DLH H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 25, 2025

There are 7 speakers on the call.

Operator

Hello, everyone, and welcome to this twenty twenty four four year results call. Just to let you know, we do have captions on the call today, and these can be switched on and off within your Zoom settings, but please be aware they are automated and can sometimes contain errors. We have an opportunity for questions today. You can do this by clicking on the q and a icon on your screen and typing your question. This can be done at any point during the session.

Speaker 1

Good morning, and welcome to XAR's twenty twenty four Full Year Results Presentation. My name is Paul James, and I'm pleased to be joined by our COO, Graham Tidar. Usually, John will be presenting our results. However, he is currently a little unwell, and we wish John a speedy recovery and look forward to seeing him back to work very soon. Since joining XAR in November, I have witnessed firsthand the solid foundations and cutting edge technology that XAR possesses.

Speaker 1

Despite clear short term headwinds that we have still to navigate, I'm excited at the prospects that lie ahead of the group. And this is why today, I intend to purchase shares in the company because I believe, firmly believe, in the potential of this business. This morning, we will provide an overview of what was a mixed year for the group. While we did not meet our original revenue aims, largely due to the difficult market backdrop, we did make strong strategic progress. And shortly, I will hand over to Graham to set out the overview of the group's progress during the year.

Speaker 1

And then after I have provided details on the full year financial performance, Graham will set out the main drivers of future revenue growth. And I will then set out the medium term outlook and provide guidance for 2025. Graeme, over to you.

Speaker 2

Thanks, Paul. I've been at ZAR for nearly thirty years, starting out as an R and D technician before moving up through the ranks, becoming group COO in May 2022. I've been here through all the ups and downs. Historically, Zar has been almost exclusively reliant on traditional print and ceramics. However, over the last six years, the recognition of our differentiated technology has slowly gained momentum, opening up a wide variety of new industrial markets.

Speaker 2

New Printhead business, defined as revenue from products launched since 2019, has delivered an average compound annual growth rate of 24%, delivering revenue of $18,900,000 in 2024. However, this progress has been masked by the last stage deterioration of the ceramics market as it approaches the trough sooner than expected. The EV battery coating, automotive coating and desktop three d printer markets are where we currently see the most significant revenue potential. Crucially, in all these markets, there are now fully operational machines using XAR printheads. This significantly derisks future growth prospects.

Speaker 2

Our business model is to assess markets through leading customer focused OEMs. During the year, we continue to make significant progress in the wax and textiles markets as well as successfully trialing our enhanced go to market strategy. Being able to provide complete ready made solutions to OEMs, we lessen some of the unique technical challenges posed by adopting high viscosity fluids, reducing the dependency, on their product development cycles, something which has historically been out of our control, thereby reducing time to revenue for ZAR. Our focus remains on managing what is within our control, prioritizing key revenue drivers, maintaining disciplined cost and cash management, and continually assessing opportunities to further strengthen and utilize the balance sheet. The unique capability of our technology differentiates us from our competitors, allowing first mover advantage, ultimately providing us with a substantial pipeline for future revenue growth.

Speaker 2

Going forward, our product portfolio has much more diversity in end markets and customers than it has ever had. Let me hand over to Paul, who will take you through the financial performance for 2024.

Speaker 1

Thank you, Graham. Overall, we have delivered a solid performance in a challenging market for Capital Equipment. Revenue was million, down 13% compared to 2023. And this was due to the decline in printhead revenue, driven by the last stage weakness in the ceramics market, delays in OEM product launches and underperformance at EPS, amidst a backdrop of market uncertainty. However, gross margin was protected at 36% despite increased energy costs and reduced overheads absorption as a result of lower sales volume.

Speaker 1

And this was largely offset by operational expense savings of 16% year on year. Overall, our adjusted profit before tax for the period was million. Despite the challenging conditions, we maintained investments in product development with R and D investment of million or roughly 8% of revenue. We aim to maintain this level of R and D as a percentage of revenue in the medium term with an increased proportion being deployed to support our OEMs to move from concept to launch more promptly as this is seen as a priority for the group outside of our three key opportunities. The group remains well capitalized with net cash of GBP 8,700,000.0 at the end of the year, an increase of 23% since the start of 2024, driven by disciplined cash management and improvements to working capital.

