XAAR PLC Annual report and accounts · PDF fileas a result of further development of the core technology there are now over 700 patents and patent applications in the Xaar IPR portfolio

FORWARDTHINKING

XAAR PLCAnnual reportand accounts

2007

who? The beginning: Xaar was established in 1990 to acquire, develop and commercially exploit a new digital inkjet printing technology arising out of work done by Cambridge Consultants Ltd. At the time, the IPR consisted of four granted patents and 84 patent applications in various jurisdictions.

Today: as a result of further development of the core technology there are now over 700 patents and patent applications in the Xaar IPR portfolio and the 300 employee‑strong company continues to improve and expand this portfolio. Today the company’s core business is to manufacture and sell its wide range of printheads and peripheral equipment to leading OEM companies, in addition to licensing the Xaar technology to global brand companies.

Who? IFCDirectors’ report Highlights 01 At a glance 02 Chairman’s statement 04 Review of operations 06 Financial review 12 Board of directors 14 Report on affairs of the group 16 Corporate governance statement 22 Directors’ remuneration report 26 Statement of directors’ responsibilities 32

Independent auditor’s report (group) 33Consolidated income statement 34Consolidated statement of recognised income and expense 34Consolidated balance sheet 35Consolidated cash flow statement 36Notes to the consolidated financial statements 37Independent auditor’s report (company) 60Company balance sheet (UK GAAP) 61Notes to the (UK GAAP) company balance sheet 62Five year record 66Notice of Annual General Meeting 67Advisors IBC

Xaar plcAnnual report and accounts 200701

Directors’ report highlights

• Turnover up 13% to £47.9m (2006: £42.2m)

• Profitbeforetaxup6%to£7.3m(2006: £6.9m)

• Earnings per share 8.6p (2006: 7.9p)

• Proposed dividend increased 25% to2.5pfortheyear

• Netcashatendofyearof£13.0m(2006: £12.4m)

• Sectorleadingperformanceatbothgrossandnetmarginlevels

• SignificantnumberofPlatform3‘developer kits’ sold to potential Xaar OEMs

• EquipmentlaunchesbymajorOEMs incorporating Xaar’s new products

Pullout quote to go here

Directors’ report at a glance

02 Xaar plcAnnual report and accounts 2007

what?

where?

XaarisrecognisedforitsleadingDrop‑On‑Demand(DOD)Piezoelectricinkjettechnology.ByusingshearmodeandsharedwallsXaarproduceshighlyefficientprintheadsforusewithXaar‑approvedinks.Binaryinkjetisthebedrockofthebusiness,andisaproven,robustandhighnaturalresolutiontechnology.XaarDOT™(XaarDropOptimisationTechnology)isXaar’sinnovativeabilitytoofferarangeofdropformationoptions,includingvariable‑sizeddropsandfinetunethemtospecificapplications.

12% 30% 58%americas europe asia


our proDucts our opportunity

platform 1Market‑leading binary printheads used by industrial printers for high coverage printing applications

Xaar 126Anidealprintheadforanextensivearrayofwide‑formatgraphics,UV‑specialistgraphicsandCodingandMarking(C&M)applications.CompatiblewithUV,solventandoil‑basedinks,thistrulyversatileprintheadmeetsdiverse customer requirements.

Xaar 128Thisversatileprintheadisrecognisedasthedefactostandardthroughoutthegraphicartsandindustrialsectors.Compatiblewithawiderangeofoil‑based,solventanddyesublimationinks,theXaar128isextensivelyutilisedacrosstheC&Mandwideformatgraphicsindustries.

Xaar 500Specificallydesignedtoofferacompetitivesolutionforproducingvibrantindoor/outdoorsigns,POSmaterialandC&M.TheXaar500isperfectforthoseneedingaversatilebinaryinkjetsolution.

platform 2printheads featuring a unique, Xaar‑patented, multi‑pulse greyscale technology

Xaar 318 seriesArangeofprintheadsdevelopedforprintingwithUV‑curableinksontoawiderangeofnon‑poroussubstrates.UsingXaarDOT™technology,Xaar318seriesprintheadsconsistentlydeliverphotographic‑qualityimages.

Xaar 760Capableofoperatingingreyscaleorbinarymode,thissolutionenableshigh‑resolutionprintingatindustrialspeeds.BasedonXaar’smulti‑pulsegreyscaletechnology,theuser‑definableXaar760isavailableaseitherabaseheadorfullyintegratedprintunit.Itiscompatiblewitharangeofsolvent,UVandoil‑basedinksandisidealforprimaryandsecondarypackaging,indoorgraphicsandtextileprinting applications.

platform 3Benefits from Xaar’s Hybrid Side‑Shooter, tF technology™

Xaar 1001TheXaar1001printhead,designedforhigh‑speed,single‑passapplications,isbasedonXaar’spatentedHybridSide‑Shooter,TFTechnology™.Producingdynamicallyvariabledropsizes,thislatestandhighlyinnovativeprintheadarchitecturecombinesadvancedpiezotechnologywithXaar’spatented‘throughflow’design.

Xaarinkjettechnologyhasrevolutionisedtheworldsofgraphicsandpackaging,andunleashedawholenewrangeofprint applications. Xaar is a world leader in thesupplyofinkjettechnologysolutions,withourproductsbeingusedextensivelyacrossAsia,EuropeandtheUS.Therangeofapplicationsisvastandincludes:graphics(producingposters,bannersandsigns),packaging(casecoding,barcodes,productmarkingandlabels)andindustrialmarking(decorationofceramics,PCBprinting and other specialised areas). Wearealsoadvancingfurtherintoprimarypackagingandindustrialgraphics production such as printing directlyontoIDcards,DVDsandCDs,aswellascansandbottles.


Iampleasedtoreportafurtheryearofprogress,notjustwithresultsbutalso,significantly,withthelevelofinterestinourPlatform3product,theXaar1001.

IntroductionIampleasedtoreportafurtheryearofprogress,notjustwithresultsbutalso,significantly,withthelevelofinterestinourPlatform3product,the Xaar 1001.

Xaarhasreachedanexcitingstageinitsdevelopment. Our main markets continued togrowduring2007andourPlatform1productrange,nowfirmlyestablishedasmarketleaderisexpectedtocontinuetoprovideasolidfoundationforthebusinessgoingforward.Atthesametime,ournewPlatform2andPlatform3productsarebeginningtoenterthe end user market as our OEM (Original EquipmentManufacturer)customerscompletetheir development activities and launch new printingmachines.ThesePlatform2andPlatform3productsaremoresophisticatedthanPlatform1andappealtoprintingmachinemanufacturerstheworldover(notjustinAsia)inawiderrangeofapplications.Consequentlyour potential market is now much larger. Webelieve,inlinewithindependentindustryanalysts,thattodaylessthan10%ofcommercialprintworldwideisproducedusinginkjettechnology.Whilstthecommercialprinting market is conservative with long product lifecyclesthisbenefitsthelongevityofourPlatform1products.Ouraimlookingforwardis to continue to accelerate the commercial adoptionofournewertechnologies.

Directors’ report chairMan’s stateMent

Phil Lawler, Chairman

• Sectorleadingperformanceatbothgrossandnetmargin levels

• Increaseinproposeddividendto2.5p

• Committedandtalentedteamwhoarenowfocusedonexecution


Results and dividendTheresultsfortheyearwereinlinewithIFRScompliantmarketconsensus,showinggrowthinrevenueandprofitswithacontinuedstrongcashflowandsectorleadingperformanceatboththegrossandnetmarginlevels.Whilefulldetailsareprovidedwithinthefinancialreview,itshouldbenotedthattheresultsarestruckafterprovidingfortheearlystagelossesofthenewHuntingdonplant–along‑terminvestmentinmanufacturingcapacityforthenewPlatform3product range.

Basedonitsconfidenceinthefutureprofitabilityandcashgenerationofthebusiness,theboardhas decided to recommend a 25% increase to2.5pinthedividendpersharefortheyear.Witheffectfrom2008itistheboard’sintention,subjecttosatisfactoryperformance,tointroducepaymentofaninterimaswellasafinaldividend.

Board2007hasseenanumberofchangestoourboard.InJuly,ArieRosenfeldretiredasChairmanoftheboard.HisdeepknowledgeandexperienceofourindustryhasbeenofgreatbenefittoXaaroverthelasttenyearsandwethankhimsincerelyforthis.

Asstatedintheinterimreport,founderandTechnicalDirectorSteveTempleretiredbutremainsaconsultanttothecompany.We are pleased to keep Steve’s counsel given hissignificantexperienceininkjetandhugecontributiontoXaarovermanyyears.AtthattimewewelcomedRamonBorrellasResearchandDevelopmentDirector,havingpreviouslyspentmanyyearsinseniorrolesatHewlett‑Packard’slargeformatprintingdivision.

InOctoberGregLockettjoinedtheboardasManufacturingDirector.GreghasbeendirectorofmanufacturingatXaarforthepreviousfouryearsandthispromotionreflectsbothhisexcellentworkinthatearlierroleandhisexpectedcontributioninthefuture.

InJanuary2008,FinanceDirectorandDeputyChiefExecutiveNigelBerryinformedthecompanyofhisintentiontoresignfromhispositionandfromtheboardwitheffectfrom31March2008.Wethankhimwarmlyforhisexcellentstewardshipofthegroup’sfinancesandrelationshipsduringthepastsixyearsduringwhichthegrouphasshownconsiderabledevelopment.Wewishhimeverysuccessforthefuture.AndrewTaylor,currentlyDeputyFinanceDirectorandCompanySecretary,willjointheboardasFinanceDirectoronthesamedate.Andrewhasbeenwiththecompanysince2001andwearepleasedtohavesuchanablereplacement.

OutlookIbelievethatXaariswellpositionedtocapitaliseontheprogressiveshiftfromanaloguetoinkjettechnologybasedprinting–atrendwhichisgathering momentum within specialist and mainstream printing markets. As a provider ofprintheadtechnology,IamconfidentthatwehaveaworldleadingrangeofproductsthatisattractivetoourOEMcustomersastheydevelopnewprinterswhicharemorefunctional,moreefficientandmoreflexible.WehaveproofofthiswiththecontinuingsuccessofthePlatform1familyofproductswhichweexpecttocontinuetoprovideasolidfoundationforthegroupaftermorethanadecadeofcommercialproduction,togetherwithrecentannouncementsofnewOEM products incorporating our newer Platform2and3printheads.

Xaar’sreputationandpositionintheinkjetmarketisbuilding.Wehavethemanufacturingcapacityandcapability,thetechnicalknowledgeanda committed and talented team which is now focusedonexecutionanddeliveryofgrowth.

Phil LawlerChairman12 March 2008

IAMCONFIDENTTHATWEHAVEAWORLDLEADINGRANGEOFPRODUCTSTHATISATTRACTIVETOOUROEMCUSTOMERSASTHEyDEVELOP NEWPRINTERSWHICHAREMOREFUNCTIONAL,MOREEFFICIENTANDMOREFLEXIBLE.


Iampleasedtoreportasolidsetofresultsfor2007aswecontinuetobuildXaar’sbusinessandmarketpresence.

IntroductionIampleasedtoreportasolidsetofresultsfor2007aswecontinuetobuildXaar’sbusinessandmarketpresence.Theexistingcorebusiness,whichservesthegraphicdisplayandproductcodingmarkets,continuestodeliverrobustreturnswhilstournewproductdevelopmentsarecreatingfurtheropportunities in additional markets. These new productswillcomplementtheexistingbusinessandareexpectedtodelivercontinuedgrowthover the medium term. Xaar is maintaining its levelofinvestmentinresearchanddevelopmentwiththeintentionofcapturingasignificantproportion ofthedigitalprintingmarketoverthelongerterm.

Business reviewXaar’sbusinesscontinuestoconsistofproductsales,royaltyincomeanddevelopmentfees.Productsalesproportionatelydominateourrevenueat95%ofthetotal,whilstroyaltyincomehasgrownto4%anddevelopmentfeeshavefallento1%forthereasonsdescribedinthefinancialreview.

SalesofPlatform1products,whichservethegraphicsdisplayandproductcodingmarkets,increasedduringtheyearandcontinuetobuildtheir reputation as proven industrial solutions. ThisisespeciallytrueoftheXaar128whichhasbecomethe‘defacto’standardprintheadforthesemarkets.ThePlatform1offeringsarebeingenhancedregularly,includingthesuccessfullaunchofanewvariantoftheXaar126productduring2007.TheXaar126‑35enableshighresolutionprintingforbothsolventandUVinkapplicationsbasedonthisestablish0edsmalloutlineprinthead.

Directors’ report review oF operations

Ian Dinwoodie, Chief Executive

• Existingcorebusinesscontinuingtodeliverrobustreturns

• Newproductdevelopmentsarecreatingfurtheropportunities in additional markets

• Continuedinvestmentinresearchanddevelopment


Business reviewDuringtheyearanumberofadditionalinkagreementsforPlatform1productsweresigned.Theseincludetheco‑brandingoflocallymanufacturedinksforboththeChineseandIndiandomesticmarkets.WealsobroadenedourinkpartnershiparrangementsfortheinternationalmarketwithagreementsconcludedwithbothFujifilmSericolandNazdar.DuringtheyearanewPlatform1producthasbeendeveloped,the Xaar 382; this high end product will complement theXaar128byofferinghighresolutionandhighproductivityperformanceforgrandformatprinters.Conceptsamplesoftheproducthavebeenwellreceivedbyexistingcustomersandweexpecttobesupplyingvolumeproductduringthesecondhalfof2008.

ForbothPlatform2(Xaar760)andPlatform3(Xaar1001)asignificantamountofworkhasbeenundertakenwithourpartnerstosupporttheiractivitiestobringtheirfinishedproductsto market. This process has taken longer than anticipated,especiallyfortheXaar760.WhilstcontinuingtosupportourexistingPlatform2customers,wehaveencouragedanumberofthesedevelopmentaccountstotransferfromthe760to1001totakeadvantageofthelatesttechnologyasbothproductsarenowavailableinvolume.IampleasedtoreportthatasignificantnumberofdeveloperkitsfortheXaar1001havebeenshippedduringtheyear,resultinginverypositivefeedbackfrombothexistingandnewdevelopmentpartners.Iamalsoparticularlypleasedtoreportthatanumberofdigitalprintingproductsbasedonourlatesttechnologyhaveenteredcommerciallifeduringtheyear.ThefirsttwomodelsofcommercialwideformatprinterswerelaunchedbyTeckwinDevelopmentCo.Ltd.andhavebeenwellreceivedbythemarket.Nilpeter,theworldleaderinanaloguenarrowwebpresses,announceditsfirstdigitalproductforthelabelmarket.Salesofthismachine,named‘Caslon’,willcommenceduring2008.AdditionallyEFI,thelargeUSprintingtechnologygrouphaslaunchedadigitalnarrowweblabelpressbasedontheXaar1001.TheEFIJetrion4000presscommencedlimitedshipmentsattheendof2007andwillbeavailableinvolumefromthesecondquarter2008.Furtherlaunchesareexpectedduringtheyear,particularlyatoraround‘Drupa’,theworld’slargestprintandimagingtradeshowheldinlateMayeveryfouryearsinDusseldorf,Germany.Whilstthetimescaletogeneratereturnsfromthesenewproductshasbeenfrustratinglylong,weremainconfidentthatthevaluegeneratedfromthesedevelopmentswillsignificantlyenhancethefinancialperformanceofthecompanyovertime.

Xaar approved inksXaar works in partnership withleadinginkmanufacturersto develop and approve the widestrangeofhigh‑qualityinkjetinksandfluids.

Optimising performanceXaarthoroughlytestsinkstoensureoptimumjettingperformanceandprintheadlife.TestsconsistofMaterialscompatibility/Lifetimetesting,printhead optimisation andreliabilitytesting.



Commercial reviewGeographicAsasupplieroftechnologytoOEMpartners,ourgeographicsalessplitwillreflectwheretheOEMequipmentismanufactured–notnecessarilytheenduserlocation.

Asthelargestcentreformanufacturing,Asiacontinuestobeourmostimportantmarket,generating58%oftotalsalesin2007andgrowing17%overlastyear.WithintheAsianregionChinaremainsourlargestsalescountryandthismarkethascontinuedtodevelop,bothat the OEM and end user level; we continue toestablishnewrelationshipsinthisdynamicmarket.IwouldalsohighlightthesuccessofourIndiansalesoperationduringtheyear.Openedlatein2004,salestake‑upwasslowerthaninitiallyexpected,butoverthepastyearwehavestartedtoseethebenefitsofourinvestmentintheareawithasubstantialincrease in sales.

Europe and the Middle East remains our second largest sales area. Sales into this region were £14.2mbeing30%ofworldwiderevenue.Salesweredown5%on2006followingapoorfirsthalfwhichwascommentedonintheinterimreport.Asstatedatthattime,nosignificantchangeshaveoccurredintheEuropeanmarketandthisresultistheneteffectofcertain‘ups’and‘downs’acrossmultipleaccounts,togetherwiththereductionindevelopmentfeesfromAgfaasreferredtointhefinancialreview.

Labels printed on the Caslon – Nilpeter’s Xaar 1001 based machine


Commercial reviewGeographicSalestotheAmericasregionshowedexcellentgrowth,increasing74%over2006levels.Salesintheperiodtotalled£5.7m,thisbeing12%ofthegrouptotal.ThisgrowthcameprincipallyfromSouth America where we opened a sales operation in2005.MirroringourexperienceinIndia,salesinitiallyweremodestwhilstalocalOEMbasewasestablished.During2007webegantoseethebenefitsofthisearlygroundworkwithasubstantialincreaseinthelevelofbusiness.

Overtimewewouldexpecttoseecontinuedgrowthinallregions,withWesternmarketsleadingthewayinitiallywiththeadoptionofournewertechnologies.

End marketsThegraphicartsmarketcontinuestobetheprimaryenduseofXaartechnologyand,specifically,inthesegmentoflargeformatadvertising.73%ofsaleswererelatedtothismarkettotalling£34.9m(2006:£31.3m),whereindustrialinkjetcontinuestodisplacescreenprintingasthemosteconomicandflexibleprocessforbothinteriorandoutdoorlargeformatadvertising.ThenewXaar382productisexpectedtoconsolidate our leading market share in this application.

