Hello, and welcome to Xaar's 2023 full year results presentation. My name is John Mills, and I'm pleased to be joined by our CFO, Ian Tichias. Before we start, I'd like to give you some market context and provide insight into our November trading update. At the last interim results presentation, we had a strong pipeline, which was due to start delivering growth at the end of 2023 and into the first half of this year. However, between that point and our trading update in November, a number of major geopolitical and macroeconomic events took place. This was coupled with certain key OEMs having unexpected commercial and technical issues, resulting in their decision to delay the launches of their products. These factors led us, in November, to revise down our expectations of revenue and profit for 2024.
But while we may have been wrong about the timing, we were not wrong about the strength of our pipeline and the magnitude of the long, medium to long-term prospects. Returning to the 2023 results. With the economic challenges of Q4, which we expect to continue into this year, it is easy to overlook that we delivered a positive result in 2023, with an adjusted profit of GBP 2.9 million. And to help us navigate these tougher economic conditions, we have implemented a clear cost management plan alongside other operational initiatives, which I will cover in detail later. Despite the challenges, the sound foundations we have built are still in place. We have a strong and growing pipeline, driven by the best-in-class capability of our print heads.
We have an experienced, industry-leading team and a healthy balance sheet, and we remain convinced that we have the right strategy in place to deliver the long-term opportunity. With that, let me hand over to Ian, who will start by taking you through our full-year financial results.
Good morning. I will now take you through the financial results as usual, and also add some color to the actions we are taking to counter the macroeconomic headwinds already mentioned by John. First, let me take you through the full-year results. Overall, we have delivered a good performance in line with market expectations, particularly given the context of the external environment. Some key highlights to note: revenue was GBP 71 million, a decrease of 3% compared to 2022. This reflects the economic conditions that had a significant impact in Q4 of 2023. And as John's described, a number of customer product launches were delayed, impacting revenue in the later stages of the year. Gross margin is broadly in line with last year at 38%, which, in the face of reduced print head volumes and higher input costs, demonstrates how well we have mitigated these impacts.
Our adjusted profit of GBP 2.9 million was in line with our expectations, with the planned one-off disposal of a non-core IP asset offsetting the impact of the recent factory reorganization. Our balance sheet and financial position remains healthy, with net cash at the end of the year of GBP 7.1 million. Let's look at the operating results in more detail. Printhead revenue is lower at GBP 37 million, with volumes lower due to the impact of economic factors that we've already discussed, especially in Q4. This is particularly so in our core sector of ceramics, which has been affected by the rising level of interest rates and reduced construction industry activity, impacting the purchases of capital equipment. As a result, our underlying business has seen an annualized reduction of GBP 10 million. Having said this, we have grown our customer base and maintained our market share.
We have also built stronger partnerships with 12 new OEM product launches during 2023, which will deliver revenue in 2024 to offset the reduction in our underlying business. We are optimistic about revenue growth, as we now have clearer visibility of our customers' product launches in new application areas. And although these launches are taking longer than originally anticipated, we have confidence in their success and ultimately, the revenue gain for us. Moving to EPS. This is a business unit that, as we have previously said, has been transformed through careful management and a focus on its core skills. As a result, it continues to grow. We have maintained a gross margin of 38%, bolstered by the operational actions and process improvements that we have made over the last 18 months.
I'm also pleased to say that with single pass machine sales, we are consolidating our market position in key areas, such as sporting goods and power tools, and this has delivered strong revenue growth and so demonstrates the good progress we have made against our plan. FFEI and Megnajet continue to expand our customer offering. We're pleased with the progress that both businesses have made, delivering on print engines and ink supply systems. In particular, Megnajet has been successful in expanding its customer base and now has a greater range of customers. Our plan has been to focus on products that support our strategy for the group. This means that we will be looking at options to exit the non-core life sciences side of FFEI, and the recent sale of IP is part of this process.