Speaker 1

This liquidity provides a strong base to invest in any capital or R and D expenditure required to grow group revenue. Slide seven illustrates group performance. The first three bars concerning printhead alone, negative volume variance and mix of sales was worse than prior year. However, we managed positive movement in average selling price across the portfolio. EPS is down due to weakness in the single pass market.

Speaker 1

Year on year, the group achieved cost savings of leading to a drop down to at profit level. So let us look at operating results in more detail. Slide eight, Printhead U business, shows a faster than anticipated client in Ceramics revenue as a result of the significant large stage weakness in the global Ceramics tile market. This continues to be a headwind for the Printhead business. We have continued to grow our Printhead customer base with two eighty four unique customers in 2024 compared to two eighty one in 2023 and two 70 in 2022.

Speaker 1

New business revenue has increased by 23% year on year to million, which is a positive underlying dynamic and bodes well for the future. Given the relatively low level of revenue from Ceramics in 2024, further downside is limited. As the rate of decline levels off, the underlying growth should be more apparent in the headline numbers. Adjusted profit before tax fell 24% to GBP 2,500,000.0 due to lower sales volume and changes in sales mix, as we saw on the previous slide. Now let's look at Printhead performance.

Speaker 1

At the interims, we set out our expectations for new versus legacy printhead business for the full year. Given the macroeconomic conditions, we provided a range as the outcome was still uncertain. Overall, print head performance was at the bottom end of this range, driven both by worse than anticipated decline in legacy revenue and a strong, but less than hopeful, increase in new business. This is primarily the result of market uncertainties delaying investments. We continue to diversify our product portfolio, significantly derisking ZAR's overreliance on a single market and therefore, improving the resilience of the business to factors outside of our direct control.

Speaker 1

And as a result, in 2024, ceramics only contributed 17% of the printhead revenue. This diversification does not mean we have to give up on Ceramics. This market does remain a future opportunity, and we expect it to return to growth over the medium term. We are proactively ensuring that we are well positioned to take advantage of any growth, working closely with both System, the global leader in the sector, and NKT, both of whom have recently launched products using our technology. The combination of significant growth in new printhead business and a relenting ceramics market headwind providing a strong foundation for the business going forward.

Speaker 1

Let's look at FFEI. Following the disposal of the noncore Life Sciences business, revenue grew 7% to million due to the last time orders for the Life Sciences business. Gross margin grew eight percentage points due to improved pricing decisions during the completion of the last time buy orders. During the year, we successfully transferred manufacturing of FFEI Print Systems to Huntington from Hemel Hempstead, generating overhead savings and enabling the capture of synergies as it facilitated closer collaboration between our team to work on integrating our heads into print bars and print engines, ultimately making it easier for OEMs to adopt our technology. Now let's look at the slide on MegnaJets.

Speaker 1

This business delivered GBP 2,500,000.0 worth of revenue, a 7% improvement compared to the previous year. This was largely due to significant order growth from one customer in particular, who had been through a period of destocking in 2023. With 44% growth in intra group sales to XAR compared to 2023, our main focus is on group projects as this is where our systems can help to exploit XAR's high viscosity and high pigment capability by providing enhanced offerings into target markets such as textiles. Gross margin improved significantly from 32% to 50% due to operational improvements and better pricing. And this resulted in growth in adjusted profit of 50% to million.

Speaker 1

Let's turn to EPS. EPS remains largely separate to the rest of our business with a distinct strategy and business model as it utilizes both SAAR and competitor printheads. Revenue at EPS was 27% lower than the previous year at million, with the performance negatively impacted by market uncertainty delaying the rate of new customers switching from analog to digital. This meant we were unable to replace revenue that had been generated in 2022 and 'twenty three from a single customer who had placed a multi unit order across both years, and this order was completed in early twenty twenty four. Gross margin fell seven percentage points to 31%, largely due to lower order volumes.

Speaker 1

Despite a substantial 30% reduction in operating expenditure, adjusted profit before tax still fell by million to million. It will likely remain a drag on group profitability during 2025 as new management focus on turning this business around by reducing overreliance on specific customers and widening the customer pipeline, leading to growth beyond 2026. And now let's turn to the balance sheet and our cash position. The group retains a healthy balance sheet and cash position, which gives us the liquidity and flexibility to deliver on our strategy without the need for utilization of other sources of cash in the medium term. Net cash at the year end was GBP 8,700,000.0, a net inflow of GBP 1,600,000.0 as a result of an ongoing focus on careful liquidity management.

