Good morning, and welcome to Xaar's half year results. In a moment, you'll hear a short presentation, followed by Q&A. If you are following the presentation online and would like to ask a question, please write your name, organization, and your question into the Q&A box on the screen at any time, and we will read it out on your behalf during the Q&A. I will now hand over to Xaar's CEO, John Mills. John, over to you.
Good morning, and welcome to Xaar's 2024 half year results presentation. My name is John Mills, and I'm pleased to be joined by our CFO, Ian Tichias. This morning, we'll provide an overview of what we feel is a solid set of results, given the difficult market backdrop. After Ian provides detail of the H1 financial performance, we will review the benefits of digital printing before summarizing the unique properties of our products. We will show the underlying revenue dynamics, comparing the market-driven decline of our legacy ceramics business with the growth in revenue from our target markets beyond ceramics. The contrast is stark, but combined with a strong customer pipeline, it bodes well for the future. We'll then provide an update on the future market opportunities, such as 3D wax printing and battery coating, before introducing a new successful go-to-market strategy that we are trialing.
Despite the challenging market conditions and a number of one-off headwinds, we have managed to deliver a solid financial performance. Although the first half revenue reduced from GBP 34.5 million to GBP 28.6 million, the pipeline is getting stronger, with a number of key projects expected to deliver in 2025. Since 2019, 32 new OEM product launches are on track to generate in excess of GBP 20 million of annual revenue and have delivered a compound annual growth rate of 26% in the five years from 2019. There have been nine new OEM product launches in H1, with six more expected in H2. Our confidence in the future is based on a clear strategic plan and enhanced go-to-market strategy, that mitigates the delays in OEM product launches that have undermined recent performance.
Proactive cost management has led to significant operational savings, making the business more efficient and better able to generate increased value from future growth. We are pleased to announce that developments outlined in March have been delivered on schedule, reinforcing our belief that the pipeline will translate into meaningful profit. And aided by healthy net cash on the balance sheet, we look forward with optimism. So let me hand over to Ian, who will take you through the financial performance over the first half.
Good morning. I will now take you through the financial results for the first half of the year. Overall, we have delivered a solid performance in a challenging market for capital equipment. Revenue was GBP 28.6 million, down 17% compared to H1 2023. This was due to the decline in printhead revenue from weakness in the ceramics market, delays in OEM product launches, and underperformance at EPS. Gross margin was 35%, down five percentage points relative to the prior year, due to anticipated input cost pressures, including higher energy costs and reduced overhead absorption. We continue to exercise tight control over our cost base. We have reduced our operating expenses by 24% year on year, helping to mitigate the gross margin reduction. Overall, our adjusted loss before tax for the period was GBP 0.7 million.
Despite the challenging conditions, we maintained investment in product development with R&D investment of GBP 2.4 million, accounting for 8.4% of first half revenue. An increased proportion of this investment was deployed to support our OEM product launches, which will continue to be a priority. The group remains well capitalized, with net cash of GBP 6.8 million, an increase of 16% since the start of the year, driven by disciplined cash management. So let's look at the operating results in more detail. Printhead revenue was GBP 16.5 million, down 6%, due to continued weakness in the ceramics market. Given its impact, I'll briefly provide more color on the underlying dynamics within this market. Following the collapse of the Chinese construction industry, the global ceramics tile market is down approximately 25%.
Based on an 8-year replacement cycle of digital printers and customers closing the oldest 50% of production lines first, machines do not need to be replaced for at least four years. Given we are two years into this cycle, we do not expect sales to the ceramics market to recover until 2027. Although the ceramics market is currently significantly depressed, our success in re-engaging with market leaders means we are well positioned to gain market share once demand returns to more normal levels, and John will provide some more color on this progress later on. Encouragingly, we continue to grow our printhead customer base, and revenue has increased across all markets other than ceramics. Combined, these new markets were up 26% year on year, which is a positive underlying dynamic....