As a result of the IP sale, FFEI delivered adjusted profit of GBP 1.8 million, and Megnajet, GBP 0.7 million. Both have been good profit contributors to group performance. As we all know, there has been significant input, input cost inflation, especially in energy, raw materials, and labor. However, our operational improvements have enabled us to drive efficiencies and performance across the business to help mitigate these increases. For example, we have seen labor cost increase for this year of almost 6%, and with rising electricity prices, we were faced with an increase in energy costs of over GBP 1 million, which would have been a 67% rise had we taken no action. Our proactive approach over the last 18 months has constrained this increase to just 20%.
At the end of 2023, we had to take the difficult decision to reduce our headcount and make redundancies to right-size the business. This is never an easy decision and was not taken lightly. However, it was the right decision and positions us well for growth when macroeconomic conditions improve. We continue to exercise tight control over the remainder of our cost base, while also seeking opportunities to drive performance. As an example, we have established an internal project named Hubble, which will provide focus for our key priorities and goals with no incremental investment. This project is split into four key areas: commercial strategic opportunities, which John will expand on shortly, operational efficiency, organizational effectiveness, and customer integration, each with an appropriate executive sponsor and project lead.
This project aims to deliver cost savings on an annual basis of GBP 2 million, of which GBP 1.2 million has already been identified and implemented, assisting our ability to deliver performance in 2024. The group retains a healthy balance sheet and cash position, which gives us the capacity and flexibility to deliver on our planned operational performance. Net cash at the 31st of December was GBP 7.1 million, representing a net outflow of GBP 1.4 million in the year. During the year, inventory increased by GBP 2.1 million as a consequence of the unexpected reduced demand in our core markets, particularly in the ceramic sector. This outflow was largely offset by our tight cash management, bolstered by the proceeds of the sale of IP assets during the year.
While we have won business through the advantage of offering shorter lead times to capitalize on commercial opportunities, we continue to monitor the product mix of finished goods to ensure it is appropriate for customer demand. We have maintained disciplined cash management, focusing on improving operational capability and efficiencies. We expect positive cash generation in the year, driven by a planned reduction in our finished goods inventory. We have also agreed a revolving credit facility with our bank, which is now in place, giving further flexibility as to how we manage our working capital and cash position. In summary, market conditions have been challenging, and while there has been an increasing level of customer product launches, this has taken longer than we had initially expected. The year saw us continuing to proactively manage our cost base, make strategic progress, and delivering profit in line with expectations.
We believe this is a good result against the backdrop of a difficult external environment, which brings me on to outlook. The recent weaker demand and delays in some customer product launches is expected to result in lower revenue growth for 2024. Due to a combination of a number of factors, such as increasing input costs and a reduction in our finished goods inventory levels, there will be an impact on gross margin in 2024. This is all in line with our November update, and our expectations for the full year remain unchanged.
As I said earlier, in the face of economic headwinds, it is critical that we do not get blown off course and that we continue to focus on delivering our strategy, which is to sell more printheads. For this to occur, we need to do two things: firstly, extend our range of products to access all digital print markets, which we will talk about in more detail shortly, and secondly, make it easier for customers to use our printheads by supplying the supporting system components. You will be familiar with this graphic showing the market opportunity and products that we have launched, giving access to our target market, markets. You'll also remember that historically, Xaar focused primarily on the ceramics and the coding and marking sectors, which gave a total addressable market of GBP 200 million.
We now have a compelling product in four of our five target markets. This more than doubles the total addressable market and significantly broadens the breadth of the opportunities in our pipeline.... The successful acquisitions of Megnajet and FFEI, along with the partnerships we have forged in the areas of ink and data path, give us the ability to supply our OEMs with whatever they need to develop their printers. But in order to reduce our exposure to unexpected events, we are further supporting our business model with three key initiatives as part of the commercial strategic opportunity stream of Project Hubble. The first is to diversify our geographies. We have targeted OEMs in Europe and U.S. to give more regional diversity and to reduce our dependence on any specific region, and I'm pleased to report that we have seen good growth in new development projects in those regions.