Speaker 1

We worked hard to manage working capital effectively, and it was pleasing to reduce overall trade balances by million to million. While we reduced inventory levels during the year, we retained roughly six months of stock, allowing for a rapid response to anticipated future demand when required. Our revolving credit facility of million remains undrawn. And during 2024, we renegotiated the covenants going forward to provide further New printhead revenue New printhead revenue continues to grow as Xaar technology becomes more widely utilized, and ceramics revenue is in the final stage of decline before bottoming out in the short term. As Graham will explain, we have a compelling value proposition in a number of markets, which we are confident will deliver meaningful revenue in the medium term.

Speaker 1

We remain cautious on providing precise timing given the current market backdrop and uncertainty caused by economic and geopolitical factors. With a sufficiently strong and liquid balance sheet, we are well set to take advantage of the significant opportunities for revenue and profit growth. I will provide our outlook for 2025 at the end of presentation. At this point, I will hand over to Graeme.

Speaker 2

Thank you, Paul. Over recent years, we have developed a more resilient product portfolio with applications and avenues for growth in a diverse range of end use markets. With the decline in ceramics market largely behind us, we can now concentrate on the accelerated uptake of our technology in markets that have substantial, long term and repeat revenue potential. Over the course of 2024, Tsar has continued to make strategic progress in opening up new, potentially sizable markets, providing the opportunity for sustainable and significant growth. We remain focused on fully utilizing our technology in applications where our unique capability, namely the jetting of high viscosity and high particle loaded material, can add significant value and revolutionize manufacturing processes.

Speaker 2

While we still believe there is significant opportunity across a wide breadth of market sectors, we recognize the importance of focusing on a few key markets. We believe these will deliver substantial and enduring revenue streams. The unique capability of our technology differentiates us from competitors, allowing first mover advantage in areas such as EV battery coating, automotive coating, and desktop three d printing. For each of these opportunities, I will set out the clear value proposition of using Xaar printheads. I will start with the problems facing the current solutions in our target markets before explaining why our technology will be successful.

Speaker 2

We have reached key milestones in each of our target markets. There are now fully operational machines using our printheads. This has historically been the most significant hurdle to long term growth. Moreover, this means that most of the heavy lifting, including R and D investment and CapEx from our side, has been completed. Future revenue growth is dependent on the rate of customer uptake of OEM machines rather than the integration of our technology.

Speaker 2

Promisingly, in the EV battery coating and automotive coating markets in particular, we have extremely strong and highly credible OEM partners, driving additional customer interest in our technology. While adoption of our printheads within the three main target markets will be key to the future prospects of the business, other markets continue to generate meaningful revenue. It is these markets which will benefit from our ability to offer a complete turnkey solution. And I'll provide more color on this later in the presentation. So firstly, EV battery.

Speaker 2

Starting with the battery coating market, there are currently two solutions used to insulate EV batteries. The dominant technology uses PET film to wrap the battery, while the alternative is to spray a fluid. With the requirement for even bigger and more powerful batteries, there is a corresponding increase in the amount of heat generated. The use of a plastic film, PET film, is increasingly becoming no longer fit for purpose as it is unable to withstand the greater heat generated, causing safety concerns. And while spraying doesn't have the same safety concerns, 40% of the paint is lost in this process, therefore, requiring a paint recovery system, making the process significantly more expensive.

Speaker 2

Meanwhile, XAR Inkjet technology provides a coating that is capable of withstanding greater levels of heat, mitigating the safety concerns with a 99% yield, therefore, minimizing waste. In July, we launched two new printheads. The ZAR EX and Nitrox EX, through which we became the first company to enter this sector with specifically designed printheads. Through partnerships with OEMs, Amija and Qifang, EV car manufacturers are now able to access our technology. While the highest quality batteries are used in EVs, those which don't reach the required standard are utilized in battery storage.