With an increased number of customer product launches in new application areas and the negative impact from a decline in ceramics market, likely reaching a low point in 2026, we remain confident on future revenue growth within this business unit. Revenue EPS was 30% lower than the previous year, at GBP 7.5 million, with the performance negatively impacted by a slowdown in capital equipment purchases. Gross margin fell ten percentage points to 30%, and despite a substantial 34% reduction in operating expenditure, adjusted profit before tax still fell by GBP 1 million. With a strong pipeline, we expect the second half to perform in line with historic trends. Following our exit from the non-core life sciences business, FFEI delivered lower profits, but a stronger net cash position.
On a headline basis, revenue reduced to GBP 3.3 million, but revenue excluding life science business grew by 3%. FFEI Print Systems manufacturing transferred to Huntingdon, capturing further cost efficiencies and synergies. Megnajet revenue reduced marginally from GBP 1.4 million to GBP 1.3 million due to the timing of orders. Despite the slight fall in revenue, we increased customer numbers by 15% and saw significant improvement in gross margin from 30% to 39%, with adjusted profit before tax growing 26% to GBP 0.5 million. For the full year, we expect performance to show growth over 2023, and Megnajet continues to support our strategy of providing a more vertically integrated product offering with strong demand for its products.
The group retains a healthy balance sheet and cash position, which gives us the capacity and flexibility to deliver on our planned operational performance and current go-to-market strategy. Net cash at 30th June was GBP 6.8 million as a result of our disciplined cash management and increased revenues from last time buy orders at FFEI. Following discussions with the board, we have taken the proactive decision to keep inventory levels flat, allowing us to quickly react to future demand growth. We have won business through offering shorter lead times, and we continue to monitor the product mix of finished goods to ensure it is appropriate for customer demand. Our revolving credit facility of GBP 5 million remains undrawn during the first half of 2024, retaining flexibility as to how we manage our working capital and cash position.
In summary, market conditions remain challenging, and while we have been able to grow printhead revenue in new markets, partially offsetting the decline in ceramics revenue, OEMs continue to take longer than we had initially expected to bring new products to market. Despite this, we have continued to proactively manage our cost base, making strategic progress, delivering profit in line with expectations. We believe this is a good result against the backdrop of a difficult external environment. Our pipeline of opportunities in new markets and applications means we remain optimistic about future growth prospects for the group. We remain cautious on providing precise timing, given the current market backdrop and uncertainty caused by economic and geopolitical effects. But this is all in line with our last update, and expectations for the full year remain unchanged. At this point, I will hand back to John.
Thank you, Ian. I would like to take the time to remind everyone of the unique capabilities of our printheads. It is their highly differentiated characteristics that will enable us to take significant market share in our growing target markets. Despite a broad and vertically integrated offering, which I'll come onto later, our key focus is first and foremost to sell more printheads. As a reminder, the key advantages of digital printing over analog are that it's more economical to print short runs, reducing stock holding requirements, and as an additive process, it only deposits fluid that is required with no waste. As well as these benefits, Xaar has a clear value proposition. We are proud of our reputation for excellent partnership and support of our OEMs.
We have a more robust printed architecture, giving significantly superior uptime, and we offer the best return on investment for our OEMs, as printhead lifetime is longer than our competitors. And more significantly, we have the ability to print high viscosity, high pigment-loaded fluids. This capability really is a game changer and delivers a number of unique benefits. Firstly, we have the ability to digitally print fluids that are not able to be printed using any other printhead. Secondly, high viscosity means that ink manufacturers can lower water content in aqueous inks, reducing drying time and energy consumption. And thirdly, high viscosity fluids absorb less in porous substrates, meaning that more of the pigment remains on the surface and colors become more vibrant. This means you can achieve the same quality print with half of the ink.
