Xaar Annual Report 2019 | Quarterlytics

FY2019 Annual Report · Xaar

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Xaar plc
Annual Report and
Financial Statements
2019

About Xaar plc

Innovation, efficiency & creativity

Through consistently delivering on our commitments we will be
the partner of choice for all inkjet applications. With 30 years of
experience, world class products and talented people our mission is
to push technical boundaries to become the inkjet technology leader.

Printhead

Our Printhead business unit focuses on the design,
manufacture, marketing and sales of printheads
and associated products which are used in a
variety of sectors such as for printing Ceramic Tile
Decoration, Graphics, Décor, Labels and Packaging
as well as 3D Printing and Additive Manufacturing.

h Read more about Printhead on page 8.

Product Print Systems

Product Print involves printing all kinds of industrial
and promotional objects such as medical equipment,
automotive parts, tools, apparel, appliances,
sports equipment and toys. Xaar company, EPS,
manufactures and sells a range of highly customised
print systems for these applications, including some
using Xaar’s own inkjet printheads.

h Read more about Product Print Systems on page 14.

3D Printing

Our 3D Printing business unit, in which Xaar 3D
sits, develops 3D printing solutions based on
High Speed Sintering technologies which will
have unique capabilities to address new markets
especially in manufacturing. With investment from
Xaar plc and Stratasys, Xaar 3D can leverage the
natural synergies between global leaders in inkjet
technology and 3D printing technology.

h Read more about 3D Printing on page 16.

Xaar plcAnnual Report and Financial Statements 201901

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Contents
Strategic report
Highlights
Chairman’s statement
Who we are
Our business model
Our business units
– Printhead
– Product Print Systems
– 3D Printing
Chief Executive Officer’s report
Financial performance
Key Performance Indicators
Risk management
Sustainable and responsible business
– Greenhouse gas emissions statement
Board approval of the Strategic
and Annual Reports

Governance
Introduction to Governance
Board of Directors – 2020
– Board structure – 2019
Directors’ report
Corporate Governance statement
Audit Committee
Nomination Committee
Remuneration Committee
Directors’ Remuneration report
Directors’ responsibilities statement

87
97

Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
97
Consolidated statement of financial position
98
Consolidated statement of changes in equity
99
Consolidated cash flow statement
100
Notes to the consolidated financial statements 101
Company balance sheet
145
Company statement of changes in equity
146
Notes to the Company financial statements
147
Five year record
152
Notice of the Annual General Meeting
153
Advisors
157

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Revenue – Continuing
operations

49.4£m

2019
2018

Net cash1

25.3£m

2019
2018

49.4
60.5

25.3
27.9

Adjusted (loss)/profit before tax –
Continuing operations2

(9.8£m)

2019
2018

(9.8)
4.5

Total (Loss)/profit before tax –
Continuing operations

(11.9£m)

2019
2018

(11.9)
0.3

1 Net cash includes cash, cash

equivalents and treasury deposits.

2 Adjusted measures exclude items
from the IFRS operating (loss)/
profit margin and (loss)/profit before
tax, such as share-based payment
charges, exchange differences
on intra-group transactions, gain
/ loss on derivative instruments,
restructuring costs and research and
development expenditure credit, per
the reconciliation of adjusted financial
measures – note 4 on page 114.

Strategic and operational highlights
• New Strategy in place and a clear path for all

our business units

• New management team with appointment
of John Mills as CEO in October 2019, and
Ian Tichias as CFO in January 2020

• Printhead business restructured in November
2019 to align with new strategy to focus on
the Bulk technology platform

• Significant progress in Xaar 3D Printing saw
Stratasys increase its investment from 15%
to 45% with an option to acquire the business
outright

• Cessation of Thin Film programme in September

2019 following unsuccessful search for
investment

• Appropriate measures taken to mitigate the

impact of COVID-19 ensuring the health of our
employees while ensuring we continue to deliver
for customers.

Financial highlights
• Revenue from Continuing Operations of £49.4
million (2018: £60.5 million) down £11.1 million
year-on-year, underlying revenue excluding one-
off Licensee Royalties in 2018 fell £1.2 million
• Decline in gross margin to 24.2% (2018: 48.8%)

caused by declining licensee royalties and
reduced factory throughput as cash conversion
is prioritised

• Adjusted loss before tax for the continuing

operations of £9.8 million (2018: £4.5 million
profit)

• Loss for the year under IFRS of £71.5 million
(2018: £12.5 million) driven by the cessation
of the Thin Film programme

• Strong balance sheet with Net cash at 31

December 2019 of £25.3 million (2018: £27.9
million), significant cash outflows associated
from Thin Film £18.0 million offset by increased
Stratasys investment in Xaar 3D, £12.0 million,
and cash generated by the continuing operations
of £3.4 million

• Continued uncertainty associated with COVID-19
and any potential impact on financial performance
therefore we believe it is prudent to suspend
financial guidance.

Xaar plcAnnual Report and Financial Statements 2019

Chairman’s statement

A clear way forward

Andrew Herbert
Chairman
2019 was a challenging year for
Xaar and tough decisions have been
necessary to position the business for
a return to profitable growth. We start
2020 with a strong balance sheet and
significant cash, providing confidence
in our ability to navigate the present
uncertainty surrounding COVID-19.

Chairman’s statement
These are exceptional times. The rise of the
COVID-19 early in 2020 and the resulting actions
globally are having a profound effect on economies,
business and society at large. At Xaar our priority
in managing this crisis has been to ensure the
wellbeing of our people while taking necessary
actions to navigate through what appears likely
to be an extended period of uncertainty.

This situation comes on top of a tough year for the
business in 2019. Following a review of strategy,
difficult decisions were taken. Specifically the
decision to stop work on the Group’s Thin Film
technology, with consequent cost actions and
resulting job losses, was necessary for the good
of the business but painful for all involved.

Andrew
Herbert
Chairman

A new strategic vision
With a new strategy and
business model already being
implemented, and the major
issues that have hindered
performance in the last few years
being addressed, I am confident
in the new management team’s
ability to turn the business
around and deliver on the
undoubted potential of the
Company in the long term.

We entered 2020 with a printhead strategy re-
focused on exploiting the Group’s excellent bulk
piezo technological capabilities. This, coupled with
our investment in direct to shape product printing
and strong progress and fresh investment including
that from our partner Stratasys in Xaar 3D, provided
a sense of optimism as the year started. Early signs
have been promising with a change to the business
model in the printhead business already leading
to stronger engagement with key customers. Our
order book in the first quarter has been encouraging,
our operations teams are maintaining supply to
customers and we have renewed vigour and focus in
both our sales and marketing and R&D programmes.

The impact of COVID-19 was first felt in our China
based operations. Our customers saw production
levels fall but the relatively short period of ‘lockdown’
in China meant the impact on our business levels to
date in the region has been minimal. Across Europe
and, at time of writing, to a lesser extent America,
the effects of Government action were being felt as
the first quarter of 2020 came to a close.

The situation continues to evolve rapidly and that has
led us to take actions to preserve cash and maintain
liquidity. The Group entered 2020 debt free and with
£25.3 million of net cash. This positive cash position
means that even in our most pessimistic scenario
for trading during the remainder of the year, along
with actions to reduce costs and cash outflow and
use government support where appropriate, we are
confident that the business is well placed to manage
through an extended period of uncertainty.

One of the consequences of the Covid-19 outbreak
has been the delay in publishing these 2019 results.
Further to the announcement made in September
2019 that Robin Williams had already served more
than nine years on the Board and would be standing
down at the end of March 2020, I was appointed
Chairman on 1 April 2020. In expectation of
publishing results before this event, Robin as retiring
Chairman had prepared a report which, given the
timing of the change, I am including below.

Xaar plcAnnual Report and Financial Statements 201903

Read more about our Board
of Directors on page 44.

Read more about our markets
on page 10.

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The 3D and Advanced Manufacturing sectors have
remained flat year-on-year and are difficult to forecast.
These sectors have large potential for Xaar; however,
OEM development times are long, and demand is
often driven by specific programmes which makes
delivering consistent growth from these sectors in the
short term difficult.

The restructuring programme announced in
September 2019 has now been completed with
a leaner, more efficient and focussed Printhead
business designed to deliver the strategy. The
targeted cost savings of £8 million, which were split
across the Thin Film and Bulk parts of the business,
have been delivered.

Xaar has retained a small team of Thin Film engineers
in the hope of being able to realise some monetary
value from the Thin Film technology we developed.
It is our intention to retain this team until a suitable
conclusion has been found either through the disposal
of the technology through an asset sale or another
option. We have also retained a small team to support
the ‘Last Time Buy’ requirements of our Xaar 5601
customers and we expect to be able to absorb these
individuals back into the Bulk business once the build
out is complete.

Product Print Systems
Revenues from our Product Printing OEM EPS
grew 15% year-on-year from £13.7 million in 2018
to £15.7 million in 2019 with improvements across
all major product lines. Sales from our digital inkjet
product lines grew 11% year-on-year driven by the
sales of consumables and spares to the aftermarket,
with machines sales up 5%. The analogue pad print
product line grew 18% year-on-year driven by a 26%
increase in revenues from machine sales.

In Q4 we installed the first machine designed and
manufactured using our modular strategy and already
have a second order in place. We have also identified
several other opportunities we could win by using
designs based around the core modules in this
machine.

With profitability failing to match revenue in terms of
growth we have started a programme of cost saving
initiatives to improve our financial performance.

3D
We have made significant progress with our 3D
business and have delivered against a number of key
strategic milestones.

The manufacturing strategy has been finalised and
we are working with one of the largest contract
manufacturers in the world. We received the first
machine manufactured by them in December,
with 7 machines received in total to date. These
are now all undergoing extensive testing prior to
commercialisation.

With the receipt of the first sub-contract manufactured
machine at the beginning of December we officially
locked down the design of the printer. Therefore, we
have stopped the capitalisation of development costs
(a total of £5.1 million was capitalised) and started
to amortise the intangible asset over an amortisation
period of ten years.

We have begun strengthening the go-to-market
capabilities of the Xaar 3D team and are working
closely with Stratasys on our joint go-to-market plans

Outlook and summary
2019 has undoubtedly been a difficult year for the
Group, and for the Printhead business. However, we
enter 2020 with a new strategy and a clear path for
all our business units.

In the Printhead business we have a strategy which
will enable us to re-engage with our OEMs, increase
market share in sectors we have a competitive
advantage and an exciting product roadmap which
will deliver significant growth opportunities in the
long run.

We now have a strong management team in place
and coupled with our financial resources we have a
clear commercial plan and market opportunity backed
with great technology to drive increased performance.

In our Product Print Systems business our strategy
addresses the key constraints to growth for EPS,
expanding into new markets and the ability to scale
whilst driving profitability and cash generation.

In 3D our partnership with Stratasys and the increased
investment made in December leave the business in
a strong position to deliver its potential and realise real
value for shareholders.

2020 will be a year of transition setting the foundations
for future growth and return to profitability. For the
Printhead business this means stabilising, rebuilding
relationships with key OEMs and executing on the
early stages of the product roadmap. For EPS it will
be to continue to grow revenue and move to a more
scalable business model. Finally, in 3D the testing and
validation of the design of the 3D Printer will continue
and the planned commercialisation of the Printer by
the end of 2020.

The business is entering a new phase, with a
new sense of focus and renewed energy. This is
embodied in our new vision and mission which we
have recently launched.

Our vision is:
Through relentless innovation, Xaar technology will
be at the heart of every inkjet application so that the
world can be a more colourful, creative and productive
place for all.

The mission is:
Through consistently delivering on our commitments
we will be the partner of choice for all inkjet
applications. With 30 years of experience, world class
products and talented people our mission is to push
technical boundaries to become the inkjet technology
leader.

John Mills
Chief Executive Officer

Xaar plcAnnual Report and Financial Statements 2019

Financial performance

2019 has been a difficult year for the
Group with the loss for the year of £71.5
million reported on an IFRS basis (2018:
£12.5 million). This was made up of a
£56.1 million loss from the discontinued
Thin Film operation and a £15.4 million
loss from continuing operations.

During the year the Board took the decision to cease
activities in relation to the Thin Film technology
platform within its Printhead business. The financial
results for this part of the business have been treated
as discontinued operations in both the current
and prior year financial statements. The remaining
activities within the Group are referred to as
continuing operations. Xaar also uses an underlying
or adjusted measure which excludes the impact of
share-based payment charges, exchange differences
related to intra-group transactions, research and
development expenditure credit, restructuring and
investment expenses.

Continuing operations
Revenue
Total revenue for the Group was £49.4 million down
£11.1 million year-on-year (2018: £60.5 million).
On an underlying basis, excluding the one-off £9.9
million Licence Royalty in 2018, revenue declined 2%
year-on-year.

Revenues in the Americas grew £3.0 million with the
Printhead business driven by Xaar 501 sales into
Coding & Marking up 14% and the EPS business
which was 15% year-on-year. In Asia, revenue
declined £0.5 million on an underlying basis as
year-on-year royalties fell by £0.5 million and product
revenues in the Printhead business remained flat. In
EMEA the decline of £3.7 million was driven primarily
by the Wide-Format Graphics and Labels sectors,
down £2.7 million, and Direct-to-Shape which was
down £0.5 million.

Revenue – Continuing operations

The gross profit for the Group declined by £17.5
million to £12.0 million (2018: £29.5 million). With
the gross profit for the EPS business remaining
flat, the decline in the gross profit for the Group
can be attributed to the performance of the
Printhead business. This was driven by a £10.5
million reduction in Licensee Royalties, £9.9 million
of which related to a one-off Royalty in 2018. The
contribution margin, excluding the one-off Royalty
in 2018, has remained flat which, with the decline
in revenue, has led to £2.6 million reduction in
gross profit. Despite delivering cash savings of
£2.7 million year-on-year, the overhead charge to
the income statement increased £3.0 million. The
overhead savings were offset by an underutilisation
of the factory and a significant net movement of
overheads out of inventory. Having seen the amount
of Bulk inventory increase significantly in 2018 by
£4.2 million and the turns on several product lines
reaching excessive levels, action was taken during
2019 to reduce inventory and release cash tied up in
working capital. The net result of this is a reduction in
inventory of £6.5 million and a significant reduction in
factory output leading to an unfavourable year-on-
year difference in overheads. Other cost of goods
sold increased £2.4 million year-on-year; these were
mainly one-off charges related to slow moving and
legacy products.

As mentioned, the gross profit for the EPS business
remained flat year-on-year. Given the 15% increase
in revenues this is a somewhat disappointing result. It
can be attributed to a small number of new accounts
and lower than anticipated margins on the first
bespoke machines for these customers.

Gross R&D for the continuing operations was
£5.7 million in 2019 (2018: £8.3 million). Despite
investment in the 3D business increasing £0.5 million
R&D spend for the Group fell £2.6 million as R&D
resources in the Printhead business were focussed
on the now discontinued Thin Film operation. Net
R&D spend was £3.5 million (2018: £6.4 million) after
capitalising £2.3 million in relation to the development
of a new High-Speed Sintering 3D printer platform.
Capitalisation of the 3D printer platform ceased at
the end of November, having capitalised a total of
£5.1 million.

PPS

2019

Total

PPS

2018

Total

Americas
Asia
EMEA

8,239 15,698
—
6,969
—
18,473

7,256 13,658
— 23,937
—
— 6,969
7,458
—
18 18,491 22,084

15 20,929
— 7,458
86 22,170

Underlying revenue

33,681 15,698

18 49,397 36,798 13,658

101 50,557

2018 one off Royalty*

—

— 9,911

—

— 9,911

Total revenue

33,681 15,698

18 49,397 46,709 13,658

101 60,468

* royalty relates to Asia.

Xaar plcAnnual Report and Financial Statements 2019Revenue (Continuing
operations)

49.4£m
(9.8)£m

Adjusted loss before tax

Total gross R&D investment
(Continuing operations)

5.7£m
2.3£m

R&D tax credits

• Income of £2.3 million in relation to research and
development expenditure credits in 2018/19 and
the accelerated relief due to the impairment of
the intangible asset.

Financial position
The net assets for the Group in 2019 fell £60.9
million to £70.7 million (2018: £131.6 million). The
decrease in the net asset position attributable to
discontinued operations was £56.1 million, with the
net assets of the continuing operations decreasing
by £4.8 million.

Non-current assets for the Group decreased £30.9
million driven by Thin Film asset impairments of
£33.9 million. With a strong cash focus in both
the Printhead and EPS businesses the net book
value of property, plant and equipment and other
intangibles in these businesses declined. In the 3D
business £2.3 million was added to the High-Speed
Sintering 3D printer platform intangible assets. £3.6
million has been added for Right of Use assets as
part of the transition to IFRS 16 and the Group has
recognised £0.1 million deferred tax assets.

Current assets decreased by £34.2 million with
current assets for the discontinued operation falling
£10.8 million excluding cash. Inventories for the
continuing operations fell £7.5 million as the Group
focussed on lowering its working capital and driving
cash whilst trade debtors fell £8.9 million driven
primarily by £2.1 million of doubtful debts related to
distribution channels and a focus on working capital
management.

The £2.6 million decline in net cash was made up
of £18.0 million of outflows related to discontinued
operations, £12.0 million cash inflow from Stratasys
in relation to 3D investments, and £3.4 million
generated by the continuing operations through
normal trading.

Current liabilities decreased £5.7 million, £6.0
million related to a decrease in Thin Film trade
creditors and other payables. This was offset
by a £2.4 million provision for Thin Film supplier
commitments. Derivative financial instruments
recognised at the end of the period related to the
option granted to Stratasys to acquire Xaar 3D.
£1.5 million has been added for lease liabilities
as part of the transition to IFRS 16.

Non-current liabilities at the end of 2019 of £2.5
million relates to lease liabilities added as part of
the transition to IFRS 16.

General and administrative expenses, on an
adjusted basis, decreased by £0.3 million. However,
under IFRS general and administrative expenses
increased from £6.6 million in 2018 to £8.7 million
in 2019. This increase was caused by a £1.2 million
variance year-on-year in exchange differences
relating to intra-group transactions and a £0.7
million increase in share-based payment charges.

Impairment losses on financial assets of £2.7 million
in 2019 (2018: £3.2 million) predominantly relate
to a distribution channel utilised by the Printhead
business. Xaar has incurred significant charges
over the last couple of years in relation to doubtful
debts. With a change in business model which will
see the Printhead business only selling to OEMs
and a greater focus on managing working capital,
impairment losses on financial assets are expected
to be minimised in the following years.

Restructuring costs of £0.9 million (2018: £5.4
million) relate to the rightsizing of the Bulk
technology part of the Printhead business and
costs associated with closing our Swedish entity.

The adjusted loss before tax was £9.8 million with a
tax charge of £3.5 million bringing the adjusted loss to
£13.3 million. The loss before tax reported under IFRS
was £12.2 million with a tax credit for the year of £0.3
million bringing the loss before tax to £11.9 million.

Discontinued operations
The decision to cease Thin Film operations was
based on the level of continued investment
required. Combined losses before tax on an
adjusted basis over the last two years have been
over £31 million (2019: £15.6 million, 2018: £16.2
million), whilst significant cash has also been
utilised to fund working capital requirements. The
net decrease in cash from discontinued operations
for the year was £18.0 million (2018: £16.1 million)
being £17.6 million from operating activities and
£0.3 million (2018: £0.4 million) from investing
activities.

Retaining the Thin Film operation would place a
significant burden on the Groups cash position.

In total the loss before tax from discontinued
operations was £60.0 million (2018: £15.3 million).
This included several significant impairments and
one-off expenses:

• £28.5 million for the impairment of

capitalised R&D

• £8.7 million of inventory write-offs related

to the Xaar 5601 and Xaar 1201

• £5.4 million for the impairment of PPE
• £3.1 million for the settlement and provision

of contractual liabilities

• £0.8 million for redundancy costs
• £0.2 million for doubtful debts that have

occurred due to the cessation of Thin Film

• £0.1 million on advisory services.

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Xaar plcAnnual Report and Financial Statements 2019

Key Performance Indicators

Monitoring our progress

We monitor progress against the delivery
of our strategic goals using financial key
performance indicators (‘KPIs’).

Revenue – Continuing operations

49.4£m

Total revenue for the Group was £49.4 million
down £11.1 million year-on-year (2018: £60.5
million). On an underlying basis, excluding the
one-off £9.9 million Licence Royalty in 2018,
revenue declined 2% year-on-year.
Revenue by sector £m

2019
2018

30.4
30.6

12.8 5.6 0.6

11.5 7.1

11.1

Declining Ceramics revenue in the Industrial
sector and associated Royalties. Packaging
growth primarily in Coding and Marking and
Direct-to-Shape.

Industrial (incl. 3D/EPS)
Packaging
Graphic Arts
Royalties

Revenue by region £m

2019
2018

18.5 7.0
22.2

23.9

17.4

20.9

The significant reduction in revenue in Asia is
due to the sales decline in the Ceramics sector,
lower than expected sales in the wide-format
graphics and textiles sectors, and the reduction
in licensing income. Revenues in the Americas
grew £3.0 million with the Printhead business
driven by Xaar 501 sales into Coding & Marking
up 14%.

EMEA
Asia
Americas

Profit
Gross margin %

24.2%

2019
2018

24.2
48.8

The decline in the gross profit for the Group can
be attributed to the performance of the Printhead
business. This was driven by a £10.4 million
reduction in Licensee Royalties, £9.9 million of
which related to a one-off Royalty in 2018.
(2018: 48.8%).
(Loss)/profit before tax –
Continuing operations £m

(11.9£m)

2019
2018

(11.9)
0.3

Loss before tax from continuing operations,
represents operating loss after investment
income and finance costs (2018: £0.3 million
profit).

Adjusted (Loss)/profit before tax –
Continuing operations £m

(9.8£m)

2019
2018

(9.8)
4.5

Operating (Loss) / profit before tax from
continuing operations adjusted for recurring and
non-recurring items. Reconciliation of adjusted
Financial measures is provided in note 4 (page
114). (2018: Profit £4.5 million).

Xaar plcAnnual Report and Financial Statements 201927

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Following the appointment of a new leadership
team and implementation of a new strategy for
profitable growth, an assessment of our KPIs
will be undertaken to ensure we utilise the best
metrics to monitor our performance.

Alongside this, a new remuneration policy will
be designed to ensure alignment between
the interests of the Executive Directors and
the senior management team with the core
aims of the new strategy, as well as to align
management with the interests of shareholders
in the reward for improved performance against
the market.

As a result, a new Long-Term Incentive Plan
(‘LTIP’) is proposed for 2020. Metrics will be
set to reflect the key challenges seen across
the business and specific units for that year.
We will continue to measure EPS but due to
commercial sensitivity these EPS targets will not
be disclosed at this time as they are deemed to
be commercially sensitive.

h See the Directors’ Remuneration report on page 63.

Xaar uses adjusted figures as key performance
measures in addition to those reported under
IFRS, as management believe these measures
enable management and stakeholders to better
assess the underlying trading performance
of the businesses as they exclude certain
items that are considered to be significant in
nature and/or quantum – they exclude share
based payments, intra-group foreign exchange
movements, gain / loss on financial instruments,
restructuring and R&D tax credits, that
management consider to have a distorting effect
on the underlying results of the Group.

The alternative performance measures (‘APMs’)
are consistent with how the businesses’
performance is planned and reported within the
internal management reporting to the Board
and Executive Management. Some of these
measures are used for the purpose of setting
remuneration targets.

h See note 4 of the Group’s Consolidated Financial

Statements, for reconciliation between adjusted and
statutory items on page 114.

2018 comparatives are based on continuing
operations (where relevant) and are therefore
restated to incorporate adjustments arising
from financial instruments and discontinued
operations.

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Cash
Cash and cash equivalents comprise cash at
bank (£24.8 million) and other short-term highly
liquid investments with a maturity of three months
or less (£0.5 million).

Net cash £m

25.3£m

2019
2018

2018: £27.9 million comprising Cash £24.7
million and liquid investment £3.2 million.

Net cash used in operating activities £m

(9.8£m)

2019
2018

25.3
27.9

(9.8)
(9.9)

Operating Cashflow in 2019 (£27.9 million)
reduced due to improvements in working capital
and tax credit received. (2018: (£9.9 million)).

Gross R&D investment (Continuing
operations) £m

5.7£m

2019
2018

5.7
8.3

Gross R&D investment (Continuing Operations)
includes development costs associated
with Xaar 3D Ltd in 2019 (£2.6 million).
2018 investment excludes amortisation of
development costs and impairment of Thin Film
(2018 restated: £8.3 million).

Adjusted Diluted Earnings Per Share
(Continuing - EPS)

(16.9p)

2019
2018

(16.9)
10.0

Adjusted EPS - Continuing Operations is
considered to provide a fairer representation of
the Group’s trading performance year on year.
(2018: 10.0 pence). EPS performance is one
of the criteria for the new LTIP.

h See note 13 for more information on page 122.

Xaar plcAnnual Report and Financial Statements 2019

Risk management

Managing our risks

Key risk areas
The risks around our business
are set out in more detail on
pages 31 to 35, but the key
risk areas can be identified
as being associated with
the following:

Market – Risk owner – CEO – John Mills

Competition
Maximising returns over the long term in the target
application through early adoption to achieve a market
leading position and then retention of that position.

Identification of market requirements
Successfully developing products with the characteristics
that meet market requirements within the necessary
timescale.

Commercialising and maintaining products
with cutting edge technology
Creating value by generating innovative products.

Merger and acquisition opportunities
Seek opportunities to expand, create synergies and
generate greater shareholder value.

Operational – Risk owner – CEO – John Mills

Financial – Risk owner – CFO – Ian Tichias

11 Ability to access sufficient capital

Ability to access sufficient capital to fund growth
opportunities.

12 Customer credit exposure

Offering credit terms ensuring recoverability
is reasonably assured.

Inventory obsolescence
Holding inventory levels that are not in excess
of normal demand.

14 Exchange rates

Monitoring global economic events and mitigating any
resulting significant exchange rate impacts.

Organisational capability
Having the right people in the right roles.

Coronavirus (‘COVID-19’)
Tracking the potential impact and response to pandemic
and Government guidance.

Brexit
Tracking the potential impact of the UK Government’s
negotiations.