Speaker 2

This provides further incremental opportunity for Czar as these also have a coating requirement, and customers in this market face the same issues as EV manufacturers. Amija and Qifang launched the world's first and second inkjet EV battery coating machines during 2024. Both OEMs have had initial orders for their machines, and we anticipate orders scaling markedly going forwards as customer confidence grows. As we are the sole provider of this technology, the market uptake could be substantial. To scale the market opportunity within EV battery coating, there are an estimated 1,300 EV battery production lines globally.

Speaker 2

100% conversion of this market could generate £260,000,000 of revenue. It is anticipated that the printheads would need replacing every two to three years. Moving on. Automotive coating is a market where the issues with current solutions inhibit its potential size. Both end customers and the OEMs are seeking out a solution.

Speaker 2

With roughly 40% of paint lost when spraying, it is costly in terms of both materials and energy. On top of this, if manufacturers wish to utilize multiple colors, after the first color is applied, the car is taken off the production line, masked, and processed for a second time in the paint shop. This process is currently very inefficient. The consequence of this is that the paint shop is not only the largest environmental footprint and the biggest waste producer in a car plant, but it is also the major capacity bottleneck. If customers wish to customize their cars, adhesive decals are typically used.

Speaker 2

However, these are prone to jet wash damage. Existing inkjet solutions at a lower viscosity face several challenges, including sagging of the paint once it's applied onto a sloped or vertical surface. In terms of the two tone vehicle market, Xaar technology eliminates the need for masking and reduces energy and paint requirements, therefore making it significantly more efficient than paint spraying. Our partner, Exalta, a global leader in the sector, recently launched the Exalta NextJet using the XAR 2,002 and Equinox printheads. Exalta has already reported that this can contribute to a 30% reduction in CO two emissions and significant cost savings for two tone vehicle manufacturers.

Speaker 2

Xaar technology also provides a high quality solution to the drawbacks of the decal market. With the ability to jet lower volumes precisely, our printheads are leading the way in replacing current solutions with no sagging and no risk of damage when jet washing. Axalta has recently announced a partnership with Durer, whose machine is currently paying 50% of cars globally, to provide a digital paint solution combining Exalto's NextJet technology with DER's robotics. DER are currently demonstrating their machines equipped with this technology to potential customers. And alongside Exalto and DER, we will select our go to market partners around the middle of this year.

Speaker 2

There will initially be two to three as there has to be a level of support required for installation, commissioning, and testing of the application. We aim to have the first operational car plant with this capability in q two twenty twenty six. We'll start to see revenue from this market from this point onwards. Through our partnership with Exalta, this market presents a significant opportunity for Xaar, and we anticipate that our technology will expand the levels of decals and two tone used to date. The market has been crying out for this solution for years, and we are confident that the benefits outweigh the cost required to adopt the technology.

Speaker 2

Saab will receive a royalty based on the number of cars painted. Currently, roughly 1% of the 90,000,000 cars produced globally have decals or two tone paint. As the current sole provider of this technology, we have the potential to take 100% of the market. Moving on now to three d printing. Within the desktop three d printing market, there is currently an absence of a low cost, high quality product.

Speaker 2

Our technology provides the ability to jet high viscosity fluids at a relatively low cost. This has enabled the world's first full color, high resolution desktop three d printer aimed at the consumer market. By utilizing Xaar technology, cost is no longer a barrier for end customers to purchase a high quality three d printing machine. The retail cost of the nearest competitor machine of equivalent quality is roughly £40,000. Currently, those unwilling to pay so much for a printer resort to a single nozzle monochrome three d printer.

Speaker 2

The price point of these machines varies between a few hundred pounds to over £5,000. FlashForge announced their full color desktop three d machine with XaL printheads in November. Priced at roughly £2,400, this significantly undercuts machines which can match its finishing quality. In the short term, the machines are being sent to social media influencers to promote the product. FlashForge expects to ship its first orders in the second half of the year.

Speaker 2

We expect the other major global suppliers to engage with us to begin developing their own machines this year as awareness of the benefits of our technology continues to permeate through the market. While there are over 1,000,000 single nozzle monochrome three d printers currently sold annually, we anticipate our technology will create a brand new market as well as converting some of the current market. 1% share of existing monochrome market would generate meaningful revenue on initial sales alone as these machines have been designed for printheads to be regularly replaced. We anticipate recurring revenue streams for each unit sold. Now on to other market opportunities.