This initiative, along with our established strategy of having a compelling product in each target market, will build further resilience into our business. The second initiative is to develop relationships with our end customers in a way we have not done before. Three years ago, our focus was to rebuild trust with our customers, and this has now been achieved. So we now want to expand our market understanding by engaging with the end users in partnership with our OEMs. This not only strengthens the relationship with them, but enables us to have a clear picture of the decisions that drive the adoption timing of the new systems with Xaar technology. And although it's early days, we are already getting feedback that both end customers and OEMs appreciate this increased involvement. And this brings me to the third initiative, which to...
is to address some of the issues we face when our OEMs integrate our printheads into a new system. We understand that the transition to Xaar technology and revolutionary high-viscosity inks can present technical challenges. This is why we are further developing our service offering into better support to better support them as they onboard our technology. Firstly, we are targeting our resources to identify issues earlier and provide more support to resolve technical challenges. We have pushed back the development and launch of our high-resolution technology into 2025 to ensure that we can deploy the resources from R&D to help our key strategic OEMs through 2024. Secondly, we are investing in developing the full printer solution in-house for our key markets, so that we can identify and resolve issues with system integration before they create problems in the field. None of this is a change to our strategy.
It's just about placing greater effort to accelerate adoption of our technology. So we are delivering on our strategy. We are diversifying our opportunities, both by market and by geography. We are working with our OEMs to gain a deeper understanding of the market dynamics, and we are further increasing our support. And with that in mind, I will now update you on the opportunities in each of these markets individually. In 2023, the ceramics market contracted by 23%, largely driven by a decline in commercial and residential construction, particularly in China. This prompted a delay in the launch by global ceramics leader System of their new printer with Xaar 720 dpi printheads, a decision that was not made until late into Q4 2023.
But I'm pleased to say that the beta is now scheduled to be installed in May, and if successful, we anticipate the launch to happen in the second half of this year. Despite the significant downturn in the ceramics market, our established OEM partner, NKT, have been able to gain market share with the high resolution that the Xaar 2002 printhead gives, and we anticipate this growth will offset the decline in the overall market. With the System machine launch and the traction we are gaining through NKT, we are well-positioned to further increase market share once the global construction industry returns to growth. We saw two new product launches in this market in 2023, which will deliver revenue growth in 2024. One key, one key success story has been K&B Kammann, who have launched a revolutionary glass printing technology using Xaar heads and high-viscosity ink from Marabu.
As you can see from the quote, this is the first time we have seen an OEM publicly acknowledge that Xaar heads and high-viscosity ink has revolutionized their product offering. But that's not the only new development. We have made a significant technical breakthrough in the ultra-high speed, high-quality printing of 1D and 2D barcodes. Our water-based, high laydown technology allows replacement of solvent-based systems, which currently have significant reliability and ESG concerns, and this development has drawn interest from the major coding and marking companies globally. Last time we spoke, I took you through the opportunity we have in 3D printing across several technologies and markets, and I want to update you briefly on this. So firstly, two of the major global suppliers of desktop 3D systems have been developing full-color inkjet machines based around Xaar printheads....
There was an expectation that these product launches would take place at the end of 2023 and early 2024, but feedback from consumer research led to a redesign, which has delayed the launches by six to nine months. Secondly, global leaders in polymer jet have already made the decision to adopt our technology due to the unique ability to print high-viscosity fluids that yield final components with much greater mechanical strength. And while the current geopolitical and global economic challenges have led to delays in the development of these new products, they are still committed to adopting our technology. And thirdly, 3D wax printing for the manufacture of jewelry, where Xaar's increased resolution and productivity, along with the ability to operate at high temperatures and viscosities, has enabled a new generation of 3D wax printers.
We still expect the launch of the first product to be in Q2, with a higher volume second product being launched in Q4 this year. So overall, in 3D, we have seen some disappointing delays to the launch of OEM products, but we are confident of the medium-term opportunity in this market. Advanced manufacturing is an exciting market for us, particularly as existing applications move closer to commercialization and new projects enter our pipeline. Here, opportunities are created by a transition from analog to digital, establishing new markets enabled by Xaar technology, rather than displacing competitive printheads. Therefore, the size of the opportunity for Xaar is not currently, is not bounded by the current scope of existing digital print markets.