Manufacturing facility
Diversifying products, locations and manufacturing
partners to alleviate operational issues.

Partnerships
Working with the right companies, at the right time on
the right terms to deliver long-term value.

IT systems and information failures
(incl. Cyber security)
The Group uses IT systems to operate and control its
business; any disruption to this would have an adverse
impact on the business. The Group also needs to
ensure the protection and integrity of its data.

Xaar plcAnnual Report and Financial Statements 201929

Read more about our market risks
on page 31.

Read more about our operational
risks on page 32.

Read more about our financial risks
on page 35.

However in areas such as Packaging and Textiles,
analogue processes are still dominant and the
conversion to digital still modest.

The first approach to managing these risks is to
have high quality individuals within the necessary
functions that these risks tend to fall into. Other
examples of the effective day to day management
of these risks include operating multi-functional
teams to share knowledge across the business,
having regular stage gates in the management
of development programmes, and the regular
assessment of manufacturing capacity against
future potential needs.

In addition to day to day processes the Group’s risk
register is formally reviewed at senior management
and Board level, including the assessment of
the performance of risk management during the
preceding period.

During 2019, the senior management and Board
re-evaluated the existing Principal Risks, to
consider emerging/alternative risks.

The Board will continue to develop the
management framework across these specific
risks so that it operates effectively alongside
the changing organisational structure., and will
inform an assessment of the Group’s Principal
Risks throughout 2020, allowing the Board to
periodically review existing risks and consider key
emerging risks, whether they be operation-specific
or broader in scope, such as climate change and
environmental matters.

The Board has applied principle O. of the 2018
UK Corporate Governance Code by establishing
a continuous process for identifying, evaluating,
and managing the significant risks the Group faces
which has operated throughout the year and up to
the date of this report. 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 against material
misstatement or loss.

In compliance with the provision 28. of the 2018
UK Corporate Governance 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.

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Risk management
Effective risk management is key
to our success against the dynamics
of the industry that we operate in and
the characteristics of our chosen
business model.

The printing industry in which we operate is
declining in overall terms of total output, tends
to be capital intensive, is slow to react to change
and is resistant to the adoption of new technology.
Analogue printing processes are declining rapidly
particularly in areas such as Commercial print
(transactional documents and publications) where
electronic media and digital printing processes are
becoming more widespread.

Prepare

T R O L

IDE

TIF

NITOR & C

O
M

T
N
E
M

S S ESS

Xaar’s
approach
to risks

NSE

S A

R I S K

Approach to risks
The first approach to managing
these risks is to have high quality
individuals within the necessary
functions that these risks tend to
fall into.

Xaar plcAnnual Report and Financial Statements 2019

Risk management continued

Certain

y
t
i
l
i

b
a
b
o
r
P

Type of risk
Market
Operational
Financial

Remote

Impact

w
o
L

Probability rating
The probability rating is likelihood
of an event occurring based on
previous experiences, historical
information and professional
judgement with respect to
the incident in the territory or
industry. Probability can be
subjective and is not an exact
science. The probability of
an incident occurring can be
estimated to give a Probability
Rating. This gives an overall
view of the generic risk exposure
faced by the business.

Impact rating
The Impact of an incident can
be measured in terms of human
suffering, damage to assets,
interruption to operations or
business, effect on customers,
impact on reputation/brand and
financial loss. The calculation
of the Impact Rating should
be taken as the worst case in
respect to these categories. The
Financial element of the Impact
Rating is the amount of money
that is “at risk”.

h
g
H

This “at risk” means that it is
either revenue at risk, or the
cost of rebuilding a system, or
replacement cost of hardware.
This must be taken in the context
that there are limited recovery
capabilities and that revenue at
risk is not a daily amount, but the
amount of revenue that would
be lost until the process, system
or business function can be
reinstated.

Xaar plcAnnual Report and Financial Statements 201931

Our business units

Printhead
Product Print Systems
3D Printing

Key of change
Increase
No change
Decrease

Risk and link to
business unit

Impact

Mitigation

Market

1. Competition

We compete on the basis of our technology,
innovation, price, quality, reliability, brand,
reputation and customer relationships.

Failure to continually improve in these areas
may mean that we lose market share or
have to reduce prices. Since there are fixed
factory costs, reductions in sales volumes may
substantially lower profit margins.

We are the only true independent printhead
company in the world and we are competing
with vertically integrated large scale multinational
companies.

2. Failure to
identify market
requirements

Products need to meet the changing demands
of the market, including regulatory changes.

Failure to meet future market requirements/
specifications could impact on long-term
revenue and profit.

Competitive pricing policies are employed and
product portfolios and pricing are constantly
monitored. The re-alignment of our go-to-market
capabilities allows us to focus more on our
customers and to deliver requested products
into the OEM marketplace.

Production efficiency improvement programmes
are established to ensure that cost bases remain
competitive within the marketplace.

Regular communication and sharing of
information with customers and, partners to
enhance ‘peer-to-peer’ relationships, alongside
market reports and other reliable sources are
reviewed to improve demand forecasting.

Continued investment in innovative technical
solutions for development of new applications
from existing technologies and launch new
technologies.

Regular, specific and detailed reviews are
held to assess current and anticipated market
requirements, including expected regulatory
changes.

These reviews include regular customer visits
between senior executives, technical experts
and R&D team members to develop a culture
of innovation that focus on delivering technical
solutions to original equipment manufacturers
(‘OEMs’) requirements.

Product developments are selected on
appropriate criteria. Product development
activity is properly managed with regular reviews
of progress against project plans, and gated
milestone reviews.

We have a rigorous product lifecycle
management process which ensures we
deliver against our customers requirements.

Likelihood
Magnitude
Change

Probable
Very High

Possible
Very High

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Xaar plcAnnual Report and Financial Statements 2019

Risk management continued

Risk and link to
business unit

Impact

Market continued

Mitigation

3.
Commercialising
and maintaining
products with
cutting edge
technology

We aim to produce quality end products. Failure
to meet the required quality standards could
have an impact on products that have been
sold or that are held in inventory.

This could lead to:

• Unexpected costs associated with resolving

the issues

• Possible warranty costs, customer

compensation or write-down in inventory
values

• Potentially longer term revenue loss if

customers move to competitors and damage
of reputation.

We operate in an increasingly dynamic and
changing environment. To counter the risks
associated with this and, most importantly, to
exploit the opportunities it presents, we must
embrace innovation, protect our Intellectual
Property and capitalise on technology
advancements to ensure we grow our
market position.

Our strategy is predicated primarily on organic
growth.

Failure to realise the expected benefits of an
acquisition or post acquisition performance of
the acquired business not meeting the expected
financial performance at the time acquisition
terms were agreed could adversely affect the
strategic development, future financial results
and prospects of the Group.
Divestments also carry risk. We may sell an
asset at the wrong time, or may not realise
appropriate value for the asset. Separation may
be complex and, if poorly executed, may impact
the wider business.

Our people remain key to our business.
Ensuring the right people are in the right roles
is critical to our future success and growth.
We need to attract and retain the right talent
to enable achievement of our strategic aims.
Failure to do this risks delivery and growth as
follows:

• Lack of staff to meet a specific business

need or contract requirement

• Loss of project specialisms
• Single point of failure
• Loss of key skills.

4. Merger and
acquisition
opportunities

Operational

5. Organisational
capability

Likelihood
Magnitude
Change

Possible
High

The quality of supplies is constantly monitored.
Quality performance is regularly reviewed by
senior management who apply appropriate
resources to systematically address recurrent
problems. New products are thoroughly tested
before launch.

Xaar’s manufacturing facilities are ISO 9001
accredited. Customer returns are reviewed
quickly using a consistent and thorough
investigation process.

Warranty costs, RMA and customer return costs
are reviewed and compared against forecast
to highlight unexpected costs, and identify root
cause for corrective action. We will continue to
focus on product innovation.

This is evidenced by our continued focus on
R&D spend and the number of new products
brought to market.

Full financial and other due diligence is
conducted to the extent as is reasonably
achievable in the context of each M&A
opportunity.

Possible
Medium

Integration risk and planning would be reviewed
and undertaken as part of every acquisition.

A detailed business case including forecasts is
reviewed by the Board for each opportunity.

Use of external advisors.

Our focus is to minimise the voluntary turnover of
employees, through better hiring for fit, improved
induction procedures and employee engagement
initiatives.

Possible
Medium

Investment to build a learning organisation with
focus on culture, reward and recognition.

The Group reviews remuneration to ensure that
the appropriate reward packages accompany a
fulfilling work environment.

A suite of Learning and Development courses
(‘XCEL’) has been rolled out across the Company
to ensure key skills are maintained and enhanced.

Annual performance management reviews for
the majority of employees to identify talent and
develop key employees.

Campaigns to increase performance and
development of communication between
managers and employees to ensure alignment
to Company objectives.

Xaar plcAnnual Report and Financial Statements 2019

Our business units

Printhead
Product Print Systems
3D Printing

Key of change
Increase
No change
Decrease

Risk and link to
business unit

Impact

Mitigation

6. Coronavirus
(‘COVID-19’)

Impact across all business operations and
locations:
Reduction in staff availability and development
of commercial opportunities.
This could negatively impact the growth
objectives in the near term.
Temporary disruption to the supply chain and
further workplace restrictions may threaten to
slow down production or delay, testing and the
commercialisation of the 3D printers.
With the continued uncertainty associated with
the virus it is too early to assess the impact on
the Groups financial performance.
IT infrastructure – see 10. IT Risk

7. Brexit

The United Kingdom’s decision to leave
the European Union presents both risk and
opportunities to the Company.

There is a period of uncertainty during the
transition phase concerning EU workers,
immigration and trade leading up to the formal
conclusion of trade negotiations at the end of
2020.

Some of our current workforce have migrated
from other countries in the EU and the
continued recruitment of world class talent
is critical to our success in a technical and
specialised industry.

Another challenge continues to be free trade
into the EU. Around one third of our revenues
are generated from EU countries and so any
actual or perceived barriers to free trade are an
obvious area of concern.

We remain exposed to currency fluctuations
that could result from the United Kingdom
concluding the transition period with the EU
without a comprehensive free trade agreement.
i.e. a “skeleton” agreement or falling back on
WTO rules following “no deal”.

We have stopped all international travel and
remote access and business continuity testing
has been performed.
Employees where possible, are working from
home, we have communicated sick and self-
quarantine policies to our staff, manufacturing
operations continue, whilst we are closely
following local government guidance.
We are in regular contact with our customers
and have yet to see a significant impact on
demand . We are working closely with our
clients to mitigate the risks caused by the virus
and maximise business continuity in our and
their operations.
We are carefully monitoring our own supply
chain and are in regular contact with our
suppliers. We hold a sufficient buffer stock
of critical components and at present we
do not foresee any supply issues.
The Group is debt free with sufficient cash
reserves and liquidity to be able to continue
operations “as-is” in the short term. The
business has a proven track record for
disciplined cost control, which will continue
to be vital in the current trading environment.
Scenario planning alongside stress testing
and reverse stress testing to identify and
develop alternative solutions, as guidance and
requirements change during an evolving event.
Further assessment will be made against
available Government support schemes,
should the need arise.

Key managers across the business are
continuously monitoring the latest political
developments and putting mitigating actions
in place where there may be a potential impact
on Xaar or its stakeholders.

Identify and support EU, EEA or Swiss
employees requiring advice in completion
of application to the EU Settlement Scheme.

Identify talent that will meet visa requirements
under existing Tier 2 conditions and/or minimum
threshold criteria for skilled worker general visa.

A review of import and export tariffs identify
minimum effect on the raw materials and
finished goods. Non-tariff barriers (i.e. import/
export documents) are being reviewed to ensure
pro-active compliance with possible scenarios
from 1 January 2021.

The Group transacts in four main currencies
Sterling, US Dollars and Euro for sales and
purchases, with some additional exposure to
purchases in Japanese Yen, and adopts natural
hedging where possible to mitigate against
exchange rate movements.

A weakened Pound as a result of a “no-deal”
scenario would likely have a positive impact on
the Group due to the high proportion of export
sales in US Dollars.

The Group has sufficient cash resources to
protect against any short-term volatility.

Likelihood
Magnitude
Change

Certain
Very High

NEW

Probable
Medium

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Xaar plcAnnual Report and Financial Statements 2019

Risk management continued

Risk and link to
business unit

Impact

Operational continued

8. Loss of
manufacturing
facility

We have manufacturing facilities in the UK and
the US, and we rely on our strategic partners
for key products and components.

COVID-19: Sites left vacant / limited access, risk
of theft / vandalism increased.

If our manufacturing site or our partners’
manufacturing sites were to experience an
incident this could have operational and
supply chain issues for the business.

9. Partnerships

10. IT systems
and information
failures (incl.
Cyber security

Companies with whom we have alliances in
certain areas (i.e. manufacturing/research) may
already be or may become our competitors
in other areas. In addition, companies with
whom we have partnerships may also acquire
or form alliances with our competitors, which
could reduce their business with us. If we are
unable to effectively manage these complicated
relationships with alliance partners, our business
and results of operations could be adversely
affected.

COVID-19: IT network resilience and access
to information via hardware and software
capabilities.

IT security breaches or disruption (Loss of
network) unauthorised access or mistaken
disclosure of information.

The risk to the Group is that of unauthorised
access to or external disclosure of Group
information, including those caused by ‘cyber
attacks’.

Reputational impact, business disruption and
potential deterioration in customer relationships.

Mitigation

Likelihood
Magnitude
Change

Formal disaster recovery plans are maintained
and reviewed. Appropriate precautions are taken
in all factories and warehouses to safeguard
against theft and fire.

Remote
High

Business continuity plan implemented, site
access restricted, security enhanced, daily
building and IT checks for security and
performance.

Given the specialised nature of the manufacturing
equipment and processes there would be short-
term disruption.

We are also able to use manufacturing partners
to alleviate some operational issues.

The Director of IP and Legal focuses on the
extensive review of legal agreements and in
particular IP with such partners.

Possible
High

Partnerships are constantly reviewed both
internally and with those partners at the most
senior level to develop long-term partnerships
and supply agreements to the benefit of both
parties.

Where significant investment and research is
undertaken (e.g. 3D/Stratasys) there will be
contractual arrangements to ensure appropriate
governance and Board structure to support the
business and product development.

Appropriate testing of the network environment,
new software access (MS Teams) and allocation
of laptops, monitors etc., to enable work from
home and instant communication.

Probable
Medium

NEW

Management has implemented technical and
procedural controls to minimise the occurrence
of information and financial security and data
protection breaches.

The Group employs security and testing
measures for the software it deploys and on
internal systems. Employees are trained on
the risks of phishing and best practice for data
security.

Access to information is only provided on a
“need-to-know” and “least privilege” basis
consistent with the user’s role and also requires
the appropriate authorisation.

Where sensitive data is made available to
third parties it is done so under confidentiality
agreements.

Xaar plcAnnual Report and Financial Statements 2019

Our business units

Printhead
Product Print Systems
3D Printing

Key of change
Increase
No change
Decrease

Risk and link to
business unit

Impact

Mitigation

Likelihood
Magnitude
Change

Financial

11. Ability to
access sufficient
capital

Our ability to access sufficient capital/liquidity
may restrict growth opportunities for our
organisation, as well as the strategic plan
and vision.

The Group has implemented cost reduction
actions to focus resources on key initiatives
and to achieve breakeven under current volume
requirements.

Probable
High

Significant investment is required to bring new
products to market and ramp up to meaningful
volumes.

The Group has sufficient cash available for
execution and delivery of the turnaround
strategy within agreed timescales.

12. Customer
credit exposure

The Group may offer credit terms to its
customers which at times could be extended
beyond what is considered normal terms for
products in early stages of its life cycle. The
Group is at risk to the extent that a customer
may be unable to pay the debt on time, thus
impacting working capital.

13. Inventory
obsolescence

As the Group launches new products across
its businesses,, it could end up stocking
volumes in excess of near term demand. As
a result, these products could be exposed to
obsolescence and pricing risks.

In order to continue to fund our research and
development activities and to realise the full
potential value of our product portfolio we are
seeking strategic investment partners. (e.g. 3D/
Stratasys).

This risk is mitigated by strong ongoing
customer relationships, close monitoring of
product launches by the customer in the
market place and by credit insurance in certain
jurisdictions.

Monitor overdue receivables and manage credit
limits prudently. Close management of overdue
debtors and use of credit holds to encourage
payment.

The business model is being reviewed with a
move away from a distribution model, to being
a direct supplier to OEM manufacturers, which
will reduce the future risk being contained in a
limited number of large transactions to a wider
breadth of supply across a consistent sales
order pipeline.

Taking into consideration the stage of market
development for new products and minimum
supply constraints. Where possible, the Group
aligns supplier purchase commitments with
customer sale commitments, and enter into
back to back agreements to minimise exposure.

14. Volatility in
exchange rates

Global economic events and uncertainty may
cause currencies to fluctuate and currency
volatility contributes to variations in our sales of
products and services in impacted jurisdictions.

Our treasury policy allows us to hedge.

There is a partial natural hedge for foreign
currency movements.

The Group is exposed to currency transactional
risk relating to day-to-day sales and purchases
across GBP, USD, EUR and SEK.

Cash flows are constantly reviewed and action is
taken when appropriate.

h See ‘Brexit’ risk above for further disclosure.

Reported results of overseas subsidiaries are
subject to translational risk which may cause
volatility in earnings and the balance sheet.

The risk is that there could be significant
adverse movements in currencies which cause
a foreign exchange loss, reducing profit.

Possible
High

Possible
Low

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Xaar plcAnnual Report and Financial Statements 2019

Sustainable and responsible business

A strong belief in responsibility

The Group strongly believes that
corporate responsibility is integral
to business success. The Group is
compliant with all relevant regulation
and legislation whilst enhancing the
working environment for our employees
and minimising the environmental
impact of our manufacturing processes.
There is internal reporting of key
metrics throughout the business, and
each member of staff is expected to
take individual responsibility for their
performance and to work together to
achieve shared goals.

Our community
Xaar sponsors two Imagineering Clubs at local
primary schools. These Clubs are designed to
introduce children to engineering through fun
activities. The sponsorships are part of Xaar’s role
in helping to create the ‘engineers of the future’
and drive interest in STEM subjects (‘Science,
Technology, Engineering and Mathematics’)
amongst school students.

Social responsibility
• Xaar employees raised money during the year

for a number of charities, including taking part in
various activities for Comic Relief on Red Nose
Day, coffee mornings for Macmillan Cancer
Support and Christmas Jumper Day for Save
the Children.

• Xaar has sponsored a number of employees and
their families engaging in events throughout the
year, including charity golf days, equipment for a
charity football team, various sporting events and
donations to community food banks. In total, the
Group made charitable contributions to local and
national charities during the year totalling £5,100
(2018: £5,100). No political donations were made
in the current or previous year.

• The social club, which is aimed at encouraging
staff to have fun and get to know each other
socially, held several events throughout the year
including comedy nights, theatre trips, festivals,
meals, nights at the races, family fun days and
sports activities such as ice skating, charity races
and cycling events.

• Xaar continues to sponsor an Imagineering
Foundation club which operates at primary
schools in both Huntingdon and Cambridge.
Supported by eight volunteer tutors from
Xaar’s Operations and R&D teams, the
weekly, hour-long after-school clubs are
attended by up to 12 Year Six students.
The students learn about basic science and
engineering concepts and make working
mechanical and electronics-based models,
such as a balloon-powered ‘rocket’ car, a
steady hand game and even an AM radio.
The Foundation’s aim is to introduce young
people of 8-16 years to the exciting world of
engineering, science and technology through
fun, hands-on activities.

The Group respects all human rights and in
conducting its business the Group regards
those rights relating to non-discrimination,
fair treatment and respect for privacy to be
the most relevant and to have the greatest
potential impact on its key stakeholder groups
of customers, employees and suppliers.

The Board has overall responsibility for
ensuring that the Group upholds and promotes
respect for human rights. The Group seeks to
anticipate, prevent and mitigate any potential
negative human rights impacts as well as
enhance positive impacts through its policies
and procedures and, in particular, through
its policies regarding employment, equality
and diversity, treating customers fairly and
information securely. Group policies seek both
to ensure that employees comply with the
relevant legislation and regulations in place in
the UK and other operating locations and to
promote good practice. The Group’s policies are
formulated and kept up to date by the relevant
business area, authorised by the Board and
communicated to all employees.

h The anti-bribery and corruption policies of the

Group are set out in the Corporate Governance
Section in page 56.

The Group undertakes extensive monitoring of
the implementation of all of its policies and has
not been made aware of any incident in which
the organisation’s activities have resulted in an
abuse of human rights.

Equality and diversity
The Group is committed to providing a working
environment in which employees feel valued
and respected and are able to contribute to
the success of the business. Employees are
requested to co-operate with the Group’s efforts
to ensure that the policy is fully implemented.

Xaar plcAnnual Report and Financial Statements 2019The Group undertakes R&D and manufactures
products in the UK and the USA. The Group
complies with all local and European legislation.
The Group’s manufacturing facility in Huntingdon
is both ISO 9001:2015 and ISO 14001:2015
certified. It is the Group’s policy to maintain
this level of certification for its Huntingdon
manufacturing facilities and to comply at all
times with all relevant environmental and
other legislation in the territories in which the
Group operates. The Group is compliant with
REACH (‘Registration, Evaluation, Authorisation
and restriction of Chemicals’), WEEE (‘Waste
Electrical and Electronic Equipment’) and RoHS
(‘Restriction of the Use of Certain Hazardous
Substances’) directives, as required under
European legislation.

The Group has a proactive Health and Safety
System modelled on OHSAS 18001/HSG65 in
Cambridge, Huntingdon and Nottingham.

Health, safety and environment
Xaar has a manufacturing site in Huntingdon,
along with R&D and head office functions in
Cambridge, Nottingham, Europe and the USA,
plus sales offices worldwide.

It is always Xaar’s intention to conduct
business in a manner that protects the public,
the environment, and employee safety.
Xaar’s Environmental and Health & Safety
policies provide a framework for setting and
reviewing of Occupational Health, Safety and
Environmental Objectives.

This demonstrates Xaar’s continued
commitment to the prevention of injury and ill
health and also the continual improvement in
our Environmental and Occupational Health
& Safety Performance. Xaar believes that the
combination of a safe place of work and safe
working practices, together with a productive
and innovative environment, are critical to the
continued success of the Company.

Employee health & wellbeing
Employee health and wellbeing remains a keen
priority for the Group.

In line with this approach, the businesses within
the Group have prioritised different initiatives that
best reflect their workforce, such as volunteering
and employee wellbeing policies regular
wellbeing weeks, step challenges, weekly Yoga
sessions, qualified mental health first-aiders and
other activities to encourage and promote a
healthier workforce.

The Group’s aim is that its employees should
be able to work in an environment free from
discrimination, harassment and bullying, and that
employees, job applicants, customers, retailers,
business introducers and suppliers should be
treated fairly regardless of:

• Race, colour, nationality (including citizenship),

ethnic or national origins

• Gender, gender reassignment, sexual

orientation, marital or civil partnership status

• Religious or political beliefs or affiliations
• Disability, impairment or age
• Real or suspected infection with HIV/AIDS
• Membership of a trade union
• Pregnancy, maternity and paternity
and that they should not be disadvantaged by
unjust or unfair conditions or requirements.

The Group aims to ensure that applications for
employment from people with disabilities, and
other under-represented groups, are given full
and fair consideration and that such people are
given the same training, development and job
opportunities as other employees. Every effort is
also made to retrain and support employees who
suffer from disabilities during their employment,
including the provision of flexible working to assist
their re-entry into the workplace.

Human Resources policies are reviewed regularly
to ensure that they are non-discriminatory and
promote equality of opportunity. In particular,
recruitment, selection, promotion, training
and development policies and practices are
monitored to ensure that all employees have the
opportunity to train and develop according to
their abilities.

The Group places considerable value on the
involvement of its employees and has continued
to keep them informed of the various factors
affecting the performance of the Group. This
is achieved through written communications
shared through the Company intranet and
email, and formal and informal meetings. All
employees participate in a bonus scheme based
on individual performance and Group business
targets and, in the UK, have the opportunity to
participate in an HMRC approved Share Save
Scheme and Share Incentive Plan.

Based on the closing headcount at 31 December
the split of staff by gender was as follows:

Reported Headcount

2019
Male/Female

2018
Male/Female

297/69

373/90

6/1

42/8

5/1

65/10

249/60

303/79

All employees

Directors

Senior managers

Employees excluding
Directors and senior
managers

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Xaar plcAnnual Report and Financial Statements 2019

Sustainable and responsible business continued

Project: Xaar energy
efficiency Hurricane Close

The management of Xaar is committed to
achieving and maintaining full compliance
with appropriate environmental, health
and safety legislation.

Although certain responsibilities under this
policy can be attributed to specific roles
within the organisation, and in particular with
different levels of management, each and every
Xaar employee shares the basic core duty to
understand their responsibilities to observe
instructions put in place and, where necessary,
to draw these to the attention of others.

To achieve our Environmental and Health &
Safety commitments, Xaar will ensure that the
organisation is led by example; systems are in
place to engage, train, develop and maintain
competent, informed personnel; resources are
allocated to enable environmental health and
safety standards to be maintained; employee
involvement and open communications are
actively encouraged; plant, equipment and
facilities are safe and without risk to the health
and welfare of all persons who could be affected
by their use or maintenance; substances
required and used in the workplace are handled
and disposed of safely and in accordance to
regulations; a comprehensive risk assessment
programme is maintained covering all activities
and processes, with control measures
implemented to minimise risk where applicable;
adequate welfare facilities are provided; where
accidents or ‘near misses’ occur, they are
reported, investigated and treated as the source
of learning for ongoing working practices; and
that best practice is shared across the Group.

The Group is committed to minimising its impact
on the environment through the reduction and
recycling of waste and by operating its facilities
as efficiently as is practicable.

Project: Xaar energy efficiency
Hurricane Close
Executive summary
At the end of 2018 Xaar kicked off a project to
review energy use at our Hurricane Close site
with a target of achieving a 7.5% reduction in
electricity consumed during the 2019 calendar
year. The site has a system of smart meters
which in conjunction with plant surveys were
used to identify potential areas for improvement.
Several ‘quick wins’ were identified making
a combined saving of 134 000 kWh for the
year 2019, these included a hard Christmas
shutdown where equipment in the clean rooms
was turned off during the Christmas break and
installation of a variable speed house vacuum
system to replace fixed speed vacuum pumps.