Speaker 2

So in April 2024, Flashforge, also a market leader within the wax printing market, launched their first product using a single XAR printhead, and we anticipate a second product with three printheads to launch in the second quarter of this year. Despite OEM product delays encountered in 2023 and 2024, we are confident the market leading capabilities of the XAR 2,002 printhead will provide an excellent opportunity. With the potential market size for this application being £20,000,000 per year and the expectation that our technology will ultimately take a majority share, the opportunity is significant. Even in established markets like textiles and corrugate, there are significant opportunities for revenue growth. The Equinox printhead and its embedded ink recirculation technology delivers a higher quality and more consistent finish in a single pass compared to other solutions in the market.

Speaker 2

In collaboration with our ink partners, Nasdar, we have developed sector specific high viscosity aqueous inks for use with the Equinox printhead, thereby overcoming one of the fundamental barriers to adoption and growth of inkjet within this sector. M and R launched its latest product powered by XAR's Aquinox printhead in September 2024. Our technology enables consistently high quality prints while printing direct to garments. With the textiles markets being market being of a similar scale to the wax market and our belief that we will take significant market share in the medium term, this also provides an exciting opportunity. So to summarize, overall, these markets represent opportunities similar to the magnitude of ceramics, further illustrating how we are derisking our business model in a relatively short period of time.

Speaker 2

Unlike in ceramics, where repeat sales take longer to occur, the printheads in each of our target markets need to be replaced regularly, making revenue more reoccurring and highly attractive and earnings of a higher quality. Previously, we have discussed how these and other opportunities will deliver revenue in the future. And while the most substantial revenue growth remains in the remains in the medium term, key markets such as EV battery coating and desktop three d will deliver revenue this year, with revenue from automotive coating expected in 2026. These opportunities, on top of the opportunities in the more mature wax and textiles markets, are no longer on the distant horizon. They are rapidly coming into view.

Speaker 2

So now to talk about the turnkey solutions. As alluded previously, we have not historically appreciated how the capability of our OEMs to harness our technology has varied. The process has repeatedly been frustrating and time consuming for OEMs, and on occasion, this has led to them withdrawing from the development process due to an apparent unresolved unresolvable integration issues. However,

Speaker 3

we

Speaker 2

have been working to evolve our strategy to work more closely with customers in order to lessen some of the unique challenges posed by working with high viscosity fluids. By providing a turnkey solution, we can significantly reduce time the time line from a point of engagement to a XAR embedded solution being fully operational and available for customers to purchase. This has significant benefits for us, both in terms of time to revenue and deepening customer relationships. In addition, we can recycle this solution to other customers within that market, leveraging the initial investment made. As discussed in the interims during 2024, M and R took part in the first project of a complete turnkey solution in an effort to reduce the time to market of a new machine utilizing our technology.

Speaker 2

We provided them with a functioning system, which could easily be attached to their material handling system. This significantly reduced integration issues. The product launched in early September, just six months after the project began. Previously, it would have typically taken three years. We are currently undertaking a second project, which is already deliver delivering promising results.

Speaker 2

Although the provision of a complete turnkey solution is not appropriate to all our market segments, it is relevant to some. And while a turnkey solution does not expand the market itself, it does increase both our ability to grow market share and the timeliness of that revenue. We recognize this approach has a cost, but we are of the firm belief that it's an extremely good use of capital with returns well in excess of the cost of the capital. I will now hand over to Paul to discuss the financial outlook for 2025 and wrap up today's results.

Speaker 1

Thank you, Graham. Well, the group enters 2025 with renewed optimism as several new potentially significant market opportunities start to gain momentum. Over the medium term, these opportunities should deliver meaningful revenue at attractive margins. However, in the short term, despite the decline in the Ceramic market beginning to abate, we will continue to feel the impact of the slowdown in EPS' end markets. While these dynamics will continue to impact revenue and profitability, they highlight the value of our strategy to diversify across a broad number of markets and applications.

Speaker 1

We are greatly encouraged by the progress we are making across our focused markets, having already secured some key customer orders and partnerships, and we are confident that we will continue to make strategic progress, whilst recognizing that how this translates to near term revenue and profitability will be dependent on market dynamics and customer decisions to adopt OEM products. We will continue to manage cash tightly and maintain a strong technical balance sheet. In summary, I'm pleased that through the continued focus of an outstanding team, the milestones John outlined in September have been delivered as planned. New business revenue growth is substantial, and we continue to work towards reducing the time to market for OEMs through our enhanced go to market strategy. Meanwhile, in the short term, the slowdown in EPS will remain a headwind, and the exact timing of the market uptake of our technology is uncertain.