ThepackagingmarketcontinuestogrowforXaar,albeitoursalesinthissectorarepresentlystilldominatedbyproductcodingapplications.Revenuesof£9.0min2007representa19%increase over 2006; this market represents almost onefifthofourbusiness.Whileproductcodingisasmallsegmentoftheoverallpackagingprintmarket,weexpecttoseesignificantgrowthinrevenuesoverthenextfewyearsfromthispackagingsectorstartingwithdigitallabelprinting,followedbywideraspectsofprimarypackaging.TheXaar1001productisour‘entryvehicle’into this market and we are pleased to seetheXaar1001basedNilpeterCaslonandEFIJetrion4000productsalreadybeingofferedin this market.

Asnotedintheinterimreport,whilsttherearemanypotentialopportunitiesforinkjettobecomeadoptedinnon‑printrelatedareas,the commercial returns are on a longer timeline. Accordinglywehaveredirectedourbusinessdevelopment activities toward an acceleration ofourentryintothelabellingandpackagingprintmarketsnotedabove.However,inthenon‑printingindustrialspacewecontinuetosupportasetofdevelopersexploringmanypossibilitiesincludingapplicationssuchasflatpaneldisplays,flexibleelectronicsand3Dmaterialdeposition,toensurethatwhenrealcommercialopportunitiespresentthemselves,Xaar is well positioned to take advantage. Sales intothisindustrialmarketfortheyearamountedto£1.7m,a52%increasealbeitfromasmallbase,andrepresenting4%oftotalsales.

Xaar 1001The Xaar 1001 – Xaar’s latestinkjettechnologyplatform–combinesthemostadvanced printhead design andmanufacturingprocesses.

ApplicationsDesignedforhigh‑speedsingle‑passapplications,theXaar1001formsthecoreofproductionprintingsolutionsforlabelsandpackaging–themostacceleratedareaofXaar’sbusinessdevelopmentactivities.



Xaar OEM product launchesWearepleasedtoreportanumberofdigital printing products have entered commerciallifeduring2007:twomodelsofwide‑formatprinterswerelaunchedbyTeckwinDevelopmentCo.Ltd;Nilpeterannounceditsfirstdigitalproduct,Caslon,forthelabelmarketandEFIcommencedlimitedshipmentsofits4000pressattheendof2007.

ManufacturingOurHuntingdonplantisfullyonscheduleproducingPlatform3Xaar1001products.Hundredsofunitshavebeenproducedandweareheavilyinvolvedwithourkeypartnerstosupporttheirproductlaunchesbasedon the 1001 printheads.

Xaar peopleXaariscommittedtoprovidingtheverybestserviceforallourglobalcustomersandpartners.Wefocusonbuildingstrongrelationships with partners and OEMs – their success is our success.

Research and developmentInvestmentiscontinuingatitsplannedlevel.Notonlyarewesupportingdevelopmentsto new products and enhancements to existingones,butalsoinvestinginfuturebreakthroughactivities.

Xaar futureTheXaar1001isakeybreakthroughininkjettechnologyperformanceandwebelievethisproductisamajorenablingtooltoopennewbusinessopportunitiestoXaar.


Operations reviewFollowingthesuccessfulcommissioningoftheHuntingdonplantin2006,productionofPlatform3Xaar1001productsstartedonscheduleinJanuary2007.Thefacilityhassupported numerous partner developments all over the world with developer kits and initial productionvolumes.Theavailabilityofsupplyoffullyfunctionalleadingtechnologyiscriticalto our partners’ development programmes and theHuntingdonoperationhasperformedthisrolesuperblythroughouttheyear.Fromthisexcellentstartwenowneedtosupportourpartners’commercialimplementationswhichwill,inturn,generatethevolumedemandwhichwillbringtheplantintoprofitability.TheJarfallaplantinSwedencontinuedtoperformwellthroughouttheyear,supplyingthebulkofproductsalesfortheyear.

InvestmentinR&Dcontinuedatitsplannedlevelof£4.8m,representing10%ofsales.Thishassupportedthedevelopmentofnewproducts,enhancementstoexistingproductsandtheinvestmentinfuturetechnologies.Thisongoinginvestment will ensure Xaar has a well primed pipelineofnewproductofferings,targetedatacceleratingthegrowthpotentialofthecompany.

Priorities for the futureThetoppriorityfor2008istoacceleratethegenerationofcommercialreturnsfromournew products which we have seeded into the marketoverthelastyear.TheXaar1001isakeybreakthroughininkjettechnologyperformance–especiallyintermsofreliabilityandeaseofuse;webelievethisproductisamajorenablingtooltoopennewbusinessopportunitiesforXaar.Welookforwardto2008withconfidencebasedonourestablishedprofitablebusinessandtheopportunitiesinadditionalmarketsfromournew products.

PeopleIwouldliketothankallourstaffworldwidewhoseefforts,skillanddedicationarecriticaltothesuccessfulfutureofourbusiness.

Ian DinwoodieChiefExecutive12 March 2008

Xaar drive electronics with printheads


WeexpectourstrategicpartnerstobeginsoonintroducingproductsbasedonPlatform2andPlatform3printheadsandfortheseproductsto generate an increasing proportion ofourrevenues.

TradingRevenuesinthesecondsixmonthsof2007were£24.4m(2006:£19.9m),anincreaseof23%overthesameperiodlastyearand4%overthefirsthalfof2007.Revenuesforthefullyearincreased13% over 2006 to £47.9m (2006: £42.2m). Productsalesaccountfor95%ofrevenues(2006:95%)withsalesofPlatform1productscontinuing to grow and to dominate the sales figures.Lookingforward,weexpectourstrategicpartnerstobeginsoonintroducingproductsbasedonPlatform2andPlatform3printheadsandfortheseproductstogenerateanincreasingproportionofourrevenuesin2008andbeyond.

Licenseeroyaltiesgrew15%to£1.8m(2006:£1.5m)representing4%ofrevenueandweexpectthisgrowthtocontinueinthefuture.Developmentfeesfellto£0.5m(2006:£0.8m)duetothecompletionofthemajorpartofourco‑developmentprogrammewithAgfa.Weexpectdevelopmentfeestobeatasimilarlevelfor2008and2009buttoreducethereafter.

Thegrossmarginfortheyearwas52%(2006:57%),reflectingthefixedcostsoftheHuntingdonfacilitywhich were in line with previous guidance at £2.5mfortheyear(2006:£nil).GrossmarginexcludingthenetimpactoftheHuntingdonfacilitywas58%,animprovementof1%overtheprioryear.AsproductionvolumesattheplantincreaseweexpectitsprofitabilitytomatchthatofourmanufacturingfacilityinSweden.

Headlineoperatingcostsfortheyearincreasedonlyslightlyto£17.9m(2006:£17.5m)andincludetheIFRS(non‑cash)chargesforshareoptioncostsof£1.0m(2006:£0.7m)andamortisationofcapitalisedR&Dof£1.0m(2006:£0.5m).Onalikeforlikecashbasisthecompanyreduceditsoperatingcostsby£0.4mduringtheyear.

Directors’ report Financial review

Nigel Berry, Finance Director

• Revenuesforthefullyearincreased13%over2006to £47.9m

• Grossmarginfortheyearof52%(58%excludingHuntingdon impact)

• Operatingcostsreducedby£0.4monalikeforlikecashbasis


Overthelasttwoyearswehavedevelopedandsuccessfullylaunchedoursecondandthirdplatformsofproductsand,asrequiredunderIFRS,have capitalised the internal development costs associatedwiththoseplatforms.ForthefutureitisexpectedthatinternalR&Dcostswillrelatemostlytoimprovementstoexistingproductplatformsand,assuch,willnotbecapitalised.AmortisationofpreviouslycapitalisedinternalR&Dcostsisalreadyunderwayandisexpectedto complete in 2011.

OnafullyIFRScompliantbasis,profitbeforetaxfortheyeargrew6%to£7.3m(2006:£6.9m)withbasicearningspershareof8.6p(2006:7.9p).ExcludingthenetimpactofHuntingdon,profitbeforetaxwouldhavebeen£9.3m,anincreaseof35%over2006.

DividendThe directors are recommending an increase in thedividendof25%to2.5ppershare(2006:2.0p).Thedividendwillbecovered3.4times.Inaddition,andsubjecttosatisfactoryperformance,itistheintentionfor2008tointroduceaninterimdividendpayment.Thisreflectstheboard’sconfidenceinfutureprofitandcashgeneration.

Foreign currencyAmajorityofthegroup’srevenuesintheyear(72%)wereinvoicedinsterling(2006:47%),with22%invoicedinUSdollars(2006:47%).Thisreflectsthefullyeareffectofourdecisioninmid2006tomovemostofourChinesecustomersfromUSdollartosterlingtradingterms.ThegroupcontinuestohaveanexposuretotheSwedishkronorthroughitsrequirementtofunditsoperations in Sweden and manages this exposureusingforwardcurrencycontracts.

Cash and capital expenditureCashattheendoftheyearwas£13.0m(2006:£12.4m)andisstatedafterthepaymentofdividendsof£1.2m(2006:£0.9m)andcapitalexpenditureof£5.7m(2006:£11.1m).WiththefinalstagepaymentsoncapitalequipmentfortheHuntingdonfacilityhavingbeenmadeinearly2007,capitalexpenditurein2008and2009isexpectedtobelowerthanthecurrentyear.

Change of directorAfternearlysixyearsasFinanceDirectorIshallbeleavingthecompanyattheendofMarch2008andwouldliketowishthecompany,itsshareholdersandstaffeverysuccessforthefuture.Iampleasedtosaythatmydeputy,AndrewTaylor,willsucceedmeasFinanceDirectorandIofferhimmycongratulations on his appointment.

Nigel BerryFinanceDirector12 March 2008


Directors’ report boarD oF Directors

Andrew TaylorDeputyFinanceDirectorandCompanySecretaryAged38–joinedXaarinApril2001asFinancialController,wasappointedCompanySecretaryinDecember2003andDeputyFinanceDirectorinFebruary2007.HequalifiedasacharteredaccountantwithErnst&youngpriortojoiningBAeSystemswhereheheldanumberoffinancerolesintheirheadoffice.Hehasover15yearsofexperienceworkinginfinance,sevenofwhichhavebeenatXaar.HewillbeappointedtotheboardasFinanceDirectoron31March2008.

Phil EavesSalesandMarketingDirectorAged54–waspreviouslymarketingmanager,EuropeatDainipponScreen,aworldleaderinelectronicequipmentforthegraphicarts,flatpaneldisplay,printedcircuitboardandsemiconductormarkets.Hebringsover20yearsofsalesandmarketingexpertiseacrossmanysectorsofimagingandprintingindustries,and has held senior management positions atScitex,CrosfieldandXeikon.

Ramon BorrellResearchandDevelopmentDirectorAged44–joinedXaarinAugust2007.HewaspreviouslyProgramManagerandTechnologyStrategyDirectorintheLargeFormatPrintingDivisionofHewlett‑Packard,wherehespent13yearsinBarcelona,Spain,alloftheminR&D.He was trained as a Mechanical Engineer andhasaMastersinAutomotiveBusinessandTechnology.RamonisalsoVice‑PresidentandSecretaryoftheBoardofDirectorsoftheImagingScienceandTechnologySociety.

Phil Lawler ChairmanAged59–hasextensiveexperienceofhigh‑technologyindustries,havingspent18yearsuntil2002atHewlett‑Packardinvariousseniorpositions,mostrecentlyasChairmanandManagingDirectorofHewlett‑Packard,UKandIreland.AfterleavingHewlett‑Packard,hehasbeenadirectorofanumberoftechnologycompanies including several private companies wherehehasbeenintroducedbyventurecapitalinvestors.Heiscurrentlynon‑executiveChairmanofEGSLtd.andbetween2003and2005hewasnon‑executiveChairmanofDensitronTechnologiesplc.


Richard King CBEDeputyChairmanAged78–wasChairmanofAvevaGroupplcuntilApril2006,iscurrentlyChairmanofSentecLtdandisadirectorofanumberofotherCambridgehi‑techcompanies.AnEmeritusFellowofDarwinCollege,hewasafoundingmemberofXaarandhasbeenadirectorsince1990.HewasappointedDeputyChairmanofthecompanyinSeptember1997.

Ian DinwoodieChiefExecutiveAged47–joinedXaarinSeptember2001asGroupOperationsDirectorandwasappointedChiefExecutiveinJuly2003.Withover20years’experienceinhi‑techoperations,hehasheldavarietyofrolesinengineering,qualityassuranceandmanufacturingwithinthesemiconductor,electronics and electronic imaging industries. ImmediatelypriortojoiningXaar,heheldthepositionofdirectorofmanufacturingforFujifilmElectronicImagingLtd.

Nigel Berry DeputyChiefExecutiveandGroupFinanceDirectorAged48–joinedXaarinMay2002.HequalifiedasacharteredaccountantwithCoopers&Lybrand,andhaslivedandworkedintheUSandAsia,bothwhileatWassallplc.MorerecentlyhewasFinanceDirectorofRexamPrintingLtdandCambridgeDisplayTechnologyLtd.Hebringsmanufacturingandlicensingexperiencetothegroupgainedininternationalfast‑growthbusinesses.

Greg LockettManufacturingDirectorAged39–hasbeenDirectorofManufacturingforXaarforthepastfouryears,havingjoinedthecompanyin2002withinitialresponsibilityforUKoperationsandqualitycontrol.DuringhistimewithXaar,hehasoverseentheexpansionofthemainmanufacturingfacilityinStockholm,Sweden,andhasmanagedthesuccessfulestablishmentofthenewmanufacturingfacilityinHuntingdonforXaar’snewrangeofproducts.GreghasnowbeenpromotedtotheboardasManufacturingDirector.

Robert EcklemannNon‑executiveDirectorAged51–startedhiscareerwiththeUSGovernment’sInternationalTradeAdministration,wherehewasinvolvedintheglobaltradepolicyforthescienceandelectronicssector.In1988hejoinedIntelCorporation,startingintheOfficeofthenPresidentAndyGrove,beforemovingtoAsiatolaunchIntel’sbusinessintoChina,India,andtheASEANregion.HelaterbecameIntelVPandgeneralmanagerforEurope,MiddleEastandAfrica.MrEckelmann,aUScitizen,holdsseveralEuropeannon‑executivedirectorshipsincludingWolfsonMicroelectronicsplc.

John ScottSeniorIndependentDirectorAged55–until2001anexecutivedirectorofLazardBrothers&Co.,Limitedandcurrentlyadirectorofarangeofquotedandprivatecompanies,includingScottishMortgageInvestmentTrustPLC,MillerInsuranceServicesLtd,MartinCurriePacificTrustplcandJPMorganClaverhouseInvestmentTrustplc;heisalsoChairmanofDunedinIncomeGrowthInvestmentTrustPLCandDeputyChairmanofEndaceLtd.HejoinedtheXaarboardinApril2000andwasappointedtheSeniorIndependentDirectorinFebruary2002.


directors’ report report on affairs of the group

The directors present their annual report on the affairs of the group together with the financial statements and auditor’s report for the year ended 31 December 2007.

Principal activity and business reviewThe principal activity of the group continues to be the development and commercial exploitation of a patented inkjet printing technology. A detailed review of the group’s operations during the year and of its plans for the future is given in the Chairman’s statement, the review of operations and the financial review. The subsidiary undertakings of the group are listed in Note 10 to the company balance sheet.

Results and dividendsRevenue for the year was £47.9m (2006: £42.2m) and comprised the sale of printheads and related products, development fees and licence fees and royalties. The profit after tax for the year was £5.4m (2006: £4.8m). The directors recommend the payment of a final dividend of 2.5p per ordinary share (2006: 2.0p). If approved at the forthcoming AGM, the final dividend will be paid on 13 June 2008 to shareholders on the register at close of business on 16 May 2008.

Research and development£4.8m (2006: £5.4m) was spent on research and development in the year.

TreasuryThe group’s policy is to use financial instruments to hedge sufficient amounts of sterling inflows into Swedish kronor in order to fund running costs of the group’s manufacturing facility in Sweden. The group’s use of financial instruments and the related risks are discussed further in Notes 19, 20 and 24.

Disabled employees and employee involvementThe group recognises that its competitive advantage depends upon the quality and engagement of the people it employs. To support this, its employment policies, including its commitment to equal opportunity, are designed to attract, retain and motivate high calibre employees regardless of sex, race, religion, age or disability. All employees participate in a bonus scheme based on group business targets and, in the UK, have the opportunity to participate in a HMRC approved share save scheme.

Directors and their interests The directors who served during the year were as follows:

I Dinwoodie N Berry P Eaves R Borrell (appointed 27 August 2007) G Lockett (appointed 15 October 2007) P Lawler (appointed 1 June 2007) R King J Scott R Eckelmann A Rosenfeld (resigned 1 July 2007) S Temple (resigned 28 September 2007)

N Berry will resign from, and A Taylor will be appointed to, the board on 31 March 2008.

Brief biographical descriptions of the directors are set out on pages 14 and 15. Full details of their interests in shares of the company and its subsidiary undertakings are included in the directors’ remuneration report on pages 26 to 31.


Directors and their interests The interests of the directors in the shares of the company and its subsidiaries (all of which are beneficial) as at 31 December 2007 are as follows:

Shareholdings in the company Number of Number of ordinary ordinary shares of shares of 10p each 10p each 31 December 31 December 2007 2006I Dinwoodie 122,821 96,757N Berry 376,084 350,000P Eaves — —R Borrell — —G Lockett — —P Lawler — —R King 150,000 150,000J Scott 64,500 69,000R Eckelmann — —There have been no changes in the directors’ interests in shares of the company between 31 December 2007 and 12 March 2008. Directors’ interests in options over shares in the company are shown in the directors’ remuneration report.

In accordance with the company’s Articles of Association, at the AGM referred to in more detail on page 67, J Scott and I Dinwoodie will retire from the board by rotation and offer themselves for re‑election. R King will retire from the board and is not seeking re‑election. P Lawler, R Borrell, G Lockett and A Taylor will offer themselves for re‑election on the basis of it being the first AGM following their respective appointments’ to the board.

Directors’ liabilitiesThe company has granted an indemnity to one or more of its directors against liability in respect of any potential proceedings that may be brought by third parties, subject to the conditions set out in the Companies Act 1985. Such qualifying third party indemnity provision remains in force as at the date of approving the directors’ report.

Share capitalAs at 29 February 2008 the company had been notified in accordance with sections 198 to 208 of the Companies Act 1985, of the following material interests in its share capital: Number Percentage of ordinary of issued shares held share capitalM&G Investment Management Limited 8,973,777 14.3%Blackrock Investment Management 7,637,557 12.2%Legal & General Investment Management 7,448,328 11.9%AXA Framlington Investment Managers 6,799,959 10.8%Artemis Investment Management 3,650,269 5.8%

Annual General MeetingThe notice convening the AGM is set out on page 67. Resolutions 1 to 9 set out in the notice of the meeting deal with the ordinary business to be transacted at the meeting. The special business at the meeting (Resolutions 10 to 15) is explained on page 26 (in relation to Resolution 10) and below (in relation to Resolutions 11 to 15).