Detailed analysis of smart meter information
and analysis of data from the site Building
Management System followed which led to
various investigations and subsequent work on
the clean room’s Hevac systems. During the
course of 2019 to date we have saved a further
539000 kWh. This has been achieved in part by
reviewing historic environmental performance
data for the clean rooms and allowing our
Hevac plant to flex performance whilst meeting
historically achieved conditions.

As we stand today we will achieve a total saving
of 904 000kWh for 2019 from the project work
completed to date. When applied to 2020
across a whole year the total energy saving will
be in excess of 1,250,000kWh of energy.

Evidence of improvements in energy usage can
be backed up using data from our electricity
supplier invoices. The following graph plots
actual electricity consumed during 2018 by
month. Using 2018 as a base line, we have
calculated predicted energy savings from the
work completed and plotted a 2019 forecast
line. The actual 2019 usage line differs from
the predicted 2019 line due to fluctuations in
the production line output between the two
years and also due to external environmental
conditions. Allowing for output and
environmental differences, we believe the plot
effectively demonstrates the efficiency gains
made and the resultant reduction in electricity
consumption at our site.

h See table A

Project details – What did we target, what
did we do?
The following list details project work packages
to date, the lists break into twos actions,
quick wins and project work packages that
required significant investigation and analysis to
determine areas for improvement.

Quick Wins
• Christmas Equipment Shutdown – Actual

Saving in Jan invoice 62,677kWh

• Variable Speed Vacuum Pump – Target saving

72,000kWh pa.

Project Work Packages
• Clean Room 1 Laser Service Corridor humidity
control – Anticipated saving 124,000kWh pa
• AHU7 BMS control software, humidifier control

– Anticipated saving 18,200kWh pa

• AHU7 BMS chilling and dehumidification

efficiency – Anticipated saving 177,000kWh
pa

• Apply lessons from AHU7 work to AHU 2,3,4,6

– Anticipated savings 524,000kWh pa

• Plating area joint control, make one recirc unit
redundant – Anticipated savings 97,000kWh

• AHU7 Control, split cooling and

dehumidification controls – Anticipated savings
63,000kWh.

h See table B

Xaar plcAnnual Report and Financial Statements 2019Table A: Electrical energy consumption at Xaar Hurricane Close, 2018 verses 2019
HC Electricity kWh Day & Night

2018 actual kWh
2019 actual kWh
2020 predicted energy kWh

900,000

850,000

800,000

750,000

700,000

650,000

600,000

550,000

500,000

h
W
k

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Table B: Distribution board B2 (AHu2, AHU3)

B2 kWh
Average kWh per month
2018 kWh level

3,000

2,500

2,000

1,500

1,000

500

y
a
d
\
h
W
k

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Energy saving (kWh)

904,000

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Xaar plcAnnual Report and Financial Statements 2019

Sustainable and responsible business continued

Greenhouse gas emission statement

Statutory total 2019

2,731

Scope 2
Indirect emissions

Scope 1
Direct emissions

3,128
(60 tCO2e/£m)

2,623
(52.02 tCO2e/£m)

(tC02e)

6,263

6,000

5,000

4,000

3,000

2,000

1,000

4,475

4,432

4,088

The GHG emissions statement
includes emissions data from leased
assets that are not included in the
rest of the consolidated financial
statements, other than in note 31
Operating lease arrangements.

162

167

148

125
(02 tCO2e/£m)

108
(2.35 tCO2e/£m)

2014

2015

2016

2017

2018

2019

2020

Greenhouse gas emission statement
Xaar plc has calculated its Global Greenhouse Gas
(‘GHG’) emissions statement using an operational control
consolidation approach.

Scope 1 emissions
Scope 1 emissions occur from sources that
are owned or where Xaar plc has operational
control. This includes direct emissions from gas
combustion in our buildings and fuel used in
leased Company vehicles. Actual and estimated
gas consumption data has been collected from
each of the leased properties under the control
of the Xaar Group, from data sources including
direct meter readings, meter readings from
suppliers included on invoices and estimations
where required based on available information
from property management suppliers and other
sources. Actual mileage data has been collected
from the leased Company vehicle fleet.

Scope 2 emissions
Scope 2 refers to indirect emissions from the
consumption of purchased electricity (also
including any purchased heat, steam or cooling)
from facilities owned or under the operational
control of Xaar plc. Actual and estimated data
has been collected from each of the leased
properties under the control of the Xaar Group,
from data sources including direct meter
readings, meter readings from suppliers included
on invoices and estimations where required
based on available information from property
management suppliers and other sources.

Assessment parameters

Baseline year

1 January 2013 to 31 December 2013

Consolidated approach

Operational control

Boundary summary

Consistency with the financial
statements

Materiality threshold

Assessment methodology

Intensity ratio

All entities and all facilities under
operational control included subject
to the materiality threshold applied

The only variation is that leased
properties deemed to be under
operational control have been
included in scope 1 and 2 emissions

Materiality has been set at Group level
at 5%*

Greenhouse Gas Protocol and
ISO 14064-1 (2006)

Emissions per £m turnover
excluding royalties

* The total of any excluded emission sources are estimated to be less than 5% of Xaar plc’s total reported emissions.

Xaar plcAnnual Report and Financial Statements 2019Sustainable and responsible business continued

Greenhouse gas emission statement

Board approval of the Strategic and Annual Reports

Board approval

The Strategic Report, Annual Report and
Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the
information necessary for shareholders to assess
the Company’s position, performance, business
model and strategy.

The Strategic Report was approved by the Board
on 22 April 2020 and is signed on its behalf by:

Andrew Herbert
Chairman

Margaret Rice-Jones
Senior Independent Director

John Mills
Chief Executive Officer

Chris Morgan
Non-Executive Director

Ian Tichias
Chief Finance Officer

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Xaar plcAnnual Report and Financial Statements 2019

Introduction to Governance

Committed to high standards

Andrew Herbert
Chairman
We recognise the importance of, and
are committed to, high standards of
Corporate Governance, aligned with the
needs of the Company and the interests
of all our stakeholders.

Introduction
This corporate governance section of the Annual
Report sets out what governance means to Xaar and
to the Board, both in itself and in terms of its impact
on decision making in the business, and looks to
assure shareholders and others we have embedded
the values that they would expect to see in place.

Corporate governance is not just a set of guidelines
but a framework which underpins the core values
of the business. It sets standards against which we
can judge whether we are acting in the right way and
for the right reasons when we make decisions, while
ensuring we have all the appropriate and necessary
safeguards, checks and balances in place.

Culture and values
A healthy corporate culture is a valuable asset, a
source of competitive advantage and vital to the
creation and protection of long-term value. It is
the Board’s role to determine the purpose of the
Company and ensure that the Company’s values,
strategy and business model are aligned to it.

In order to make this a reality, we need to live by a
certain set of values every single day.

These values are our guiding principles.

• Trust

We trust each other to deliver on our
commitments and do the best for Xaar.

Andrew
Herbert
Chairman

Leadership ethos
We all lead with integrity, passion
& courage to inspire everyone to
live our values. We overcome our
challenges through innovation
& deliver on promises to our
customers, winning together.

• Collaboration

We all work together, and with our partners,
to achieve success.

• Drive

We are excited about our potential and put energy
into everything we do.

A new Code of Conduct has been introduced,
pulling together existing Company policies into a
single document to provide guidance to employees
on how to handle common ethical dilemmas when
decision making. Its development will help to
engender a sense of trust amongst employees and
stakeholders, and communication and promotion by
senior management can help inform critical business
decisions.

Board of Directors
The Board continues to provide leadership within a
framework of prudent and effective controls for risk
assessment and management.

The Non-Executive Directors play a vital role in
advising the Executive Directors, through informal
engagement as well as through attendance at formal
Board and Committee meetings. They continue
to provide effective and independent oversight of
the Company’s strategy and its broad business
operation.

Key decision areas reserved for the Board include:

• The Group’s strategy
• The Group’s corporate structure and capitalisation
• Approval of financial reports
• Risk management
• Approval of material transactions and contracts
• Board composition
• The remuneration policy for Executive Directors
• Approval of equity awards
• Oversight of governance, including approval of the

Group’s applicable corporate policies.

Xaar plcAnnual Report and Financial Statements 201943

Section 172 Statement
In accordance with Section 172 of the
Companies Act 2006, the Board recognises
the importance of our wider stakeholders to the
sustainability of our business. The Sustainable
& Responsible Business Report (pages 36 to
37) and the Governance section (pages 54 to
58) set out in more detail how the Board has
approached its duty under Section 172.

2018 UK Corporate Governance
Code
The 2018 UK Corporate Governance Code (the
‘Code’) sets out a new approach to governance.
This table shows where shareholders can
evaluate how the Company has applied the
principles of the Code and where key content
can be found in this report.

Non-financial information
statements

Environmental matters

Employee matters

Social matters

Human Rights

Anti-corruption and anti-bribery

Principal risks and uncertainties

Business model

Page

36 to 38

36, 42, 54 to 56, 66

36-37, 54 to 55

36, 56

28 to 35

4 to 7

Principles

Statement

Page

Board leadership &
Company purpose

The Board’s role is to promote the long-term sustainable
success of the Company, generating value for the shareholders
and contributing to wider society stakeholders – employees,
customers, suppliers, the community and the environment.

Division of Responsibilities

There exists a clear division of responsibilities between the Chair
and the Chief Executive Officer. The Chair’s primary role includes
ensuring the Board functions properly, that it meets its obligations
and responsibilities, and that its organisation and mechanisms are
in place and are working effectively.

Composition, Succession
and Evaluation

The Nomination Committee is responsible for regularly reviewing
the composition of the Board. The Executive Directors, in
consultation with the Chair, appraise the performance of the Non-
Executive Directors.

Audit, Risk & Internal
control

Remuneration

The Audit Committee plays a key role in monitoring and evaluating
our compliance and risk management processes, providing
independent oversight of our external audit and internal control
programmes, accounting policies and business transformation
projects, ensuring the Board reports are fair, balanced and
understandable.

The Remuneration Committee sets levels of remuneration which
are designed to promote the long-term success of the Group
and structures remuneration so as to link it to both corporate and
individual performance, thereby aligning management’s interests
with those of shareholders.

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Xaar plcAnnual Report and Financial Statements 2019
44

Board of Directors - 2020

R N

John Mills
Chief Executive Officer
Appointed: 2019

Qualifications
• Ph.D Physics.

Skills and experience
beneficial to the Company:
• Five years as CEO at Inca

Digital

• Previously CEO at DataLase
and COO at Plastic Logic

• Wealth of experience in inkjet,

having started career at
Domino Printing Sciences as
Development Scientist rising to
Director of Development after
four years in various technical
roles.

Andrew Herbert
Chairman
Appointed: 2016

Qualifications
• Chartered Management

Accountant

• BA (Hons) in Business Studies.

Skills and experience
beneficial to the Company:
• Extensive experience in the

global digital printing industry
following a 30-year career with
Domino Printing Sciences plc,
working both in the UK and
the US

• Group Finance Director/Chief
Financial Officer of Domino
Printing Sciences plc from
1998 to 2015 during which
time he played an instrumental
role in expanding the business
geographically through
acquisition and creation
of sales channels, and in
broadening the product range
via acquisition of technology
based businesses

• Previously held a number
of line director roles in
Finance, Operations, Planning
and Business Development.

External appointments
• Non-Executive Chairman
of Midwich Group plc.

Ian Tichias
Chief Finance Officer
Appointed: 2020

Qualifications
• ACA Institute of Chartered
Accountants in England &
Wales

• BSc (Hons) Economics &

Maths, University of Leeds.

Skills and experience
beneficial to the Company:
• Over 15 years’ experience in

senior financial roles

• Previously, Ibstock plc Group
Finance Director and Deputy
CFO, with direct responsibility
for the Group’s Clay division
business

• Other past roles include Senior

Director, Finance & Global
Pricing Lead – Europe, Africa
and Middle East for Zoetis
and before that, Head of
Finance for Pfizer Diversified
Businesses (‘PDB’) UK
• Proven track record of

delivering business focussed
finance operations that drive
efficiency and commercial
performance beyond finance.

R A N

Margeret Rice-Jones
Senior Independent Director
Appointed: 2015

Qualifications
• BSc in Engineering,
Durham University.

Skills and experience
beneficial to the Company:
• Over 25 years’ experience

within innovative technology
businesses

• Engineering background and
has operated at Board level
in various executive and
non-executive roles for the
last 15 years

• Margaret was CEO of Aircom

International, a global software
and services company, and
Corporate Vice President of
Motorola Inc.

• P&L responsibility for over
$1 billion revenue and has
worked with both business
turnaround situations and high
growth companies including
Skyscanner where she was
Chairman.

External appointments
• Chairman of Origami Energy

Ltd

• Non-Executive Director
of Holiday Extras Ltd.

Xaar plcAnnual Report and Financial Statements 2019Board dashboard
The Board has a balanced
and diverse range of skills and
experience.

All Board appointments are made on merit, in the context of the diversity of
skills, experience, background and gender required to be effective. Given the
change in Board membership 2020 & 2019 Board membership are disclosed.

Board tenure

Gender diversity

2020

0-2 years 2
3-4 years 3
>5 years 0

2019

2020

2019

0-2 years 1
3-4 years 4
>5 years 1

Male
Female

4
1

Male
Female

5
1

Board composition

Skill and experience
• Inkjet printing
• Political
• Regulatory
• Financial
• International
• Operations
• Current/Recent Chair

2020

Chair
Executive
Director 2
Non-
executive
Director 2

2019

Chair
Executive
Director 2
Non-
executive
Director 3

Key to Committee
A Audit
R Remuneration
N Nomination

Chair
Member

A R N

Chris Morgan
Non-Executive Director
Appointed: 2016

Skills and experience
beneficial to the Company:
• Wealth of expertise

in managing complex
international technology
businesses, having spent
25 years at HP Inc.
• Strong background in

global marketing, sales and
general management senior
executive roles including
global accountability for HP’s
multibillion dollar graphics/
industrial portfolio of digital 2D
and 3D printing businesses
from 2009-2012

• Extensive experience in Asia

and Japan having spent more
than a decade in senior APJ
leadership roles

• Led strategic investments in
key growth markets and has
been involved in a number
of mergers and acquisitions
at both the strategic and
operational levels

• Chief Marketing Officer for

Stratasys in 2014-2015 and
recently served as Senior Vice
President of Americas and
Asia for 3D Systems, Inc.
until January 2018.

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Xaar plcAnnual Report and Financial Statements 2019
46

Board structure - 2019

Board of Directors

Management Committee

Principle Committees

Audit Committee
The Audit Committee is responsible for
monitoring and reviewing the integrity of
the financial reporting process, including
the appropriateness and effectiveness
of the Internal Controls and Risk
Management procedures of the Group.

Nomination Committee
The Nomination Committee is
responsible for reviewing the size,
structure and composition of the Board
and providing advice to the Board
on Board and senior management
appointments and succession planning;
monitoring of the composition of the
Board and its Committees.

Remuneration Committee
The Remuneration Committee is
responsible for the development
and implementation of the Group’s
remuneration framework and policies
for Directors including all incentives
and bonuses.

Andrew Herbert
Chair
(Andrew Herbert resigned 31 March 2020,
Chris Morgan appointed 1 April 2020)

Robin Williams
Chair
(Robin Williams retired 31 March 2020,
Andrew Herbert appointed 1 April 2020)

h See pages 59 and 60.

h See page 61.

Margaret Rice-Jones
Chair

h See page 62.

Xaar plcAnnual Report and Financial Statements 2019Directors’ report

Report on the affairs of the Group

The Directors present their
Annual Report together with
the financial statements and
auditor’s report for the year
ended 31 December 2019.

The Company has chosen, in accordance with section 414C(11) of the
Companies Act 2006, to include matters of strategic importance in the
strategic report which otherwise would be required to be disclosed in
the Directors’ report. An indication of likely future developments in the
business of the Company and details of research and development
activities and important events since the financial year-end are included
the Strategic Report. The following cross-referenced material is
incorporated into this Directors’ report

Subject matter

Section / Page

Employee Engagement

Disabled employees

Directors’ Remuneration report on
page 66
Corporate Governance on page 54

Sustainable & responsible business
on page 36

Supplier engagement

Corporate Governance on page 54

Engagement with customers
& other business relationships

Strategic Report on page 18
Corporate Governance on page 54

There are a number of employee share schemes, namely, Employee
Share Option Schemes (‘ESOP’), Long-Term Incentive Plans (‘LTIPS’),
Share Incentive Plans (‘SIP’), and Share Save Schemes (‘SAYE’).

• Details of the Shareholding held in trust by Xaar Trustee Ltd, and
held by the Xaar plc ESOP trust are provided in note 28. These
have voting rights exercised by the Trustees.

• Details of other share based payment schemes are set out in note

33. Shares held in Xaar plc SIP do not hold voting rights.

No person has any special rights of control over the Company’s share
capital and all issued shares are fully paid.

The business of the Company is managed by the Board, which may
exercise all the powers of the Company subject to the Articles and the
Companies Act.

h The powers of Directors are described in the Main Board terms
of reference, copies of which are available on request, and the
Corporate Governance statement, division of responsibilities
on page 56.

Treasury
The Group’s policy enables it to use financial instruments to hedge
foreign currency exposures. The main trading currency of the Group is
the Sterling. The Group’s use of financial instruments and the related
risks are discussed further in notes 20, 21 and 24.

At the 2019 AGM held on 21 May 2019, the Company’s shareholders
granted the Company authority to make one or more market
purchases (within the meaning of section 693(4) of the Companies
Act 2006) of ordinary shares of 10 pence each in the capital of the
Company.

Greenhouse Gas Emissions

Sustainable & responsible business
on page 40

The Company did not purchase any shares for cancellation or to be
held as treasury in 2018 or 2019.

Political donations

Sustainable & responsible business
on page 36

Branches
In addition to the subsidiaries disclosed in note 10 of the Company’s
separate financial statements on page 150, there is a branch in
Stockholm, Sweden through which Research & Development activties
are conducted. Xaarjet Overseas Limited also has Sales Branches in
Hayana, India and Hong Kong.

Dividends
No interim or final dividend was proposed or paid for the year ended
31 December 2019.

h Details on dividends are set out on page 122.
Capital structure
Details of the issued share capital, together with details of the
movements in the Company’s issued share capital during the year,
are shown in note 26. The Company has one class of ordinary shares
which carries no right to fixed income. Each share carries the right to
one vote at general meetings of the Company, except for shares held
in the Xaar Share Incentive Plan trust, which hold no voting rights.
There are no specific restrictions on the size of a holding nor on the
transfer of shares, which are both governed by the general provisions
of the Articles of Association and prevailing legislation. The Directors
are not aware of any agreements between holders of the Company’s
shares that may result in restrictions on the transfer of securities or on
voting rights.

Directors and their interests
The Directors who served during the year, and subsequent to the
year-end, unless otherwise stated, were as follows:

Robin Williams
Chairman (retired 31 March 2020)

Andrew Herbert
Non-Executive Director (appointed Chairman 1 April 2020)

John Mills
Chief Executive Officer (appointed on 11 October 2019)

Doug Edwards
Chief Executive Officer (resigned on 11 October 2019)

Ian Tichias
Chief Finance Officer and Company Secretary (appointed on
1 March 2020)

Shomit Kenkare
Chief Financial Officer (resigned on 31 December 2018)

Margaret Rice-Jones
Senior Independent Director

Chris Morgan
Non-Executive Director

h Brief biographical descriptions of the Directors are set out on pages

44 and 45.
Full details of their interests in shares of the Company and its
subsidiary undertakings are included in the Directors’ Remuneration
report on page 69.

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Xaar plcAnnual Report and Financial Statements 2019

Directors’ report continued

Shareholdings in the Company
The interests of the Directors in the shares of the Company and its subsidiaries (all of which are beneficial) as at 31 December 2019 are
as follows:

Doug Edwards
John Mills
Shomit Kenkare
Robin Williams
Margaret Rice-Jones
Chris Morgan
Andrew Herbert

Number of
ordinary shares of
10p each
31 December
2019

Number of
ordinary shares of
10p each
31 December
2018

33,885
—
—
10,000
5,700
—
—

There have been no changes in the Directors’ interests in shares of the Company between 31 December 2019 and 21 April 2020. Directors’
interests in options over shares in the Company are shown in the Directors’ Remuneration report.

Directors’ liabilities
Xaar plc, the ultimate parent company and its subsidiaries have granted an indemnity to all of the Directors of Xaar plc and of its subsidiaries
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 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the Directors’ report.

Share capital
As at 31 December 2019 the Company had been notified in accordance with Chapter 5 of the Financial Conduct Authority’s (‘FCA’s’) Disclosure
and Transparency Rules of the following material interests in its share capital:

AXA Investment Managers
Aberforth Partners

M&G Investments
Schroder Investment Management
T Rowe Price International
Lombard Odier Asset Management
FIL Investment International
Legal & General Investment Management
Oppenheimer Funds
Canaccord Genuity Wealth Management
River & Mercantile Asset Management

Number
of ordinary
shares held

9,065,798
8,620,333

7,676,539
7,438,706
6,144,616
5,001,377
4,341,812
4,052,506
4,000,000
2,454,910
2,380,059

Percentage
of issued
share capital

11.57%
11.00%

9.80%
9.50%
7.84%
6.38%
5.54%
5.17%
5.11%
3.13%
3.04%

During the period 31 December 2019 to 21 April 2020, the Company had been notified in accordance with Chapter 5 of the Financial Conduct
Authority’s (‘FCA’s’) Disclosure and Transparency Rules of the following material interests in its share capital:

Schroder Investment Management (increase in shareholdings to 20.38% from 9.5%)
AXA Investment Managers (decrease in shareholdings to 4.16% from 11.57%)

Number
of ordinary
shares held

15,940,006
3,251,066

Percentage
of issued
share capital

20.38%
4.16%

Xaar plcAnnual Report and Financial Statements 201949

COVID -19 statement
In the lead up to the Annual General Meeting, we are closely
monitoring the impact of the Covid-19 virus in the United Kingdom.
In light of current public health advice and “Stay at Home” legislation
recently introduced, external shareholders (i.e. shareholders who
do not also hold office as a director of the Company) are prohibited
from attending the Annual General Meeting in person. Shareholders
attempting to attend the meeting will be refused admission. Instead
of attending this year’s AGM, shareholders are asked to exercise their
votes by submitting their proxy as set out in the Notice of Meeting.
All shareholders are strongly recommended to vote electronically at
www.signalshares.com as your vote will automatically be counted.
Given the currently escalating situation sending a paper proxy is
no guarantee of having your vote counted. In addition, should a
shareholder have a question that they would have raised at the meeting,
we ask that they send it by e mail to investor.relations@xaar.com before
5.00 pm on 25 May 2020. Answers to the questions will be published
on our Corporate website (www.xaar.com) after the AGM.

Annual General Meeting
h The notice convening the Annual General Meeting is set out

on pages 153 to 156.

Resolutions 1 to 8 set out in the notice of the meeting deal with
the ordinary business to be transacted at the meeting. The special
business to be transacted at the meeting is set out in Resolutions 9
to 14.

Re-election of Directors
Resolutions 4 to 7
The Company’s Articles of Association require the Directors to retire by
rotation at least once every three years, with the number to retire by
rotation at each Annual General Meeting being the number nearest to
but not exceeding one third of the Board. However, the UK Corporate
Governance Code provides that all Directors should be subject to
re-election by their shareholders every year. In accordance with this
provision of the UK Corporate Governance Code and in keeping with
the Board’s aim of following best corporate governance practice, the
Board has, in recent years, decided that all Directors should retire at
each Annual General Meeting and offer themselves for re-election.

The Company announced in September 2019, that Margaret Rice-
Jones would not seek re-election at this year’s Annual General
Meeting as she was intending to leave the Board at the time of the
Meeting. It remains the case that Margaret will not seek re-election
at the Annual General Meeting on the basis that she will soon leave
the Board. However, given the uncertainty of the current environment,
Margaret has agreed to remain in office until the end of June so as to
ensure an orderly transition once her successor is identified.

Directors’ Remuneration report
Resolution 8
This Resolution seeks shareholder approval for the Directors’
Remuneration report, which includes the new remuneration policy.

h The Directors’ Remuneration report can be found on pages 63
to 85 (inclusive) of the Annual Report and Financial Statements.
In accordance with regulations which came into force on 1 October
2013, Resolution 8 offers shareholders an advisory vote on the
implementation of the Company’s new remuneration policy.

Power to issue securities
Resolutions 9, 10 & 11
Under section 551 of the Companies Act 2006 (the ‘Act’), the
Directors may only allot shares or grant rights to subscribe for or
convert any securities into shares if authorised by the shareholders
to do so.

Resolution 9, which complies with guidance issued by the Investment
Association, will, if passed, authorise the Directors to allot ordinary
shares or grant rights to subscribe for or convert any securities into
ordinary shares, up to an aggregate nominal value of £2,611,143
(corresponding to approximately one third of the issued share capital
at 21 April 2020 and up to an additional aggregate nominal value
of £5,222,286 (corresponding to approximately two-thirds of the
issued share capital at 21 April 2020) in the case of allotments only
in connection with a fully pre-emptive rights issue. The Directors
have no present intention to exercise the authority sought under this
Resolution. However, the Directors may consider doing so if they
believe it would be appropriate in respect of business opportunities
that may arise consistent with the Company’s strategic objectives.

This authority will expire no later than 15 months after the passing of
the Resolution. It is the Board’s current intention to seek renewal of
such authority at each future Annual General Meeting of the Company.

Disapplication of pre-emption rights (Resolutions 10 and 11)
Under section 561(1) of the Act, if the Directors wish to allot equity
securities (as defined in section 560 of the Act) they must in the first
instance offer them to existing shareholders in proportion to their
holdings. In addition, there may be occasions, when the Directors
will need the flexibility to finance business opportunities by the issue
of shares without a pre-emptive offer to existing shareholders. This
cannot be done under the Act unless the shareholders have first
waived their pre-emption rights.