Speaker 1

We will continue to make the right long term decisions to ensure we capitalize on the opportunity ahead of us. Crucially, in our all our target markets, there are now fully operational machines using our printheads. There are EVs on the road using batteries coated by XAR printheads. Our automated coating technology is being demonstrated by our partners, Exalta and DURE. And a groundbreaking three d printer using XAR printheads has been launched.

Speaker 1

We are confident that our approach will deliver significant value for our shareholders. The visibility and scale of the opportunities at Xaar have never been so strong. At this point, I'd like to open up to questions.

Operator

You.

Speaker 4

Well, hello. Welcome. I'm Paul. You just saw me on the video. I'm joined with our CEO, Graham.

Speaker 4

And we also have with us today our Chairman, Andrew Vlerbert, who's joined us along with two colleagues, Chris and Dan from CEM. So we're all here all ready for your questions. Thank you.

Speaker 3

Kick off. Good morning, Paul again. Two questions from Todd Rands. Firstly, could you please give some comments on the EV battery progress versus initial timelines and how disruptive this technology could develop through 2025? Sure.

Speaker 5

Sure. So we've seen that the first two OEMs have got their machines commissioned on plan. So they'll now be running those with the customer for them to gain confidence and see that the technology can deliver. And then we expect to see repeat orders as we move through into the second half of the year. So in terms of timing, that appears to be on plan.

Speaker 5

It's now a question of the end user, the customer, the battery producer, getting confidence in the technology.

Speaker 3

And a quick follow-up. Does your technology allow more flexible design than the actual batteries away from the traditional seven door square formats?

Speaker 5

Yes. We're able to print objects of any shape because we can print in any orientation. We see most of the market heading towards prismatic shaped batteries. There are still some cylinders and we can print both of those. But as with automotive printing, we can print lots of difficult objects and shapes because we can print in any orientation.

Speaker 5

So we don't see any limitation there.

Speaker 3

And on EPS, which end markets were challenging in 2024? And how do you see these new end markets developing in 2025? Do you anticipate headwinds from US tariffs on exporting your printheads to The US?

Speaker 4

Okay. As good to unpack, I think the drivers behind the headwinds at EPS was the fact that they had this long term contract been running for a number of years, which came to an end in January 24. And there's bit of a they're going through a bit of a dry patch now because there's quite a bit of a time between when you'd win a contract and when you start to recognize the revenue. So that team, because of that contract coming to an end, they need a bit of catching up to do now to refill that pipeline, get those contracts running and then for us to recognize the revenue. And the management there are now absolutely busy with that and getting that business back to growth probably into 2026.

Speaker 4

In terms of I think the second part is a tariff question, wasn't it, Kate? Yes. So obviously, tariffs are a hot topic at the moment in The States. There already have been tariffs imposed for imitations from China, but this is something which affects everyone in the industry. So we don't think we're going to lose any share from that.

Speaker 4

And in fact, there's going to be a pass on across all the industry players of those particular tariffs. And where there are importations from other regions where tariffs may be applied, then actually what's happening is probably what tariffs are designed to do. There are discussions around localization of supply where necessary. So we've done quite a bit of thinking about it, but we think we have sufficient mitigation in place for those.

Speaker 3

And the third from Tom. Given the improving cash pile, how are you thinking about the further stages of the Huntington manufacturing footprint development?

Speaker 4

Well, it's I think you could probably have what I would say about that really. Would you

Speaker 5

please you want to Yes, sure. I mean, we continue to look at how we can drive operational efficiency in the plant in Huntington while maintaining the ability to respond to growth as it comes through. So we've we made the first changes to

Speaker 2

the layout of the factory

Speaker 5

a couple of years ago, and it's now more of a continuous improvement approach to continually driving efficiency as part of the everyday role. So rather than much sort of more significant projects like the layout of the cleanroom, it will be an ongoing continuous improvement in driving of production efficiency.

Speaker 6

I think it's probably also worth adding enterprise, the investment in the platform technology, which will enable significantly reduced manufacturing time and other costs, medium term. But that's where one of the areas where cash will be invested.