Authority to purchase own sharesResolution 11It is proposed by Resolution 11 to, by Special Resolution, authorise the company generally and unconditionally to purchase its own shares at a price of not less than the par value of the shares and not more than 5% above the average of the middle market quotations of the shares as derived from the Daily Official List of the London Stock Exchange for the five dealing days immediately preceding the day on which the purchase is made. The authority will be for a maximum of 14.9% of the company’s issued share capital and will expire at the earlier of the next AGM of the company or within 15 months from the date of the passing of this Resolution.

The directors currently have no intention to exercise the authority and will only purchase shares if it is in the best interests of shareholders as a whole.

The total number of options to subscribe for ordinary shares outstanding at 31 December 2007 was 3,949,441. This represents 6% of the issued ordinary share capital at that date. If Xaar plc was to buy back the maximum number of ordinary shares permitted pursuant to the passing of this Resolution, then the total number of options to subscribe for ordinary shares outstanding at 31 December 2007 would represent 7% of the reduced issued ordinary share capital.

Power to issue securitiesResolution 12Under the Companies Act 1985 the directors of the company may only allot shares (whether for cash or otherwise) with the authority of shareholders given at a general meeting of the company. Under Resolution 12, to be proposed as an Ordinary Resolution, authority is sought to allot shares up to an aggregate nominal amount of £713,534, which is equal to the whole of the unissued share capital as at 12 March 2008 and which represented 11% of the company’s ordinary share capital in issue as at 12 March 2008 and is an amount within the maximum amount permitted under institutional guidelines. The directors do not currently have an intention to exercise the authority.

Resolution 13This Resolution, to be proposed as a Special Resolution, will give the directors power to allot shares for cash on a non pre‑emptive basis up to a maximum aggregate nominal value of £314.323, representing 5% of the issued ordinary share capital of the company as at 12 March 2008.

The directors do not currently have an intention to exercise any power given to them by shareholders to allot shares for cash on a non‑pre‑emptive basis, and in any event, the directors will not allot any shares for cash on a non‑pre‑emptive basis if such allotment would exceed the limits established by the guidance published by the investment committees of the ABI and the NAPF. The authorities contained in Resolutions 12 and 13 will expire no later than 15 months after the passing of those Resolutions.

Amendments to the Articles of AssociationResolution 14It is proposed to amend the Articles of Association of the company in order to update the company’s current Articles of Association to take account of the changes in English law brought about by the Companies Act 2006 (CA 2006). The principal changes to be made to the Articles of Association are set out below. Other changes, which are of a minor, technical or clarifying nature and also some more minor changes (including statutory reference changes) which merely reflect changes made by the Companies Act 2006 have not been noted below.

Form of ResolutionThe amended Articles of Association contain a provision that, where for any purpose an Ordinary Resolution is required, a Special or Extraordinary Resolution is also effective and that, where an Extraordinary Resolution is required, a Special Resolution is also effective. This provision is being amended as the concept of Extraordinary Resolutions has not been retained under CA 2006.

The amended Articles of Association enable members to act by written resolution. Under CA 2006 public companies can no longer pass written resolutions. These provisions have therefore been removed in the amended Articles of Association.

Votes of membersUnder CA 2006 proxies are entitled to vote on a show of hands whereas under the current Articles of Association proxies are only entitled to vote on a poll. The amended Articles of Association reflect this new provision.

Age of directors on appointmentThe current Articles of Association contain a provision limiting the age at which a director can be appointed. Such provision could now fall foul of the Employment Equality (Age) Regulations 2006 and so has been removed from the amended Articles of Association.


Amendments to the Articles of AssociationResolution 14The proposed changes are set out below.

• The insertion of the following definition in front of “Act” in Article 1(A): ““2006 Act” means the Companies Act 2006, including any statutory modification or re‑enactment for the time being in force.”

• The amendment of the definition of “Acts” by the insertion of “and the 2006 Act” after “and 1989” in Article 1(A).

• The amendment of the definition of “London Stock Exchange” in Article 1(A) by the deletion of “Limited” and its replacement with “plc”.

• The amendment of the definition of “Uncertificated Securities Regulations” in Article 1(A) by the deletion of “1995” and its replacement with “2001”.

• The amendment to Article 1(C) by the deletion of “or extraordinary” and the deletion of the last words in that sentence “, and where an Extraordinary Resolution is expressed to be required for any purpose, a Special Resolution is also effective for that purpose”.

• The deletion in Article 7(A) of the words “or with the sanction of an Extraordinary Resolution passed at a separate meeting of the holders of the issued shares of that class validly held in accordance with the articles, but not otherwise”.

• The insertion in Article 57(A) of the words “or by proxy” before the words “has on a show of hands”.

• The deletion in Article 65 of the words “or extraordinary” in the first sentence.

• The deletion of the provision at Article 66 and its replacement with the words “[ARTICLE REMOVED]”.

• The amendment of Article 68 by:

• the deletion in the first sentence of “section 212 of the Act” and its replacement with “section 793 of the 2006 Act;

• the amendment of the definition “section 212 notice” and its replacement with “section 793 notice”; and

• the amendment of references to the “section 212 notice” to refer to the “section 793 notice” on each occasion such words appear in the rest of this Article in paragraphs (A), (C), (D) and (E).

• The deletion in Article 68(E)(a) of “section 428(1) of the Act” and its replacement with “section 974 of the 2006 Act”.

• The deletion in Article 68(E)(b) of “the Financial Services Act 1986” and its replacement with “the Financial Services and Markets Act 2000”.

• The deletion in Article 79 of the words “and section 293 of the Act does not apply to the company. Where a general meeting is convened at which, to the knowledge of the board, a director is to be proposed for appointment or reappointment who is at the date of the meeting 70 or more, the board shall give notice of his age in the notice convening the meeting or in a document accompanying the notice, but the accidental omission to do so does not invalidate proceedings or an appointment or reappointment of that director at that meeting”.

• The deletion in Article 104(C)(iv) of “sections 198 to 211 of the Act” and its replacement with “sections 820 to 825 of the 2006 Act”.

• The deletion in Article 104(G) of “section 346 of the Act” and its replacement with “section 252 of the 2006 Act”.

• The deletion in Article 138 of “section 212 of the Act” and its replacement with “section 793 of the 2006 Act”.

Resolution 15CA 2006 sets out directors’ general duties which largely codify the existing law but with some changes. Under CA 2006, from 1 October 2008 a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organisation. CA 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the Articles of Association contain a provision to this effect. CA 2006 also allows the Articles of Association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The amended Articles of Association give the directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position.

There are safeguards which will apply when directors decide whether to authorise a conflict or a potential conflict. First, only directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the company’s success. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.

It is also proposed that the amended Articles of Association should contain provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a director being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict has previously been authorised by the directors. It is the board’s intention to report annually on the company’s procedures for ensuring that the board’s powers to authorise conflicts are operated effectively.



Amendments to the Articles of AssociationResolution 15It is proposed that Article 104 of the Articles of Association of the company be amended with effect from 1 October 2008 by the insertion of paragraphs (H) to (K) as set out below.

(H) For the purposes of section 175 of the Companies Act 2006 (CA 2006), if a situation arises in which a director has, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company, including without limitation in relation to the exploitation of any property, information or opportunity, whether or not the company could take advantage of it, but excluding any situation:

(i) which cannot reasonably be regarded as likely to give rise to a conflict of interest; or

(ii) any situation whereby the conflict of interest arises in relation to any contract, arrangement or transaction with the company or any proposed contract, arrangement or transaction with the company (which are covered by paragraphs (A) and (B) of this Article 104)

(“Relevant Situation”), the directors (other than the director in question and any other interested director (“Interested Directors”)) shall have the power to authorise any Relevant Situation.

(I) Authorisation of a Relevant Situation shall be effective only if:

(i) the nature and extent of the Relevant Situation shall have been proposed in writing for consideration at a meeting of the directors in accordance with the board’s normal procedures or in such other manner as the directors may approve;

(ii) no Interested Director shall be entitled to vote in respect of the approval of the Relevant Situation nor shall the Interested Director be entitled to count towards the quorum for such meeting;

(iii) any terms imposed by the directors at the time of authorisation or which are imposed and subsequently varied including (without limitation):

(a) the duration of the approval (if not to be provided for an indefinite period) and whether it can be revoked at any time;

(b) the exclusion of any Interested Director from all information and discussion by the directors of the Relevant Situation;

(c) the exclusion of any Interested Director from the board by way of suspension for the period during which the board is considering for approval any Relevant Situation; and

(d) (without prejudice to the general obligations of confidentiality) the application to any Interested Director of a strict duty of confidentiality to the company for any confidential information of the company in relation to the Relevant Situation.

are complied with in full and each Interested Director shall comply with any obligations imposed on him by the directors pursuant to such authorisation.

(J) An authorisation under paragraph (I) may provide that where an Interested Director:

(a) obtains (other than through his position as a director of the company) information that is confidential to a third party, he will not be obliged to disclose it to the company or use it in relation to the company’s affairs in circumstances where to do so would amount to a breach of that confidence; and/or

(b) takes mitigating action when the Relevant Situation arises (including without limitation not attending board meetings of the company or reading board papers circulated by the directors), he shall not be in breach of duty in respect of such action if carried out in relation to the authorised Relevant Situation.

(K) An Interested Director shall not, save as otherwise agreed by him, be accountable to the company for any benefit which he (or a person connected with him) derives from any matter authorised by the directors under paragraphs (H) to (J) of this Article 104 and any contract, transaction or arrangement relating thereto shall not be liable to be avoided on the grounds of any such benefit.

Charitable contributionsThe group made charitable contributions to both children’s and local charities during the year totalling £2,013 (2006: £3,344). No political donations were made in the year (2006: £nil).

Supplier payment policyThe group’s and the company’s policy is to settle terms of payment with suppliers when agreeing the terms of each transaction, ensure that suppliers are made aware of the terms of payment and abide by the terms of payment.

Trade creditor days of the company at 31 December 2007 were 22 days (2006: 56 days).

Additional information for shareholdersThe following provides the additional information required for shareholders as a result of the implementation of the Takeovers Directive into UK Law.

The structure of the company’s issued share capital is shown in Note 26 to the accounts.

The company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and for voting rights.


Ordinary sharesOn a show of hands at a general meeting of the company every holder of ordinary shares present in person and entitled to vote shall have one vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the general meeting on page 67 specifies deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to Resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each Resolution are made available at the Annual General Meeting and are published on the company’s website after the meeting.

RestrictionsThere are no restrictions on the transfer of ordinary shares in the company other than:

• certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods) and;

• pursuant to the Listing Rules of the Financial Services Authority whereby certain employees of the company require the approval of the company to deal in the company’s securities.

The company’s Articles of Association may only be amended by a Special Resolution at a general meeting of the shareholders. Directors are reappointed by Ordinary Resolution at a general meeting of the shareholders. The board can appoint a director but anyone so appointed must be elected by an Ordinary Resolution at the next general meeting. Any director who has held office for more than three years since their last appointment must offer themselves up for re‑election at the Annual General Meeting.

Significant interestsDirectors’ interests in the share capital of the company are shown in the table on page 17. Major interests (i.e., those >3%) of which the company has been notified are shown on page 17.

Company share schemesThe Xaar plc ESOP Trust holds 2.6% of the issued share capital of the company in trust for the benefit of employees of the group and their dependants. The voting rights in relation to these shares are exercised by the trustees.

Change of controlThe company is not party to any agreements which take effect, alter or terminate upon a change of control of the company following a takeover bid. There are no agreements between the company and its directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

Going concernAfter making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the forseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

AuditorErnst & Young LLP have expressed their willingness to continue in office as auditor and a Resolution to reappoint them will be proposed at the forthcoming AGM.

Directors’ statement as to disclosure of information to auditorThe directors who were members of the board at the time of approving the directors’ report are listed on page 16. Having made enquiries of fellow directors and the company’s auditor, each of these directors confirm that:

• to the best of each director’s knowledge and belief, there is no information relevant to the preparation of their report of which the group’s auditor is unaware; and

• each director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the group’s auditor is aware of that information.

By order of the board

Andrew Taylor Science ParkSecretary Cambridge12 March 2008 CB4 0XR Registered number: 3320972


directors’ report corporate governance statement

The company is committed to the principles of corporate governance contained in the Combined Code on Corporate Governance which is appended to the Listing Rules of the Financial Services Authority (‘the 2006 FRC Code’) and for which the board is accountable to shareholders.

Statement of compliance with the Code of Best PracticeThroughout the year ended 31 December 2007 the company has been in compliance with the provisions set out in section 1 of the 2006 FRC code except for the following matters:

A7.2 R King and J Scott do not have, and A Rosenfeld did not have, contracts of employment for a specific period due to their appointment being prior to the 2003 FRC code. R Eckelmann and P Lawler are, and any non‑executive director appointed in the future will be, appointed for an initial period of three years with provision for two further periods of three years subject to satisfactory performance.

B2.1 R King, Chairman of the remuneration committee during the year, is not considered independent. On R King’s resignation from the committee at the forthcoming AGM the committee structure will be compliant with this provision of the 2006 FRC Code.

C3.1 Neither R King, a member of the audit committee is, nor A Rosenfeld, Chairman of the company was, considered independent. The other two committee members, including the committee Chairman, are independent non‑executive directors. With A Rosenfeld’s resignation from the committee, and R King’s resignation at the forthcoming AGM, the committee structure will be compliant with this provision of the 2006 FRC Code.

Statement about applying the Principles of Good GovernanceThe company has applied the Principles of Good Governance set out in section 1 of the Combined Code, including both the main Principles and the Supporting Principles, by complying with the 2006 FRC Code as reported above. Further explanation of how the Principles and Supporting Principles have been applied is set out below and, in connection with directors’ remuneration, in the directors’ remuneration report.

Board of directorsThe board of directors comprises the Chairman, five executive directors and three non‑executive directors. Brief biographical details of all members of the board are set out on pages 14 and 15.

N Berry, Deputy Chief Executive and Finance Director, will retire from the board on 31 March 2008 and A Taylor will be appointed to the board as Finance Director on the same date.

The board considers J Scott and R Eckelmann to be independent within the meaning of the 2006 FRC Code. R King, due to length of service, is not considered to be independent.

The board is responsible for the formulation of strategy, the monitoring of financial and non‑financial performance, and the approval of major transactions, financial statements, other formal communications with shareholders and operating and capital expenditure budgets. Comprehensive board papers, dealing with all aspects of the business, are distributed by the Company Secretary one week in advance of each board meeting. The board met ten times during 2007.

There exists a clear division of responsibilities between the Chairman and the Chief Executive. The Chairman’s primary role includes ensuring that the board functions properly, that it meets its obligations and responsibilities and that its organisation and mechanisms are in place and are working effectively. The Chief Executive’s primary role is to provide overall leadership and vision in developing, with the board, the strategic direction of the company. Additionally the Chief Executive is responsible for the management of the overall business to ensure strategic and business plans are effectively implemented, the results are monitored and reported to the board and financial and operational objectives are attained.

The board delegates management of the business to the executive team, headed by the Chief Executive (I Dinwoodie) and consisting of the four other executive directors (N Berry, P Eaves, R Borrell and G Lockett), the Company Secretary and Deputy Finance Director (A Taylor), the Director of Marketing (M Alexander) and the Director of HR (T Bick).

The executive team meets weekly and is responsible for implementing group strategy, monitoring business performance, preparing the operating and capital expenditure budgets for recommendation to the board and ensuring efficient management of the group.

From left to right standing: T Bick, M Alexander, A Taylor, G Lockett, R Borrell.

From left to right sitting: N Berry, I Dinwoodie, P Eaves.


Summary of board meeting attendance in 2007Ten board meetings were held in 2007. Meetings Name attendedP Lawler 6(6)R King 10J Scott 10R Eckelmann 9I Dinwoodie 10N Berry 10P Eaves 10R Borrell 4(4)G Lockett 3(3)A Rosenfeld 5(5)S Temple 7(7)Figures in brackets denote the maximum number of meetings that could have been attended.

Board committeesSummary of committee membership Audit Remuneration Nomination Name committee committee committeeP Lawler No Yes YesR King Yes Chairman1 NoJ Scott Chairman Yes YesR Eckelmann Yes Yes Yes2

I Dinwoodie No No YesA Rosenfeld Yes Yes Chairman2

1. R King resigned as, and R Eckelmann was appointed, Chairman of the Remuneration committee in February 2008.

2. A Rosenfeld resigned as Chairman of the Nominations committee on 1 July 2007. J Scott chaired the committee from July 2007 to February 2008. R Eckelmann was appointed Chairman of the committee in February 2008.

Summary of committee meeting attendance in 2007 Audit Remuneration Nomination Name committee committee committeeNumber of meetings held 2 4 3P Lawler 1(1) 1(1) 1(1)R King 2 4 N/AJ Scott 2 4 3R Eckelmann 2 4 3I Dinwoodie N/A N/A 3A Rosenfeld 1(1) 2(3)1 0(2)1

Figures in brackets denote the maximum number of meetings that could have been attended.

1. A Rosenfeld did not attend committee meetings at which the selection of a new Chairman was discussed.


directors’ report corporate governance statement

Board committeesAudit committeeThe audit committee’s role includes the examination and review of, on behalf of the board, internal financial controls, financial and accounting policies and practices, the form and content of financial reports and statements and the financial judgments therein, and the work of the external auditor. The committee ensures that arrangements are in place for staff of the group to raise, confidentially or publicly, concerns about any possible improprieties. The written terms of reference of the committee are available on request from the Company Secretary.

The committee meets with the company’s auditor twice a year. The Chief Executive, Finance Director and the Company Secretary attend by invitation, except for a period of each meeting where the committee members meet with the auditor without any member of the group management present.

The Chairman of the committee, J Scott, is deemed by the board to have recent and relevant financial experience as he was, until 2001, an executive director of Lazard Brothers, holds an MBA from INSEAD and is currently a Fellow of the Securities and Investment Institute and of the Chartered Insurance Institute.

The committee reviews the type of work, effectiveness of and level of fees charged by the auditor on an annual basis and recommends to the board the appointment, remuneration and terms of engagement of the external auditor. The committee monitors fees paid to the auditor in respect of non‑audit work. All additional work performed by the auditor is approved by the audit committee.