In accordance with institutional guidelines, under Resolution 10, to be
proposed as a special resolution, authority is sought to allot shares:

(i) in relation to a pre-emptive rights issue only, up to an aggregate

nominal amount of £5,222,286 (being the nominal value of
approximately two thirds of the issued share capital of the
Company); and

(ii) in any other case, up to an aggregate nominal amount of £391,672

(representing 5% of the issued share capital of the Company).

The Directors do not currently have an intention to exercise the
authority.

In addition, Resolution 11, which is also to be proposed as a special
resolution, asks the shareholders to waive their pre-emption rights in
relation to the allotment of equity securities or sale of treasury shares
up to a further aggregate nominal amount of £391,672 (representing
5% of the issued share capital of the Company), with such authority
to be used only for the purpose of financing (or refinancing, if the
authority is to be used in the six months after the original transaction)
a transaction which the Directors of the Company determine to be an
acquisition or other capital investment of a kind contemplated by the
Pre-emption Group’s Statement of Principles on Disapplying Pre-
Emption Rights.

The Directors will also have regard to the guidance in the Statement
of Principles concerning cumulative usage of authorities within a three
year period. Accordingly, the Board confirms that it does not intend to
issue shares for cash representing more than 7.5%. of the Company’s
issued ordinary share capital in any rolling three-year period other
than to existing shareholders, save as permitted in connection with an
acquisition or specified capital investment as described above, without
prior consultation with shareholders.

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Xaar plcAnnual Report and Financial Statements 2019
50

Directors’ report continued

Power to issue securities continued
Disapplication of pre-emption rights
(Resolutions 10 and 11) continued
If Resolutions 10 and 11 are passed, the authorities will expire at the
conclusion of the next Annual General Meeting of the Company, or,
if earlier, the date which is 15 months after the date of passing of the
Resolutions. It is the Board’s current intention to seek renewal of such
authorities at each future Annual General Meeting of the Company.

Authority to purchase own shares
Resolution 12
It is proposed by Resolution 12, by Special Resolution, to 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 the higher of:

(i) 5% above the average of the middle market quotations of the

shares as derived from the London Stock Exchange Daily Official
List for the five dealing days immediately preceding the day on
which the purchase is made; and

(ii) the amount stipulated by article 5(1) of the Buy-back and

Stabilisation Regulation 2003 (in each case exclusive of any
expenses payable by the Company).

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 Annual
General Meeting 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 ordinary shares under option, which remain
unexercised and outstanding as at 21 April 2020 (including options
awarded under LTIP which may be satisfied by subscription for
new shares) was 2,738,875. This represents 3.4% of the issued
ordinary share capital at that date. If the Company was to buy back
the maximum number of ordinary shares permitted pursuant to the
passing of this Resolution, then the total number of ordinary shares
under option which remain unexercised and outstanding as at
31 December 2019 would represent 3.5% of the reduced issued
ordinary share capital.

Directors’ Remuneration Policy
Resolution 13
That, the Directors’ Remuneration Policy, the full text of which is
contained in the Directors’ Remuneration report for the year ended
31 December 2019 and which is set out in pages 63 to 85 of the
Annual Report. Which will take effect at the conclusion of this meeting,
be approved.

Amendments Long-Term Incentive Plan
Resolution 14
That the amendments to the Xaar 2017 Long-Term Incentive Plan,
as shown in the marked-up version of the plan rules produced to the
meeting, be and they are hereby approved and the Directors be and
are generally authorised to adopt the amendments and to do all acts
and things that they consider necessary or expedient to give effect to
the amendments.

Additional information for shareholders
The 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.

Details of ordinary shares held in trust owned by the Company can be
found in note 28.

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

The Directors are authorised to issue and allot shares and to
undertake purchases of the Company’s shares. Appropriate
resolutions to renew these authorities are proposed to be passed
at the Annual General Meeting as detailed above and notice of which
is on pages 153 to 156.

h The notice of the Annual General Meeting is on pages 153 to 156.

Ordinary shares
On 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 for every ordinary share held 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
Annual General Meeting on pages 153 to 156 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 the Annual 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. No person holds securities carrying special rights with
regard to control of the Company.

Xaar plcAnnual Report and Financial Statements 201951

Restrictions
There 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 FCA whereby all employees of
the Company require the approval of the Company to deal in the
Company’s securities.

Articles of Association
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.

Action to be taken
As detailed in the notes to the notice convening the Annual General
Meeting, you will not receive a Form of Proxy for the Annual General
Meeting in the post. Instead, you can vote online at www.signalshares.
com. To register, you will need your Investor Code, which can be
found on your share certificate, once logged on, click on the “Vote
Online Now” button to vote. Proxy votes should be submitted as early
as possible and in any event, no later than 48 hours before the start of
the meeting (excluding weekends and public holidays). Shareholders
attempting to attend the meeting will be refused admission.

You may request a hard copy proxy form directly from the registrars,
Link Asset Services on 0871 664 0300. (Calls cost 12 pence per
minute plus your phone company’s access charge. If you are outside
the United Kingdom, please call +44 371 664 0300. Calls outside the
United Kingdom will be charged at the applicable international rate).
Lines are open between 9.00a.m. to 5.30p.m., Monday to Friday,
excluding public holidays in England and Wales.

Appointment and replacement of Directors
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the UK Corporate
Governance Code, the Companies Act and prevailing legislation.

The Board can appoint a Director but anyone so appointed must be
elected by an Ordinary Resolution at the next general meeting. All
Directors are required to submit themselves for reappointment every
year at the AGM (see: Re-election of Directors, above) in line with
UK Corporate Governance Code.

A Director may be removed by the Company in certain circumstances
set out in the Articles of Association or by an ordinary resolution of the
Company.

Significant interests
h Directors’ interests in the share capital of the Company are shown

in the table on page 48.

Major interests (i.e. those greater than 3%) of which the Company

has been notified are shown on page 48.

Company share schemes
The Xaar plc ESOP Trust holds 1.2% 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 control
The 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. Depending on
the achievement of performance conditions, share-based payment
arrangements may vest on change of control but this is subject to the
approval and exercise of the discretion of the Remuneration Committee.

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Xaar plcAnnual Report and Financial Statements 2019
52

Directors’ report continued

Going concern
h The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the
Strategic Report on pages 6 to 25.

The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out in
the Strategic Report on pages 6 to 25. Notes 20, 21 and 24 include
a description of the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives; details
of its financial instruments and hedging activities; and its exposure to
credit risk and liquidity risk.

The Board have considered the impact of the ongoing COVID-19
impact. Whilst the impact to date on trading and debtor recoverability
has been minimal, the impact of COVID-19 has created a high level of
uncertainty as to the outlook for the remainder of the financial year and
it is still too early to ascertain the impact this may have on our full year
2020 revenue and profitability.

The Board have therefore performed a number of stress tests to
assess the Group’s ability to continue as a going concern.

The Directors have prepared cash flow forecasts for the Group for
a review period of 12 months from the date of approval of the 2019
financial statements. These forecasts reflect an assessment of current
and future market conditions and their impact on the Group’s future
cash flow performance. The forecasts have been sensitised for a
reduction in revenue from the second half of 2020 to the end of the
review period. The forecasts have also been reverse stress tested by
significantly reducing revenue from the second half of 2020 to the end
of the review period, with some cost mitigations.

In the sensitised scenario the forecasts indicate the Group would still
have sufficient cash to continue. In the reverse stress tested scenario,
the Group would run out of cash. However, with some mitigation such
as reducing discretionary spend, delaying capital expenditure and
research and development costs, the Group would have sufficient
cash. Notwithstanding this, the Group has further options to mitigate a
cash shortfall which have not been factored into the above forecasts,
such as staffing reductions, further delaying/stopping capital and
research and development expenditure and applying for certain
government support measures. Should it become apparent that
sales orders, revenue and/or cash collections are being affected by
a global slowdown, the Directors will undertake a further review on
discretionary expenditure, staffing levels and capital investment to
protect the Group’s cash position.

Having considered all the above, including the Group’s current strong
cash position, the Directors remain confident in the long-term future
prospects for the Group and its ability to continue as a going concern
for the foreseeable future and therefore continue to adopt the going
concern basis in preparing the financial statements.

Viability Statement
The long-term viability of the Group is assessed by the Directors as
part of the risk management process and regular strategic reviews.

The Company has undertaken a thorough strategic review of all three
business units which has resulted in a three year plan which takes
into consideration the principal risks, product portfolios and R&D
roadmaps, the market opportunities, our competitive position, core
capabilities, and the cost structure, effectiveness and efficiency of the
organisation.

h Details of which are outlined in the CEO report and in the strategic

review on pages 18 to 23.

The plan forms the basis for strategic actions to be taken across the
Company and the key objectives for each business. These objectives,
and the key performance metrics associated with these, are regularly
reviewed by the Directors.

The Company is aware that it operates in an uncertain environment
and faces risks both internally and externally that could potentially
impact on the Company’s ability to achieve its strategy.

h The principal risks and uncertainties faced by the Company are

included on pages 29 to 35.

As part of the process of reviewing these risks, and other potential
risks, the Board assigns responsibility for these to members of
the Executive Committee. It is the responsibility of the Executive
Committee members to manage the risk and the mitigating actions.

This process is supplemented with strong internal controls and
processes. This combination ensures that the Company manages the
risks it faces appropriately and that these are considered in all of the
financial models.

The Board have assessed the viability of the Group over a three year
timeframe based on the development cycles of our competitors
and that of our customers and the probability this could lead to
technological advancements that disrupt the markets that Xaar
operates in. In practice the combined development time to produce
a new printhead and subsequently a new printer is longer than this.
The major risks to the Group in the three year timeframe considered
predominantly relate to existing competition displacing Xaar with their
current product portfolios and macro-economic events, such as the
COVID-19 pandemic, that cause a significant downturn in the global
economy.

In assessing the viability of the Group, the Board have reviewed
the forecasts and stress tested these by reducing forecasted
revenues by the same double digit percentage each year. Whilst the
future forecasts show growth (including expected sales from the
commercialisation of Xaar 3D), these stress tests indicate that even if
revenue decreases to an amount lower than that recognised in 2019,
the Group, with some mitigation such as reducing discretionary spend,
delaying capital expenditure and research and development costs,
would have sufficient cash to survive. Moreover, the Group has further
options to mitigate a cash shortfall which have not been factored into
the above stress tests, such as staffing reductions, further delaying/
stopping capital and research and development expenditure and
applying for certain government support measures.

Taking account of the Company’s current financial position, operating
performance, and the principal risks and uncertainties, the Directors
have assessed the prospects of the Company, and confirm that they
have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due for the next
three years, to December 2022.

Xaar plcAnnual Report and Financial Statements 2019Auditor
Ernst & Young LLP were appointed in 2019 and 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 auditor
h The Directors who were members of the Board at the time of

approving the Directors’ report are listed on page 41.

Having made enquiries of fellow Directors, 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

• 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

• If any independent director does not agree to support this

statement this must be disclosed.

This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.

Approval
The Directors’ report was approved by the Board on 22 April 2020
and is signed on its behalf by:

John Mills
Chief Executive Officer

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Xaar plcAnnual Report and Financial Statements 2019
54

Corporate Governance statement
Including Section 172 Statement

From 1 January 2019 the
Company has committed to
the principles of corporate
governance contained in the
2018 UK Corporate Governance
Code (‘the 2018 Code’) which
was issued in July 2018 by the
Financial Reporting Council,
effective 1 January 2019 for
which the Board is accountable
to shareholders.

The 2018 Code is an updated
set of Principles and Provisions
that emphasise the value of
good corporate governance to
long-term sustainable success
and achievement of wider
objectives.

S.172 Statement - Duty to promote the success
of the Company
A director of a company must act in the way he considers, in good
faith, would be most likely to promote the success of the company for
the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to factors (a) to (f):
a) The likely consequences of any decision in the long term,
b) The interests of the company’s employees,
c) The need to foster the company’s business relationships with

suppliers, customers and others,

d) The impact of the company’s operations on the community and

the environment,

e) The desirability of the company maintaining a reputation for high

standards of business conduct, and

f) The need to act fairly as between members of the company.
The governance report gives:
• A clear and honest view of progress throughout the year
• The outcome of our Board evaluation
• Disclosure of Board discussions and the resulting actions
• Our approach to ensuring long-term viability of the business
• Our approach to risk and mitigation.

Stakeholders

Shareholders
All Board decisions are made to promote
the long-term success of the Group for the
benefit of our shareholders.

People
Our people are a highly-skilled and technical
workforce. They are an essential component
of the Group’s ability to stay ahead in a fast-
moving world.

Community
As a Group, we have a wide-reaching indirect
impact on the communities and environments
we interact with and we are committed to
making sure that this impact is as positive as
possible.

Customers
Understanding our customers is critical for
the success of our businesses. By developing
long-term relationships with them we are well
placed to support their evolving business
requirements.

Suppliers and partners
Our relationships with our suppliers and
partners are integral to the delivery of
quality products to our customers and the
operational success of our business.

Xaar plcAnnual Report and Financial Statements 201955

Material issues

Engagement methods

• Financial performance
• Our strategy
• Long-term viability
• How the Group meets its environmental, social and governance

objectives.

• Culture
• Values
• Operating in an ethical environment
• Progression and personal development opportunities
• Remuneration
• Diversity and inclusion
• Workforce engagement.

• Economic and operational impact of Group businesses on local

communities

• Environmental impact of operations, both directly and indirectly
• Being able to demonstrate clear Environment, Social and

Governance policies and how these are measured.

• Annual General Meeting
• Annual Report and Accounts
• Results statements, trading updates and press releases
• Remuneration Policy consultation with significant shareholders

ahead of the approval of the new Policy

• Regular interaction between the Executive Directors with

shareholders and non-holders with investor relations roadshows

• Further details of shareholder engagement are reported in the

Directors Remuneration Report (page 63).

• Renewal of policies and procedures – Annual review
• Issue new Code of Conduct
• Annual employee appraisal and review by all managers
• Recruitment, Retention and Development plans
• Regular business updates / forums with Non-Executive Directors

and senior management to all employees

• Further details of employee engagement are reported in the

Directors Remuneration Report (page 66), Business Model outputs
(page 7) and Sustainable and Responsible business (page 36).

• Developing high-quality products in conjunction with customers to
equip them to maximise productivity and operational efficiency to
utilise less energy and raw materials

• Developing the reporting of emissions across the Group with the

intention to further improve environmental performance

• Supporting educational initiatives, awards and programmes for
young scientists in schools to promote science, technology,
engineering and mathematics subjects

• Further details of activities in the community are reported in

Sustainable and Responsible Business (page 36).

• Operational strength and the ability to meet customer requirements
• Ability to provide high-quality solutions and technical expertise and

advice

• Maintaining effective customer relationship management tools to

support the identification of customer needs

• Focus on continued innovation and prioritisation of R&D resource

• Ensuring we remain competitive with a strong differentiated value

and spend

proposition

• Innovation with R&D to develop new solutions to customer

requirements.

• Key account management structure across the businesses to

encourage meaningful, consistent and ongoing engagement with
customers.

• Ensuring an ethical supply chain
• Potential disruption of supply chain
• Competitiveness
• Financial performance
• Research and development investment.

• Effective and regular communication with suppliers with standardised

procedures

• Ensuring high standards throughout our supply chain measuring our

key suppliers against specific criteria, including anti-slavery

• Clear payment practice processes across the Group to ensure fair

and prompt treatment of creditors

• Continually monitoring the quality of our suppliers to optimise

operational efficiency

• Ongoing dialogue with strategic business partners
• Ensuring that Xaar values are shared with our partners and suppliers.

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56

Corporate Governance statement continued
Compliance with the Code

Application of the main principles of the Code
The Board has considered and implemented the provisions of the 2018
Code effective 1 January 2019. The Terms of Reference for the Audit,
Nomination and Remuneration Committees have been updated to
reflect the changes in the 2018 Code, with the Committees addressing
additional requirements of them. An explanation of how the Main
Principles have been applied during 2019 is set out below.

1. Board leadership and Company purpose
The Board’s role is to promote the long-term sustainable success of
the Company, generating value for the shareholders and contributing to
wider society:

The Group has three main locations. The head office functions, R&D,
EMEA sales, marketing, human resources, finance, IT and facilities
are based in Cambridge & Nottingham, UK. The Group has two
manufacturing facilities: one in Huntingdon, UK, and the other in
Vermont, USA. The Group also has representatives in other global
locations including USA, Italy, India, Hong Kong, Sweden and Denmark.

h Refer to page 6 for the Xaar business model.
During 2019, the Board commenced a strategic review of the business,
this concluded with the decision to cease all further Thin Film activities
and as a consequence impaired all associated assets and embarked
upon a further restructuring of the printhead business unit.

Subsequently, there has been a significant change of direction arising
from the strategic review, and transformation of the membership of the
executive board with new CEO, CFO and Chair being appointed. The
immediate focus will be on developing a customer-centric business
model and a change in the go to market strategy to increase the
product offering to original equipment manufacturers and progress
development of new technological solutions to address customer’s
requirements with a clear product roadmap.

The Board and 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. As a component
of the Remuneration Committees review of the proposed new policy,
contact was made with significant institutional investors to understand
and better develop an agreed policy.

h See Shareholder Communications as part of Directors’

Remuneration report on page 66.

The Group’s financial public relations advisors and lead brokers give
all investors and potential investors who have met with the Group’s
investor relations team, the opportunity to provide feedback on the
meetings. Additionally, the Chief Executive Officer and the Chief
Financial Officer provide feedback to the Board at the meeting following
shareholder meetings to ensure that the Board, and in particular the
Non-Executive Directors, possess an understanding of the views of
the Company’s major shareholders. Both the Chairman and the Senior
Independent Director are available to meet with shareholders
as required.

The Board uses the AGM to communicate with investors and to
encourage their participation.

Shareholders can access up-to-date Company information from the
Investors section of the Xaar website at www.xaar.com.

A resolution at the 2019 AGM had more than 20% votes cast against
(Resolution 9. Re-elect Robin Williams as a Director) arising from
the length of tenure as a Non-executive Director and Chairman. An
opportunity to engage with the significant shareholders who voted against
the resolution was offered in advance of the AGM but not taken up.

However the Company did make further efforts to make contact with
these shareholders to discuss their position, from which shareholders
provided feedback as to their position in relation to the resolution.
Having been on the Board of Xaar for more than the nine years
recommended by the Governance Code. Robin Williams stepped
down from the Board on 31 March 2020 having overseen the Strategic
Review and managed the CEO succession.

The Board have worked closely with Executive Management to redefine
the Group’s mission, vision and values which will underpin the Group’s
evolving culture under the new leadership team. Further information
in Directors Remuneration Report (page 65) and Sustainable &
Responsible Business (page 36).

The Board has formally introduced workforce engagement sessions
to be held at least three times a year, the first sessions taking place
in December 2018. With a designated non-executive director in
attendance.

The Company conducts its business with the highest standards of
integrity and honesty at all times and expects its employees to maintain
the same standards in everything they do. Employees are therefore
required to report any wrongdoing by Xaar or its members of staff that
falls short of these principles. The whistle-blowing, and anti-bribery and
corruption policies are available and communicated to all employees
via the Company intranet, and all employees confirm in writing that
they have read and comply with the whistle-blowing and anti-bribery
and corruption policies. All reported incidences of actual or suspected
bribery or corruption will be promptly and thoroughly investigated and
dealt with appropriately by the Board. The purpose of the anti-bribery
and corruption policy is to protect Xaar and its employees from
breaches of anti-bribery and corruption laws. Xaar does not tolerate
any employee or third party being involved in any level of bribery or
corruption. Xaar is committed to complying with applicable anti-bribery
and corruption laws in all countries in which it conducts business.

Following the changes made to the Company’s Articles of Association
to incorporate the provisions of section 175 of the Companies Act
2006 which gave boards the statutory power to authorise conflicts of
interest, any potential conflict of interest is approved by the Board in
advance of any action or appointment that could result in a conflict of
interest arising. Each member of the Board is familiar with the procedure
to follow in relation to conflicts of interest and the process is operated
efficiently.

2. Division of responsibilities
The Board discharges its responsibilities by providing strategic and
entrepreneurial leadership of the Company, within a framework of
strong governance, effective controls and a strong culture emphasising
openness and transparency, which enables opportunities and risks to
be assessed and managed appropriately. In addition, the Board sets the
Company’s strategic direction; ensures that the necessary financial and
human resources are in place for the Company to meet its objectives;
and reviews management performance.

There exists a clear division of responsibilities between the Chair
and the Chief Executive Officer. The Chair’s primary role includes
ensuring 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 Board delegates management of the business to the Executive
Committee, comprising of Executive Directors and senior operational
managers, headed by the Chief Executive Officer. The Executive
Committee 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.

Xaar plcAnnual Report and Financial Statements 201957

Executive Directors are not permitted to take on more than one significant
appointment as a director of a FTSE 100 company or any other
substantial appointment.

The responsibilities of the Chair, Chief Executive, Senior Independent
Director, Board and Committees are clear, set out in writing, agreed by
the Board and made publicly available, with terms of reference for the
committees available on request.

The Board’s policy for individual Director performance review is for a
formal and rigorous appraisal process based on performance by the
individual Director against specific targets. Individual Director performance
is reviewed at least annually. 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.

It is the Board’s intention to review its own performance, and that
of its Committees, at least once a year. All Directors were subject to
shareholder election or re-election at the 2019 AGM, as will be the case
at the 2020 AGM.

h The biographies of the Directors, set out on pages 44 to 45 contain
the evaluation of skills and experience beneficial to the Company that
the Board recommends the re-election or election of each Director.

4. Audit, risk and internal control
h The role and responsibilities of the Audit Committee are set out in the

Audit Committee section on pages 59 to 60.

The Audit Committee, led by Andrew Herbert, plays a key role in
monitoring and evaluating our compliance and risk management
processes, providing independent oversight of our external audit
and internal control programmes, accounting policies and business
transformation projects, and in assisting the Board in reporting in a fair,
balanced and understandable manner to our shareholders.
h The significant issues that the Audit Committee has considered

relating to the financial statements are set out in the Audit Committee
section on pages 59 to 60.

On 1 April 2020, Andrew Herbert will be succeeded by Non-executive
Director Chris Morgan as Chair of the Audit Committee, all of the Audit
Committee members are independent Non-executive Directors and have
financial and/or related business experience due to the senior positions
they hold or have held in other listed or publicly traded companies and/or
similar large organisations.

The Board has established arrangements to ensure that reports
and other information published by the Group are fair, balanced and
understandable. The Strategic Report, set out on pages 1 to 37, provides
information about the performance of the Group, the business model, the
Group’s strategy and the risks and uncertainties relating to the Group’s
future prospects.

h The Group’s policies relating to risk management and internal control
can be found in the ‘Risk management’ section of the Strategic
Report on pages 28 to 35.

The Committee has formally identified the Chief Executive Officer as
responsible for health and safety and the Chief Financial Officer as
Director responsible for risk assessment.

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5. Remuneration
The Remuneration Committee sets levels of remuneration which are
designed to promote the long-term success of the Group and structures
remuneration so as to link it to both corporate and individual performance,
thereby aligning management’s interests with those of shareholders.

h Details of the activities of the Remuneration Committee can be found
in the Remuneration Committee section on page 62 and in the
Directors’ Remuneration report on pages 63 to 85.

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The Non-executive Directors attend the Board meetings, and form the
Audit, Remuneration and Nomination Committees. They are responsible
for scrutinising the performance of management and determining
appropriate levels of remuneration of Executive Directors. They also
have a key role in appointing and, where required, removing Executive
Directors.

The Company Secretary is the secretary to the Board and its
Committees and is also the secretary to the Executive Committee.
All Directors have access to the services of the Company Secretary
and Directors may take independent legal and other professional
advice at the expense of the Company.
3. Composition, succession and evaluation
The Nomination Committee is responsible for regularly reviewing
the composition of the Board. In recommending appointments to
the Board, the Nomination Committee considers the range of skills,
knowledge and experience required, with due regard for the benefits
of diversity on the Board, including gender.

The Board continues to consider that diversity quotas at Board level are
inappropriate, and is committed to recruiting the best talent available,
assessed against objective criteria of skills, knowledge, independence
and experience. All candidates are therefore considered on merit
but without reference to a specific diversity policy and without any
established measurable objectives in respect of diversity quotas (e.g.
age, gender, ethnicity, disability, religion or educational and professional
background). More information on the Group’s gender profile is reported
in Sustainable & Responsible business on page 37.

The Board of Directors comprises the Chairman, two Executive
Directors and two Non-executive Directors.

The Board considers Margaret Rice-Jones, Chris Morgan and
Andrew Herbert to be independent within the meaning of the Code.
To be considered independent each Non-Executive Director is
sufficiently separate to management and free from any business or
other relationships which could affect their judgement, impartiality or
objectivity.

All the Non-executive Directors are deemed to be independent
members of the Board having no financial relationship or significant
links with related parties. Chris Morgan maintains his independence,
having departed Stratasys in 2015. All Directors complete a disclosure
document prior to appointment.

The appointment of new Directors is led by the Nomination Committee.
The year was an active one for the Nomination Committee, as the
culmination of the Strategic Review and newly introduced Governance
time limits on Board membership brought about four departures from
the Board between October 2019 and May 2020.

The Board conducted an internal review of the effectiveness of itself,
with each Non-executive Director, the Chairman and the Board
Committees in November 2019. From the review and conclusion
process areas of improvement were identified, in summary:

1. Preparation of material, content and frequency of meetings
2. Delegation of authority and matters requiring Board approval to be
extended to commercial contracts with long-term consequences

3. Insight into and interaction with the operating management
4. Access to off-board management and focus on succession planning.

h Further details of the activities of the Nomination Committee can be

found on page 61.

As part of the selection process for any potential directors, any
significant external time commitments are considered before an
appointment is agreed. All Directors are required to consult with the
Chair of the Board and obtain the approval of the Board, before taking
on additional appointments.

Xaar plcAnnual Report and Financial Statements 2019
58

Corporate Governance statement continued

Summary of Board meeting attendance in 2019
Eleven Board meetings were held in 2019.