Speaker 3

A question from Martin. In terms of the key market opportunities, easy battery coating, automotive coating and desktop three d, for 2026, could you give us a sense from where the most material revenue opportunities over the next three years would be and perhaps rank these market opportunities in terms of largest to smallest?

Speaker 4

Well, so out of those big three, three d WAX has already started. It's actually earning us increasing revenue this year. The other two are probably going to start to get some meaningful revenues next year. I mean, right between the two, I think EV's battery is probably the largest at the moment.

Speaker 5

Yes. So EV battery, there were machines, as I said, in plants at the moment, people testing again confidence in the technology. So I think out of the two, we probably see that one grow first. I think the the the automotive coating, application, that will take a little bit longer to grow because there are more infrastructure things to consider in the plant when you're implementing that technology. So I think it'll be battery first followed by the automotive coating.

Speaker 3

And in terms of our print head business, the 24% revenue CAGR since 2019, could could you touch on sort of the main end market applications which contributed to this revenue growth?

Speaker 4

Just put a more view of this, Trent.

Speaker 3

Sorry. Since 2019, new business new printhead business CAGR has been 24%, What have been the main end market opportunities that have developed this revenue?

Speaker 5

There's been a number. So we've seen growth in wax printing, as Paul mentioned. We've seen

Speaker 4

that now start to

Speaker 5

expand and grow. We've seen growth in glass printing and also in coating and marking, where, you know, we had a significant product launch last year with one of our customers. And now we're starting to see some of the new industrial applications like EV battery, automotive coating, the desktop three d start to come through. But I think that would be the main ones from 2019, you know, driven growth in textiles last year as well.

Speaker 3

I have a question from Georgia. Graham, are the OEMs on exclusive deals or

Speaker 5

do they have an exclusive period in coaching and three d printing? No. No. There's no exclusivity in that market.

Speaker 3

And, Paul, great work on working capital. Looking at the inputs, DSOC and relatively flat, the improvement in inventory, Listening to Graham on business development, should I expect inventory levels to be higher for '25, '20 '6? Any general view of how you see working capital changes?

Speaker 4

I think what we're putting in place is more of a longer term view around working capital inventory. So by way of stock term targets. And I personally am a great fan of having continuous improvement in stock terms. So that is definitely an area of focus improving the efficiency that we have in the organization. So, yeah.

Speaker 3

And then two questions from Charlie Cullen. First of all, do you have a target on proportion of sales from Turkey Solutions going forward? And what do you expect in terms of margins from this sort of solution?

Speaker 4

Well, I think I think we don't yet have a formal target, but we clearly see, given the experiences we've had with M and R, this method being deployed very widely. So there are going to be continuing developments of that technology, that capability across more and more markets as we proceed. So it could well end up being a significant proportion on the other part of the question.

Speaker 3

And what do you expect in terms of margins from the solution?

Speaker 4

Well, I think it's reasonable to expect that as we deploy our technology, particularly around viscosity advantage that we have, that when we go into new markets, we could expect to see better margins than perhaps we've had before. So that's not an unreasonable expectation to see an improvement there.

Speaker 3

And in terms of outlook, what sort of revenue cover do you have from

Speaker 4

the current order book? Well, it's quite interesting how how things operate as well. So, I mean, formally, the the cover is a a matter of a few weeks, actual orders, you know, made. But, actually, the the team have a fairly good understanding about uncertainty around orders that are coming in the short to medium term. So and it's actually quite encouraging at the moment that that longer term order view is relatively strong.

Speaker 3

And additional question from Tom Rams. Could you give an update on the development of XAR technology to print on cartridge packaging?

Speaker 5

Yes. We've made some announcements recently of our collaboration with Nasdaq. We We've been developing a high viscosity ink for printing onto corrugate board, and we are delivering great results with our and our demonstration capability that we have in place in Huntington. So we are in the process of demonstrating that to potential OEM customers.

Speaker 3

At this point, we have no further questions.

Speaker 4

Well, I'd like to thank everyone for coming today, and I look forward to hopefully meeting many of you in the coming weeks and months. Thank you.

Speaker 5

Thanks,

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Earnings Conference Call
DLH H2 2024
00:00 / 00:00