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, John, could I please just ask you for a few closing comments?

I really appreciate you all taking the time to come and listen to the story today. Hopefully we've been able to answer the questions. I think we're really excited about the future. I think there's a huge amount of opportunity here. um and and hopefully you know when you see posh posh and launch you know that hopefully will be the start of um the start of the change of uh growth trajectory for the company so again thank you very much for your time and hope to see you again

class great thank you for updating investors today if i please ask investors not to close this session it will now be automatically redirected to provide your feedback in order that our management team can better understand your views and expectations this will only take a few moments to complete and it 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