Further weakening in sales during the third quarter cast a further pall over industrial printing group Xaar's already disappointing interim results, with full year expectations downgraded for the second time this summer.

Results for the first six months of the year were in line with recently downgraded forecasts due to increased competition, with sales down 10% to £60.4m, adjusted profit before tax 28% lower at £16.1m and a dividend up 30% to 3.0p.

Sales volumes into ceramic tile decoration, the company's largest application, stabilised in the first half of the year as expected, following the explosive growth of the last few years.

However, management cut expectations for the full year to £115m-£125m, down from June's guidance of £130m, due to softer demand from the ceramic tile decoration sector during the third quarter, particularly in China.

Adjusted operating margin projected to be broadly in line with the 26% achieved in the first half of the year.

House broker N+1Singer said that forward order volumes from Xaar's printer manufacturer customers have reduced, although Xaar's market share and pricing have been maintained.

Chief executive Ian Dinwoodie said: "Our market leading position in ceramic tiles has, as previously announced, attracted competition, which has negatively impacted pricing, but we have strengthened our offering with several new product launches."

However, he also acknowledged that the expected sales growth in other applications had "not yet materialised", stressing that progress was expected as clients continue to develop their products that incorporate Xaar's print heads.

Two new products, the 1002 print head and XPM electronics sub-system, were launched in the first half, with another digitalisation product launching this week, a product for graphic arts in the fourth quarter and another digitalisation print head in the first half of 2015.

Xaar also has eight 'Direct-to-Shape' field trials underway in the US and Europe, for products that offer significant cost savings by printing directly onto glass, plastic and metal containers.

Dinwoodie said his expectations for the longer term opportunity of Direct-to-Shape have strengthened.

Analysts at Singer have set 2014 sales forecast towards the bottom of management guidance, with a 25% adjusted operating margin. Earnings per share forecasts are 17% lower for 2014 and 22% down for 2015, but the expected dividend is increased by 2-3% per year.

Shares in Xaar were down 22% to 435.78p at 09:06 on Thursday.

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