The independence and objectivity of the auditor is regularly considered by the committee. The committee receives an annual statement from the auditor detailing their independence policies and safeguards and confirming their independence.

The committee reviews the need for an internal audit function on an annual basis and has concluded that, due to the current size and structure of the group and the level of control exercised by the executive team, an internal audit function is neither necessary nor cost effective at this time.

The committee has formally identified G Lockett as director responsible for health and safety, and A Taylor, on his appointment to the board, as director responsible for risk assessment.

Remuneration committeeThe remuneration committee makes recommendations to the board on the group’s policy for executive remuneration and determines the individual remuneration packages on behalf of the board for the executive directors of the group. The Chief Executive attends meetings by invitation, except when the Chief Executive’s own remuneration package is being discussed.

The committee has access to professional advice, both inside and outside the company, in the furtherance of its duties. The directors’ remuneration report sets out in more detail the committee’s policies and practices on executive remuneration. The written terms of reference of the committee are available on request from the Company Secretary.

Nomination committeeThe nomination committee is responsible for reviewing the size and composition of the board, for making recommendations to the board on the appointment of new executive and non‑executive directors and their reappointment following retirement by rotation. The committee meets as required, but at least twice a year. The written terms of reference of the committee are available on request from the Company Secretary.

The process adopted by the committee to identify a candidate for a specific vacancy is, in the first instance, to determine whether any individuals known to the committee would be suitable for the role. If no candidates can be identified through this process then an external search consultancy will be approached. Short listed candidates are interviewed by all members of the committee and other executive and non‑executive directors as the committee deems appropriate. Once a suitable candidate has been identified, the Chairman of the committee will recommend to the board that the company make a formal offer of employment to the candidate.

An external search consultancy was used in the appointments of P Lawler and R Borrell. A formal job specification was prepared for both roles including, for the Chairman, an assessment of the time commitment expected. A shortlist of five candidates, all of whom would be considered independent at the time of appointment, was considered for the Chairman role and a shortlist of four for the Research and Development Director role. Both G Lockett and A Taylor have been with the company for six and seven years respectively and were promoted internally to the board.

All directors are required to submit themselves for reappointment at least every three years and directors appointed during the year are required to seek reappointment at the first AGM following their appointment.

Performance evaluationThe board’s policy for individual executive director performance reviews is for a formal and rigorous appraisal process based on performance by individual director against specific targets. The senior independent director, in consultation with the other non‑executive directors and taking into account the views of the other directors, appraises the performance of the Chairman. The executive directors, in consultation with the Chairman appraise the performance of the non‑executive directors.

The board reviewed its performance once during the year through a questionnaire issued by the Chairman to all directors and the Company Secretary. The Chairman collated the responses and presented the findings to the board for discussion. It is the board’s intention to review its own performance at least twice a year.

Group structureThe group has three main locations. The head office functions, research and development, European sales and the marketing function are based in Cambridge, England. The group has two manufacturing facilities, one in Stockholm, Sweden and the other in Huntingdon, England. The group has representative offices in Shanghai (China), New Delhi (India), Sao Paulo (Brazil), Seoul (Korea), Shin‑Yokohama (Japan) and Atlanta (USA).


EnvironmentThe group manufactures product in both Sweden and England and undertakes research and development in England. The group complies with all local and European legislation relevant to the respective territories. The group’s manufacturing facilities in Stockholm and Huntingdon are both ISO9001 and ISO14001 certified. It is the group’s policy to maintain this level of certification for its manufacturing facilities both current and future and to comply at all times with all relevant environmental and other legislation of the territories in which the group operates. With regard to the WEEE (Waste Electrical and Electronic Equipment) and RoHS (Restriction of the use of certain Hazardous Substances) directives, Xaar understands the environmental aims of these directives and, although Xaar’s product portfolio is not directly covered by these directives, will ensure its products comply wherever practicable and allow our OEM customers to fulfill these environmental policies more readily.

In addition it is the group’s aim to:

• improve performance in areas which have a significant impact on the environment such as energy usage, chemical usage, transportation, pollution and waste disposal;

• where possible source products from suppliers who provide product information relating to the environmental impact of their products and the steps they have taken to mitigate any environmental impact;

• communicate with staff on environmental issues and any changes to environmental legislation; and

• monitor technical developments within the industry to ensure that the group can take advantage of opportunities that reduce the environmental impact of the group’s activities.

Dialogue with institutional shareholdersThe directors seek to build on a mutual understanding of objectives between the group and its institutional shareholders by meeting at least twice per year, following interim and annual results, to provide an update on trading and obtain feedback. Additionally, the group has hosted institutional investors at both the group’s headquarters in Cambridge and the manufacturing facility in Huntingdon during 2007.

The group’s financial public relations advisors give all investors and potential investors, who have met with the group’s investor relations team, the opportunity to provide feedback on the meetings. The feedback is co‑ordinated by the PR advisors into a single document which is circulated to all members of the board. Additionally the Chief Executive and Finance Director provide feedback to the board at the meeting following shareholder meetings.

Both the Chairman and the Senior Independent Director are available to meet with shareholders as required.

Constructive use of the Annual General MeetingThe board use the AGM to communicate with investors and to encourage their participation.

Internal control The board has applied Principle C2.1 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the group faces. The board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with Internal Control: Guidance for Directors on the Combined Code published in September 1999 and updated in 2005. The board is responsible for the group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance with respect to the preparation of financial information and the safeguarding of assets and against material misstatement or loss.

In compliance with Provision C2.1 of the Combined Code, the board regularly reviews the effectiveness of the group’s system of internal control. The board’s monitoring covers all controls, including financial, operational and compliance controls and risk management systems. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The board has also performed a specific assessment for the purpose of this annual report. This assessment considers all significant aspects of internal control arising during the period covered by the report. The audit committee assists the board in discharging its review responsibilities.

This report was approved by the board of directors on 12 March 2008 and signed on its behalf by:

Ian Dinwoodie Science ParkDirector Cambridge12 March 2008 CB4 0XR Registered number: 3320972


directors’ report directors’ remuneration report

This report has been prepared in accordance with Schedule 7A to the Companies Act 1985. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the board has applied the Principles of Good Governance relating to directors’ remuneration. As required by the Act, Resolution 10 to approve the report will be proposed at the AGM of the group at which the financial statements of the group will be approved.

The Act requires the auditor to report to the company’s members on certain parts of the directors’ remuneration report and to state whether in their opinion that part of the report has been properly prepared in accordance with the Companies Act 1985. The report has therefore been divided into separate sections for audited and unaudited information.

UnAUDITED InFORMATIOn

Remuneration committeeThe principal function of the remuneration committee (the membership of which is outlined in the Corporate governance statement) is to determine, on behalf of the board, the specific remuneration and other benefits of all executive directors, including pension contributions, bonus payments, share options and service contracts. The fees paid to the non‑executive directors are determined by the board. Additionally, the remuneration committee makes recommendations to the board on the framework of executive remuneration. The committee has access to professional advice, both inside and outside the group, in the furtherance of its duties and has accessed such advice during the year.

Total level of remunerationThe remuneration committee’s policy is to attract and retain individuals of the highest calibre by offering remuneration competitive with comparable publicly listed companies and fairly and responsibly reward individuals for their contribution to the success of the group. A substantial proportion of remuneration, representing bonuses and share options, of executive directors is performance related.

Executive directors are entitled to accept appointments outside the group providing that the Chairman’s permission is sought and fees in excess of £20,000 from all such appointments are accounted for to the group.

Basic salariesAn executive director’s basic salary is reviewed by the committee prior to the beginning of each year and when an individual changes position or responsibility. In deciding appropriate levels, the committee considers the group as a whole, as well as the individual’s performance.

Benefits in kindBenefits in kind represent company cars and private medical insurance.

Bonus paymentsBonuses are non‑pensionable and based on a percentage of basic salary. Bonuses are paid each six months, following the interim and annual results, in recognition of each executive director’s contribution to the success of the group and upon achievement of certain predetermined corporate targets. The maximum potential bonus payment as a percentage of basic salary for directors depends on the individual director’s role and responsibility. For the year commencing 1 January 2008 the potential amount payable under the annual bonus scheme ranges between 0% and 100% of basic salary. Non‑executive directors do not receive a bonus.

TerminationIn the event of early termination, the directors’ contracts provide for compensation up to a maximum of basic salary for the notice period. The remuneration committee considers the circumstances of individual cases of early termination and in exceptional circumstances only would recommend compensation payments in excess of the company’s contractual obligations.



Share optionsAll executive directors are entitled to participate in the company’s share option schemes, including the company’s SAYE scheme. Any options granted thereunder are approved by the remuneration committee. Performance criteria for all share option schemes are intended to deliver increased shareholder value.

Non‑executive directors do not participate in the company’s share option schemes. It is the policy of the company to grant share options to employees and executive directors as a means of encouraging ownership and providing incentives for performance.

Certain options granted to directors are subject to vesting criteria as summarised below.

Options held at 31 December 2007 granted prior to 2004 under the Xaar plc 1997 share option scheme:

I Dinwoodie: 100,000 options with an exercise price of 68.5p where, as long as the share price remains above the relevant threshold for at least 20 consecutive days after the earliest date of exercise, 33% vest at a share price of 110p, 66% vest at 125p and 100% vest at 140p.

N Berry: 250,000 options with an exercise price of 71.5p where, as long as the share price remains above the relevant threshold for at least 20 consecutive days after the earliest date of exercise, 33% vest at a share price of 110p, 66% vest at 125p and 100% vest at 140p.

All options detailed above additionally require earnings per share (EPS) growth over the three year vesting period to be more than RPI + 5% per annum compound.

Options held at 31 December 2007 granted during 2003 under the Xaar plc 1997 share option scheme: Exercise Number priceI Dinwoodie 200,000 36pN Berry 200,000 36pThese options will vest as long as the share price remains above 76.0p for at least 20 consecutive days after the earliest date of exercise.

Options held at 31 December 2007 granted under the Xaar plc 2004 share option plan: Exercise Date of grant Number priceI Dinwoodie 20.05.04 100,000 84.0pN Berry 20.05.04 100,000 84.0pI Dinwoodie 28.10.04 50,000 109.0pN Berry 28.10.04 50,000 109.0pG Lockett 28.10.04 50,000 109.0pP Eaves 15.03.05 119,791 192.0pI Dinwoodie 15.09.05 98,540 274.0pN Berry 15.09.05 91,240 274.0pG Lockett 15.09.05 58,394 274.0pI Dinwoodie 03.04.06 101,460 294.0pN Berry 03.04.06 8,760 294.0pP Eaves 03.04.06 85,106 294.0pG Lockett 03.04.06 11,606 294.0pAdditionally, P Eaves was granted a further 130,209 options on 15 March 2005 at an exercise price of 192.0p. This grant was made on P Eaves’ joining the company in accordance with Rule 9.4.2 (2) of the Listing Rules. These options are subject to a separate agreement between P Eaves and the company, with the terms of this agreement being the provisions of the Xaar plc 2004 share option plan in all respects except as to the limit of options allowed in relation to an individual’s salary.

An option granted under the Xaar plc 2004 share option plan will be exercisable over shares with a market value at the date of grant not exceeding a person’s annual salary if at the third anniversary of grant the EPS growth of the company since grant has exceeded the growth in the RPI over the same period by at least 12%. To the extent that an option relates to shares with a market value as at the date of grant in excess of a person’s annual salary, the option will be exercisable over all of the excess shares if EPS growth over this period has exceeded RPI growth by at least 15%. For EPS performance between these two points, options will be exercisable over the excess shares on a sliding scale. In addition, options can only be exercised if EPS is at least 5.5p for the financial year preceding the third anniversary of grant. Performance may be retested once only from the date of grant to the fourth or fifth anniversary of grant (at the discretion of the remuneration committee), but the original EPS growth targets will be increased from 12/15% to 16/20% and 20/25% respectively. The 5.5p target will apply for the final financial year in the extended period.

An option granted under the Xaar plc 1997 SAYE Scheme or the Xaar plc 2007 SAYE Scheme vests after three years. No performance criteria are attached to options granted under this scheme.




Retesting of performance criteria under the rules of the Xaar plc 2004 Share Option PlanIn accordance with best practice the remuneration committee has indicated that performance criteria will not be retested with regard to share options issued to directors under the Xaar plc 2004 Share Option Plan.

Options exercised during 2007S Temple exercised 100,000 options with an exercise price of 74p and 200,000 options with an exercise price of 36p on 8 May 2007. I Dinwoodie and N Berry each exercised 26,084 options with an exercise price of 29p on 26 March 2007.

Pension schemeThe company operates a self‑administered, defined contribution, HMRC approved pension scheme. All current executive directors participate in this scheme. Non‑executive directors do not receive pension contributions.

Performance graphThe following graph shows the company’s performance, measured by total shareholder return, compared with the performance of the TechMARK All Share Index.

The TechMARK All Share Index has been selected for this comparison because the Index includes Xaar plc. For the purposes of this comparison the TechMARK All Share Index is based on the constituent companies in the Index at a point in time.

Five year return to Xaar plc vs TechMARK All Share Indexfor the period 1 January 2003 to 31 December 2007

Xaar plcFTSE TechMARK All Share Index



Terms of appointmentIt is the group’s policy that executive directors should have contracts with an indefinite term, providing for a minimum of one year’s notice.

All non‑executive directors have specific terms of engagement. R King and J Scott have contracts of employment of an indefinite term, providing for a maximum of six months’ notice. R Eckelmann and P Lawler are appointed for an initial three year term with provision for two further three year terms, subject to satisfactory performance.

The details of directors’ contracts are summarised below: Date of contractI Dinwoodie 13.11.01N Berry 20.05.02P Eaves 04.02.05R Borrell 27.08.07G Lockett 15.10.07P Lawler 01.06.07R King 08.10.97J Scott 10.04.01R Eckelmann 01.10.05

AUDITED InFORMATIOn

Directors’ remunerationThe remuneration of directors who served during the year was as follows: Total Money Total Money (including purchase (excluding purchase pension pension Basic Benefits Bonus pension pension Total contributions) contributions salary Fees in kind payments contributions) contributions 2007 2006 2006 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000Executive I Dinwoodie 169 — 12 66 247 20 267 201 17N Berry 154 — 22 48 224 18 242 191 16P Eaves 134 — 18 37 189 16 205 165 13R Borrell1 37 — 16 — 53 5 58 — —G Lockett1 22 — 3 — 25 3 28 — —S Temple2 94 — 17 34 145 11 156 158 14Non‑executive P Lawler1 — 42 — — 42 — 42 — —R King — 33 — — 33 — 33 33 —J Scott — 33 — — 33 — 33 33 —R Eckelmann — 35 — — 35 — 35 50 —A Rosenfeld2 — 24 — — 24 — 24 48 — 610 167 88 185 1,050 73 1,123 879 601. From date of appointment to the board.

2. To date of resignation from the board.



AUDITED InFORMATIOn

Directors’ share optionsDirectors’ emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the company granted or held by the directors. Details of the options are as follows: Gain on As at As at exercise Earliest Earliest 1 January 31 December 2007 exercise date of Expiry Name 2007 Granted Exercised 2007 £ price exercise dateI Dinwoodie 100,0002 — — 100,000 — 68.5p 12.06.05 12.06.12 200,0002 — — 200,000 — 36p 06.10.06 06.10.13 26,0843 — (26,084) — 54,059 29p 01.12.06 01.06.07 100,0002 — — 100,000 — 84p 20.05.07 20.05.14 50,0002 — — 50,000 — 109p 20.10.07 20.10.14 1,7223 — — 1,722 — 99p 01.11.07 01.05.08 98,5402 — — 98,540 — 274p 15.09.08 15.09.15 101,4602 — — 101,460 — 294p 03.04.09 03.04.16 — 3,9585 — 3,958 — 191p 01.08.10 01.02.11 677,806 3,958 (26,084) 655,680 54,059 N Berry 250,0002 — — 250,000 — 71.5p 21.05.05 21.05.12 200,0002 — — 200,000 — 36p 06.10.06 06.10.13 26,0843 — (26,084) — 54,059 29p 01.12.06 01.06.07 100,0002 — — 100,000 — 84p 20.05.07 20.05.14 50,0002 — — 50,000 — 109p 20.10.07 20.10.14 1,7223 — — 1,722 — 99p 01.11.07 01.05.08 91,2402 — — 91,240 — 274p 15.09.08 15.09.15 8,7602 — — 8,760 — 294p 03.04.09 03.04.16 — 4,0575 — 4,057 — 191p 01.08.10 01.02.11 727,806 4,057 (26,084) 705,779 54,059 P Eaves 119,7912 — — 119,791 — 192p 15.03.08 15.03.15 130,2092 — — 130,209 — 192p 15.03.08 15.03.15 85,1062 — — 85,106 — 294p 03.04.09 03.04.16 335,106 — — 335,106 — G Lockett 50,0002,4 — — 50,000 — 109p 20.10.07 20.10.14 1,7224 — — 1,722 — 99p 01.11.07 01.05.08 58,3942,4 — — 58,394 — 274p 15.09.08 15.09.15 11,6062,4 — — 11,606 — 294p 03.04.09 03.04.16 121,722 — — 121,722 — S Temple 100,0002 — (100,000) — 190,500 74p 22.02.05 22.02.12 200,0002 — (200,000) — 457,000 36p 06.10.06 06.10.13 50,0002 — — 50,0001 — 109p 28.10.07 28.10.14 50,0002 — — 50,0001 — 274p 15.09.08 15.09.15 400,000 — (300,000) 100,000 647,500 1. These amounts represent options outstanding at the date of resignation from the board.

2. These options carry certain specific performance criteria which must be achieved prior to vesting. Details are shown in the unaudited section of the directors’ remuneration report.

3. These options were granted under the Xaar plc 1997 Share Save Scheme (SAYE).

4. These amounts represent options granted prior to the date of appointment to the board.

5. These options were granted under the Xaar plc 2007 Share Save Scheme (SAYE).

The performance conditions relating to the above share options are given on page 27.


AUDITED InFORMATIOn

Long Term Incentive PlanDirectors’ emoluments disclosed above do not include any amounts for the value of shares granted to directors under the Xaar plc 2007 Long Term Incentive Plan (LTIP). Details of awards are as follows: Date of Number of grant sharesI Dinwoodie 10.05.07 67,277N Berry 10.05.07 57,000P Eaves 10.05.07 53,000G Lockett 10.05.07 28,500R Borrell 26.09.07 55,000Performance Share Awards granted under the LTIP in 2007 are subject to two separate conditions, the first condition applying to 50% of the shares subject to each award and the second condition applying to the remaining 50%.