Name

Doug Edwards1
John Mills2
Shomit Kenkare3
Robin Williams4
Margaret Rice-Jones
Andrew Herbert
Chris Morgan

1 Doug Edwards stepped down from the Board on 10 October 2019.

2 John Mills was formerly appointed as Chief Executive Officer on 11 October 2019.

3 Shomit Kenkare stepped down from the Board on 31 December 2019.

4 Robin Williams retired from the Board on 31 March 2020.

Board Committees
Summary of Committee membership:

Name

Robin Williams
Margaret Rice-Jones
Chris Morgan
Andrew Herbert
Doug Edwards1
John Mills1

Meetings attended

8 (8)
3 (3)
11 (11)
11 (11)
11 (11)
11 (11)
11 (11)

Audit Committee

Remuneration Committee

Nomination Committee

No
Yes
Yes
Chair
No
No

Yes
Chair
Yes
Yes
No
No

Chair
Yes
Yes
Yes
Yes
Yes

1 The Committee invites the CEO to attend meetings when the subject matter deems their presence appropriate.

Summary of Committee meeting attendance in 2019:

Name

Robin Williams
Margaret Rice-Jones
Chris Morgan
Andrew Herbert
Doug Edwards
John Mills

Audit Committee

Remuneration Committee

Nomination Committee

N/A
3 (3)
3 (3)
3 (3)
N/A
N/A

8 (8)
8 (8)
8 (8)
8 (8)
N/A
N/A

4 (4)
4 (4)
4 (4)
4 (4)
N/A
1 (1)

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

Statement of compliance with the Code
Throughout the year ended 31 December 2019 the Company has followed the provisions set out in the Code, and have either complied with the
provisions of the 2018 Code or explained why the provision has not been followed.

The Board confirms the 2019 Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for shareholders to assess the position, performance, strategy, and business model of the Company.

Approval
The Corporate Governance statement was approved by the Board on 22 April 2020 and is signed on its behalf by:

John Mills
Chief Executive Officer

Xaar plcAnnual Report and Financial Statements 2019Audit Committee

The Audit Committee (the
‘Committee’) is appointed
by the Board and comprises
independent Non-Executive
Directors of the Company.

The Chairman of the Committee in 2019, Andrew Herbert, is deemed
by the Board to have recent and relevant financial experience as he
was, until 2015, CFO of FTSE listed Domino Printing Sciences plc and
is a Fellow of the Institute of Chartered Management Accountants.
The Committee’s terms of reference are subject to regular review
to ensure they are appropriate and up to date with appropriate
regulations. They were last revised and updated in January 2019
and include all matters indicated by Disclosure and Transparency
Rule 7.1 and the 2018 UK Corporate Governance Code. The written
terms of reference of the Committee are available on request from
the Company Secretary.
Please see the tables on page 58 for details of the Committee
members in the year and the number of Committee meetings
attended. The Committee meetings are also attended, by invitation,
by the Chief Executive Officer, the Chief Financial Officer and other
senior financial or executive management as appropriate. The external
auditor attends specific parts of the meeting including separate
sessions with Committee members only.
Report from the Committee Chairman
I am pleased to present the Audit Committee’s report describing our
work during the past year.

Deloitte LLP (‘Deloitte’), originally appointed in 2009, were reappointed
as the Company’s auditor at the Annual General Meeting (‘AGM’). In
line with FRC guidance and following the AGM and completion of the
2018 audit, the Company undertook a tender for future audit services
subsequently appointing Ernst & Young LLP (‘EY’) as the Group auditor.
Deloitte formally resigned as auditor in July 2019 and EY commenced
their tenure with the review of results for the six month period to 30
June 2019. Anup Sodhi is the engagement partner.
The Audit Committee’s primary responsibilities are:

• To approve and monitor key financial and accounting policies

and practices

• To monitor the integrity of the financial statements,

announcements and review significant financial reporting
judgements contained therein

• To keep under review the adequacy and effectiveness of

internal controls

• To review procedures, systems and controls for whistle blowing,

fraud detection and bribery prevention

• To review, approve and monitor internal audit activities
• To monitor and review the Group’s external auditor’s independence,

objectivity and effectiveness

• To monitor and approve any non-audit services provided by the

external auditor

The Committee is not responsible for the identification of key risks or
the review of the adequacy of arrangements to mitigate those risks,
which remains the responsibility of the Board.

The Committee is required to report its findings to the Board at least
annually, identifying any matters on which it considers that action or
improvement is needed, to make recommendations on the steps to
be taken, and to ensure that the required actions are implemented.

Significant issues considered by the Committee
The Committee has a work plan that is designed to ensure its
responsibilities are fully discharged over the annual reporting cycle.
Specific items are added to the agenda for individual meetings
as required.

There were a number of significant accounting matters considered
during the year including:

• Capitalisation of development costs under IAS 38
• Consolidation of Xaar 3D Ltd – assessment of control
• Discontinued operations and impairment of P4 intangible assets
• Valuation of Xaar 3D call option with Stratasys
• Adequacy of provisions – doubtful debts and inventory valuation
Other areas considered include internal audit reports e.g.
improvements to the procedures for Revenue Recognition associated
with EPS contracts and control and compliance matters e.g. adoption
of IFRS 16 and treatment of leases.

Key areas of management judgement
The results of the Group in 2019 reflect a number of non-cash
adjustments both for non-recoverability of working capital balances
and impairment of intangible assets. These adjustments have led
to a significant pre-tax loss. The Committee has taken a pro-active
role in reviewing and challenging management judgement in respect
of recovery of overdue receivables and slow moving inventories,
in particular in light of non-satisfaction of commercial commitments
made by third parties. Further to the Board’s review of strategic
options and prospects for the Thin Film business, the Committee,
in consultation with the auditors, advised the Board on the
impairment of intangible and tangible assets associated with
the P4 Thin Film platform.

h Additional disclosure in relation to key sources of estimation

uncertainty and critical accounting judgements is provided in the
Group’s Financial statements – note 2 on page 101.

Key activities
In discharging its responsibilities the Committee has completed
the following activities:

Financial statements and reports
• Reviewed the Annual Report, financial statements and the

half-yearly financial report including disclosures made therein, and
confirm that taken as a whole, is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the
position, performance, strategy, and business model of the Company

• Reviewed Going Concern and Viability Statements
• Reviewed and confirmed the adoption and impact on the financial

statements of IFRS 16 ‘Leases’

• To conduct any tender process and make recommendation to the

• Reviewed reports from the external auditor on their work

Board on the appointment, remuneration and terms of engagement
of the external auditor.

and findings

• Reviewed the effectiveness of the Group’s internal control
environment e.g. Revenue Recognition procedures in EPS.

• The Audit Committee have reviewed and challenged the forecasts

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Xaar plcAnnual Report and Financial Statements 2019
60

Audit Committee continued

and scenarios relating to COVID-19 impact on the Going Concern
and Viability Statements and reviewed the associated disclosures
around COVID-19 and are satisfied that the Group can continue as
a going concern and the appropriate disclosures have been made.

Internal controls and compliance
To assist the Board with its responsibilities to effectively determine
the nature and extent of the Group’s significant risks, the Committee
carries out a robust annual assessment of the principal risks and
uncertainties facing the Group. The Board remains ultimately
responsible for determining the nature and extent of the effectiveness
of the risk management and internal controls system which mitigate
potential impacts on shareholder investments and the Company’s
assets.

The Committee undertakes this evaluation having:

• Agreed a schedule of internal audit activities, and reviewed

the results of internal audit activities performed

• Reviewed the internal financial controls and risk management

systems

• Reviewed fraud detection and the systems and controls for the

prevention of bribery

• Reviewed and approved new Company policies, including the
capitalisation policy and the corporate criminal offence policy

• At each meeting the Committee considered and challenged reports
from the internal auditors on the effectiveness of internal controls
and noted no significant weaknesses.

The Committee having performed the annual review of the Group’s
internal control processes considers the system to be effective and in
accordance with the Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting as issued by the FRC.

The Committee remains of the view that the statement made
regarding the Company’s viability period continues to be an accurate
assessment of the Company’s viability as at the date of the report.
The Viability Statement can be found in full on page 52.

As a Committee, a particular focus in 2020 will continue to be on risk
management and, in particular, the Group’s ongoing enhancements
to systems of governance and internal control.

External audit
• Successfully completed a tender for external audit services
• Reviewed and agreed the scope of the audit work to be undertaken

by the auditor

• Agreed the fees to be paid to the external auditor relating to their

services rendered for the annual audit and interim review

• Reviewed audit work performed on significant risk areas, including
those areas identified and discussed by the external auditor in
their report, and ensured the independence and objectivity of the
external auditor.

The Chairman of the Audit Committee will be available at the AGM
to answer any questions about the work of the Committee.

External auditor
During the year Deloitte completed their tenth year as the Company’s
auditor. In compliance with FRC and CMA Guidance for audit, a full
tender for audit services was undertaken in the period following the
AGM.

Deloitte was invited to participate. The Committee received three high
quality tender proposals and, after considering the merits of each,
made a recommendation to the Board that EY should be appointed.
The timing of the tender allowed the new auditor to engage
immediately with the review of interim results (for the six months
ended 30 June) and to advise the Committee on a number of
accounting matters.

In addition to the tender process, the Committee has met with
the Company’s new auditor on at least three occasions since
appointment. In future years it is expected that the Committee will
meet with the auditor a minimum of two times. The Chief Executive
Officer and Chief Financial Officer, and other relevant managers as
required, attend by invitation, except for a period of each meeting
where the Committee members may meet with the auditor without
any member of executive management present.

The Committee is required to assess the qualifications, expertise,
resources, and independence of the external auditor, and the
objectivity and effectiveness of the audit process. 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, reappointment, term, remuneration, and terms of
engagement of the external auditor.

The Committee safeguards Auditor objectivity and independence
through maintaining a dialogue with the auditor and by monitoring
all fees paid. It is the policy of the Group not to engage the statutory
auditor in any non-audit related services. This includes tax services.
Specifically, the Policy states that the preparation of tax forms, payroll
tax, calculation of indirect tax and the provision of tax advice cannot
be provided by the statutory auditor.

Note 7 to the Consolidated financial statements includes disclosure of
the auditor’s remuneration for the year.

The Committee, taking into consideration relevant UK professional and
regulatory requirements, regularly considers the independence and
objectivity of the auditor. The Committee receives an annual statement
from the auditor detailing their independence policies and safeguards,
and confirming their independence, taking into account relevant
ethical guidance regarding the provision of non-audit services by the
external auditor.

The Committee considers the effectiveness of the external audit and
the Group’s relationship with the external auditor on an on-going
basis. In completing the review of the effectiveness of the annual audit
in 2019, the Committee was able to conclude the audit undertaken by
Deloitte was effective. This review consisted of considering a number
of key points together with the senior financial management of the
Group. A similar exercise will be undertaken following completion of
audit procedures by EY on the 2019 results and reported on in next
year’s Annual Report.

Andrew Herbert
Former Chair of the Audit Committee

Xaar plcAnnual Report and Financial Statements 2019Nomination Committee

The Nomination Committee is
appointed by the Board from the
Non-Executive Directors of the
Company and the Chief Executive
Officer. The former Chair of the
Committee was Robin Williams.

The terms of reference of the Committee require at least two meetings
per year. When specific issues or changes need to be addressed, such as
the appointment of a new Board member, the Committee may meet on
additional occasions. Please see the tables on page 58 for details of the
Committee members in the year and the number of Committee meetings
attended.
Responsibilities
The Nomination Committee’s main responsibilities, as outlined in its terms
of reference, are:
• Reviewing the size, structure, composition and independence

of the Board and its Committees

• Identifying and nominating candidates to fill Board vacancies

as the need arises

• Ensuring adequate succession planning is in place for both Executive

Directors, Non-Executive Directors and members of the senior
management team

• Making recommendations to the Board on the appointment of new
Executive and Non-Executive Directors and their reappointment
following retirement by rotation

• Reviewing the results of the annual Board performance

evaluation process.

The Committee Chair will not chair the Committee when it deals with the
appointment of a successor to that role. The Committee shall annually
review its terms of reference and may recommend to the Board any
amendments. The terms of reference of the Committee are available on
written request from the Company Secretary.
The Nomination Committees role in Composition, succession and
evaluation of the Board are disclosed in the Corporate Governance
Statement.
Boardroom diversity
The Committee is committed to ensuring that recruitment and promotion
of individuals throughout the Group, including those at Board and senior
management level, always consider relevant skills, experience, knowledge,
ability, gender and ethnicity. All appointments are considered, on merit and
suitability against objective selection criteria with consideration of, amongst
other things, the benefits of diversity on the Board, including gender.
The Board has not established a specific diversity policy and has not set
any measurable objectives in respect of a diversity quota.
The gender ratio of the Board in 2019 is 17% female versus 83% male.
Further disclosure of information in respect of diversity for the Group is in
the Sustainable and Responsible report on pages 36 and 37.
Key issues and activities
The year was an active one for the Nomination Committee, as the
culmination of the Strategic Review and newly introduced Governance
time limits on Board membership brought about four departures
from the Board between October 2019 and May 2020.

The process adopted by the Committee to identify a candidate for a
specific vacancy is, in the first instance, to determine whether any external
individuals known to the Committee or internal candidates would be
suitable for the role. If no compelling candidates can be identified through
this process then an external search consultancy will be approached. Even
if a suitable internal candidate exist, an external mapping process may be
used.
Members of the Committee and other Executive and Non-Executive
Directors interview shortlisted candidates, as the Committee deems
appropriate. Upon identifying a suitable candidate, the Chair of the
Nomination Committee will recommend to the Board that the Company
make a formal offer of employment to the candidate.
Appointments
We engaged the services of external consultants Korn Ferry to conduct
a benchmarking exercise and validation process to validate an external
candidate known to the Board as a potential CEO successor. It was
determined on the conclusion of the validation exercise not to conduct a
full external search and we were delighted to conclude discussions that
enabled John Mills to join Xaar plc in August 2019, and formally appointed
as CEO on 11 October 2019, and appointed a statutory Director on
1 December 2019.
With our CFO announcing his intention to leave at the 2019 year-end,
we engaged the services of an external search firm, Independent
Search Partnership, to identify appropriate candidates to fill this role. The
recruitment process concluded in January 2020 with the announcement
of Ian Tichias appointment as CFO to commence on 1 March 2020.
Both Korn Ferry and Independent Search Partnership have no other
connection with the Group and are independent advisors.
After nearly ten years on the Board, including over three as Chair, the
Corporate Governance Rules necessitate my retirement from the Board.
An internal candidate with the relevant skills and experience was identified
and the Board unanimously approved the nomination of Andrew Herbert
as Chair to take up this role from 1 April 2020.
Finally, Margaret Rice-Jones indicated that she would step down from
the Board at the May 2020 AGM. We further engaged the services of,
Independent Search Partnership, who began the search for a Non-
executive Director with the skill set that would allow the individual to
serve as Chair of the Remuneration Committee. As incoming Chairman
of the Board, Andrew Herbert will lead the Nomination Committee in this
process. It remains the case that Margaret will not seek re-election at the
Annual General Meeting on the basis that she will soon leave the Board.
However, given the uncertainty of the current environment, Margaret has
agreed to remain in office until the end of June so as to ensure an orderly
transition once her successor is identified.
As part of the recruitment process the Committee ensure appropriate
disclosure of other demands on Full-time Directors time, any such external
appointment would require approval of the Board.
The Board of Directors profiles discloses any external appointments on
pages 44 and 45. No Executive Directors have a non-executive role in
a FTSE100 company, or other significant appointment. All Directors are
required to submit themselves for reappointment every year at the AGM.
Review of the Nomination Committee’s effectiveness
The Committee has reviewed and considered the effectiveness of its
performance during the year. The review included the views of members
of the Committee and of regular attendees at the various meetings
(including the Executive Directors). I am satisfied that the degree of rigour
and challenge applied in performing the Committee’s responsibilities is
appropriate and effective.

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Xaar plcAnnual Report and Financial Statements 2019
62

Remuneration Committee

The Remuneration Committee is
appointed by the Board from the
Non-Executive Directors of the
Company.

The Chairman of the Committee is Margaret Rice-Jones. The Chief
Executive Officer and other senior personnel attend meetings by
invitation, except when their own remuneration package is being
discussed. The written terms of reference of the Committee are
available on request from the Company Secretary.

h Please see the tables on page 58 for details of the Committee
members in the year and the number of Committee meetings
attended.

Responsibilities
The Remuneration Committee’s primary responsibilities are:

• To make recommendations to the Board on the Group’s policy for
executive remuneration, and review the ongoing appropriateness
and relevance of the policy

• To review the design of all share incentive plans and oversee

any major changes in employee benefit structures

• To monitor the level and structure of remuneration for senior

managers

• To determine the individual remuneration packages on behalf

of the Board for the Executive Directors of the Group

• To ensure appropriate stakeholder input into the work of the
Committee with specific focus on employees through regular
employee engagement.

Key issues and activities
The Committee has access to professional advice, both inside and
outside the Company, in the furtherance of its duties.

A new policy will be proposed to the AGM in June 2020. This
has been the main focus for the Committee as it considered the
application of the output of the strategic review and the subsequent
cessation of the thin film related activities to forward looking
remuneration contained in this report. The Committee also worked on
the new compensation levels for the incoming CEO and CFO reflecting
market practice in a company of a smaller size acknowledging the
reductions in market capitalisation and ensuring consideration of any
differences in quantum of rewards with the wider workforce.

During 2020 the Committee will undertake a broader review of the
remuneration across the Company to ensure it reflects the current
core principles arising from the review of the strategy by the new
CEO; Innovation, continuous improvement, delivery of commitments,
customer focus and alignment based on openness & transparency.
It will also consider the background of COVID-19 and its impact on
remuneration.

The Directors’ Remuneration report sets out in more detail the
Committee’s policies and practices on Executive remuneration.

Margaret Rice-Jones
Chair of the Remuneration Committee

Xaar plcAnnual Report and Financial Statements 2019Directors’ Remuneration report

Statement from the Chairman of
the Remuneration Committee

Dear Shareholder
On behalf of the Board, I am pleased to present the 2019
Remuneration report. This covers the actual amounts earned by
Directors for the year ended 31 December 2019 and a forward looking
guide to changes proposed for our new policy to run for 2020-
2022. The Committee is mindful of external developments linked to
COVID-19. The impact of COVID-19 and for how long it will be felt is
currently uncertain. The Committee will consider carefully the impact
of COVID-19 in taking decisions in relation to remuneration in 2020.

The Committee’s goals are:

• Attracting and retaining management of the highest calibre
• Providing incentives that reward near and longer term achievement

that are clearly linked to performance and Company strategy
• Offering competitive packages comparable to those offered by

companies similar to Xaar in terms of size and complexity

• Being considerate to the climate for pay restraint, with awards

biased towards delivery of sustainable long-term growth
• Being considerate to the current share price and trading

performance of the business

• Taking into account the views of all our stakeholders including
specific employee engagement activities and shareholder
consultations.

Remuneration for 2019
During 2019 the challenging market trends we had experienced
since 2017 continued to impact the growth and development of
the Company. In the Printhead business unit whilst bulk piezo sales
stabilised we were disappointed by the sales performance of the 1201
thin film product. Strong progress was made in the 3D area with the
further investment from Stratasys in our partnership, approved by
shareholders on 27 November 2019.

In reaction to the declining share price, the Remuneration Committee
used its discretion during the year in reducing the normal grant level
to the CEO and CFO. Instead of using the share price at the point
of grant, a price of £3.34 was used to calculate the quantum which
represented the average price over the previous 12 months. Similar
scalebacks were made in other awards across the company. This
year also saw significant changes in the Executive management of
the Company. In October John Mills replaced Doug Edwards as
CEO and at the end of December Shomit Kenkare left the Board. We
welcomed Ian Tichias as CFO on 1 March 2020. A summary of Ian’s
remuneration is set out below:

Notice period

12 months

Salary

Pension

£210,000 (less than his predecessor)

6% of salary, in line with the wider workforce

Annual bonus Up to 100% of salary

LTIP

Annual award over 170,000 shares, subject
to an annual limit of 100% of salary as further
described below.

Annual bonus payments
Following the profit warning in late 2019 no bonus payments will be
made to employees or Executive Directors against the profit and
cash targets. We were disappointed with the slower than expected
adoption of some of our new products and the delays in 5601. Delays
resulted in higher than expected forecasted costs to complete the thin
film programme leading us to look for strategic investment partners
for this activity and eventually to our decision to stop this work on the
project announced in September. Threshold cash and profit targets for
the annual bonus were not met and no bonus was paid in respect of
these elements. The strategic goals relating to the thin film bonus were
also not met.

A “buy-out” bonus of £45,833 was agreed with John Mills who joined
the business in August 2019 as head of the Printhead business unit.
This was to compensate John for the loss of income as a result of
John joining us quickly after accepting our offer. John is planning to
use all of this bonus (after tax) to acquire shares in the Company on
the open market once the trading window allows thus aligning his
interests with other stakeholders.

Existing LTIP grants
The 2017 LTIP grant will not vest. Cumulative EPS over the three year
performance period ending 31 December 2019 was below the vesting
threshold on that element of the grant. Threshold vesting was at 39
pence and maximum at 61 pence. Aon Hewitt has independently
calculated the Relative TSR measured against the FTSE All Share
Index. This also fell below the vesting threshold on that element.

In line with our existing policy all unvested grants to departing
Executives Doug Edwards and Shomit Kenkare lapsed on
31 December 2019.

John Mills was given a joining grant on 4 October 2019 of 180,328
nil cost options which will vest after 3 years with holding periods as
defined in our existing policy. These options carry the performance
criteria of an Absolute EPS requirement and TSR relative to the FTSE
SmallCap (50/50 weighting) which must be achieved on conclusion
of a 3-year vesting period. Actual performance targets are considered
commercially sensitive and will be disclosed retrospectively or as soon
as they are no longer considered commercially sensitive.

Leading remuneration decisions for 2020
The policy is now due for renewal with a binding vote at the AGM
in June 2020. The Remuneration Committee has undertaken a
comprehensive and detailed review of the operation of the whole
awards policy with support from our consultants. The Remuneration
Committee Chairman has also consulted with Xaar’s largest
shareholders and key shareholder bodies.

Background to policy changes
When reviewing our binding policy it was clear that the current
structure, designed for a high growth business, was no longer
suitable for the Company as it did not operate as intended in terms
of Company performance and quantum of outcome. In designing
the new policy, we have made changes to reflect the lower revenues
and revised growth strategy in order to improve strategic alignment,
aid simplicity and ensure that it is aligned to our culture, aligning key
elements such as pension with the wider workforce. The current
strategy and underlying culture are built on the following principles;
Innovation, Continuous Improvement, Delivery of Commitments and
alignment built on Openness & Transparency.

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Xaar plcAnnual Report and Financial Statements 2019
64

Directors’ Remuneration report continued

Leading remuneration decisions for 2020 continued
Background to policy changes continued
The annual bonus will now have a deferred element which encourages long-term sustainable growth. The metrics and targets have been set to
align with the new strategic direction that our new CEO is setting for the short term. Performance targets are shared with plans for the wider staff
to ensure alignment and openness within the business.

The LTIP now fits with the new strategy and the focus on:

• developing our current technology base in bulk printhead business;
• exploiting the technology in our product print business; and
• bringing the product in our 3D business to commercialisation.

The quantum of options has also been reviewed and we will be reducing the number granted while our share price recovers.

Summary of proposed new policy
The table below summarises the principal differences between the policy approved at the AGM in 2017 and the policy for which approval
will be sought at the AGM in 2020. Other changes have been made to the policy as a consequences of these principal changes, to aid the
administration of the policy and to reflect changes in governance best practice.

Feature

Current

Proposed

Rationale

Annual bonus
performance
measures

Two metrics of PBT (60%) and
Revenue (40%).

With flexibility to vary weightings and
consider alternative measures in
future. In 2019 this was PBT (60%)
and cash improvement (40%) with
additional strategic measures.

Three metrics of PBT (50%),
Cash flow improvement (30%)
and 3D revenue (20%).

With flexibility to vary weightings
and consider alternative measures
in future. Revenue element is
subject to a minimum cash gate.

To drive the return to profitability,
focus on working capital
improvements and push 3D
towards commercialisation.

Annual bonus
maximum

Maximum of 125% of salary (CEO)
and 100% (CFO).

No change.

Annual bonus deferral

No deferral.

Annual LTIP
performance
conditions

EPS growth 60% and revenue
growth 40% with relative TSR as a
multiplier.

30% of bonus awarded paid in
deferred shares and subject to a
two year deferral period.

Absolute EPS and TSR against
FTSE SmallCap index. Weighting
of 60% EPS 40% TSR maintained.
With flexibility to vary weightings
and consider alternative measures
in future.

Simplifies the current plan, contains
Total Direct Compensation, and
places more emphasis on longer
range achievement.

In line with shareholder
expectations and encourages
building sustainable growth aligning
Executive and shareholders.

To focus on achievement of 3 year
plan, acknowledging the nature of
the challenge for a new Executive
team in a turnaround situation.

Annual LTIP
grant quantum

Up to 150% (CEO) and 100% (CFO)
base grant with multiplier to increase
to 300% (CEO) and 150% (CFO) of
base salary.

A fixed number of shares (based
on £1.22 share price being average
12 month price at October 2019
as used in the CEO “buyout” grant)
CEO: 365,000 and CFO: 170,000.

To manage potential dilution
and remove the complexity of
calculating the price to use at the
time of grant and ensuring we
maintain the 10% in 10 year limit.

Up to a maximum of 150% salary
for CEO and 100% for CFO.

Annual LTIP
vesting

3 to 5 years with a vesting in equal
tranches from year 3.

Award vesting over a 3 year
performance period with a 2 year
holding period.

To comply with Corporate
Governance Code.

Pension

Pension rate set at 10%.

Pension rate set at 6%.

To align with wider workforce.

We already have an “in service” shareholding guideline of 2x salary. As part of the policy review we considered how to address the requirement
of the Corporate Governance Code to develop a policy on post-employment shareholding requirements. Our approach is to apply the “leaver”
provisions included in our incentive plans, which we consider will continue to align the interests of Executive Directors with those of shareholders
following employment, in particular having regard to the introduction of bonus deferral and a two year holding period for the whole of the LTIP
award.