Last time I spoke about three new applications, one for electric car batteries, another for replacing spray painting for cars, and a third for the manufacture of printed circuit boards. Well, I am pleased to say that we have passed a major milestone. In combination with our partner, Axalta, we have successfully painted a car roof at a major car plant using a robot and a Xaar printhead. This paves the way for the commercialization phase, and you should watch out for future communications coming from Axalta, who have branded the technology NextJet. The use of inkjet reduces emissions and paint wastage by up to 70%, which is a great example of how our technology is making a positive impact in the markets of our end customers. Now I would like to update you on how Xaar is enabling the next generation of electric car batteries.
The key factors for the adoption of electric cars are cost, range, and time to charge the batteries. Current battery technology has improved significantly over the years, but the next generation promises to extend the range to 800 km and allow charging to 60% in 15 minutes. However, the deployment of this new technology is being held back by a technical limitation of the current insulation layer, which is the blue plastic film that is glued to the battery, as you can see in the pictures. The increased voltages and heat generated when charging the new batteries can cause this film to delaminate and create a potential safety hazard. We have been working with the battery industry for the last 3 years, developing an inkjet coating that replaces the plastic film.
I recently visited three of the top eight battery manufacturers in China, and they confirmed that inkjet is the preferred solution and that Xaar is the preferred printhead, thanks to our high-viscosity capability. The coating solution has passed all the required tests, and they are now preparing to move into production in 2024. We have received the first printhead orders from our OEM partners for their production machines to be delivered, to be delivered later this year. This is another prime example of the initiatives previously mentioned, where we have engaged with the end customer to understand their adoption timing and how we can better support our OEMs. We will keep you updated on this and other exciting opportunities in advanced manufacturing.
We launched Aquinox in November 2022, and the response has been extremely positive, with a number of the major OEMs in textiles and packaging choosing Aquinox for their next machine development. However, it has taken much longer than we anticipated to get commercially available inks that exploit the unique properties of Aquinox. I am pleased to tell you that we are now seeing the first ink sets being made commercially available, which will allow a number of our OEM partners to move forward with their product development. We are also delighted that the significant benefits of high-viscosity inks have recently been independently validated by the Welsh Centre for Printing at Swansea University, confirming the superiority of our technology. As we've discussed previously, wide-format graphics is the single biggest market.
We had planned to launch a new product for this market in H2 this year, which would be the fifth product launch from our ImagineX platform. However, as we discussed earlier, we're going to delay the development of this product to ensure that we have the right focus and resources to support our OEMs to deliver the key projects already in our pipeline. So finally, this brings me onto our customer pipeline. As we have discussed, a number of expected product launches at the end of Q4 and in H1 this year were delayed due to a variety of reasons. But we should not overlook that there are actually 12 new product launches using Xaar printheads in 2023, and despite the more cautious outlook, we still expect there to be 12 more in 2024.
I've made the comment that our pipeline is strengthening, and this is because we have seen a significant increase in the number of companies that have bought a development kit and are now in varying stages of product development. We've seen a reduction in the number of companies in the qualified interest stage for two reasons. Firstly, some have moved into the development phase, and secondly, we have become more stringent on the qualification process to enter our pipeline. The key focus this year is to ensure that our OEMs get to market and deliver the revenue growth, as stated earlier. We are increasing our support and getting closer to the end customer to maximize our chance of success. So, in summary, we have delivered in line with expectations in 2023, despite economic headwinds, which we expect to continue into this year. But we are still delivering on our strategy.
Our pipeline is getting stronger, and the increased support we plan for our OEMs and end customers should ensure we maximize the number of new product launches this year. So despite the short-term challenges, we remain hugely excited for the future of Xaar, and remain confident that the unique capabilities of our printheads will drive broad adoption over all markets over the coming years. We're now happy to take any questions you may have.