The Total Shareholder Return (TSR) conditionIn respect of the first 50% of each 2007 award (the “TSR Awards”), the number of shares that will vest will depend on the company’s TSR performance over the three financial years of the company ending in 2009 against the TSR performance of the TechMARK All Share Index (the “Comparator group”).

(1) If the company’s TSR performance is below the median performance of the Comparator group, none of the TSR Awards will vest.

(2) For TSR performance which is equal to the median performance of the Comparator group, 35% of the TSR Awards will vest.

(3) All of the TSR Awards will vest for TSR performance at upper quartile and above.

(4) For TSR performance between median and upper quartile, the proportion of the TSR Awards that will vest will be calculated on a straight‑line basis.

The Earnings Per Share (EPS) conditionIn respect of the second 50% of each 2007 award (the “EPS Awards”), the number of shares that vest will depend on the EPS growth of the company for the three financial years of the company ending in 2009.

(1) None of the EPS Awards will vest if the company’s EPS growth does not exceed growth in the Retail Prices Index (RPI) by at least 4% compound p.a.

(2) 35% of the EPS Awards will vest if the company’s EPS growth exceeds growth in the RPI by at least 4% compound p.a.

(3) All of the EPS Awards will vest if the company’s EPS growth exceeds growth in the RPI by at least 10% compound p.a.

(4) EPS Awards will vest on a straight‑line basis for EPS growth in excess of growth in the RPI of between 4% and 10% compound p.a.

Share priceThe market value of the ordinary shares of the company as at 31 December 2007 was 173.5p per share. The closing mid range price ranged from 172.3p to 265.5p per share during the year.

ApprovalThis report was approved by the board of directors on 12 March 2008 and signed on its behalf by:

Ian DinwoodieChief Executive12 March 2008


directors’ report statement of directors’ responsibilities

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. The directors are required to prepare financial statements for the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The directors have elected to prepare financial statements for the company in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP).

In the case of UK GAAP accounts, the directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the accounts on a going concern basis unless, having assessed the ability of the company to continue as a going concern, management intends to either liquidate the entity or to cease trading, or have no realistic alternative but to do so.

In the case of the group financial statements, International Accounting Standard 1 requires that financial statements present fairly for each financial year the group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to:

• properly select and consistently apply accounting policies in accordance with IAS 8;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance;

• state that the group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

• prepare the accounts on a going concern basis unless, having assessed the ability of the group to continue as a going concern, management either intends to liquidate the entity or to cease trading, or have no realistic alternative but to do so.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and enable them to ensure that the group financial statements comply with the requirements of the Companies Act 1985 and Article 4 of the IAS Regulation.


independent auditor’s report (group)

to the members of Xaar plcWe have audited the group financial statements of Xaar plc for the year ended 31 December 2007 which comprise the consolidated income statement, the consolidated statement of recognised income and expense, the consolidated balance sheet, the consolidated cash flow statement and the related Notes 1 to 35. These group financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements of Xaar plc for the year ended 31 December 2007 and on the information in the directors’ remuneration report that is described as having been audited.

This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorThe directors’ responsibilities for preparing the annual report and the group financial statements in accordance with applicable United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors’ responsibilities.

Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the group financial statements give a true and fair view and whether the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the directors’ report is consistent with the financial statements.

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding director’s remuneration and other transactions is not disclosed.

We review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read other information contained in the annual report and consider whether it is consistent with the audited group financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements.

OpinionIn our opinion:

• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2007 and of its profit for the year then ended;

• the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and

• the information given in the directors’ report is consistent with the group financial statements.

Ernst & Young LLPRegistered auditorCambridge12 March 2008


consolidated income statement

for the year ended 31 December 2007 2007 2006 Notes £’000 £’000

Continuing operations Revenue 4 47,853 42,207Cost of sales (22,925) (18,096)

Gross profit 24,928 24,111Distribution costs (4,003) (4,108)Administrative expenses (13,932) (13,426)

Operating profit 6,993 6,577Investment income 8 447 451Finance costs 9 (119) (116)Profit before tax before abortive deal costs and share‑based payments 8,275 7,921Abortive deal costs — (298)Share‑based payments (954) (711)Profit before tax 7,321 6,912Tax 10 (1,920) (2,068)

Profit for the year attributable to shareholders 6 5,401 4,844

Earnings per share from continuing operations Basic 12 8.6p 7.9pDiluted 12 8.4p 7.6p

Dividends paid in the year amounted to £1,218,000 (2006: £903,000). Further disclosures are given in Note 11.

consolidated statement of recognised income and eXpense

for the year ended 31 December 2007

2007 2006 £’000 £’000

Exchange differences on translation of foreign operations (64) (113)Cash flow hedges transferred to income statement — 1,197Tax on items taken directly to equity (746) (415)

Net (loss)/income recognised directly in equity (810) 669Profit for the year 5,401 4,844

Total recognised income and expense for the year 4,591 5,513


consolidated balance sheet

as at 31 December 2007 2007 2006 Notes £’000 £’000

Non‑current assets Property, plant and equipment 15 11,849 11,990Goodwill 13 720 720Other intangible assets 14 7,294 7,030Investments 17 2,020 1,931Deferred tax asset 21 322 1,383

22,205 23,054

Current assets Inventories 18 4,137 3,690Trade and other receivables 19 8,511 6,135Cash and cash equivalents 19 13,036 12,438Derivative financial instruments 20 261 —

25,945 22,263

Total assets 48,150 45,317

Current liabilities Trade and other payables 23 (6,711) (7,928)Other financial liabilities 24 (198) (185)Current tax liabilities 10 (1,246) (507)Obligations under finance leases 22 (245) (468)Provisions 25 (193) (209)

(8,593) (9,297)

Net current assets 17,352 12,966Non‑current liabilities Deferred tax liabilities 21 (1,810) (1,635)Other financial liabilities 24 (651) (865)Obligations under finance leases 22 — (267)

(2,461) (2,767)

Total liabilities (11,054) (12,064)

Net assets 37,096 33,253

Equity Share capital 26 6,285 6,201Share premium 27 10,146 9,669Own shares 28 (4,465) (3,420)Other reserves 30 4,051 3,097Translation reserve 29 529 593Retained earnings 30 20,550 17,113

Equity attributable to shareholders 37,096 33,253

Total equity 37,096 33,253

The financial statements were approved by the board of directors and authorised for issue on 12 March 2008.

They were signed on its behalf by:

Ian Dinwoodie nigel BerryDirector Director12 March 2008


consolidated cash flow statement

for the year ended 31 December 2007 2007 2006 Notes £’000 £’000

Net cash from operating activities 31 8,565 9,142Investing activities Purchases of property, plant and equipment (3,823) (7,274)Proceeds on disposal of property, plant and equipment — 5Purchases of trading investments (89) (427)Expenditure on capitalised product development (1,770) (3,420)

Net cash used in investing activities (5,682) (11,116)Financing activities Dividends paid (1,218) (903)Proceeds from issue of ordinary share capital 561 384New borrowings — 1,050Repayments of borrowings (201) —Repayments of obligations under finance leases (498) (520)Purchase of own shares (1,045) —

Net cash (outflow)/inflow from financing activities (2,401) 11

Net increase/(decrease) in cash and cash equivalents 482 (1,963)Effect of foreign exchange rate changes 116 6Cash and cash equivalents at beginning of year 12,438 14,395

Cash and cash equivalents at end of year 13,036 12,438


notes to the consolidated financial statements

for the year ended 31 December 20071. General informationXaar plc (the company) is incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on the inside back cover. The nature of the group’s operations and its principal activities are set out in the directors’ report on page 16.

2. Key sources of estimation uncertaintyThe key assumptions concerning the future and other sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are as follows:

ProvisionsThroughout the year, management considers the carrying value of both debtors and inventory balances. Provisions against both balances are made on the basis of past losses, current trading patterns and anticipated future events.

Impairment of goodwillThe group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the ‘value in use’ of the cash‑generating units to which the goodwill is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash‑generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2007 was £720,000 (2006: £720,000). Further details are given in Note 13.

3. Significant accounting policiesBasis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the European Union.

The financial information has been prepared on the basis of all applicable IFRS, including all International Accounting Standards (IAS), Standing Interpretations Committee (SIC) interpretations and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board (IASB) before 31 December 2007. These include IFRS endorsed by the EU and those awaiting formal endorsement.

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments.

The principal accounting policies adopted are set out below.

Basis of consolidationThe consolidated financial statements incorporate the financial statements of the company (Xaar plc) and entities controlled by the company (its subsidiaries) made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the group.

All intra‑group transactions, balances, income and expenses are eliminated on consolidation.

Business combinationsThe acquisition of subsidiaries is accounted for using the purchase method.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement.

GoodwillGoodwill arising on consolidation is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

For the purposes of impairment testing, goodwill is allocated to each of the group’s cash‑generating units expected to benefit from the synergies of the combination. Cash‑generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash‑generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro‑rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of the cash‑generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.


3. Significant accounting policiesRevenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes, but gross of any tax withheld.

Sales of goods are recognised when goods are delivered and title has passed.

Development fees gained from joint development agreements are treated as income over the periods necessary to match them with the related costs.

Funding received for internally‑generated intangible assets is recognised on a straight‑line basis to match the amortisation period of the related intangible fixed asset.

Royalties are recognised on an accruals basis in accordance with the actual revenue trend in the most recent quarterly statements received from each licensee.

Revenue from the sale of licences is recognised once the licence has been delivered to the customer and acceptance criteria achieved.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

LeasingLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Rentals payable under operating leases are charged to income on a straight‑line basis over the term of the relevant lease, even if the payments are not made on such a basis.

Foreign currenciesThe individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non‑monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non‑monetary items in respect of which gains and losses are recognised directly in equity. For such non‑monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In order to hedge its exposure to certain foreign exchange risks, the group enters into forward contracts (see below for details of the group’s accounting policies in respect of such derivative financial instruments).

For the purposes of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations are translated at the exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as sterling denominated assets and liabilities.

Government grantsGovernment grants relating to research and development are treated as income over the periods necessary to match them with the related costs.

Government grants relating to property, plant and equipment are treated as deferred income and released to profit or loss over the expected useful lives of the assets concerned.


for the year ended 31 December 2007


3. Significant accounting policiesOperating profitOperating profit is stated before investment income and finance costs.

Retirement benefit costsPayments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state‑managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax, including UK corporation tax and foreign tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are measured on an un‑discounted basis and are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

Property, plant and equipmentAll fixed assets are shown at original historical cost less accumulated depreciation and any recognised impairment loss.

Assets in the course of construction for production or administrative purposes are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other assets in the same class, commences when the assets are ready for their intended use.

Depreciation is charged so as to write off the cost or valuation of assets, other than assets in the course of construction, over their estimated useful lives, using the straight‑line method, on the following bases:

Leasehold improvements ten years Plant and machinery three–five years Furniture, fittings and equipment three–five years Motor vehicles three years

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.



for the year ended 31 December 20073. Significant accounting policiesInternally‑generated intangible assets – research and development expenditureExpenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally‑generated intangible asset arising from the group’s development of new products is recognised only if all of the following conditions are met:

• an asset is created that can be identified (such as software and new processes);

• it is probable that the asset created will generate future economic benefits; and

• the development cost of the asset can be measured reliably.

Internally‑generated intangible assets are amortised on a straight‑line basis over their useful lives. Where no internally‑generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Other intangible assetsCosts incurred in maintaining the patent and trademark portfolio are written off to the income statement as incurred.

Payments in respect of software, external product development costs and licence rights acquired are capitalised at cost and amortised on a straight‑line basis over their estimated useful lives.

Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash‑generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash‑generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash‑generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash‑generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash‑generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour costs and an attributable proportion of manufacturing overheads based on normal levels of activity that have been incurred in bringing the inventories to their present location and condition. For inventories held at the group’s manufacturing facility in Huntingdon, UK, cost is calculated using the standard costing method. For all other locations, cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow‑moving or defective items where applicable.

Financial instrumentsFinancial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual provisions of the instrument.

Trade receivablesTrade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.


3. Significant accounting policiesInvestmentsInvestments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, equating to cost, including transaction costs.

Investments are classified as available‑for‑sale, and on the basis that the investments have no active market and their fair values cannot be reliably determined using valuation techniques, the investments are carried at cost.

If there is objective evidence that an impairment loss on an unquoted equity investment that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

Interest‑bearing loans and borrowingsInterest‑bearing loans and bank overdrafts are measured initially at fair value, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payablesTrade payables are measured at original cost.

Equity instrumentsEquity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments and hedge accountingThe group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates and liquidity risk.

The group uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions.

The group’s interest rate risk arises mainly from its funds invested in short term bank deposits. To mitigate these risks, limits have been set by the board in relation to maturity period and maximum deposits with any one institution.

In order to mitigate the group’s liquidity risks, the policy is to fund significant fixed asset purchases by finance leases repayable over a period of three to five years dependent on the individual asset being financed and interest‑bearing loans.

The use of financial derivatives is governed by the group’s policies approved by the board of directors, which provides written principles on the use of financial derivatives consistent with the group’s risk management strategy. The group does not use derivative financial instruments for speculative purposes.

Derivative financial instruments are initially measured at fair value on the contract date and are remeasured to fair value at subsequent reporting dates.

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss.

Changes in fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement.



for the year ended 31 December 20073. Significant accounting policiesProvisionsProvisions are recognised when the group has a present obligation as a result of a past event and it is probable that the group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted where the effect of the time value of money is material.

Share‑based paymentsThe group has applied the requirements of IFRS 2 “Share‑based payment”. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.

The group issues equity‑settled share‑based payments to certain employees. These payments are measured at fair value (excluding the effect of non market‑based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity‑settled share‑based payments is expensed on a straight‑line basis over the vesting period, based on the group’s estimate of the shares that will eventually vest and adjusted for the effect of non market‑based vesting conditions.

The fair value of options issued under the group’s long term incentive plan is measured using a stochastic (Monte‑Carlo binominal) model. The fair value of all other equity‑settled share‑based payments is measured using the Black‑Scholes pricing model. The expected life used in these models has been adjusted, based on management’s best estimate, for the effects of non‑transferability, exercise restrictions and behavioural considerations.

Own sharesOwn shares are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the group’s own shares.

New standards and interpretationsAppliedThe group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the group. They did however give rise to additional disclosures.International Accounting Standards (IAS/IFRSs) Effective dateIFRS7 Financial Instruments 1 January 2007IAS1 Presentation of Financial Statements 1 January 2007

The principal effects of these changes were as follows:

IFRS7 Financial Instruments: DisclosuresThis standard requires disclosures that enable users of the financial statements to evaluate the significance of the group’s financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements. While there has been no effect on the financial position or results, comparative information has been revised where needed. These new disclosures are shown in Notes 19, 20 and 24.

IAS1 Presentation of Financial StatementsThis amendment requires the group to make new disclosures to enable users of the financial statements to evaluate the group’s objectives, policies and processes for managing capital. These new disclosures are shown in Note 20.

not appliedAt the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:International Accounting Standards (IAS/IFRSs) Effective dateIFRS2 Amendment to IFRS2 – Vesting Conditions and Cancellations 1 January 2009IFRS3 Business Combinations (revised January 2008) 1 July 2009IFRS8 Operating Segments 1 January 2009IAS1 Presentation of Financial Statements (revised September 2007) 1 January 2009IAS23 Borrowing Costs (revised March 2007) 1 January 2009IAS27 Consolidated and Separate Financial Statements (revised January 2008) 1 July 2009

International Financial Reporting Interpretations Committee (IFRIC) Effective dateIFRIC12 Service Concession Arrangements 1 January 2008IFRIC13 Customer Loyalty Programmes 1 July 2008IFRIC14 IAS19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 1 January 2008


3. Significant accounting policiesNew standards and interpretationsnot appliedThe principal effects of these changes are as follows:

IFRS2 Amendment to IFRS2 – Vesting Conditions and CancellationsThe amendment to IFRS2 restricts the definition of vesting conditions to include only service conditions (requiring a specified period of service to be completed) and performance conditions (requiring the other party to achieve a personal goal or contribute to achieving a corporate target). All other features are not vesting conditions, and whereas a failure to achieve such a condition was previously regarded as a forfeiture (giving rise to a reversal of amounts previously charged to profit) it must be reflected in the grant date fair value of the award and treated as a cancellation, which results in either an acceleration of the expected charge, or a continuation over the remaining vesting period, depending on whether the condition is under the control of the entity or counterparty. The amendment is mandatory for periods beginning on or after 1 January 2009 and the group is currently assessing its impact on the financial statements, although it is not expected to be material.

IFRS8 Operating SegmentsThis standard requires disclosure of information about the group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the group.

The directors do not anticipate that the adoption of these standards and interpretations in future periods will have a material impact on the financial statements of the group.

4. RevenueAn analysis of the group’s revenue is as follows: 2007 2006 Notes £’000 £’000Sales of goods 45,612 39,918Development fees 467 748Licence fees and royalties 1,774 1,541 47,853 42,207Investment income 8 447 451 48,300 42,658

5. Business and geographical segmentsBusiness segmentsFor management reporting purposes, the group’s operations are currently analysed according to product type. These product groups are the basis on which the group reports its primary segment information.

Principal product groups are as follows:

• Printheads and related products • Development fees • Licence fees and royalties

Segment information about these product types is presented below: 2007 2006 £’000 £’000Revenue Printheads and related products 45,612 39,918Development fees 467 748Licence fees and royalties 1,774 1,541Total revenue 47,853 42,207



for the year ended 31 December 20075. Business and geographical segmentsBusiness segments 2007 2006 £’000 £’000Result Printheads and related products 17,025 16,198Development fees (79) (442)Licence fees and royalties 1,415 1,247Total segment results 18,361 17,003Unallocated corporate expenses (11,368) (10,426)Profit from operations 6,993 6,577Investment income 447 451Finance costs (119) (116)Profit before tax 7,321 6,912Tax (1,920) (2,068)Profit after tax 5,401 4,844Unallocated corporate expenses relate to administrative expenses which cannot be directly attributed to any of the principal product groups.

