How to flex facilities and people in order to cope with fluctuating demand is a topic that exercises the grey matter of many a print boss.
Well, inkjet manufacturer Xaar has provided a somewhat unfortunate case study on the potential downsides of expanding on the back of a booming market.
Not too long ago Xaar was flying high. Its share price had rocketed to £11.62, and the PLC filed record sales and profits for 2013.
It looked like retiring chief executive Ian Dinwoodie was going to go out on a high after delivering stellar returns to Xaar’s shareholders during his 12-year tenure.
Xaar’s boom came on the back of a rapid uptake of its equipment in the Chinese ceramic tile printing market, which was converting to digital at a pace.
The firm ramped up accordingly, investing £30m in expanding its manufacturing facilities, taking on extra space in Huntingdon, and upping staff numbers dramatically.
But. When the Chinese market slowed, it hit Xaar hard, not least because this part of the business had grown to become two-thirds of its sales.
In effect, this rapid expansion had also resulted in a classic over-reliance on one market or customer.
This year Xaar has issued not one, not two, but THREE profit warnings, along with plans to cut 20% of its workforce.
This is not the sort of news the City takes kindly to, and Xaar’s share price subsequently tanked to just 222p.
Since then, the firm’s directors have piled in and bought thousands of shares themselves, which could be seen as a sign of confidence in the firm’s long-term prospects and Dinwoodie’s prediction that this is a correction, and growth will return come 2016.
But, with its shares now at 264.25p and a market cap of just over £200m, Xaar could potentially be a takeover target for someone who fancies a relatively cheap in to inkjet.
It’s going to be fascinating to see how this pans out when the new (still TBC) CEO arrives.
One thing is a known known, gearing up when business booms needs to be tempered with plenty of “what ifs” should things turn to bust.