The result being that across all of our target markets, high viscosity inks provide a compelling value proposition for the end user. So to summarize, our printheads uniquely open up a great range of applications than previously possible, and our ultra-high viscosity technology enables a considerable reduction in energy and water usage. So as a result, there is tremendous potential for significant and sustained environmental benefits through our end customers adopting Xaar technology. To provide more focus, we have reviewed our pipeline and removed any project below an expected annual revenue threshold or those we thought unlikely to complete. So as a result, the number in our pipeline have reduced, but the value and quality is much higher. A number of the major projects in the pipeline are advanced and close to commercial realization.
So overall, we expect 15 OEM product launches this year, continuing an increasing trend of launches since 2019 . Behind these launches, we have 35 customers that have bought a development kit and 22 customers that are actively in development. The bulk of the OEM launches using our printheads will be in the 3D and advanced manufacturing markets, and we see further customer appetite for our technology in this area. In twenty eighteen, there were almost no OEMs developing digital printers using Xaar printheads. And having launched new printheads into our target markets, we have grown annual revenue to over GBP 20 million by delivering 32 new OEM product launches since twenty nineteen, and a further fifteen planned for this year, which will drive incremental revenue growth. As you can see, there is a strong correlation between machine launches and revenue growth.
Given the size of the total addressable market and the compelling value proposition, along with the strength of our pipeline, we are confident and optimistic of future revenue growth. Looking at new business versus legacy, despite gaining market share, we expect the legacy ceramics business to continue its downward trend before plateauing in 2026, at GBP 6 million. As new business revenue continues to grow and the legacy business stabilizes, we should accelerate growth thereafter. Although the exact rates of growth and decline in the new and legacy businesses are difficult to predict, the direction of travel is clear. We are delivering on our strategy, we are in the process of diversifying our opportunities, both by market and by geography.
We are working with our OEMs to gain a deeper understanding of the market, and we have increased our support. With that in mind, I will now update you on the recent developments in each of these markets. The ceramics market continues to contract, and we don't expect a recovery until 2027. Despite these dynamics, our OEM partner, NKT, have grown their market share from 22% to 30% using Xaar's 720 dpi printheads. Global ceramics leader System are on track to launch their new printer in the second half of this year after a successful beta installation in May using the same printheads. We remain well-positioned to gain further market share and deliver volume growth when the market recovers post-2026.
In coding and marking and direct-to-shape, we have enjoyed growth in the U.S. revenue due to a successful product launch from global leader Videojet, and continued sector-wide interest has also been driven by public endorsement of Xaar's printheads from the industry leader, KBA-Kammann, and our significant technical breakthrough in the ultra-high speed, high-quality printing of 1D and 2D barcodes. 3D printing across several technologies and markets remains an exciting opportunity. We expect a major global supplier of desktop 3D systems to launch their full-color inkjet machines using Xaar printheads at the end of 2024 or early 2025, after redesigns caused delays. Over 1 million desktop 3D printers are sold annually, so even a small share of this market would generate meaningful revenue.
3D wax printing remains an exciting opportunity, especially since we have now adapted the Xaar 2002 to create a variant that is capable of running at temperatures in excess of 100 degrees Celsius. The printhead enables a higher quality wax to be used in specific applications such as jewelry manufacturing, so together with the high resolution and smaller drop size, this creates a significantly higher quality product, enabling a new generation of 3D wax printers. Market leader FlashForge launched their first product using Xaar printheads, the WaxJet 510, in Q2, and we anticipate a further product launch in Q4. This launch has acted as a catalyst for wider market interest for our products in this area.
Overall, despite OEM product delays in 2023, we are now seeing leading manufacturers switching over to Xaar, and as the level of product launches continues to grow, and we are increasingly confident that we can take market significant share within this GBP 20 million market. Advanced manufacturing also remains an exciting market for us. During the first half, we launched two new printheads, the Xaar 2002 and the Nitrox , specifically designed for coating the new generation of batteries in electric vehicles and energy storage systems. Xaar is the first inkjet company to enter the battery sector with a printhead specifically for this application. With our technology having safety, yield, cost, and environmental benefits. Batteries with inkjet-printed insulation coating now have gained approval from battery and automotive companies. The first production machines will be installed in Q4 this year, resulting in the first printhead orders.