Other information Printheads Licence and related Development fees and products fees royalties Consolidated 2007 2007 2007 2007 £’000 £’000 £’000 £’000Capital additions 3,693 — — 3,693Depreciation and amortisation 2,958 463 58 3,479Balance sheet Assets Segment assets 28,045 913 594 29,552Unallocated corporate assets 18,598Consolidated total assets 48,150Liabilities Segment liabilities (4,886) (782) (89) (5,757)Unallocated corporate liabilities (5,297)Consolidated total liabilities (11,054)

Printheads Licence and related Development fees and products fees royalties Consolidated 2006 2006 2006 2006 £’000 £’000 £’000 £’000Capital additions 11,147 — — 11,147Depreciation and amortisation 1,531 616 59 2,206Balance sheet Assets Segment assets 24,440 1,378 635 26,453Unallocated corporate assets 18,864Consolidated total assets 45,317Liabilities Segment liabilities (5,781) (1,162) (82) (7,025)Unallocated corporate liabilities (5,039)Consolidated total liabilities (12,064)Unallocated corporate assets include £594,000 (2006: £449,000) of capital additions, and are net of depreciation and amortisation for the year of £743,000 (2006: £577,000).


5. Business and geographical segmentsGeographical segmentsThe group’s operations are located in Asia, Europe and North and South America. The following table provides an analysis of the group’s sales by geographical market, which is considered to be the group’s secondary segment, irrespective of the origin of the goods: 2007 2006 £’000 £’000Asia 27,937 23,937Europe and Middle East 14,235 14,997Americas 5,681 3,273 47,853 42,207Substantially, all assets and additions to property, plant and equipment and intangible assets are located in Europe and the Middle East.

6. Profit for the yearProfit for the year has been arrived at after charging/(crediting): 2007 2006 £’000 £’000Net foreign exchange (gains)/losses (989) 91Research and development costs 5,797 3,843Government grants towards research and development (28) (122)Depreciation of property, plant and equipment 2,895 1,998Amortisation of internally‑generated intangible assets included in administrative expenses 1,038 461Amortisation of other intangible assets included in administrative expenses 282 324Loss on disposal of property, plant and equipment 12 15Cost of inventories recognised as expense 13,183 11,377Impairment of inventories 547 134Impairment of other financial assets 183 765Auditor’s remuneration for audit services (see below) 94 88£3,000 (2006: £nil) was paid to Ernst & Young LLP and their associates by the company and its UK subsidiary undertakings in respect of non‑audit services.

A more detailed analysis of auditor’s remuneration on a worldwide basis is provided below: 2007 2006 £’000 % £’000 %Audit services – statutory audit 86 89 80 91– audit‑related regulatory reporting 8 8 8 9 94 97 88 100Non‑audit services – other services pursuant to legislation 3 3 — — 97 100 88 100A description of the work of the audit committee is set out in the corporate governance statement on page 24 and includes an explanation of how auditor objectivity and independence is safeguarded when non‑audit services are provided by the auditor.

The audit fee for Xaar plc in 2007 was £17,000 (2006: £17,000).



for the year ended 31 December 20077. Staff costsThe average monthly number of persons employed by the group including executive directors was as follows: 2007 2006 Number NumberResearch and development 60 68Sales and marketing 40 40Manufacturing and engineering 190 165Administration 28 27 318 300

Their aggregate remuneration comprised: 2007 2006 Notes £’000 £’000Wages and salaries 10,317 9,664Social security costs 2,020 2,290Other pension costs 34 654 506Share‑based payments 954 711 13,945 13,171

8. Investment income 2007 2006 £’000 £’000Interest receivable on short term deposits 447 451

9. Finance costs 2007 2006 £’000 £’000Interest on bank loans and overdrafts 67 60Interest on obligations under finance leases 52 56 119 116

10. Tax 2007 2006 Notes £’000 £’000Current tax – UK 1,511 85Current tax – overseas 399 472 1,910 557Amounts overprovided in previous years (35) (296)Total current income tax 1,875 261

Deferred tax 5 1,599Adjustment in respect of prior years 40 208Total deferred tax charge 21 45 1,807Total tax expense for the year 1,920 2,068The standard rate of tax for the year, based on the UK standard rate of corporation tax is 30%. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. In March 2007, the UK government announced that they would introduce legislation that would reduce the corporation tax rate to 28% with effect from 1 April 2008. The legislation was substantively enacted by the end of June 2007. The closing deferred tax assets and liabilities are stated at 28%. In addition, the effective tax rate for the period from 1 January 2008 is expected to reduce accordingly.


10. TaxThe charge for the year can be reconciled to the profit per the income statement as follows: 2007 2006 £’000 £’000Profit on ordinary activities before tax 7,321 6,912Tax on ordinary activities at standard rate of 30% (2006: 30%) 2,196 2,074Effect of: Expenses not deductible for tax purposes 68 76Income not taxable (36) —Effect of foreign tax rates (6) (33)Effect of different tax rates (3) —Unrelieved foreign tax suffered 45 187Enhanced tax deduction for research and development expenditure (300) (197)Deferred tax liability not previously recognised — 49Effect of change in UK corporation tax rate (49) —Prior period adjustments 5 (88)Total tax expense for the year 1,920 2,068The effective tax rate for the year is 26.2% (2006: 29.9%).

11. Dividends 2007 2006 £’000 £’000Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2006 of 2.0p (2005: 1.5p) per share 1,218 903Proposed final dividend for the year ended 31 December 2007 of 2.5p (2006: 2.0p) per share 1,571 1,240The proposed final dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

12. Earnings per ordinary share – basic and dilutedThe calculation of basic and diluted earnings per share is based on the following data: 2007 2006 £’000 £’000Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 5,401 4,844Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 62,514,226 61,447,492Effect of dilutive potential ordinary shares: Share options 1,599,424 2,221,595Weighted average number of ordinary shares for the purposes of diluted earnings per share 64,113,650 63,669,087



for the year ended 31 December 200713. GoodwillThe carrying amount of goodwill at 31 December 2007 was £720,000 (2006: £720,000). There were no accumulated impairment losses at the end of either period.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash‑generating units (CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows: 2007 2006 £’000 £’000Printheads and related products (a single CGU) 720 720The group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The recoverable amount of the CGU is determined from a value in use calculation. The key assumptions to which the value in use calculation is most sensitive are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre‑tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to exceed its recoverable amount.

The group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years. The rate used to discount the forecast cash flows from the group’s printheads and related products activities is 12%. This rate reflects management’s estimate of return on capital employed. The growth rate used is 10%, which does not exceed the average long term growth rate for the relevant markets.

Having performed impairment testing, no impairment has been identified, and therefore no impairment loss has been recognised in either period.

14. Other intangible assets Internally‑ generated Other product product development development Licences costs costs acquired Software Total £’000 £’000 £’000 £’000 £’000Cost At January 2006 2,974 812 533 486 4,805Additions 1,591 2,120 — 331 4,042At 1 January 2007 4,565 2,932 533 817 8,847Additions — 1,100 — 484 1,584At 31 December 2007 4,565 4,032 533 1,301 10,431Amortisation At January 2006 103 306 302 321 1,032Charge for the year 461 154 59 111 785At 1 January 2007 564 460 361 432 1,817Charge for the year 1,038 — 58 224 1,320At 31 December 2007 1,602 460 419 656 3,137Carrying amount At 31 December 2007 2,963 3,572 114 645 7,294At 31 December 2006 4,001 2,472 172 385 7,030The amortisation period for software and development costs incurred on the group’s product development is three years.

Internally‑generated product development costs relate to the Platform 2 and Platform 3 ranges of printheads. The amortisation periods of these costs are three years and five years respectively.

Licences acquired are amortised over their estimated useful lives, which is on average nine years.

At 31 December 2007 the group had entered into contractual commitments for the acquisition of other product development costs amounting to £817,000 (2006: £1,030,000).


15. Property, plant and equipment Furniture, Assets in the Leasehold Plant and fittings and course of Motor property machinery equipment construction vehicles Total £’000 £’000 £’000 £’000 £’000 £’000Cost At 1 January 2006 2,326 13,157 1,378 1,862 14 18,737Additions 6 1,380 99 6,069 — 7,554Transfers 150 480 — (630) — —Exchange movements 23 162 5 1 — 191Disposals (23) (138) (36) — — (197)At 1 January 2007 2,482 15,041 1,446 7,302 14 26,285Additions 8 1,246 102 1,307 — 2,663Transfers 124 6,020 37 (6,181) — —Exchange movements 64 381 14 78 — 537Disposals — (11) — (4) — (15)At 31 December 2007 2,678 22,677 1,599 2,502 14 29,470Depreciation At 1 January 2006 1,396 9,823 1,068 — 14 12,301Charge for the year 319 1,531 148 — — 1,998Exchange movements 17 109 5 — — 131Disposals — (118) (17) — — (135)At 1 January 2007 1,732 11,345 1,204 — 14 14,295Charge for the year 321 2,376 198 — — 2,895Exchange movements 59 361 14 — — 434Disposals — (3) — — — (3)At 31 December 2007 2,112 14,079 1,416 — 14 17,621Carrying amount At 31 December 2007 566 8,598 183 2,502 — 11,849At 31 December 2006 750 3,696 242 7,302 — 11,990Leased assets included in the above: Carrying amount At 31 December 2007 — 108 1 — — 109At 31 December 2006 — 549 1 — — 550At 31 December 2007 the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £896,000 (2006: £138,000).

16. SubsidiariesA list of the investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in Note 10 to the company’s separate financial statements.

17. Investments 2007 2006 £’000 £’000Trading investmentsAt beginning of year 1,931 1,377Additions 89 554At end of year 2,020 1,931These unquoted investments represent investments in companies that present the group with opportunity for return through trading gains.

18. Inventories 2007 2006 £’000 £’000Raw materials and consumables 2,408 1,703Work in progress 593 543Finished goods 1,136 1,444 4,137 3,690



for the year ended 31 December 200719. Other financial assetsThe fair value of all financial assets and financial liabilities approximates their carrying value.

Trade and other receivables 2007 2006 £’000 £’000Amount receivable for the sale of goods 6,678 4,293Allowance for doubtful debts (560) (615) 6,118 3,678Other debtors 717 992Prepayments 1,676 1,465 8,511 6,135

Trade receivablesThe average credit period taken on sales of goods is 47 days (2006: 32 days). No interest is charged on the receivables for the period agreed in the Requirements Contract or, if not specified or applicable, the first 30 days from the date of the invoice. Thereafter, the group reserves the right to charge interest at a daily rate of the greater of either 3% per annum above the base rate of Barclays Bank plc from time to time, or the maximum rate of interest allowable under the Late Payment of Commercial Debts (Interest) Act 1998, on all sums outstanding until payment in full is received. The group has provided fully for all receivables over 120 days because historical experience is such that receivables that are past due beyond 120 days are generally not recoverable. Trade receivables between 30 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Before accepting any new customer, the group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Credit limits are reviewed at least once per year. Of the trade receivables balance at the end of the year, £3.6m (2006: £1.4m) is due from customers representing 33% (2006: 20%) of the group’s revenue. There are no other customers who represent more than 5% of the total balance of trade receivables.

Included in the group’s trade receivables balance are debtors with a carrying amount of £2.5m (2006: £1.2m) which are past due at the reporting date for which the group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. Of these amounts, the group is in possession of letters of credit to the value of £0.5m (2006: £0.2m) which had not reached maturity as at the reporting date. The group does not hold any other collateral over these balances. The average age of these receivables is 24 days (2006: 31 days).

Ageing of past due but not impaired receivables: 2007 2006 £’000 £’0000–30 days overdue 1,811 84230–60 days overdue 708 23260–90 days overdue 12 12290–120 days overdue — 53Total 2,531 1,249

Movement in the allowance for doubtful debts: 2007 2006 £’000 £’000Balance at the beginning of the period (615) (450)Impairment losses recognised (183) (765)Amounts written off as uncollectible 238 600Balance at the end of the period (560) (615)In determining the recoverability of a trade receivable the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

Ageing of impaired trade receivables: 2007 2006 £’000 £’00030–60 days 5 2160–90 days 30 1690–120 days 1 14120+ days 524 564Total 560 615The directors consider that the carrying amount of trade and other receivables approximates their fair value.


19. Other financial assetsCash and cash equivalentsCash and cash equivalents comprise cash held by the group and short‑term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.

The analysis of cash and short‑term bank deposits is as follows: 2007 2006 £’000 £’000Cash 12,036 12,438Short‑term deposits 1,000 — 13,036 12,438The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit‑ratings assigned by international credit‑rating agencies.

20. Financial instrumentsFinancial risk management objectivesThe group’s policy is to manage the group’s financial risk, secure cost‑effective funding for the group’s operations and to minimise the adverse effects of fluctuations in the financial markets on the value of the group’s financial assets and liabilities, on reported profitability and on the cash flows of the group.

The group finances its activities with a combination of bank loans, finance leases, cash and short‑term deposits. Other financial assets and liabilities, such as trade debtors and trade creditors, arise directly from the group’s operating activities. The group also enters into derivative transactions – forward currency contracts. The purpose is to manage the currency risks arising from the group’s operations. It is and has been throughout 2007 and 2006 the group’s policy that no trading in derivatives shall be undertaken.

Financial instruments give rise to foreign currency, interest rate, credit and liquidity risk. The group’s management of its exposure to credit risk is discussed in Note 19 and to liquidity risk is discussed in Note 24.

Interest rate riskThe group’s policy is to manage its cost of borrowing using fixed rate debt. Whilst fixed rate interest bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the group to enjoy a reduction in borrowing costs in markets where rates are falling. In addition, the fair value risk inherent in fixed rate borrowing means that the group is exposed to unplanned costs should debt be restructured or repaid early as part of the liquidity management process.

Foreign currency riskThe group has a manufacturing facility in Sweden which necessitates the need for the group to convert sterling into Swedish kronor in order to fund the running costs of this manufacturing facility. The group therefore enters into a variety of derivative financial instruments to manage its exposure to foreign currency risk.

The following table demonstrates the group’s sensitivity to a 10% increase and decrease in the sterling exchange rate against the relevant foreign currencies on the group’s profit before tax (due to changes in the fair value of monetary assets, liabilities and forward currency contracts). There is no impact on the group’s equity. 10% represents management’s assessment of the reasonably possible movement in exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes intercompany balances within the group where the denomination of the balance is in a currency other than the functional currency of the debtor or the creditor. A positive number below indicates an increase in profit. 10% increase 10% decrease 10% increase 10% decrease in rate in rate in rate in rate 2007 2007 2006 2006 £’000 £’000 £’000 £’000US dollar (155) 190 (95) 117Euro (43) 53 (47) 57Swedish kronor (403) 493 329 (403)In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year. The group’s sensitivity to foreign currency has decreased mainly due a change in strategy in Q3 2006 from selling to our Chinese customers in US dollars to selling in sterling.



for the year ended 31 December 200720. Financial instrumentsForward foreign exchange contractsThe group utilises currency derivatives to hedge significant future transactions and cash flows. The group is party to a variety of foreign currency forward contracts and options in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the group’s principal markets.

At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the group has committed are as below: 2007 2006 SEK’000 SEK’000Forward foreign exchange contracts 160,000 —At 31 December 2007, the fair value of the group’s currency derivatives is £261,000 (2006: £nil). The movement in the fair value of the group’s currency derivatives, amounting to £261,000 in the year, is booked through the income statement (cost of sales). These forward currency contracts all mature prior to September 2008.

The group does not currently designate its foreign currency denominated debt as a hedging instrument for the purpose of hedging the translation of its foreign operations.

Capital risk managementThe primary objective of the group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business, maximise shareholder value and provide flexibility for value‑enhancing investments. The group manages its capital structure and makes adjustments to it in light of changes in economic conditions or as a result of corporate strategy. To maintain or adjust the capital structure, the group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. In addition, any potential value‑enhancing investments may be funded through additional debt instruments. No changes were made in the objectives, policies or processes during the current or prior year.

The group monitors capital using a gearing ratio, which is determined as the proportion of debt to equity. Debt is defined as long‑ and short‑term borrowings, including obligations under finance leases as detailed in Notes 24 and 22. Equity includes all capital and reserves of the group attributable to the equity holders of the parent. The group’s policy for its existing business is to use debt where appropriate, whilst maintaining the gearing ratio at a level under 10%.

The gearing ratio at the year end is as follows: 2007 2006 £’000 £’000Bank loans (849) (1,050)Obligations under finance leases and hire purchase contracts (245) (735)Net debt (1,094) (1,785)Equity 37,096 33,253Gearing ratio 3% 5%The group is not subject to externally imposed capital requirements.

21. Deferred taxThe following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior reporting period. Other Accelerated tax Cashflow Share‑based Untaxed Tax temporary depreciation hedges payment reserves losses difference Total £’000 £’000 £’000 £’000 £’000 £’000 £’000At 1 January 2006 (268) (360) (1,471) 1,095 (1,102) 136 (1,970)Charge/(credit) to income 587 — 204 (1) 380 637 1,807Charge to equity — 360 55 — — — 415At 1 January 2007 319 — (1,212) 1,094 (722) 773 252Charge/(credit) to income 111 — (286) (124) 646 (302) 45Debit to current tax — — 445 — — — 445Charge to equity 10 — 643 93 — — 746At 31 December 2007 440 — (410) 1,063 (76) 471 1,488


21. Deferred taxCertain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: 2007 2006 £’000 £’000Deferred tax liabilities 1,810 1,635Deferred tax assets (322) (1,383) 1,488 252At the balance sheet date, the group has unused tax losses of £271,000 (2006: £2,408,000) available for offset against future profits.

A deferred tax asset has been recognised in respect of £76,000 (2006: £722,000) of such losses, on the basis that those entities in which the losses reside will be profitable in the future.

At 31 December 2007, the aggregate amount of temporary differences associated with the undistributed earnings of overseas subsidiaries for which deferred tax liabilities have not been recognised was £20,927,000 (2006: £15,595,000). No liability has been recognised in respect of these differences because the group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.

22. Obligations under finance leases Minimum lease payments 2007 2006 £’000 £’000Amounts payable under finance leases: Within one year 245 468In the second to fifth years inclusive — 267 245 735Less: amount due for settlement within twelve months (shown under current liabilities) (245) (468)Amount due for settlement after twelve months — 267The amounts included above are not considered to be materially different from the present value of minimum lease payments.

It is the group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is five years. For the year ended 31 December 2007 the average effective borrowing rate was 6.1% (2006: 6.1%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

All lease obligations as at 31 December 2007 are denominated in Swedish kronor.

The fair value of the group’s lease obligations approximates their carrying amount.

The group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.

23. Trade and other payables 2007 2006 £’000 £’000Trade creditors and accruals 6,711 7,928Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit taken for trade purchases is 36 days (2006: 34 days).