Xaar plcAnnual Report and Financial Statements 201965

Bonus performance targets for 2020
We believe the three metrics chosen this year reflect the strategy
and key challenges in 2020 for the Company. Namely to improve the
profitability of the Company and in particular the Printhead business
unit, to protect the cash position of the business and improve
operational cash flow whilst ensuring the 3D business delivers on its
growth targets including those related to the commercial availability
of its products (revenue and gross margin). The revenue measure will
also be subject to a “cash gate”, requiring that the 3D BU must reach
a threshold level of cash generated by Operations in order for there to
be any payout.

The Company considers its performance targets to be commercially
sensitive information but as in past years will fully disclose the exact
measurements retrospectively.

Operation of the LTIP and performance measures for 2020
As noted above, the fixed number of shares has been determined
by reference to a share price of £1.22. Based on a share price of
£0.50, which applied when we consulted with shareholders these
awards would equate to 60% and 40% of salary for the CEO and CFO
respectively. As the share price increases, the percentage of salary
would increase (subject to the 150% and 100% of salary maximum)
and self-rectify towards the market competitive range for a company
of our size. The Committee has the discretion to review the fixed
number of shares to be granted in the 2 future years of the policy
(subject to the cap of 150% of salary for the CEO and 100% of salary
for the CFO).

EPS (60% of the award)
Given the turnaround position of the Company the Board considers
the absolute EPS performance targets for 2022 to be used in the
LTIP awards this year to be commercially sensitive information at this
time but as in past years will fully disclose the exact measurements
retrospectively in the event of any pay out. We will revert to publishing
any measurement targets in advance as we have done in the past as
soon as possible.

TSR (40% of the award)
Will operate as follows against the peer group (FTSE SmallCap Index):

• Threshold – ie 25% – at median performance with respect to the

peer group

• Target – straight line between threshold and maximum
• Maximum – at upper quartile performance with respect to the

peer group.

Base salary
Executive Directors
An Executive Director’s basic salary is set on appointment and
reviewed annually or when there is a change in position or
responsibility.

When determining an appropriate level of salary, the Committee
considers:

• general salary rises to employees
• remuneration practices within the Company
• any change in scope, role and responsibilities
• the general performance of the Company
• the experience of the relevant Director
• the economic environment
• when the Committee determines a benchmarking exercise

is appropriate (normally every three years) salaries within the
ranges paid by the companies in the comparator groups used for
remuneration benchmarking.

Individuals who are recruited or promoted to the Board may, on
occasion, have their salaries set below the targeted policy level until
they become established in their role. In such cases subsequent
increases in salary may be higher than the general rises for employees
until the target positioning is achieved.

The CEO’s salary was set at £300,000 on appointment in October
2019 and will not be increased in 2020. The CFO’s salary was set
at £210,000 on appointment in March 2020 and will not be increased
in 2020.

Non Executive Directors
From 1 January 2020 the Chairman fee has been reduced to £90,000
pa. This will apply to Robin Williams until the end of March when he
steps down and to Andrew Herbert from 1 April 2020.

Also from 1 January 2020:

• Andrew Herbert will receive fees of £45,000 pa + £3,000 as

Chair of the Audit Committee (pro-rata in this year)

• Margaret Rice-Jones will receive fees of £45,000 pa +£3,000 as

Chair of the Remuneration Committee and £1,000 as SID (pro rata
until her departure)

• Chris Morgan will receive fees of £45,000 pa + £1,000 as Chair of
the 3D entity and from 1April 2020 £3,000 pa as Chair of the Audit
Committee (pro rata in this year).

We believe these fees are appropriate and competitive for a company
of our size.

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Xaar plcAnnual Report and Financial Statements 2019
66

Directors’ Remuneration report continued

UK Corporate Governance Code
The Committee has also considered the guidance of the UK
Corporate Governance Code as it has produced the proposed policy.
The pension is now in line with the wider UK employee body and
post vesting holding periods have also been adjusted in line with the
recommendations of the code. Malus and clawback provisions have
been extended to include corporate failure and a post employment
shareholding policy has been introduced, reflecting the “leaver”
provisions in our variable remuneration. We have also added the ability
to override formulaic outturns in relation to the LTIP and expanded the
circumstances in which we may do so as regards the annual bonus, in
each case to reflect the provisions of the new Code. The Committee
has maintained the minimum target shareholding requirements at
200%, these are all considered appropriate for a company of the size
of Xaar. As both Executive Directors are new to the Company it will
take some time for them to work towards this level.

COVID-19
At this time in the circumstance surrounding the COVID-19 virus the
Remuneration Committee is especially mindful of the need to ensure
that Executive compensation in 2020 and any LTIP’s granted during
the year is aligned with the interests of the broader stakeholder
groups. We will continue to operate a bonus scheme and award LTIP’s
to the Executive and the broader employee base in a manner similar
to previous years. The targets for these schemes have been set to
align with shareholder interests and would represent a significant
improvement on the performance of 2019. The Committee also
expects to exercise judgement over the extent to which any cost offset
actions influence reported results and will use its discretion should a
formulaic approach to these elements of variable remuneration provide
windfall gains or any other gains that are not aligned with the interests
of all stakeholders. The fact that we have set a fixed number of shares
to be granted to the Executive rather than an award that relies on
the current share price further protects and aligns the interests of
shareholders whilst providing incentives for this new Executive team

Employee engagement
The forum we established in 2018 has proved invaluable to the Board
in 2019. The forum comprises all the four Non-Executive Directors
and a group of employees drawn from both the Cambridge and
Huntingdon sites. These discussions have covered a wide range of
topics and input into the future of the Company and have not been
limited to remuneration matters. During 2019 a significant portion of
time was spent on future strategy and comments from the forum have
been especially useful in creating the new strategy for the Printhead
business unit. The Committee also recognised that the various
strategic options would not impact the Company in a uniform manner
especially as we considered the thin film strategy with some areas
such as 3D still expanding whilst others contracted. This presents
challenges when considering the application of both short and longer
term incentives. In such a critical year we felt that it was appropriate
that all Non-executive Directors participate in this rather than a single
nominated Director or the appointment of a single employee to the
Committee. Employees are drawn from as wide range of functions
within the business as possible to ensure all views were represented.
They will continue to meet with the Non-executive Directors at least
three times during the year in future to ensure that all Non-executives
can better appreciate employee perspectives as they participate in
Board discussions.

The forum allowed the employees to express some dissatisfaction
at the extent of a scaleback that was applied to SAYE scheme in
2019. This feedback has allowed the Company to better explain the
constraints that such scheme operates under including Corporate
Governance and the Non-executive Directors to consider how many
shares are allocated to the scheme in the future. It is very important
to the leadership team that our employees, have the same alignment
with our strategic goals, are driving the success of the Company and
will benefit from a share of any future success.

These forums will be supplemented by data from the all employee
survey that has been in place for several years which provides an
opportunity for anonymous feedback from all employees around the
globe. The Board also receive regular feedback on broader employee
communications sessions held by management.

Shareholder communications
Results of the recent policy consultation
We remain committed to openly reporting the details of our Director
pay arrangements and to consulting with shareholders on any
changes as required. I would like to thank those of you who engaged
in our recent consultation of the proposed policy.

We received feedback during the consultation that shareholders were
concerned that the 3D revenue goal without other constraints could
lead to behaviour that was not aligned with their interests we have
therefore added a cash gate to the 3D element of the annual bonus
scheme. This will ensure that gross margins on sales effectively
form a gate for this element of the bonus.

We also received feedback on the light touch nature of the post-
employment shareholding requirement which we will keep under
review. As both Executive Directors have joined the business in the
last seven months neither has a significant vested holding hence we
believe that the light touch policy where we will review the situation
on a case by case basis is appropriate for this policy cycle.

We will continue to maintain a dialogue with investors regarding our
disclosures to ensure we clearly communicate our arrangements as far
as possible without it impacting our commerciality. If you would like to
discuss any aspect of this report, I would be happy to hear from you.

You may contact me through the Company Secretary or Millie Bullett,
who provides support to Non-executive Directors. I will not seek
re-election at the AGM in June as previously announced to focus on
my other Non-executive appointments and have enjoyed working
with you all.

Margaret Rice-Jones
Chairman of the Remuneration Committee
22 April 2020

Xaar plcAnnual Report and Financial Statements 201967

Annual report on remuneration
This part of the report sets out the actual payments made by the Company to its Directors with respect to the year ended 31 December 2019.

The Remuneration Committee’s policy is to attract and retain individuals of the highest calibre by offering remuneration competitive with
comparable publicly listed companies, and to drive Company performance by providing arrangements which fairly and responsibly reward
individuals for their contribution to the success of the Group. Performance related bonuses and equity-based remuneration represent a
substantial proportion of Executive Directors’ potential remuneration.

The information provided in this part of the Directors’ Remuneration report is subject to audit.

Single figure table
The aggregate remuneration provided to Directors who have served as Directors in the year ended 31 December 2019 is set out below,
along with the aggregate remuneration provided to such Directors for the financial year ended 31 December 2019.

Year ended 31 December 2019

Salary/fees(a)

£’000

Benefits(b)
£’000

Bonus(c)
£’000

Long-term
Incentives(d)
£’000

Pension(e)
£’000

Clawback4
£’000

Total
remuneration
£’000

Executive
John Mills1
Doug Edwards2
Non-Executive
Robin Williams (Chairman)
Margaret Rice-Jones
Chris Morgan
Andrew Herbert

Shomit Kenkare3

Year ended 31 December 2018

Director

Executive
Doug Edwards
Lily Liu4

Ted Wiggans5
Non-Executive
Robin Williams (Chairman)
Margaret Rice-Jones
Chris Morgan
Andrew Herbert

67
271

102
48
44
47

6
59

—
—
—
—

46
—

—
—
—
—

—
—

—
—
—
—

3
27

—
—
—
—

—
—

—
—
—
—

122
357

102
48
44
47

Salary/fees(a)

$’000

294

Benefits(b)
$’000

Bonus(c)
$’000

—

Long-term
Incentives(d)
$’000

—

Pension(e)
$’000

Clawback4
$’000

Total
remuneration
$’000

—

356

Salary/fees
£’000

Benefits
£’000

Bonus
£’000

Long-term
incentives
£’000

Pension
£’000

Clawback
£’000

Total
remuneration
£’000

345
200

139

102
48
44
47

71
1

—
—
—
—

52
0

—

—
—
—
—

0
0

—
—
—
—

34
20

—
—
—
—

—
(77)

—

—
—
—
—

502
144

168

102
48
44
47

Shomit Kenkare6

Salary/fees(a)

$’000

Benefits(b)
$’000

Bonus(c)
$’000

—

Long-term
Incentives(d)
$’000

Pension(e)
$’000

Clawback4
$’000

Total
remuneration
$’000

—

1 John Mills became CEO and joined the Board on 11 October 2019.

2 Doug Edwards stepped down from the Board on 11 October 2019.

3 Shomit Kenkare stepped down the Board on 31 December 2019 and his salary is paid in US Dollars. (2019 Average exchange rate $1.277/£).

4 Lilu Liu stepped down from the Board on 14 November 2018, the bonus and relocation allowance paid to Lily Liu was clawed back following her resignation.

5 Ted Wiggans stepped down from the Board on 31 March 2018 following his previously announced retirement.

6 Shomit Kenkare joined the Board on 15 November 2018 and his salary is paid in US Dollars. (2018 Average exchange rate $1.335/£).

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Xaar plcAnnual Report and Financial Statements 2019

Directors’ Remuneration report continued

The figures in the single figure table on page 67 are derived from the following:

(a) Salary/fees

(b) Benefits

(d) Long-Term Incentives

(e) Pension

The amount of base salary/fees received in the year.

This is the taxable value of benefits and the flexible benefits allowance received in the year.
This includes any relocation allowance claimed in 2019.

The value of the bonus earned in respect of the year.

The value of performance related incentives vesting in respect of the financial year and the
value of SAYE options and Matching Shares under the HMRC approved Share Incentive
Plan (‘SIP’) granted based on the fair value of the options/shares at grant.

The performance conditions for the Performance Share Awards granted under the LTIP on
16 May 2017 was a cumulative EPS amount and a revenue growth delivered over the three
year performance period ending 31 December 2019 plus a relative TSR measure.

For the year ended 31 December 2019, the Company’s EPS achieved -108 pence over
the three year performance period commencing 1 January 2017 and ending 31 December
2019, and revenue growth of -£50.7 million was achieved during the same period. Xaar was
ranked 251 against the 255 companies in the FTSE SmallCap Index during the performance
period.

This will result in 0% of the granted LTIPs vesting in 2020.

For the year ended 31 December 2018 comparative figures, 0% of the Performance Share
Awards in respect of the year ending 31 December 2018 vested.

The value of the employer contribution to the defined contribution pension plan in the UK or
the 401k plan in US (or the value of a salary supplement paid in lieu of a contribution to this
pension plan).

Individual elements of remuneration
Base salary and fees
Base salaries for Executive Directors were reviewed by the Remuneration Committee prior to the beginning of each year and when an individual
changes position or responsibility. In deciding appropriate levels, the Remuneration Committee considers the role, responsibility, and experience
of the individual, corporate and individual performance, market conditions, and the range of salary increases awarded across the Group.

The fees for the Non-executive Directors are reviewed periodically.

Benefits
UK Benefits principally comprise a car allowance, private medical insurance and basic levels of other insurances (such as income protection
cover). In addition, UK Executive Directors are provided with an allowance of 5% of base salary which they can apply to a range of benefits such
as life insurance and critical illness insurance. US Benefits comprise of health insurances including medical, vision and dental.

Pension
The Company operates a self-administered, defined contribution, HMRC approved pension scheme. UK Executive Directors participate in this
scheme. In appropriate circumstances, Executive Directors may take a salary supplement instead of contributions into a pension plan. This
salary supplement does not form part of salary for the purposes of calculating any other entitlement under the policy. US Executive Directors
participate in a 401k plan. Non-executive Directors do not receive pension contributions.

Annual bonus
For the year ended 31 December 2019 the annual bonus was based on performance against Group profit (70%) and cash (30%) targets, which
were not achieved for 2019. As a consequence, an annual bonus in respect of these elements will not be paid for 2019.

In accordance with our recruitment policy, John Mills was offered a bonus payment to compensate him for losses he would incur when joining
Xaar as CEO. His intention is to use the after tax amount of this bonus to buy shares to move towards his shareholding requirements. This
transaction will take place at the next available opportunity.

Xaar plcAnnual Report and Financial Statements 201969

Long-term incentives awarded during the financial year
The table below outlines awards made under the LTIP to Executive Directors in 2019:

Award basis

Performance condition

Number
of shares

Face value of
the award
£’000

Vesting at
EPS & Revenue
threshold

Performance period

Vesting date

4 October 2019John Mills

30 April 2019 Doug Edwards1

30 April 2019 Shomit Kenkare2 Performance
Share plan
Awards

1 Doug Edward’s LTIP lapsed in full on 31 December 2019.

2 Shomit Kenkare’s LTIP lapsed in full on 31 December 2019.

EPS
TSR

90,164
90,164

EPS
TSR
Printhead revenue
3D & PPS Revenue

77,470
154,940
30,988
46,482

34,431
34,431
13,772
20,659

110
110

75
150
30
45

33
33
13
20

25% of award1 January 2019 to
31 December
2021

4 October 2022
4 October 2022

25% of award

1 January 2019 to
31 December
2021

30 April 2022
30 April 2022
30 April 2022
30 April 2022

The share price used to calculate the face value of Doug Edwards’ and Shomit Kenkare’s LTIP awards was £0.97 being the mid-market price on the
day prior to award date. The price used to calculate the quantum of shares granted was £3.34 which was the average mid market price over the period
23 to 29 March 2018. This second price figure was used to reflect the drop in share price and reflect Corporate Governance guidance that using price
at grant against a percentage of salary would be inappropriate in the circumstances. The Board considers the performance targets used in the LTIP
awards to be commercially sensitive information at this time but as in past years will fully disclose the exact measurements retrospectively in the event
of any pay out.

h The performance conditions for the LTIP and awards are described in full on pages 139 and 140.
Shareholding guidelines and total shareholdings of Directors
On 16 May 2017, the Remuneration Committee introduced a shareholding guideline of 2x salary. Executive Directors will be expected to move towards
the new guidelines as new grants vest. The extent to which each Executive Director has met the shareholding guideline is shown in the table below:

Unvested

Current
shareholdings at 31
December 2019 (or
date or resignation if
earlier)
(% of salary)

Shareholding
guidelines

Type

Owned
outright

Vested

Subject to
performance
conditions

Not subject to
performance
conditions

Total as at
31 December
2019 (or date of
resignation if
earlier)

Name

Executive Directors

John Mills1

200% of salary

(0%)

Shares
LTIP options

—
—

—
180,328

Doug Edwards2

200% of salary

33,031 (14%)

Shares
LTIP options
Matching SIP

33,031
—
—

—
40,134
—

Shomit Kenkare3

200% of salary

Shares
LTIP Options

—
—

Non-Executive Directors

Robin Williams (Chairman)

Margaret Rice-Jones

—

10,000

5,700

—
—

—

—
—
—

—
—

—

—
—

—
—
854

—
—

—
180,328

33,031
40,134
854

—
—

—

10,000

5,700

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1 John Mills’ LTIPs were granted before his appointment to the Board.

2 Doug Edward’s unvested LTIP lapsed on 31 December 2019.

3 Shomit Kenkare’s unvested LTIP lapsed on 31 December 2019.

There have been no changes in the holdings of any current Director in the share capital of the Company, as set out in the table above, between
31 December 2019 and 21 April 2020.

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Xaar plcAnnual Report and Financial Statements 2019

Directors’ Remuneration report continued

Outstanding Directors’ share awards
The awards held by Executive Directors of the Company under the LTIP are shown below:

LTIP
The outstanding awards granted to each Executive Director of the Company under the Xaar plc 2007 and 2017 LTIP are as follows. All options
under the LTIP are nil-cost options such that no exercise price is payable. The performance conditions for these LTIP awards are described in full
in note 33.

Name

John Mills1

Doug Edwards2

Shomit
Kenkare3

As at
1 January
2019 (or date
of appointment
if later)

Granted
during
the year

Exercised
during
the year

Lapsed
during
the year

As at
31 December
2019 (or date
of resignation
if earlier)

Share price
at date
of grant

Grant date

Earliest date
of exercise

Expiry date

— 180,328
— 180,328

—
—

— 180,328 4 October 2019
— 180,328

£0.452 4 October 2022 4 October 2029

40,134
61,539
11,494
47,559
255,267
309,880

—
—
—
—
—

— 309,880

—
—
(61,539)
—
(11,494)
—
—
(47,559)
— (255,267)
— (309,880)
(309,880)

2 April 2015
40,134
1 April 2016
—
11 May 2016
—
— 25 August 2016
16 May 2017
—
3 April 2018
—
30 April 2019
—

725,873

309,880

—

(995,619)

40,134

£4.09
£4.875
£4.93

2 April 2018
1 April 2019
11 May 2019

2 April 2025
1 April 2026
11 May 2026
£4.9675 25 August 2019 25 August 2026
16 May 2027
3 April 2028
30 April 2029

16 May 2020
3 April 2021
30 April 2022

£3.702
£3.34
£0.97

10,000

—

(10,000)

— 103,293

— (103,293)

10,000

103,293

— (113,293)

—

1 June 2018

£2.985

1 June 2021

1 June 2028

30 April 2019

£0.97

30 April 2022

30 April 2029

1 John Mills’ LTIP were granted before his appointment to the Board.

2 Doug Edwards stepped down from the Board on 11 October 2019 and his termination date from Xaar Plc was 7 January 2020. His unvested LTIP awards have lapsed.

3 Shomit Kenkare stepped down from the Board on 31 December 2019. His unvested LTIP awards have lapsed.

All employee share plans
The Executive Directors may participate in the Company’s all employee share plans, the Xaar plc SAYE Scheme (‘SAYE Scheme’) and the Xaar
SIP, on the same basis as other employees.

The SAYE Scheme provides an opportunity to save a set monthly amount (up to £500) over three years towards the exercise of a discounted
share option, which is granted at the start of the three years.

The SIP provides an opportunity for employees to buy shares from their pre-tax remuneration up to the limit permitted by the relevant tax legislation
(currently £1,800 per year) and are awarded additional shares for free on a matching basis; the Company currently operates the plan on the basis
of a 1:1 match but may award Matching Shares up to the maximum ratio permitted by the relevant tax legislation (currently a 2:1 ratio).

Options and awards under these plans are not subject to performance conditions.

The outstanding awards granted to each Executive Director under the SAYE Scheme at 31 December are as follows:

Name

As at
1 January
2019

Granted
during
the year

Lapsed
during
the year

Exercised
during
the year

As at
31 December
2019

Grant date Exercise price

Earliest date
of exercise

Expiry date

Doug Edwards

4,316

—

4,316

—

— 1 November 2015

£4.17 1 November 2018

1 May 2019

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71

Total number of
matching shares
as at 31 December
2019

368

The outstanding awards granted to each Executive Director under the SIP at 31 December are as follows:

Name

Doug Edwards

Payments for loss of office made during the year
On 11 October 2019 Doug Edwards stepped down from the Board. He remained available to the Company until his termination date of
7 January 2020 at which point he was paid £95,629 in lieu of pay and benefits to 31 March 2020. In line with the LTIP rules his unvested LTIP
have lapsed and he has 6 months from termination date to exercise vested options.

Shomit Kenkare stepped down from the Board on 31 December 2019. No payments for loss of office were made and his outstanding share
awards lapsed on his termination date. He continues to work on a fixed term basis as an advisor to the CEO.

The information provided in this part of the Directors’ Remuneration report is not subject to audit.

Performance graph and table
The graph on this page shows the Company’s performance measured by total shareholder return (‘TSR’), compared with the performance of the
FTSE TechMARK and SmallCap All Share Index, which the Remuneration Committee considers to be the most appropriate index for comparison
because they illustrate the Company’s TSR performance against a broad equity market index of similar UK companies.

Total Shareholder Return

)

d
e
s
a
b
e
r
(

)

(

e
u
a
V

1,600

1,400

1,200

1,000

800

600

400

200

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Xaar

FTSE TechMARK All Share

FTSE Small Cap

Source: Datastream (Thomson Reuters).

This graph shows the value, by 31 December 2019, of £100 invested in Xaar on 31 December 2009, compared with the value of £100 invested
in the FTSE TechMARK All Share and FTSE Small Cap Indices on the same date on a yearly basis.

The other points plotted are the values at intervening financial year-ends.

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Directors’ Remuneration report continued

The table below shows details of the total remuneration, annual bonus (as a percentage of maximum opportunity) and LTIP vesting percentage
for the Chief Executive Officer over the last ten financial years.

Year ended 31 December 2019 - John Mills

Year ended 31 December 2019 - Doug Edwards

Year ended 31 December 2018
Year ended 31 December 2017
Year ended 31 December 2016
Year ended 31 December 2015
Year ended 31 December 2014
Year ended 31 December 2013
Year ended 31 December 2012
Year ended 31 December 2011
Year ended 31 December 2010

Total
remuneration

Annual bonus
as a %
of maximum
opportunity

LTIP as a %
of maximum
opportunity

122

357

502
594
429
571
562
1,379
649
1,244
504

0%2

12%
0%
12.5%
48%
0%
83%
53%
100%
80%

0%
50%
0%
0%
100%
100%
100%
100%
32%

1 Doug Edwards was CEO from 1 January until 10 October, and John Mills was CEO from 11 October until 31 December.

2 John Mills did not earn a bonus under the annual bonus scheme in respect of 2019. He received a buy-out bonus of £45,833 to compensate him for the loss of loss of income to join Xaar.
Chief Executive Officer pay increase in relation to all employees
The table below sets out in relation to salary and annual bonus the increase between the pay for the year ended 31 December 2018 and the
pay for the year ended 31 December 2019 for the Chief Executive Officer compared with the average increase/bonus award between the same
periods for the wider workforce. For the purposes of the table below, the wider workforce has been defined as the UK employees of the Group.
This comparator group was chosen because it is the most relevant sub-set of employees and can be used consistently.

Element of remuneration

Salary – % change
Annual bonus – absolute % of salary paid
Benefits – absolute % of salary paid

CEO

(2%)
15%
19%

Wider workforce
average

4%
0%
9%

1 The 2% reduction reflects the difference between the salary earned by Doug Edwards in 2018 (£345,000) and the aggregate salary earned by Doug Edwards and John Mills in 2019 for

the period in which each was CEO (£338,000). John Mills’ rate of salary on appointment as CEO of £300,000 is 13% less than Doug Edwards’ rate of salary.

2 The bonus paid relates to the “buy-out” bonus paid to John Mills, this was not part of the annual bonus scheme.

CEO Pay gap ratio
The ratio between the CEO’s pay for FY19 as per the single figure table and the median UK employee is 12:1. This is shown below together
with the pay quartiles. The median and quartile figures have been determined based on Option A as this was stated in the code as the most
statistically accurate method. The employees at the 25th percentile, median percentile and 75th percentile were determined by reference to
remuneration at 31 December 2019.

Year

2019

Method

25th percentile

Median pay ratio

75th percentile

Option A

17:1

12:1

8:1

The total pay and benefits for each of the identified comparator employees for 2019 is as follows:

Total pay and benefits

Salary

25th percentile

Median pay ratio

75th percentile

£28,530

£39,004

£57,588

£26,000

£33,000

£52,659

The Company believes that the median pay ratio for 2019 is consistent with the pay, reward and progression policies for the Company’s
employees.

Xaar plcAnnual Report and Financial Statements 201973

Spend on pay
The table below sets out the Group’s distributions to shareholders by way of dividends and total Group-wide expenditure on pay for all employees
(including employer social security, pension contributions and share-based payments), as reported in the audited financial statements for the financial
year ended 31 December 2019.

Dividends paid to shareholders
Group-wide expenditure on pay for all employees (note 8)

2019
£’000

2018 Restated
£’000

0
25,416

6,009
27,594

Change %

(100%)
(8%)

Implementation of Directors’ Remuneration Policy for the financial year commencing 1 January 2020
Information on how the Company intends to implement the policy for the financial year commencing 1 January 2020 is set out below.

We want our remuneration policy to support our turnaround and our strategy to stabilise the business after a challenging period and to drive recovery
through our three business units. A new three year policy will be approved in 2020 intended to drive and reward the achievement of short- and long-
term objectives aligned with shareholders’ interests, to retain a refreshed Executive Team over the longer term and to simplify the reward structures.