The success of these first production machines could unlock a substantial market, which could be very significant in printhead sales over the next five to 10 years. Given the fact that we are not displacing incumbent digital printheads, the size and opportunity is not bound by the current scope of existing digital print markets. In terms of spray painting, our technology was integral to Axalta, a global leader in the coatings industry, winning a prestigious award for their NextJet technology. Recently, a collaboration was announced between Axalta and Dürr to commercialize digital inkjet to replace existing methods of graphic application onto vehicles. Our recently launched ultra-high viscosity and highly pigmented inks for Aquinox have a substantial competitive advantage in the textiles and corrugated market. We expect to take considerable market share as our OEM partners move forward with their product development.
The significant benefits of high viscosity have now been independently validated by the Welsh Centre for Printing at Swansea University. They found that the higher viscosity ink delivered 50% higher color density, meaning the end user could achieve the same color using only half the ink. We are delighted with this validation, as it sends a powerful message to any customer looking for ways to increase efficiency, cut emissions, and reduce energy consumption while maintaining print quality. To unlock the market potential and support our new product launches, we have a clear business model and strategy. To sell more printheads, we need to extend our range of products to access all industrial digital print markets, and in parallel, we need to make it easier for customers to use our printheads by supplying the supporting system components.
In 2023 , we introduced Project Hubble, providing focus for our main priorities and goals. This project is split into four areas: commercial strategic opportunities, operational efficiency, organizational effectiveness, and customer integration. Within Hubble, there are several key areas of focus. The first is to diversify our geographical exposure by targeting OEMs in Europe and USA. In terms of a wider spread of customers, we have a number of promising new projects in these regions. This initiative, along with our established strategy of having a compelling product in each target market, will build further resilience into our business amidst an unpredictable geopolitical landscape. The second initiative is to develop relationships with our end customers in partnerships with our OEMs to expand our market knowledge and understanding.
This not only strengthens the relationship with them, but allows us to have a clear picture of the decisions that drive the adoption timing of the new systems with our technology. And the feedback from both, the customers and OEMs, is that they continue to appreciate this increased involvement. The final initiative is to address the issues faced by our OEM customers when they integrate our printheads into a new system. The high viscosity and high pigment loading capabilities that give Xaar printheads their unique benefits, means that the integration into the system can be more complex. Unanticipated technical challenges encountered consistently over the past few years, has meant that we've had to undertake R&D at the OEM customer site, which has proven to be inefficient and expensive.
The consequence of this has been that the adoption of our printheads in OEM products has been more protracted and less profitable than initially expected, so collaborating with a market-leading customer, we have trialed a strategy of greater vertical integration by developing a full turnkey solution, printer, for them. Providing the full solution to the OEM allowed us to identify and resolve issues with the system integration prior to delivery to the OEM. The project started at the end of March, and the product launched last week. This 6-month project would have typically taken three years. This approach has the potential to revolutionize the speed at which OEMs develop and launch products, so in summary, I'm extremely pleased that through the continuing focus of an outstanding team, the developments outlined in March have been delivered as planned.
We have enabled 32 new OEM product launches since 2019. This will deliver more than GBP 20 million in annualized revenue growth from new printhead business. We also expect 15 new OEM product launches in 2024, and the strengthening pipeline will drive further OEM product launches beyond 2024. However, we are not standing still. We will continue to evaluate our go-to-market strategy based on the successful trial of providing a turnkey solution to our partner OEM. We will continue to make the right long-term decisions to ensure we capitalize on the opportunity ahead of us. We are confident that this approach will deliver significant value for our shareholders, and so we remain confident and excited about the medium term, as the visibility and scale of the opportunities at Xaar has never been so strong.