The directors consider that the carrying amount of trade payables approximates to their fair value.



for the year ended 31 December 200724. Other financial liabilitiesOther financial liabilities consist of a sterling loan of £849,000 (2006: £1,050,000).

The borrowings are repayable as follows: 2007 2006 £’000 £’000Within one year 198 185In the second year 210 197In the third to fifth years inclusive 441 668 849 1,050Less: amount due for settlement within twelve months (shown under current liabilities) (198) (185)Amount due for settlement after twelve months 651 865The amounts included above are not considered to be materially different from the present value of the loan repayments.

This loan was arranged at a fixed interest rate and exposes the group to fair value interest rate risk. The directors estimate that the fair value of the group’s borrowings is not materially different from the amounts disclosed above.

The loan was taken out on 29 December 2006. Repayments commenced on 8 January 2007 and will continue until 30 November 2011, with repayments being made in 60 equal monthly instalments. The loan is secured by a charge over certain of the group’s capital equipment. The loan carries fixed interest rate at 6.2% per annum.

The group had undrawn committed borrowing facilities at 31 December 2007 of £2.0m (2006: £2.0m) in respect of which all conditions precedent had been met. The facility is scheduled for review by 2 May 2008.

Liquidity riskThe group aims to mitigate liquidity risk by managing cash generation by its operations, and applying cash collection targets throughout the group. Investment is carefully controlled, with authorisation limits operating up to group board level and cash payback periods applied as part of the investment appraisal process. In this way the group aims to maintain a good credit rating to facilitate fund raising.

In its funding strategy, the group’s objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, bank loans, finance leases and hire purchase contracts. The group’s policy is that not more than 25% of borrowings should mature in any twelve month period.

Excess cash used in managing liquidity is only invested in financial instruments exposed to insignificant risk of changes in market value, being placed on interest‑bearing deposit with maturities fixed at no more than three months. Short term flexibility is achieved by overdraft facilities.

The group is inherently a net generator of cash at the operating level. During the year, the group completed the significant capital investment programme in the new manufacturing facility in Huntingdon, and as a result has now entered a phase of reducing borrowings and increasing cash generation throughout 2008 and beyond.

25. Provisions Warranty provision £’000 At 1 January 2007 209Additional provision in the year 100Utilisation of provision (116)At 31 December 2007 193The warranty provision represents management’s best estimate of the group’s liability under twelve month warranties granted on printheads, based on past experience of returns for defective products.


26. Share capital 2007 2006 £’000 £’000Authorised: 70,000,000 ordinary shares of 10.0p each 7,000 7,000Issued and fully paid: 62,854,664 (2006: 62,011,567) ordinary shares of 10.0p each 6,285 6,201

The movement during the year on the company’s issued and fully paid shares was as follows: 2007 2007 2006 Number £’000 £’000At beginning of year 62,011,567 6,201 6,115Exercise of share options 843,097 84 86At end of year 62,854,664 6,285 6,201The company has one class of ordinary shares which carry no right to fixed income.

Options have been granted under separate share option schemes to subscribe for ordinary shares of the company as follows: Number of Subscription shares under price per Scheme Date of grant option shareXaar plc 1997 Share Option Scheme 20.10.99 20,000 115.0p 18.04.00 50,000 279.0p 16.02.01 10,000 160.0p 21.05.02 250,000 71.5p 12.06.02 100,000 68.5p 19.11.02 40,000 25.0p 06.10.03 400,000 36.0p 870,000 Xaar plc 2004 Share Option Plan 20.05.04 335,000 84.0p 28.10.04 290,000 109.0p 15.03.05 119,791 192.0p 13.04.05 82,962 208.5p 15.09.05 538,356 274.0p 03.04.06 248,788 294.0p 09.10.06 515,000 169.0p 19.02.07 25,000 237.0p 17.04.07 45,000 242.0p 23.10.07 280,000 202.0p 2,479,897 Xaar plc Share Save Scheme 01.11.04 11,711 99.0p 01.08.07 136,847 191.0p 148,558 Options granted outside the 1997, 2004 and Share Save Schemes 15.03.05 130,209 192.0pTotal share options outstanding at 31 December 2007 3,628,664 Options under the Xaar plc 1997 Share Option Scheme are exercisable within three to seven years after the date of the grant, except that approved options and unapproved options granted after 27 March 2001 are exercisable within three to ten years after the date of the grant. Options granted under the Xaar plc 2004 Share Option Plan are exercisable within three to ten years after the date of the grant. The maximum value of approved options, under the Xaar plc 1997 Share Option Scheme and the Xaar plc 2004 Share Option Plan, which may be granted to individual employees is £30,000. Options granted outside the 1997, 2004 and Share Save Schemes are exercisable within three to ten years after the date of grant.

Options under the Xaar plc Share Save Scheme are exercisable between 36 and 42 months after the date of the grant.

Performance share awards have been made under the Xaar plc 2007 Long Term Incentive Plan as follows: Number Date of grant of shares10.05.07 265,77726.09.07 55,000 320,777All awards under this scheme have a fixed term of three years.



for the year ended 31 December 200727. Share premium account £’000 Balance at 1 January 2007 9,669Premium arising on issue of equity shares 477Balance at 31 December 2007 10,146

28. Own shares £’000Balance at 1 January 2007 (3,420)Acquired in the period (1,045)Balance at 31 December 2007 (4,465)Of this balance, £20,000 (2006: £20,000) represents 91,250 ordinary shares in Xaar plc held in trust by Xaar Trustee Ltd. Xaar Trustee Ltd was formed in 1995 to act as trustee to the Employee Benefit Trust established in 1995 to hold shares for the benefit of the employees of the company and the group. There has been no movement in the number of shares held in trust by Xaar Trustee Ltd during the year.

The remaining balance of £4,445,000 (2006: £3,400,000) represents the cost of 1,617,004 (2006: 1,205,504) shares in Xaar plc purchased in the market at market value and held by the Xaar plc ESOP trust to satisfy options granted under the company’s share option schemes.

The market value of own shares at 31 December 2007 was £2,964,000 (2006: £3,115,000).

29. Translation reserves Hedging Translation reserve reserve Total £’000 £’000 £’000Balance at 1 January 2006 (837) 706 (131)Exchange differences on translation of overseas operations — (113) (113)Decrease in fair value of hedging derivatives 1,197 — 1,197Deferred tax asset recognised (360) — (360)Balance at 1 January 2007 — 593 593Exchange differences on translation of overseas operations — (64) (64)Balance at 31 December 2007 — 529 529The hedging reserve at the balance sheet date represents the market value of the group’s foreign currency hedges at that date. The translation reserve represents the foreign exchange difference arising on the translation of subsidiary company results prepared in a currency other than sterling.

30. Retained earnings and other reserves Merger Share‑based Other Total other Retained reserve payments reserves reserves earnings Total £’000 £’000 £’000 £’000 £’000 £’000Balance at 1 January 2006 1,105 796 485 2,386 13,227 15,613Net profit for the year — — — — 4,844 4,844Dividends paid — — — — (903) (903)Deferred tax asset taken directly to equity — — — — (55) (55)Movement in valuation of share options — 711 — 711 — 711Balance at 1 January 2007 1,105 1,507 485 3,097 17,113 20,210Net profit for the year — — — — 5,401 5,401Dividends paid — — — — (1,218) (1,218)Deferred tax asset taken directly to equity — — — — (746) (746)Movement in valuation of share options — 954 — 954 — 954Balance at 31 December 2007 1,105 2,461 485 4,051 20,550 24,601The merger reserve and other reserves are not distributable. The merger reserve represents the share premium account in Xaar Technology Limited. The share‑based payment reserve represents the movement in valuation of share options and other reserves represent the non‑distributable portion of the dividend received in Xaar plc from Xaar Digital Ltd.


31. Notes to the cash flow statement 2007 2006 £’000 £’000Profit before tax 7,321 6,912Adjustments for: Share‑based payments 954 711Depreciation of property, plant and equipment 2,895 1,998Amortisation of intangible assets 1,320 785Loss on disposal of property, plant and equipment 12 15(Decrease)/increase in provisions (16) 89Operating cash flows before movements in working capital 12,486 10,510Increase in inventories (319) (814)(Increase)/decrease in receivables (2,645) 1,944(Decrease)/increase in payables (16) 78Cash generated by operations 9,506 11,718Income taxes paid (941) (2,576)Net cash from operating activities 8,565 9,142Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.

32. Operating lease arrangements 2007 2006 £’000 £’000Minimum lease payments under operating leases recognised in income for the year: Fixtures, fittings and equipment 154 90Land and buildings 1,315 1,227 1,469 1,317

At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non‑cancellable operating leases, which fall due as follows: Fixtures, fittings and equipment Land and buildings 2007 2006 2007 2006 £’000 £’000 £’000 £’000Within one year 111 128 1,315 1,291In the second to fifth years inclusive 65 115 2,790 3,435After five years — — 2,535 3,147 176 243 6,640 7,873The operating leases in respect of fixtures, fittings and equipment extend over a period of up to three years.



for the year ended 31 December 200733. Share‑based paymentsEquity‑settled share option schemeThe company’s share option schemes are open to all employees of the group. Options are exercisable at a price equal to the average quoted market price of the company’s shares on the date of grant. The vesting period is three years. The vesting criteria of these options are disclosed in the directors’ remuneration report on pages 26 to 31. If the options remain unexercised after a period of ten years from the date of grant, or 42 months in the case of the Share Save Scheme, the options expire. Save as permitted in the share option scheme rules options lapse on an employee leaving the group.

Details of the share options outstanding during the year are as follows: 2007 2006 Weighted Weighted Number average Number average of share exercise of share exercise options price (£) options price (£)Outstanding at beginning of period 4,077,822 1.39 4,581,492 1.17Adjustment to options outstanding at beginning of period* — — (265,779) 2.73Granted during the period 501,847 2.04 800,885 2.08Lapsed during the period (107,908) 1.87 (173,490) 1.49Exercised during the period (843,097) 0.67 (865,286) 0.44Outstanding at the end of the period 3,628,664 1.63 4,077,822 1.39Exercisable at the end of the period 1,506,711 0.79 1,263,800 0.63* This adjustment corrects a misstatement in the number of options reported as granted in 2005.

The weighted average share price at the date of exercise for share options exercised during the period was £2.31. The options outstanding at 31 December 2007 had a weighted average remaining contractual life of seven years. In 2007, options were granted on 19 February, 17 April, 23 October and 1 August. The aggregate of the estimated fair values of the options granted on those dates is £0.5m. In 2006, options were granted on 3 April and 9 October. The aggregate of the estimated fair values of the options granted on those dates is £0.8m.

The performance conditions relating to the above share options are given on page 27.

The inputs into the Black‑Scholes model are as follows: 2007 2006Weighted average share price £1.28 £2.07Weighted average exercise price £1.25 £2.08Expected volatility 52% 40%Expected life 6.1 years 6.5 yearsRisk free rate 4.8% 4.8%Expected dividends 0.2% 0.1%Expected volatility was determined by calculating the historical volatility of the group’s share price over periods ranging from the previous one to three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non‑transferability, exercise restrictions and behavioural considerations.

Long Term Incentive PlanThe company’s Long Term Incentive Plan is open to all employees of the group. Vesting of performance share awards made under this scheme is conditional upon the achievement of two separate performance conditions. Full details of the performance conditions are shown on page 31. All awards made under this scheme have a fixed term of three years. Save as permitted in the Long Term Incentive Plan rules, awards lapse on an employee leaving the group.

Details of performance share awards outstanding during the year are as follows: 2007 2006Awards outstanding at start of period — —Granted during the year 320,777 —Awards outstanding at end of period 320,777 —In 2007, performance share awards were made on 10 May and 26 September. The aggregate of the estimated fair values of grants made on those dates is £0.2m. No awards were made in 2006.

The estimated fair values were calculated using a stochastic (Monte‑Carlo binomial) model. The inputs to the model were as follows: 2007 2006Weighted average exercise price £nil —Expected volatility 46.8% —Expected life 3 years —Expected dividend yield 0.8% —The group recognised total expenses of £1.0m (2006: £0.7m) related to share‑based payment transactions in the year.


34. Retirement benefit schemesDefined contribution schemesThe UK based employees of the group’s UK companies have the option to be members of a defined contribution pension scheme managed by a third party pension provider. For each employee who is a member of the scheme the company will contribute a fixed percentage of each employee’s salary to the scheme. The only obligation of the group with respect to this scheme is to make the specified contributions.

The employees of the group’s subsidiaries in Sweden are members of a state‑managed retirement benefit scheme operated by the government of Sweden. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to the income statement in respect of these schemes during 2007 was £654,000 (2006: £506,000). As at 31 December 2007 contributions of £42,000 (2006: £35,000) due in respect of the current reporting period had not been paid over to the schemes.

35. Related party transactionsTransactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

There were no transactions during the year with related parties who are not members of the group.

Remuneration of key management personnelThe remuneration of the executive team, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 “Related Party Disclosures”. Further information about the remuneration of individual directors is provided in the audited part of the directors’ remuneration report on pages 29 to 31. 2007 2006 £’000 £’000Short term employee benefits 883 992Post‑employment benefits 73 83Share‑based payments 557 321 1,513 1,396


independent auditor’s report (company)

to the members of Xaar plcWe have audited the parent company financial statements of Xaar plc for the year ended 31 December 2007 which comprise the company balance sheet and the related Notes 1 to 10. These parent company financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the directors’ remuneration report that is described as having been audited.

We have reported separately on the group financial statements of Xaar plc for the year ended 31 December 2007.

This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorThe directors’ responsibilities for preparing the annual report, the directors’ remuneration report and the parent company financial statements in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities.

Our responsibility is to audit the parent company financial statements and the part of the directors’ remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the parent company directors’ report is consistent with the financial statements.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the annual report and consider whether it is consistent with the audited parent company financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements and the part of the directors’ remuneration report to be audited.

OpinionIn our opinion:

• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2007;

• the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the directors’ report is consistent with the parent company financial statements.

Ernst & Young LLPRegistered auditorCambridge12 March 2008


company balance sheet (uK gaap)

as at 31 December 2007 2007 2006 Notes £’000 £’000

Fixed assets Investments in subsidiaries 3 12,445 12,445Trade investments 3 2,020 1,931

14,465 14,376Current assets Debtors – due within one year 4 11,297 5,123Debtors – due after one year 4 11,325 11,325Cash at bank and in hand 8,363 11,095

30,985 27,543Creditors: amounts falling due within one year 5 (497) (1,107)

Net current assets 30,488 26,436

Creditors: amounts falling due after more than one year 5 (651) (865)

Net assets 44,302 39,947

Capital and reserves Called‑up share capital 6 6,285 6,201Share premium account 6 10,146 9,669Other reserves 6 25,333 25,333Own shares 6 (4,445) (3,400)Share‑based payment reserve 6 1,748 1,507Profit and loss account 6 5,235 637

Equity shareholders’ funds 8 44,302 39,947

The financial statements were approved by the board of directors on 12 March 2008 and signed on its behalf by:

Ian Dinwoodie nigel BerryDirector Director12 March 2008

The accompanying Notes are an integral part of this balance sheet.


notes to the (uK gaap) company balance sheet

for the year ended 31 December 20071. Significant accounting policiesBasis of accounting The separate financial statements of the company are presented as required by the Companies Act 1985. They have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law.

The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the proceeding year.

Own sharesOwn shares are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the company’s own shares.

Share‑based paymentsThe company has applied the requirements of FRS 20 “Share‑based payment”. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.

The company issues equity‑settled share‑based payments to certain employees. These payments are measured at fair value (excluding the effect of non market‑based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity‑settled share‑based payments is expensed on a straight‑line basis over the vesting period, based on the company’s estimate of the shares that will eventually vest and adjusted for the effect of non market‑based vesting conditions.

The fair value of options issued under the company’s Long Term Incentive Plan is measured using a stochastic (Monte‑Carlo binominal) model. The fair value of all other equity‑settled share‑based payments is measured using the Black‑Scholes pricing model. The expected life used in these models has been adjusted, based on management’s best estimate, for the effects of non‑transferability, exercise restrictions and behavioural considerations.

TaxationCurrent tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when the timing differences crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets and liabilities are not discounted.

Investments Fixed asset investments in subsidiaries are shown at cost less provision for impairment.

For investments in subsidiaries acquired for consideration, including the issue of shares qualifying for merger relief, cost is measured by reference to the nominal value only of the shares issued. Any premium is ignored.

2. Profit for the yearAs permitted by section 230 of the Companies Act 1985 the company has elected not to present its own profit and loss account for the year. Xaar plc reported a profit for the financial year ended 31 December 2007 of £818,000 (2006: £24,000).

The average number of employees throughout 2007 was 19 (2006: 18). Staff costs amounted to £1.5m (2006: £1.5m). Information about the remuneration of directors is provided in the audited part of the directors’ remuneration report on pages 29 to 31 of the consolidated financial statements.

The audit fee for the company in 2007 was £17,000 (2006: £17,000).

3. Fixed asset investments 2007 2006 £’000 £’000Subsidiary undertakings At beginning of year 12,445 12,450Disposals — (5)At end of year 12,445 12,445Trade investments At beginning of year 1,931 1,377Investments purchased in the year 89 554At end of year 2,020 1,931


4. Debtors 2007 2006 £’000 £’000Amounts receivable within one year Amounts owed by group undertakings 11,243 5,067Prepayments and accrued income 45 32VAT 9 24 11,297 5,123Amounts receivable after more than one year Amounts owed by group undertakings 11,325 11,325 22,622 16,448Amounts receivable after more than one year are in respect of a five year loan note granted to Xaar Digital Ltd, which can be repaid early at the option of Xaar Digital Ltd.

5. Creditors 2007 2006 £’000 £’000Amounts falling due within one year Trade creditors 63 136Accruals 236 786Financial liabilities 198 185 497 1,107Amounts falling due after more than one year Financial liabilities 651 865 1,148 1,972For additional disclosures relating to financial liabilities, see Note 24 in the consolidated financial statements.