Basic salary and fees
Our approach to base salary is to maintain salaries that are market competitive for a business of our size and market capitalisation.

As the CEO is new in post his salary will not change in 2020 and will be subject to review in January 2021. The new CFO will be joining in March 2020
so will also be subject to review in January 2021.

The proposed base salary increases for the Executive Directors are shown below:

John Mills
Ian Tichias

Review date

2019

2020

% increase

1 Jan 2020
—

£300,000
—

£300,000
£210,000

0%
0%

Robin Williams agreed that it would be appropriate for the fee for this position to be reduced. This reduction will also affect Andrew Herbert as he steps
into this role. The other Non-Executive Directors have received a small fee increase for 2020.

Additional duties

Additional fees

Review date

2019

2020

% increase

Robin Williams
Margaret Rice-Jones
Andrew Herbert
Chris Morgan

Rem Com & SID
Audit Committee

£4,000
£3,000

1 Jan 2020
1 Jan 2020
1 Jan 2020
1 Jan 2020

£102,000
£44,300
£44,250
£44,100

£90,000
£45,000
£45,000
£45,000

(11.7%)
1.58%
1.69%
2.04%

Annual bonus
The maximum opportunity for the Chief Executive Officer is 125% and for the Chief Financial Officer is 100% of salary. 30% of any bonus earned will be
deferred in shares and subject to a two year deferral period. The core performance metrics of the bonus are profit, cashflow and 3D revenue.

The Board considers the Group profit and cashflow targets for 2020 to be matters that are commercially sensitive and should therefore remain
confidential to the Company. It provides our competitors with insight into our business plans, expectations and our strategic actions. However,
the Remuneration Committee will disclose on a retrospective basis how the Company’s performance relates to any annual bonus payments made.

Long-term incentives
Through the next three years of turnaround, we wish to simplify the LTIP and remove the outperformance multiplier. We will maintain the maximum
grant of 150% of salary for CEO and 100% for CFO but move to granting a fixed number of shares each year. Until our share price recovers, this move
is designed to manage shareholder dilution and remove the complexity of having to determine an appropriate price for each year’s grant. Metrics will be
set to reflect the key challenges seen across the business and specific units for that year.

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Performance measures will align to the wider FTSE SmallCap market and will initially include the following:

1. Relative TSR (FTSE SmallCap)
2. Third year EPS target.

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They will have an appropriate minimum threshold and straight-line vesting to a stretching maximum achievement.

We will continue to measure EPS but due to commercial sensitivity these EPS targets will not be disclosed at this time as they are deemed to be
commercially sensitive. They will be fully disclosed retrospectively.

Awards will be subject to a two year holding period after the three year performance period.

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Directors’ Remuneration report continued

Consideration by the Directors of matters relating to Directors’ remuneration
Membership
The Company has established a Remuneration Committee which is constituted in accordance with the recommendations of the UK Corporate
Governance Code. The terms of reference of the Remuneration Committee can be obtained by contacting the Company Secretary.

The Remuneration Committee is currently chaired by Margaret Rice-Jones. The other members during the year ended 31 December 2019
were Robin Williams, Andrew Herbert and Chris Morgan. All members of the Remuneration Committee are considered independent within the
meaning of the UK Corporate Governance Code.

The principal function of the Remuneration Committee is to determine, on behalf of the Board, the specific remuneration and other benefits
of Executive Directors, including pension contributions, bonus arrangements, long-term incentives and service contracts. The fees paid to the
Non-Executive Directors are determined by the Chief Executive Officer and the Chairman. The fees paid to the Chairman are determined by the
Chief Executive Officer and the Non-Executive Directors.

Additionally, the Remuneration Committee makes recommendations to the Board on the framework of Executive Director remuneration as well
as principal Company-wide compensation programmes.

The members of the Remuneration Committee have no personal financial interest, other than as shareholders, in the matters to be decided,
no actual or potential conflicts of interest arising from other directorships and no day to day operational responsibility within the Company.
Executive Directors are not entitled to accept more than one non-executive directorships outside the Group.
Advisors to the Remuneration Committee
The Remuneration Committee is assisted in its work by Xaar’s human resources department. The Chief Executive Officer is consulted on the
remuneration of those who report directly to him and also of other senior executives. No Executive Director or employee is present or takes part
in discussions in respect of matters relating directly to their own remuneration.

During the year, the Remuneration Committee was assisted in its work by the following external consultants:

Advisor

Details of appointment

Services provided by the advisor

Willis Towers Watson

Appointed by the
Remuneration Committee
in 2016

Consulting advice
regarding LTIP award levels
for 2019 grant in response
to share price decline

Fees paid by the Company
for advice to the Remuneration
Committee and basis of charge

Other services provided
to the Company in the year ended
31 December 2019

£2,027

n/a

Appointed by the
Remuneration Committee
in 2019 following a
competitive tender. Deloitte
is a founder member of the
Remuneration Consultants
Group and provides advice
on executive remuneration
consulting In the UK in
line with that Group’s
Code of Conduct. The
Remuneration Committee
considers Deloitte to be
independent.

Deloitte LLP

Consulting advice
regarding the proposed
Directors Remuneration
policy for 2020

Note: Deloitte Sweden
provide audit services to
our subsidiary in Sweden.

£8,850

Shareholder voting
The Company remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The following table sets out
actual voting in respect of the resolution to approve the Directors’ Remuneration report for the year ended 31 December 2018, and in respect of
the resolution to approve the current Directors’ Remuneration Policy at the 2017 AGM.

Number of votes

Resolution 10 – Directors’ Remuneration report for the year ended 31 December 2018

Resolution 13 - Directors’ Remuneration Policy - 2017 AGM

For (including)
discretion)

54,684,659
(87.8%)

54,599,814
(86.2%)

Against

Withheld

7,605,879
(12.2%)

8,720,060
(13.8%)

445,241

1,527,691

Xaar plcAnnual Report and Financial Statements 201975

Directors’ Remuneration Policy
This part of the report sets out the Company’s Directors’ Remuneration Policy, for which approval will be sought at the 2020 AGM. The Policy is
determined by the Remuneration Committee. The Directors’ Remuneration Policy is not audited.
Policy table for Executive Directors
The table below describes each of the elements of the remuneration package for the Executive Directors.

Base salary

Objective

Core element of fixed remuneration that provides the basis to recruit and retain talent necessary to deliver the business
strategy.

Operation

Normally reviewed annually and any increases generally apply from 1 January (but may be reviewed more frequently if
required).

When determining base salary levels, consideration is given to the following:

• Role, responsibility and experience of the individual
• Corporate and individual performance
• Market conditions including typical pay levels for comparable roles in companies of a similar size and complexity
• The range of salary increases awarded across the Group.

Opportunity

No maximum salary opportunity has been set out in this policy report to avoid setting expectations for Executive
Directors and employees.

The base salaries effective as at 1 January 2020, are shown on page 67.

Not applicable.

Performance
measure

Benefits

Objective

Provide a market-competitive benefits package to recruit and retain Directors of the calibre required for the business.

Participation in the Company’s Share Incentive Plan (‘SIP’) and Share Save Scheme (‘SAYE’) encourages share
ownership and alignment with the wider workforce.

Operation

Executive Directors receive base benefits including car allowance, private medical insurance, and basic levels of other
insurances (such as income protection cover).

All UK staff, including Executive Directors, are also provided with a benefit allowance which they can apply to a range of
benefits, including pension contributions. In some circumstances, and subject to Remuneration Committee approval, the
allowance may be paid in cash rather than utilised to purchase benefits.

The SIP and SAYE are HMRC approved share plans for all employees facilitating the acquisition of shares in the
Company at a discount.

Other benefits may be provided based on individual circumstances, such as, but not limited to: housing or relocation
allowances, travel allowance or other expatriate benefits.

Opportunity

Whilst the Remuneration Committee has not set an absolute maximum on the level of benefits Executive Directors
receive, the value of benefits is set at a level which the Remuneration Committee considers to be appropriately
positioned taking into account relevant market levels based on the nature and location of the role and individual
circumstances.

The flexible benefits allowance is currently up to 5% of base salary.

The Remuneration Committee has the authority to review and amend this rate as appropriate. Individuals have the choice
to invest all or part of this amount in their pension scheme, in addition to the benefits outlined in the ‘Retirement benefits’
section of this table.

SAYE and SIP limits as permitted in accordance with the relevant tax legislation.

Performance
measures

Not applicable.

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Directors’ Remuneration report continued

Retirement benefits

Objective

Operation

Provide market competitive post-employment benefits to recruit and retain Directors of the calibre required for the
business.

Executive Directors are eligible to participate in the defined contribution pension scheme (or such other pension plan as
may be deemed appropriate).

In appropriate circumstances, Executive Directors may take a salary supplement instead of contributions into a pension
plan.

Opportunity

6% of base salary subject to any increase to reflect increases in the pension opportunity for the wider workforce.

Performance
measures

Not applicable.

Annual bonus

Objective

Operation

Rewards performance against annual targets which support the strategic direction of the Company. The majority of staff
participate in the same scheme.

Targets are set annually and any pay-out is determined by the Remuneration Committee after the period-end, based
on performance against those targets. The Remuneration Committee has discretion to vary the bonus pay-out should
any formulaic output not produce a fair result for either the Executive Director or the Company, taking account of
the Remuneration Committee’s assessment of overall business performance or be inappropriate in the context of
circumstances that were unexpected or unforeseen at the start of the bonus year, or in the event of other circumstances
determined by the Remuneration Committee.

30% of any bonus will ordinarily be deferred in shares and subject to a two year deferral period with the balance is
delivered in cash. However, if the amount to be deferred would be below £5,000, the Remuneration Committee has
discretion to pay the whole amount of the bonus in cash.

On the exercise of a deferred bonus award, the Remuneration Committee has the discretion to decide that Executives
can receive additional shares to reflect the dividends paid or payable on the award shares over the period ending on
vesting of the award. This amount may assume the reinvestment of dividends (on such basis as the Remuneration
Committee determines).

Additionally Directors may opt to invest in the Company SIP (refer to note 33 for details).

Opportunity

Overall maximum annual bonus is 125% of salary for Chief Executive Officer and 100% for any other Executive Directors.
This will normally be subject to the following performance components:

Profit
The Company profit performance element will normally represent 50% of the bonus and has a direct relationship with
adjusted profit before tax. A minimum profit threshold is set.

Cashflow
The Company cashflow performance element will normally represent 30% of the bonus. This measure is based on cash
generated by Operations. A minimum cashflow threshold is set.

3D Revenue
Revenue from the 3D business unit will normally represent 20% of the bonus. This measure is based on revenue
generated in the performance year. This measure also has a ‘cash gate’ which means that in order to pay out, the 3D BU
must reach a threshold level of cash generated by Operations.

The Committee may vary the weighting of these measures and could consider alternative measures in future years.

Performance
measures

Stretching performance targets are set each year reflecting the business priorities that underpin Group strategy.

Xaar plcAnnual Report and Financial Statements 201977

Long-Term Incentive Plan

Objective

Drive and reward the achievement of longer term objectives aligned closely to shareholders’ interests.

Support the turnaround of the business towards longer term, sustainable profitability.

Provide alignment with shareholders’ interests.

Support retention and promote share ownership.

Operation

Following the approval by shareholders in May 2020, the LTIP will operate as follows:

An award of performance shares (zero priced share options) may be granted on an annual basis and will vest after three
years subject to the achievement of the applied performance conditions. There will be a further two year holding period
which may be operated on the basis that either (1) the Executive Director can acquire shares following the end of the
performance period but that other than as regards sales to cover tax, may not sell shares until the end of the holding
period; or (2) the Executive Director may not acquire shares until the end of the holding period.

On the vesting/exercise of an LTIP award, the Remuneration Committee has the discretion to decide that Executives can
receive additional shares to reflect the dividends paid or payable on vested shares between the date of grant and the
date on which the vested shares can first be acquired.

The Remuneration Committee has discretion to vary the vesting outturn should any formulaic output not produce a fair
result for either the Executive Director or the Company, taking account of the Remuneration Committee’s assessment of
overall business performance or be inappropriate in the context of circumstances that were unexpected or unforeseen at
grant, or in the event of other circumstances determined by the Remuneration Committee.

The Remuneration Committee may at its discretion structure awards as Approved Long-Term Incentive Plan (‘ALTIP’)
awards. ALTIP awards enable the participant and Company to benefit from HMRC approved option tax treatment
in respect of part of the award, without increasing the pre-tax value delivered to participants. ALTIP awards may be
structured either as an approved option for the part of the award up to the HMRC limit (currently £30,000) with an
unapproved option for the balance and a ‘linked award’ to fund the exercise price of the approved option, or as an
approved option and an LTIP award, with the vesting of the LTIP award scaled back to take account of any gain made on
the exercise of the approved option. Other than to enable the grant of ALTIP awards, the Company will not grant awards
to Executive Directors under the Executive Share Option Plan.

Maximum
opportunity

The maximum award in respect of any year will be:

• as regards the Chief Executive Officer, an award over 365,000 shares; and
• as regards any other Executive Director an award over 170,000 shares,

subject to an overriding limit in respect of any year of 150% of salary for the Chief Executive Officer and 100% of salary
for any other Executive Director.

These limits do not include the value of shares subject to any approved option granted as part of an LTIP award.

Performance
measures

Stretching performance targets are set each year reflecting the business priorities that underpin longer term Group
strategy.

The base LTIP award will normally be measured using the following:

• Absolute EPS achievement in year 3 – 60%
• Relative TSR – 40%.

For threshold performance, 25% of award will vest. Straight-line vesting applies between threshold and maximum
vesting.

The Remuneration Committee retains the discretion to alter the weighting of measures and to apply alternative or
additional measures in future years.

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Shareholding guideline
To align the interests of Executive Directors with those of shareholders, the Remuneration Committee has adopted formal shareholding
guidelines in accordance with which Executive Directors are required to build and maintain a shareholding with a value of at least 2x salary.
Executive Directors are required to retain half of the after tax number of shares they acquire pursuant to the LTIP or deferred bonus until this level
of holding is achieved.

The Remuneration Committee’s policy on post-employment shareholder is to apply the “leaver” provisions under the Company’s share plans
(described on page 84) as regards both unvested awards and awards which are vested but subject to a holding period.

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Directors’ Remuneration report continued

The table below details how the Remuneration Committee addresses the principles set out in the UK Corporate Governance Code in respect of
the Directors’ remuneration policy.

Provision

Approach

Clarity
Remuneration arrangements should
be transparent and promote effective
engagement with shareholders and the
workforce.

Simplicity
Remuneration structure should avoid
complexity and their rationale and operation
should be easy to understand.

Risk
Remuneration structures should identify
and mitigate against reputational and other
risks from excessive rewards, as well as
behavioural risks that can arise from target-
based incentive plans.

Predictability
The range of possible values of rewards
to individual Directors and any other limits
or discretions should be identified and
explained at the time of approving the policy.

Proportionality
The link between individual awards, the
delivery of strategy and the long-term
performance of the Group should be clear
and outcomes should not reward poor
performance.

Alignment with culture
Incentive schemes should drive behaviours
consistent with the Company’s purpose,
value and strategy.

• The Committee regularly engages and consults with key shareholders to take into

account shareholder feedback and to ensure there is transparency on our policy and its
implementation

• Details of our remuneration practices and policy for Directors are published and available to

all our employees

• Employees have a forum where they can raise questions and give feedback about the

remuneration policy directly to the Non-executives.

• Our remuneration policy has been designed to achieve simplicity while complying with the
provisions of the UK Corporate Governance Code. The performance measures for LTIP
have been simplified removing the multiplier

• We choose metrics that are clear and measurable.

• We have introduced a deferred element to the annual bonus which is designed to promote
long-term delivery of growth. The deferral to options will be subject to clawback provisions

• We are also introducing a two year post vest holding period to our LTIP awards
• Our LTIP rules have been updated to make further provisions to malus and clawback to

include corporate failure.

• The charts set out on page 81 show how the total value of remuneration and its
composition vary under different performance scenarios for Executive Directors.

• The annual bonus rewards the achievement of operating targets
• The LTIP is designed to reward long-term financial and shareholder value creation targets
• The Committee retains the discretion to reduce the annual bonus and LTIP payouts if it

considers that they do not appropriately reflect the overall position and performance of the
Company.

• The culture at Xaar needs change in order for us to deliver on our short- and long-term

goals. We need to focus on delivery of commitments, innovation, continuous improvement
and being open & transparent

• Our incentive schemes are aligned with us delivering on our goals, providing our

shareholders with return and giving our employees with a more stable and predictable
future.

Xaar plcAnnual Report and Financial Statements 201979

Malus, clawback and underpin provisions
The Remuneration Committee has the right to:
• Reduce any LTIP awards which have not yet vested or annual bonus opportunity (i.e. a malus provision); and
• Recover any vested LTIP awards, paid cash bonuses or deferred bonus awards (i.e. a clawback provision).
• Malus and clawback provisions may be applied in the event of: (1) a material misstatement of the Company’s financial results; (2) a material
loss for the Company, any Group Member or a relevant business unit; (3) reputational damage to the Company, any Group Member or
a relevant business unit; (4) corporate failure in any Group Member or a relevant business unit; (5) serious misconduct on the part of the
Participant; and (6) an error in assessing any performance condition.

Operation of share plans
The Remuneration Committee may amend the terms of awards and options under its share plans in accordance with the plan rules in the event
of a variation of the Company’s share capital or a demerger, special dividend or other similar event or otherwise in accordance with the rules of
those plans. Awards may be settled, in whole or in part, in cash, although the Remuneration Committee would only settle an Executive Directors’
award in cash in exceptional circumstances, such as where there is a regulatory restriction on the delivery of shares.

Awards under the Company’s share plans may vest in the event of a change of control (or other relevant event) as follows.

• unvested awards under the LTIP will be released to the extent determined by the Remuneration Committee taking into account the relevant

performance conditions (and the Remuneration Committee may vary the weightings of the applicable performance measures) and, unless the
Remuneration Committee determines otherwise, the extent of vesting so determined shall be reduced to reflect the proportion of the vesting
period that has elapsed;

• vested awards under the LTIP which remain subject to a holding period will be released to the extent they vested;
• deferred bonus awards will vest in full;
• SAYE and SIP awards will vest to the extent determined in accordance with the rules of the relevant plan, to the same extent as for all other

participants.

Chairman and Non-Executive Directors
The table below sets out an overview of the remuneration of Non-Executive Directors:

Alignment with strategy/purpose

Approach of the Company

Chairman and Non-Executive Directors’ fees
Provide an appropriate reward to attract and retain
Directors of the calibre required for the business.

The remuneration of the Chairman of the Board is set by the Remuneration
Committee. Fees are set at a level which reflects the skills, knowledge, and
experience of the individual, whilst taking into account appropriate market data.

The fee is set as a fixed annual fee and may be paid wholly or partly in cash or
Company shares. Fees include a base fee plus additional fees for holding the
Chairmanship of a Board Committee or the office of Senior Independent Director or
Chair of Xaar 3D entity. Additional fees may be paid to reflect additional roles and/or
time commitments.

The Chairman and the Chief Executive Officer are responsible for deciding
Non-Executive Directors’ fees. Fees are set taking into account several factors,
including the size and complexity of the business, fees paid to Non-Executive
Directors of UK listed companies of a similar size and complexity, and the expected
time commitment and contribution for the role.

The fees may be paid wholly or partly in cash or Company shares. Overall fees
paid to Directors will remain within the limit stated of £300,000 in our Articles of
Association.

Non-Executive Directors do not participate in any incentive scheme.

Directors may be eligible to benefits such as the use of secretarial support, travel
costs or other benefits that may be appropriate.

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Directors’ Remuneration report continued

Explanation of performance metrics chosen
The annual bonus is assessed against financial targets which are determined by the Remuneration Committee, for 2020 the measures will be
based on profit, cashflow and 3D revenue. This incentivises Executive Directors to focus on delivering the key financial goals of the Company.
These targets therefore ensure that the interests of the Executive Directors are aligned with those of the shareholders.

For the LTIP, long-term performance measures are chosen by the Remuneration Committee to provide a robust and transparent basis on which
to measure Xaar’s performance over the longer term and to provide alignment with Xaar’s business strategy. EPS and TSR are deemed to be the
key measure of success of the execution of our long-term strategy.

The Remuneration Committee retains the discretion to adjust the performance targets and measures where it considers it appropriate to do so
(for example, to reflect changes in the structure of the business and to assess performance on a fair and consistent basis from year to year).

Pay policy for other employees
The Company values its wider workforce and aims to provide a remuneration package that is market competitive, complies with any statutory
requirements, and is applied fairly and equitably across the wider employee population. Where remuneration is not determined by statutory
regulation, the key principles of the compensation philosophy are as follows:

• We remunerate people in a manner that allows for stability of the business and the opportunity for sustainable long-term growth
• We seek to remunerate fairly and consistently for each role with due regard to the marketplace, internal consistency and the Company’s

ability to pay

• The Company operates HMRC approved SIP and SAYE and invites all employees to participate, therefore encouraging wider workforce

share ownership.

Illustrations of application of Remuneration Policy
The charts on page 81 set out an illustration of the remuneration policy, in line with the policy above and include base salary, pension, benefits
and incentives. The charts provide an illustration of the proportion of total remuneration made up of each component of the policy and the
value of each component. The scenarios now have the additional element of showing 50% appreciation in share price as requested under
new reporting regulations.

For these purposes base salary reflects the salary at 1 January 2020 or start date for CFO. Bonus is based on anticipated base salary as at
31 December 2020. Benefits are calculated as 5% for the Chief Executive Officer and 5% for the Chief Financial Officer of salary for 2020. Pension
is based on the policy set out in the policy table. LTIP awards assume an award of 365,000 shares for the Chief Executive Officer and an award of
170,000 shares for the Chief Financial Officer, with the share price applicable to each being assumed to be £0.50 for consistency with page 65,
other than in relation to the final scenario where share price appreciation of 50% is assumed in line with the applicable regulations.

LTIP awards are based on a base salary level at 1 January 2020, and are calculated as set out in the policy on pages 77 to 81.

Xaar plcAnnual Report and Financial Statements 201981

Three scenarios have been illustrated for each Executive Director.

Minimum performance

Performance at mid point

Maximum performance

• No bonus pay-out
• No vesting under the LTIP.

• 62.5% of salary pay-out under the annual bonus for the CEO, 50% for the CFO
• 50% of shares vesting under the LTIP (182,500 shares for the CEO, 85,000 for the CFO.

• 125% of salary pay-out under the annual bonus for the CEO, 100% for the CFO
• 100% of shares vesting under the LTIP (365,000 shares for the CEO, 170,000 for the CFO).

CEO
Maximum performance plus share appreciation
(50%)

CEO

Minimum

100%

• 125% of salary pay-out under the annual bonus for the CEO, 100% for the CFO
• 100% of shares vesting under the LTIP (365,000 shares for the CEO, 170,000 for the CFO),
and an assumed 50% increase in the share price from the £0.50 assumed for the purposes
of these scenarios as noted above, to £0.75.

£333k

Chief Executive Officer – John Mills, total remuneration £’000

Performance
at mid-point
Minimum

Maximum
Performance
at mid-point
Maximum with 50%
share price increase
Maximum

54%

100%

37%

54%

34%

37%

500

31% 15%

42%

21%

31% 15%

38%

42%

28%

21%
1,000

£612k

£333k

£890k

£612k

£982k

£890k

1,500

Base salary, beneﬁts and pension.
34%

Maximum with 50%
share price increase

Annual bonus.

38%

LTIP Award (Performance share awards only).

£982k

28%

500

1,000

1,500

Base salary, beneﬁts and pension.

Annual bonus.

LTIP Award (Performance share awards only).

CFO
Chief Financial Officer – Ian Tichias, total remuneration £’000

CFO

Minimum

100%

Performance
at mid-point
Minimum

Maximum

Performance
Maximum with 50%
at mid-point
share price increase
Maximum

61%

28%

11%

100%

44%

61%

41%

44%

40%

16%

28%

11%

37%

40%
500

22%

16%

£233k

£381k

£233k

£528k

£381k

£571k

£528k

1,000

1,500

Maximum with 50%
Base salary, beneﬁts and pension.
share price increase

41%

Annual bonus.
37%

LTIP Award (Performance share awards only).

£571k

22%

500

1,000

1,500

Base salary, beneﬁts and pension.

Annual bonus.

LTIP Award (Performance share awards only).

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500

1000

1500

1000

1500

00.0

1000

1500

1000

1500

Xaar plcAnnual Report and Financial Statements 2019
82

Directors’ Remuneration report continued

Approach to recruitment remuneration
When appointing a new Executive Director, whether with an internal or external candidate, the Remuneration Committee will typically seek to use
the policy detailed in the table on page 65 to determine the Executive Director’s ongoing remuneration package.

To facilitate the appointment of candidates of the appropriate calibre required to implement the Group’s strategy, the Remuneration Committee
also retains the discretion to include any other remuneration component or award which is outside the policy. The Remuneration Committee
does not intend to use this discretion to make a non-performance related incentive payment (for example, a ‘golden hello’). In determining
appropriate remuneration, the Remuneration Committee will take into consideration all relevant factors (including the quantum and nature of
remuneration) to ensure that the arrangements are in the best interests of the Company and its shareholders. This may, for example, include
(but is not limited to) the following circumstances:

• An interim appointment being made to fill an Executive Director role on a short-term basis
• Exceptional circumstances require that the Chairman or a Non-executive Director takes on an Executive function on a short-term basis
• An Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for that
year as there would not be sufficient time to assess performance. The quantum in respect of the months employed during the year may be
transferred to the subsequent year so that reward is provided on a fair and appropriate basis

• The Executive received benefits at his previous employer which the Remuneration Committee considers it appropriate to offer.

The Remuneration Committee may also alter the performance measures, performance period, vesting period and holding period of the annual
bonus or long-term incentive, subject to the rules of the scheme, if the Remuneration Committee determines that the circumstances of the
recruitment merit such alteration. The rationale will be clearly explained.