6. Capital and reserves Called‑up Share share premium Other Own Share‑based Profit and capital account reserves shares payments loss account Total £’000 £’000 £’000 £’000 £’000 £’000 £’000At 1 January 2006 6,115 9,376 25,333 (3,400) 796 516 38,736New shares issued 86 293 — — — — 379Dividends paid — — — — — (903) (903)Profit for the financial year — — — — — 1,024 1,024Share‑based payments — — — — 711 — 711At 1 January 2007 6,201 9,669 25,333 (3,400) 1,507 637 39,947New shares issued 84 477 — — — — 561Own shares acquired — — — (1,045) — — (1,045)Dividends paid — — — — — (1,220) (1,220)Profit for the financial year — — — — — 5,818 5,818Share‑based payments — — — — 241 — 241At 31 December 2007 6,285 10,146 25,333 (4,445) 1,748 5,235 44,302Full details of movements in share capital and the share option schemes are given in Note 26 to the consolidated financial statements. The share premium account and other reserves are non‑distributable.


notes to the (uK gaap) company balance sheet

for the year ended 31 December 20077. Dividends 2007 2006 £’000 £’000Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2006 of 2.0p (2005: 1.5p) per share 1,220 903Proposed final dividend for the year ended 31 December 2007 of 2.5p (2006: 2.0p) per share 1,571 1,240The proposed final dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

8. Reconciliation of movements in shareholders’ funds 2007 2006 £’000 £’000Profit for the financial year 5,818 1,024Share‑based payments 241 711Dividends paid (1,220) (903)New shares issued 561 379Own shares acquired (1,045) —Net addition to shareholders’ funds 4,355 1,211Opening shareholders’ funds 39,947 38,736Closing shareholders’ funds 44,302 39,947

9. Share‑based paymentsEquity‑settled share option schemeThe company’s share option schemes are open to all employees of the company. Options are exercisable at a price equal to the average quoted market price of the company’s shares on the date of grant. The vesting period is three years. The vesting criteria of these options are disclosed in the directors’ remuneration report in the consolidated financial statements on pages 26 to 31. If the options remain unexercised after a period of ten years from the date of grant, or 42 months in the case of the Share Save Scheme, the options expire. Save as permitted in the share option scheme rules, options lapse on an employee leaving the company.

Details of the share options outstanding during the year are as follows: 2007 2006 Weighted Weighted Number average Number average of share exercise of share exercise options price (£) options price (£)Outstanding at beginning of period 1,745,390 1.22 1,613,639 1.03Granted during the period 56,740 1.96 218,267 2.37Lapsed during the period (1,214) 0.99 (17,070) 1.76Exercised during the period (74,929) 0.38 (69,446) 0.29Outstanding at the end of the period 1,725,987 1.28 1,745,390 1.22Exercisable at the end of the period 1,149,247 0.65 829,637 0.50The weighted average share price at the date of exercise for share options exercised during the period was £2.28. The options outstanding at 31 December 2007 had a weighted average remaining contractual life of six years. In 2007, options were granted on 23 October and 1 August. The aggregate of the estimated fair values of the options granted on those dates is £61,000. In 2006, options were granted on 3 April and 9 October. The aggregate of the estimated fair values of the options granted on those dates is £230,000.

The performance conditions relating to the above share options are given on page 27 of the group financial statements.

The inputs into the Black‑Scholes model are as follows: 2007 2006Weighted average share price £1.29 £1.25Weighted average exercise price £1.27 £1.24Expected volatility 52% 40%Expected life 6.1 years 6.2 yearsRisk free rate 4.8% 4.8%Expected dividends 0.2% 0.1%Expected volatility was determined by calculating the historical volatility of the company’s share price over periods ranging from the previous one to three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non‑transferability, exercise restrictions and behavioural considerations.


9. Share‑based paymentsLong Term Incentive PlanThe company’s Long Term Incentive Plan is open to all employees of the company. Vesting of performance share awards made under this scheme is conditional upon the achievement of two separate performance conditions. Full details of the performance conditions are shown on page 31 of the group financial statements. All awards made under this scheme have a fixed term of three years. Save as permitted in the Long Term Incentive Plan rules, awards lapse on an employee leaving the company.

Details of performance share awards outstanding during the year are as follows: 2007 2006Awards outstanding at start of period — —Granted during the year 164,277 —Awards outstanding at end of period 164,277 —In 2007, performance share awards were made on 10 May and 26 September. The aggregate of the estimated fair values of grants made on those dates is £0.4m. No awards were made in 2006.

The estimated fair values were calculated using a stochastic (Monte‑Carlo binomial) model. The inputs to the model were as follows: 2007 2006Weighted average exercise price £nil —Expected volatility 46.8% —Expected life 3 years —Expected dividend yield 0.8% —The company recognised total expenses of £0.2m (2006: £0.7m) related to share‑based payment transactions in the year.

10. Subsidiary undertakingsThe following entities are wholly‑owned subsidiary undertakings of the company: Issued and fully paid up Proportion of ordinary share Name and country of incorporation Principal activity share capital capital held by the companyXaar Technology LimitedEngland Research and development 4,445,322 ordinary £1 shares 100%XaarJet Limited Manufacturing, research andEngland development and sales and marketing 2 ordinary £1 shares 100%XaarJet (Overseas) LimitedEngland Sales and marketing 1 ordinary £1 share 100%Xaar Trustee Limited1

England Trustee 2 ordinary £1 shares 100%Xaar Digital LimitedEngland Treasury 1 ordinary £1 share 100%Xaar Group ABSweden Holding company 1,137,000 ordinary shares of SEK 100 each 100%XaarJet AB2

Sweden Manufacturing 1,000 ordinary shares of SEK 100 each 100%Xaar Americas Inc.USA Sales and marketing 10,000 shares of common stock US$1 each 100%1. Xaar Trustee Limited shares are held by Xaar Technology Limited.

2. XaarJet AB shares are held by Xaar Group AB.


five year record

2007 2006 2005 2004 2003 £’000 £’000 £’000 £’000 £’000 IFRS IFRS IFRS IFRS UK GAAP

Summarised consolidated results Results Turnover 47,853 42,207 42,772 34,812 29,230 Gross profit 24,928 24,111 26,649 19,734 13,475 Operating profit/(loss) 6,993 6,577 10,479 6,294 (1,300) Abortive deal costs — (298) — — — Foreign exchange (loss)/gain on inter‑company loan — — (977) (231) 1,791 Net interest 328 335 513 206 (45) Taxation (1,920) (2,068) (2,966) (1,658) 501 Dividends (1,218) (903) (604) — —Basic earnings per share 8.6p 7.9p 11.6p 7.7p 1.6p Assets employed Property, plant and equipment 11,849 11,990 6,436 5,624 6,090 Cash and cash equivalents 13,036 12,438 14,395 15,316 8,458 Net current assets 17,352 12,966 13,693 15,295 11,506 Financed by Shareholders’ funds: all equity 37,096 33,253 27,553 23,254 16,994

The amounts disclosed for 2003 are stated on the basis of UK GAAP because it is not practicable to restate amounts for periods prior to the date of transition to IFRS.


notice of annual general meeting

Notice is hereby given that the eleventh AGM of Xaar plc (the “company”) will be held at The Trinity Centre, Science Park, Milton Road, Cambridge on 13 May 2008 at 10.30am for the following purposes:

Ordinary business1. To receive the company’s annual financial statements for the financial year ended 31 December 2007, together with the directors’ report,

the directors’ remuneration report, the independent auditor’s report on the auditable part of the directors’ remuneration report and the independent auditor’s report on those financial statements.

2. To reappoint Ernst & Young LLP as auditor to hold office from the conclusion of this meeting until the conclusion of the next general meeting of the company at which financial statements are laid and to authorise the directors to fix their remuneration.

3. To declare a final dividend for the financial year ended 31 December 2007 of 2.5p per ordinary share.

4. To reappoint as a director in accordance with the company’s Articles of Association J Scott, who is retiring by rotation.

5. To reappoint as a director in accordance with the company’s Articles of Association I Dinwoodie, who is retiring by rotation.

6. To reappoint P Lawler as a director who offers himself for reappointment at the first AGM after his appointment to the board.

7. To reappoint R Borrell as a director who offers himself for reappointment at the first AGM after his appointment to the board.

8. To reappoint G Lockett as a director who offers himself for reappointment at the first AGM after his appointment to the board.

9. To reappoint A Taylor as a director who offers himself for reappointment at the first AGM after his appointment to the board.

Special businessTo consider and, if thought fit, pass the following Resolutions which will be proposed in the case of Resolutions 10 and 12 as Ordinary Resolutions and in the case of Resolutions 11, 13, 14 and 15 as Special Resolutions:

10. T o approve the directors’ remuneration report in accordance with section 241a of the Companies Act 1985.

11. That the company be generally and unconditionally authorised to make one or more market purchases (within the meaning of s.163(3) of the Companies Act 1985) of ordinary shares of 10p in the capital of the company (“ordinary shares”) provided that:

• the maximum aggregate number of ordinary shares authorised to be purchased is 9,366,835 (representing 14.9% of the issued ordinary share capital);

• the minimum price which may be paid for an ordinary share is the par value of the shares;

• the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share as derived from The London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that ordinary share is purchased;

• this authority expires at the conclusion of the next Annual General Meeting of the company or within 15 months from the date of the passing of this Resolution whichever is earlier; and

• the company may make a contract to purchase ordinary shares under this authority before the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, and may make a purchase of ordinary shares in pursuance of any such contract.

12. That in substitution for all existing authorities the authority conferred on the directors by article 4(B) of the company’s Articles of Association be renewed for the period expiring 15 months after the date of the passing of this Resolution and for that period the ”section 80 amount” is £798,843. The company may, before the expiry of this authority, make an offer or agreement which would or might require equity or other relevant securities to be allotted after the expiry of this authority and the directors may allot equity or other relevant securities in pursuance of that offer or agreement as if the power conferred by this Resolution had not expired.

13. That subject to the passing of Resolution 12, the power conferred on the directors by article 4(C) of the company’s Articles of Association be renewed for the period expiring 15 months after the date of the passing of this Resolution and for that period the ”section 89 amount” is £310,058. The company may, before the expiry of this authority, make an offer or agreement which would or might require equity or other relevant securities to be allotted after the expiry of this authority and the directors may allot equity or other relevant securities in pursuance of that offer or agreement as if the power conferred by this Resolution had not expired.

14. That with effect from the date of the passing of this resolution the amendments to the Articles of Association of the company as set out in the report on the affairs of the group in the directors’ report be made.

15. That with effect from (and including) 1 October 2008, Article 104 of the Articles of Association of the company be amended by the insertion of paragraphs (H) to (K) as set out in the report on the affairs of the group in the directors’ report.

By order of the board

Andrew Taylor Secretary12 March 2008


notice of annual general meeting

Notes1. A member entitled to attend and vote at the meeting is also entitled to appoint one or more proxies to attend and, on a show of hands or on a poll,

vote instead of him. Where more than one proxy is appointed, each proxy must be appointed to exercise the rights attached to a different share or shares held by the appointing shareholder. The proxy need not be a member of the company.

2. Tobeeffective,theinstrumentappointingaproxyandanyauthorityunderwhichitisexecuted(oranotariallycertifiedcopyofsuchauthority)mustbedepositedattheofficeofthecompany’sregistrarsnotlessthan48hoursbeforethetimeforholdingthemeetingoradjournedmeeting.Aformofproxyis enclosed with this notice. Completion and return of the form of proxy will not preclude ordinary shareholders from attending and voting in person.

3. Anypersontowhomthisnoticeissentwhoisapersonnominatedundersection146oftheCompaniesAct2006toenjoyinformationrights(a“NominatedPerson”)may,underanagreementbetweenhim/herandtheshareholderbywhomhe/shewasnominated,havearighttobeappointed(ortohavesomeoneelseappointed)asaproxyfortheAGM.IfaNominatedPersonhasnosuchproxyappointmentrightordoesnotwishtoexerciseit,he/shemay, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.

4. Thestatementoftherightsofshareholdersinrelationtotheappointmentofproxiesinparagraphs1and2abovedoesnotapplytoNominatedPersons.The rights described in these paragraphs can only be exercised by shareholders of the company.

5. InaccordancewithRegulation41oftheUncertifiedSecuritiesRegulations2001,thecompanyspecifiesthatonlythosemembersenteredontheregisterofmembersofthecompanyasat10.30amon10May2007(orintheeventthemeetingisadjourned,ontheregisterofmembers48hoursbeforethetimeofanyadjournedmeeting)shallbeentitledtoattendorvoteatthemeetinginrespectofthenumberofsharesregisteredintheirnameatthattime.Changestoentriesontheregisterofmembersafter10.30amon10May2007(orintheeventthemeetingisadjourned,ontheregisterofmemberslessthan48hoursbeforethetimeofanyadjournedmeeting)shallbedisregardedindeterminingtherightsofanypersontoattendorvoteatthemeeting.

6. Copiesofdirectors’serviceagreements,thetermsofappointmentofnon‑executivedirectors,theregisterofdirectors’interests,theXaarplc2004ShareOptionPlan,theXaarplc2007ShareSavePlanandtheXaarplc2007LongTermIncentivePlankeptbythecompanyundersection325oftheCompaniesAct1985willbeavailable15minutespriortothecommencementofthemeetingandwillremainopenandaccessibleduringthe continuance of the meeting to any person attending the meeting.

7. Biographicaldetailsofalldirectorsofferingthemselvesforreappointmentaresetoutonpages14and15.

8. Shareholdersshouldnotethatitispossiblethat,pursuanttorequestsmadebyshareholdersofthecompanyundersection527oftheCompaniesAct2006,thecompanymayberequiredtopublishonawebsiteastatementsettingoutanymatterrelatingto:(i)theauditofthecompany’saccounts(includingtheauditor’sreportandtheconductoftheaudit)thataretobelaidbeforetheAnnualGeneralMeeting;or(ii)anycircumstanceconnectedwithanauditorofthecompanyceasingtoholdofficesincethepreviousmeetingatwhichannualaccountsandreportswerelaidinaccordancewithsection437oftheCompaniesAct2006.Thecompanymaynotrequiretheshareholdersrequestinganysuchwebsitepublicationtopayitsexpensesincomplyingwithsections527or528oftheCompaniesAct2006.Wherethecompanyisrequiredtoplaceastatementonawebsiteundersection527oftheCompaniesAct2006,itmustforwardthestatementtothecompany’sauditornotlaterthanthetimewhenitmakesthestatementavailableonthewebsite.ThebusinesswhichmaybedealtwithattheAnnualGeneralMeetingincludesanystatementthatthecompanyhasbeenrequiredundersection527oftheCompaniesAct2006topublishonawebsite.

9. Inordertofacilitatevotingbycorporaterepresentativesatthemeeting,arrangementswillbeputinplaceatthemeetingsothat(i)ifacorporateshareholderhas appointed the chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chairman and the chairmanwillvote(orwithholdavote)ascorporaterepresentativeinaccordancewiththosedirections;and(ii)ifmorethanonecorporaterepresentativefor the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to in the guidanceissuedbytheInstituteofCharteredSecretariesandAdministratorsonproxiesandcorporaterepresentatives(www.icsa.org.uk)forfurtherdetailsofthisprocedure.Theguidanceincludesasampleformofappointmentletterifthechairmanisbeingappointedasdescribedin(i)above.

10.CRESTmemberswhowishtoappointaproxyorproxiesthroughtheCRESTelectronicproxyappointmentservicemaydosobyusingtheproceduresdescribedintheCRESTManual.CRESTPersonalMembersorotherCRESTsponsoredmembers,andthoseCRESTmemberswhohaveappointedaserviceprovider(s),shouldrefertotheirCRESTsponsororvotingserviceprovider(s),whowillbeabletotaketheappropriateactionontheirbehalf.

11.InorderforaproxyappointmentorinstructionmadeusingtheCRESTservicetobevalid,theappropriateCRESTmessage(a“CRESTProxyInstruction”)mustbeproperlyauthenticatedinaccordancewithCRESTCo’sspecifications,andmustcontaintheinformationrequiredforsuchinstruction,asdescribedintheCRESTManual.Themessage,regardlessofwhetheritconstitutestheappointmentofaproxyorisanamendmenttotheinstructiongiventoapreviouslyappointedproxymust,inordertobevalid,betransmittedsoastobereceivedbytheissuer’sagent(IDRA10)by10.30amon11May2008.Forthispurpose,thetimeofreceiptwillbetakentobethetime(asdeterminedbythetimestampappliedtothemessagebytheCRESTApplicationHost)fromwhichtheissuer’sagentisabletoretrievethemessagebyenquirytoCRESTinthemannerprescribedbyCREST.AfterthistimeanychangeofinstructionstoproxiesappointedthroughCRESTshouldbecommunicatedtotheappointeethroughothermeans.

12.CRESTmembersand,whereapplicable,theirCRESTsponsors,orvotingserviceprovidersshouldnotethatCRESTCodoesnotmakeavailablespecialproceduresinCRESTforanyparticularmessage.Normalsystemtimingsandlimitationswill,therefore,applyinrelationtotheinputofCRESTProxyInstructions.ItistheresponsibilityoftheCRESTmemberconcernedtotake(or,iftheCRESTmemberisaCRESTpersonalmember,orsponsoredmember,orhasappointedavotingserviceprovider,toprocurethathisCRESTsponsororvotingserviceprovider(s)take(s))suchactionasshallbenecessarytoensurethatamessageistransmittedbymeansoftheCRESTsystembyanyparticulartime.Inthisconnection,CRESTmembersand,whereapplicable,theirCRESTsponsorsorvotingsystemprovidersarereferred,inparticular,tothosesectionsoftheCRESTManualconcerningpracticallimitationsoftheCRESTsystemandtimings.

13. ThecompanymaytreatasinvalidaCRESTProxyInstructioninthecircumstancessetoutinRegulation35(5)(a)oftheUncertificatedSecuritiesRegulations2001.

advIsors

Registered officeScience Park Cambridge CB4 0XR

Registered number3320972

SecretaryA Taylor

Financial advisor and lead brokerPanmure Gordon & Co Moorgate Hall 155 Moorgate London EC2M 6XB

Registered auditorErnst & Young LLP Compass House 80 Newmarket Road Cambridge CB5 8DZ

SolicitorsClifford Chance LLP 10 Upper Bank Street London E14 5JJ

Mills & Reeve LLP 130 Fenchurch Street London EC3M 5DJ

BankersBarclays Bank plc 15 Bene’t Street Cambridge CB2 3PZ

RegistrarsCapita Registrars The Registry 34 Beckenham Road Beckenham BR3 4TU

Xaar plcScience Park Cambridge CB4 0XR England

Tel: +44 (0) 1223 423663 Fax: +44 (0) 1223 423590

Email: [email protected] Website: www.xaar.com

Documents

XAAR PLC Annual report and accounts · PDF fileas a result of further development of the core technology there are now over 700 patents and patent applications in the Xaar IPR portfolio