In determining appropriate remuneration arrangements on hiring a new Executive Director, the Remuneration Committee will take into account
relevant factors such as the calibre of the individual, local market practice, the existing remuneration arrangements for other Executives and the
business circumstances. It will seek to ensure that arrangements are in the best interests of both the Company and its shareholders and not
seek to pay more than is appropriate.

The Remuneration Committee may make an award or payment to ‘buy-out’ remuneration arrangements forfeited on leaving a previous
employer. In doing so the Remuneration Committee will take account of relevant factors regarding the forfeited arrangements which may include
the form of any forfeited awards (e.g. cash or shares), any performance conditions attached to these awards (and the likelihood of meeting those
conditions), and the time over which they would have vested. It will generally seek to structure buy-out awards and payments on a comparable
basis to remuneration arrangements forfeited. These awards or payments are excluded from the maximum level of variable pay referred to
below; however, the Remuneration Committee’s intention is that the value awarded or paid would be no higher than the expected value of the
forfeited arrangements.

Appropriate costs and support will be covered if the recruitment requires the relocation of the individual. All buy-out awards and payments will
normally be liable to forfeiture or ‘clawback’ on early departure. For Executive Directors, early departure is typically defined as being within the
first two years of employment although the Remuneration Committee has the ability to amend this definition in appropriate circumstances.

The maximum level of variable pay which may be awarded to new Executive Directors, excluding buy-out arrangements, would normally be
in line with the maximum level of variable pay that may be awarded under the annual bonus plan and LTIP, but in any event the Remuneration
Committee would not make an award of annual variable pay above:

• In the case of the CEO – a bonus of 125% of salary and an LTIP award of 365,000 shares (or 150% of salary if lower); and
• In the case of any other Executive Director – a bonus of 125% of salary and an LTIP award of 170,000 shares (or 100% of salary if lower).

The Remuneration Committee may determine that such awards will be forfeited if performance or continued employment conditions are not met
and it is deemed appropriate to do so.

Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, and
subject to the limits referred to above, in order to facilitate the awards mentioned above, the Committee may rely on exemption 9.4.2. of the
Listing Rules which allows for the grant of awards to facilitate, in exceptional circumstances, the recruitment of a Director.

Where a position is fulfilled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue
according to the original terms.

Fees payable to a newly-appointed Chairman or Non-executive Director will be in line with the fee policy in place at the time of appointment.

Xaar plcAnnual Report and Financial Statements 201983

Service contracts
Executive Directors
It is the Group’s policy that Executive Directors should have contracts with an indefinite term, providing for one year’s notice.

John Mills
Ian Tichias

31 May 2019
26 November 2019

1 August 2019
1 March 2020

12 months
12 months

Date of contract

Date of appointment

Notice from the Company

Notice from Director

Non-executive Directors
All Non-executive Directors are appointed for an initial three year term with provision for two further three year terms, subject to satisfactory
performance.

Robin Williams (Chairman)
Margaret Rice-Jones
Chris Morgan
Andrew Herbert

Date of letter of appointment1

Date of appointment

Unexpired term of contract
on 31 December 2019

27 September 2016
3 June 2015
2 December 2015
15 April 2016

1 October 2019
1 August 2018
4 January 2020
1 June 2019

33 months
17 months
24 months
30 months

1 The dates above refer to the dates of the latest service agreements for each of the Non-executive Directors.

Robin Williams retired from the Board on 31 March 2020. Margaret Rice-Jones will not stand for re-election in May 2020.

All Directors offer themselves for annual re-election at each AGM in accordance with the UK Corporate Governance Code. Letters of
appointment are available for inspection at the registered office address of the Company.

Payments for loss of office
The principles on which the determination of payments for loss of office will be approached is set out below. Where the Remuneration
Committee retains discretion, as outlined below, it will be used to provide flexibility in certain situations, taking into account the particular
circumstance of the Director’s departure and recent performance of the Company.

Notice period on termination by
employing company

12 months. The Committee has the discretion to determine what proportion of the notice period
will be utilised in active service.

Termination payment

Severance payments are limited to no more than one year’s salary plus benefits in kind (including
company car or car allowance and private health insurance) and pension contributions (which
may include salary supplements).

Benefits provided in connection with termination of employment may also include, but are not
limited to, outplacement and legal fees.

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Xaar plcAnnual Report and Financial Statements 2019

Directors’ Remuneration report continued

Leaver provisions

Reason for cessation

Calculation of vesting/
payment

Timing of vesting

Annual bonus

Termination with cause.

No bonus paid.

Not applicable.

Resignation or retirement.

Redundancy, disability, illness,
injury, death or any other
reason as determined by the
Remuneration Committee.

No bonus is normally paid
unless the Committee in its
absolute discretion (and on a
case-by-case basis) determines
otherwise. Any bonus paid will
typically be pro-rated to reflect
time served in relation to the
performance period.

Typically bonus amounts will be
determined by reference to the
applicable performance targets,
pro-rated for time served in
relation to the performance
period.

Normal payment date.

Normal payment date unless
Remuneration Committee
decides it should be earlier.

Deferred bonus shares

Termination with cause.

Shares forfeited.

Not applicable.

All other reasons.

Award retained.

Normal vesting, following the
end of the originally anticipated
deferral period.

Remuneration Committee has
discretion to permit early vesting.

LTIP

Termination with cause.

Lapse.

Not applicable.

Resignation or retirement before
vesting.

Redundancy, disability, illness,
injury, death or any other
reason as determined by the
Remuneration Committee.

Normally lapse but with
Remuneration Committee
discretion to determine
otherwise; if the award
continues, its vesting will be
subject to the satisfaction of
the applicable performance
condition and, a pro-rata
reduction to reflect the
proportion of period worked
during vesting period.

Remuneration Committee can
decide not to pro rate.

Performance condition applies
(with early assessment if
applicable) and vesting then
pro-rated to proportion of period
worked during vesting period.
Remuneration Committee can
decide not to pro rate.

Normal vesting date. The
post-vesting holding period will
ordinarily continue to apply.

Normal vesting unless
Remuneration Committee
decides it should be at
cessation of employment. The
post-vesting holding period
will continue to apply unless
the Remuneration Committee
determines otherwise (other
than in the case of death, ill-
health, injury or disability, when
it will cease to apply unless
the Remuneration Committee
decides otherwise).

Xaar plcAnnual Report and Financial Statements 201985

LTIP continued

Reason for cessation

Leaving during the holding
period.

Calculation of vesting/
payment

If employment is terminated for
cause, the award is forfeit. If
employment terminates in any
other circumstances, the award
is retained to the extent vested.

Timing of vesting

The post-vesting holding period
will continue to apply unless
the Remuneration Committee
determines otherwise (other
than in the case of death, ill-
health, injury or disability, when
it will cease to apply unless
the Remuneration Committee
decides otherwise).

SIP and SAYE

Governed by the HMRC approved plan rules and which cover certain leaver provisions.

Non-executive Directors
Under the terms of their engagement, the notice period to be given by the Non-executive Directors on the Company is six months and the
Company is obliged to give the same length of notice. Discretion is retained to terminate with or without due notice or paying any payment in lieu
of notice dependent on what is considered to be in the best interests of the Company in the particular circumstances.

Statement of consideration of employment conditions elsewhere in the Company
Salary, benefits and performance related reward provided to employees is taken into account when setting policy for Executive Directors’
remuneration (although employees are not formally consulted in relation to the setting of the policy). This includes consideration of:

• Salary increases for the general employee population
• Company-wide benefit (including pension) offerings
• Overall spend and participation levels in the annual bonus and LTIP
• Relevant ad-hoc information.

Existing contractual arrangements
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they
are not in line with the policy set out below where the terms of the payment were agreed:

(i) before the policy came into effect (provided that, in the case of any payments agreed on or after 14 May 2014 they are in line with any
applicable shareholder approved Directors’ remuneration policy in force at the time they were agreed or were otherwise approved by
shareholders, or

(ii) at a time when the relevant individual was not a Director of the Company (or other person to whom the Policy set out above applies ) and,

in the opinion of the Remuneration Committee, the payment was not in consideration for the individual becoming a Director of the Company
(or such other person).

For these purposes ‘payments’ includes the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award
over shares, the terms of the payment are ‘agreed’ at the time the award is granted.

Statement of consideration of shareholder views

In the interests of ensuring ongoing and transparent dialogue with shareholders, the Remuneration Committee consulted major shareholders
over its base salaries and proposed new three year policy outlined in this report.

Approval
This report was approved by the Board on 22 April 2020 and signed on its behalf by:

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Margaret Rice-Jones
Remuneration Committee Chair

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Xaar plcAnnual Report and Financial Statements 2019
Website publication
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.

Responsibility statement
We confirm that to the best of our knowledge:

• The financial statements, prepared in accordance with the relevant

financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole;
• The Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and

• The Annual Report and Financial Statements, taken as a whole,

are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.

h The Directors of Xaar plc are listed on pages 44 and 45.
This responsibility statement was approved by the Board of Directors
and is signed on its behalf by:

John Mills
Chief Executive Officer
22 April 2020

Directors’ responsibilities statement

The Directors are responsible
for preparing the Annual Report
and the Financial Statements in
accordance with applicable law
and regulations.

Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted by
the European Union and Article 4 of the IAS Regulation and have
also chosen to prepare the parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
including Financial Reporting Standard 101 Reduced Disclosure
Framework (‘FRS 101’). Under company law the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.

In preparing the parent Company financial statements, the Directors
are required to:

• Select suitable accounting policies and then apply them consistently
• Make judgements and accounting estimates that are reasonable

and prudent

• State whether IFRSs as adopted by the European Union have

been followed, subject to any material departures disclosed and
explained in the financial statements;

• Prepare the financial statements on the going concern basis

unless it is inappropriate to presume that the Group will continue
in business.

In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:

• Properly select and apply accounting policies
• 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 IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and financial performance

• Make an assessment of the Company’s ability to continue as a

going concern.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s and
Group’s transactions and disclose with reasonable accuracy at
any time the financial position of the Company and the Group and
enable them to ensure that the financial statements comply with
the Companies Act 2006 and, with respect to the Group financial
statements, Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the Company and Group and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.

Under applicable law and regulations the Directors are also
responsible for preparing a strategic report, Directors’ report, and
Directors’ remuneration report that comply with that law and those
regulations.

Xaar plcAnnual Report and Financial Statements 2019Independent auditor’s report to the members of Xaar plc

Opinion
In our opinion:

• Xaar plc’s group financial statements and parent company financial statements (the ‘financial statements’) give a true and fair view of the state

of the group’s and of the parent company’s affairs as at 31 December 2019 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the group

financial statements, Article 4 of the IAS Regulation.

We have audited the financial statements of Xaar plc which comprise:

Group

Parent Company

Consolidated statement of financial position as at
31 December 2019

Balance sheet as at 31 December 2019

Consolidated income statement for the year then ended

Statement of changes in equity for the year then ended

Consolidated statement of comprehensive income for the year
then ended

Related notes 1 to 12 to the Parent company financial statements
including a summary of significant accounting policies

Consolidated statement of changes in equity for the year then
ended

Consolidated cash flow statement for the year then ended

Related notes 1 to 38 to the financial statements, including
a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. The financial reporting framework that has been applied in the
preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We
are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the disclosures in the annual report set out on pages 28-35 that describe the principal risks and explain how they are being managed or

mitigated;

• the Directors’ confirmation set out on page 52 in the annual report that they have carried out a robust assessment of the principal risks facing

the entity, including those that would threaten its business model, future performance, solvency or liquidity;

• the Directors’ statement set out on page 53 in the financial statements about whether they considered it appropriate to adopt the going

concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;

• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is

materially inconsistent with our knowledge obtained in the audit; or

• the Directors’ explanation set out on page 52 in the annual report as to how they have assessed the prospects of the entity, over what

period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements88

Independent auditor’s report to the members of Xaar plc continued

Summary of our audit approach

Key audit matters

• COVID-19
• Consolidation of Xaar 3D
• Recoverability of receivables
• Revenue recognition
• Impairment of goodwill and intangible assets
• Capitalised development costs
• Valuation of inventory

Audit scope

• We performed an audit of the complete financial information of nine components and audit procedures on

specific balances for a further two components.

• The components where we performed full or specific audit procedures accounted for 100% of adjusted

Loss before tax, 100% of Revenue and 100% of Total assets.

Materiality

• Overall group materiality of £0.2 million which represents 0.5% of revenue.

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our
opinion thereon, and we do not provide a separate opinion on these matters.

Risk

Our response to the risk

Our response and observation

The disclosures in notes 3 and 38 adequately
reflect the Directors’ conclusions around the
uncertainties and impact of COVID-19 and,
that the going concern assumption remains
appropriate.

Impact of COVID-19
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 38 of the Consolidated Financial
Statements (page 144).

We draw attention to note 3 and note 38
in the financial statements which outline
the uncertainties arising from the recent
COVID-19 outbreak and their impact on the
group’s ability to continue as a going concern
and events after the balance sheet date.

COVID-19 has created significant uncertainty
for businesses due to potential illness
affecting the ability of employees to work and
economic factors impacting upon the level of
sales demand and the ability for the supply
chain to provide the necessary component
parts for manufacturing. As well as impacting
future supply and demand, it creates further
uncertainty on the group’s ability to convert
working capital into cash and to settle
liabilities as they fall due.

We read the Directors’ assessment of
the risks and impact of COVID-19 on the
business. We compared this assessment
to our own understanding of the risks, and
the nature of Xaar’s operations, products,
customer-base and suppliers.

We obtained the forecast for the 12 month
period to 30 April 2021 and checked it
for accuracy. We tested the underlying
assumptions to underlying data and for
reasonableness.

We obtained the three stress tested
scenarios being

1. A severe but plausible scenario
2. A reverse stress test scenario
3. A reverse stress test, as above,

with some mitigations

The scenarios primarily focussed on
reductions in revenue from forecast. We
checked the calculations for accuracy and
evaluated the underlying assumptions for
reasonableness.

We assessed the sensitivities relating to the
impact on future demand for Xaar’s products
and its ability to meet that demand and the
resulting impact on the cashflows

For mitigations modelled we assessed
whether management had the ability to affect
these in the time period involved.

We assessed current trading performance
by inspecting the March period end
management accounts and also to identify
any issues with current trading, in particular
customer orders, debtor recoverability,
inventory on hand of core components and
supply chain lead times.

Xaar plcAnnual Report and Financial Statements 201989

Risk

Our response to the risk

Our response and observation

Impact of COVID-19 continued

Consolidation of Xaar 3D
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 36 of the Consolidated Financial
Statements (page 142).

Management were required to make a
judgement as to whether the Group still
controls Xaar 3D Limited and in turn whether
they should continue to consolidate Xaar 3D
in accordance with IFRS 10. This judgement
was required following the additional
investment Stratasys Solutions Limited
(‘Stratasys’) made in Xaar 3D Limited at the
end of 2019 which took their ownership
percentage to 45%, changes in the
respective responsibilities of Xaar/Stratasys
as well as granting Stratasys the option to
purchase the remaining share capital of Xaar
3D Limited at any point over a three year
period to December 2022 across the three
year option term.

As detailed in note 2, management
concluded that the Group continue to control
Xaar 3D and should therefore continue to
consolidate.

We obtained customer order reports
indicating the level of future and historic
orders to date in 2020.

We assessed debtors recoverability by
obtaining the debtors ledger as of 18 April
2020. We checked the ledger for indications
of non payment by checking for aged
debtors. We checked the movement of
debtor balances from 31 December 2019 to
18 April 2020, again for indications of non
payment.

For the largest five debtor balances as at
18 April 2020 we searched for evidence
of financial difficulty by checking for
news stories. We also checked company
websites for any evidence of distress. Where
applicable we obtained the line of credit for a
large customer.

We assessed the completeness and
accuracy of the matters covered in the going
concern and post balance sheet disclosures
by comparing them to the outcome of our
procedures detailed above.

We reviewed the investment agreement
governing the additional stake taken by
Stratasys, the respective responsibilities of
Xaar/Stratasys and the terms associated with
the written call option. We compared the
contractual terms against the requirements of
IFRS 10, namely whether Xaar continues to:

• Retain power over Xaar 3D;
• Be exposed to and have the right to

variable returns; and

• Have the ability to use its power to affect

these returns.

As part of these procedures, we firstly
established the relevant activities and then
considered the impact of the following areas:

• Whether the written call option was

substantive;

• the make-up of the Xaar 3D board;
• the process to make key strategic and
operational decisions over the relevant
activities; and

• who the key decision makers are.

We also reviewed the supply agreement
between Xaar/Xaar 3D and distribution
agreement between Xaar 3D/Stratasys
to assess whether they were on an arms
length basis, compared to other commercial
agreements entered into by the group.

We agree with Management’s judgement that
Xaar continues to control the 3D business.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements90

Independent auditor’s report to the members of Xaar plc continued

Key audit matters continued

Risk

Our response to the risk

Our response and observation

We did not identify any evidence of material
misstatement related to the carrying value
of receivables. Management continue to
apply an appropriate expected credit loss
provision, plus specific provisions for aged
balances where there is additional doubt over
the recoverability of the remaining balance.

Revenue was recognised in accordance
with the Group’s accounting policies and
we identified no evidence of management
override in respect of inappropriate manual
journals recorded in revenue.

We understood the group’s process for
estimating the expected credit loss provision
under IFRS 9 and other specific provisions
and how they are applied, including
the relevant controls, and performed a
walkthrough to validate our understanding.

We requested and obtained confirmation of
receivables balances from key customers
and compared their return to the amounts
recorded in the ledger as at 31 December
2019, investigating any differences and
agreeing reconciling items to relevant
supporting documentation. For any of these
customers that did not provide a return,
we performed alternative procedures by
obtaining proof of payment or evidence of
delivery of the product/service.

We selected a sample of receivable balances
and verified them to cash received post
year-end, reflecting either full settlement or
payments against an agreed payment plan.

We discussed with the credit control
team the status of account balances
with key customers and the steps being
taken to recover overdue balances and
assessed whether the accounting provision
appropriately reflects the facts and
circumstances.

We analysed the historical accuracy of
the receivables provisions to actual results
to determine whether management’s
forecasting is reliable based on past
experience.

We reviewed publicly available information
for key customers to identify and evaluate
any matters relating to their financial viability
that might result in a recoverability risk to the
related receivable balance.

We understood the group’s revenue recognition
policies and how they are applied, including the
relevant controls, and performed a walkthrough
to validate our understanding. In respect of the
main UK trading entity, which comprised 60%
of the group’s revenue, we analysed the whole
population of transactions from invoicing to
cash collection, including adjustments to arrive
at revenue recognised in the year. Where the
postings did not follow our expectation, we
investigated and understood the characteristics
of these entries and tested a sample to assess
their validity by agreeing the transactions back
to source documentation.

Recoverability of receivables (£6.4 million
net of provisions of £8.0 million,2018: £18.6
million net of provisions of £5.2 million)
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 20 of the Consolidated Financial
Statements (page 127).

Given the extended credit terms that
were provided to customers in previous
periods, judgement is required to establish
how much of the open receivables
balance is recoverable. There is a risk that
management’s judgements and estimates
over recoverability are inappropriate, when
considering the specific balances and the
requirements of IFRS 9.

Revenue recognition (£51.0 million,
2018: £63.5 million)
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 5 of the Consolidated Financial
Statements (page 115).

Given the difficult trading environment and
investor focus on the group’s revenue we
consider there to be a risk in relation to the
manipulation by central management of the
amount of revenue recorded. Management
reward and incentive schemes based on
achieving profit targets may also place
pressure on management to manipulate
revenue recognition.

As part of the financial statement close
process, certain manual adjustments are
required to account for contracts with
customers. There is risk that the manual
adjustments are incorrectly recorded in the
period.

Xaar plcAnnual Report and Financial Statements 201991

Risk

Our response to the risk

Our response and observation

Revenue recognition (£51.0 million, PY
comparative £63.5 million) continued
Further, in the product print segment,
judgement is required to determine whether
revenue should be recognised over time or at
a point in time. Where revenue is recognised
over time, estimation is required to establish
how much of the performance obligation has
been satisfied and how much is recorded as
a contract liability.

There is risk that the manual adjustments are
incorrectly recorded in the period. Further,
in the EPS segment, judgement is required
to determine whether revenue should be
recognised over time or at a point in time.
Where revenue is recognised over time,
estimation is required to establish how much
of the performance obligation has been
satisfied.

We performed tests of detail for a sample of
revenue transactions to confirm the transactions
had been appropriately recorded in the income
statement with reference to IFRS 15 and
corroborated that control of the products had
been transferred to the customer by:

• analysing the contract and terms of the sale
to determine that the group had fulfilled the
requirements of the contract;

• confirming revenue could be reliably
measured by reference to underlying
documentation; and

• confirming collectability of the revenue was

reasonably assured by agreeing to collection
history.

We performed cut-off testing by tracing a
sample of revenue items recorded either side of
year-end to delivery note to determine whether
revenue was recognised in the same period in
which the performance obligations have been
fulfilled.

We selected a sample of post year-end credit
notes to ensure that, where the credit note
relates to the audit period, that these credit
notes were appropriately provided for in the
financial statements.

We tested journal entries posted to revenue
accounts, applying parameters designed to
identify entries that were not in accordance with
our expectations. This included analysing and
selecting journals for testing which appeared
unusual in nature either due to size, preparer
or being manually posted. To assess their
validity, we verified the journals to originating
documentation.

We performed full and specific scope audit
procedures over this risk area in 4 locations
which covered 100% of the risk amount.

Revenue recognised over time
For a sample of items, we reviewed the
respective sales contract to determine whether
the customer:

• Simultaneously receives and consumes the

benefits; or

• Controls the asset that is being created or

enhanced; or

• Has an enforceable requirement to pay for

performance to date.

Where any of these criteria are fulfilled, revenue
should be recognised over time in accordance
with IFRS 15. For these items, we evaluated
judgements made by management regarding
the expected costs to complete and the
timing and recognition of variation orders, by
obtaining and reviewing the variation order and
comparing the cost assumptions to similar
projects. We also verified a sample of actual
costs incurred to date through to purchase
invoice or timesheet records. Where the
criteria have not been fulfilled we confirmed
management has recognised revenue at a point
in time, when the performance obligation has
been achieved.

We performed full scope audit procedures over
this risk area in 1 location which covered 100%
of the risk amount.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements92

Independent auditor’s report to the members of Xaar plc continued

Key audit matters continued

Risk

Our response to the risk

Our response and observation

Based on the decision to cease Thin Film
activity, impairment adjustments have
been appropriately made over the CGU.
The assumptions used for other CGU’s
appropriately reflect the associated risk and
support the carrying value of goodwill and
intangible assets.

Impairment of goodwill and intangible
assets (£10.9 million, 2018: £38.3 million)
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 14 of the Consolidated Financial
Statements (page 123).

IFRS requires impairment testing to be
undertaken when there are indicators that
an impairment may exist, and in the case of
goodwill at least annually.

Given the significant balances in respect of
goodwill, capitalised development costs,
recent trading losses and the decision to
cease Thin Film related activity, there is a
risk that the group’s cash generating units
(‘CGUs’) may not achieve the anticipated
business performance to support their
respective carrying values.

Judgement is required in estimating the
recoverable value of each CGU, including
the determination of the future cash flows,
long-term growth rates applied to these cash
flows, together with the rate at which they
are discounted.

We examined management’s methodology
together with their model for assessing the
valuation of goodwill and intangible asset
balance to understand the composition of
management’s future cash flow forecasts, and
the process and related controls undertaken
to prepare them. This included confirming the
underlying cash flows were consistent with
the Board approved budget and strategic
plan, didn’t include reorganisations and
enhancements not committed at the balance
sheet date and assessing the identified CGUs
for appropriateness. We also re-performed
the calculations in the model to test the
mathematical integrity.

We assessed the robustness of the budgeting
process and cash flow forecasting models,
including consistency with the strategic plans
for the group and assessment of historical
forecast accuracy.

We tested the key inputs to management’s
impairment models by:

• analysing the historical accuracy of

budgets to actual results to determine
whether forecast cash flows are reliable
based on past experience;

• assessing the discount rate used by

obtaining the underlying data used in the
calculation and benchmarking it against
an EY range derived from comparable
organisations and market data, involving
EY internal specialists to assist us with this
assessment; and

• comparing the forecast growth rates to
observable market data and challenging
whether the forecast growth rates have
been appropriately adjusted to reflect the
changes in the group’s strategy.

We calculated the degree to which the key
inputs and assumptions would need to
fluctuate before an impairment was triggered
and considered the likelihood of this occurring.
We performed our own sensitivities on the
group’s forecasts and determined whether
adequate headroom remained.

We assessed whether there were any other
indicators of impairment, which would give rise
to the impairment of an individual asset.

For the Thinfilm intangible assets that were
fully impaired in the first half of the year, we
considered whether there are any indicators
that a reversal of impairment is required,
including enquiry of management of any
subsequent third party offers.

We audited the related disclosures with
reference to the requirements of IAS 36 and
confirmed their consistency with the audited
impairment models.

Xaar plcAnnual Report and Financial Statements 201993

Risk

Our response to the risk

Our response and observation

Capitalised development costs
(£2.3 million additions, 2018: £1.9
million additions)
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 15 of the Consolidated Financial
Statements (page 124).

IFRS requires development costs to be
capitalised only under specific circumstances
highlighted as follows:

• It is technically feasible to complete the

intangible asset;

• There is clear intention to complete;
• Ability to use or sell the intangible asset

exists;

• There is adequate technical, financial and
other resources to complete the asset;
• Future economic benefits are probable;

and

• Expenditure can be measured reliably.
Because of the judgements applied in
determining whether a product is technically
feasible and commercially viable and the
complexity of the criteria applied, there is a
risk that development costs are incorrectly
accounted for (i.e., capitalised as opposed
to being expensed through the income
statement).

Valuation of inventory
(£16.2 million, 2018: £32.1 million)
Refer to the Audit Committee Report
(page 59); Accounting policies (page 101);
and note 19 of the Consolidated Financial
Statements (page 127).

Given the level of slow moving finished
goods, judgement is required to assess the
future uptake of new products by customers,
the price for which products can be sold,
overall success of the sales and marketing
strategy and the resulting carrying value
recorded in the financial statements. There
is a risk that the provision recorded by
management does not accurately reflect
the level of exposure and that inventory is
incorrectly valued.

We did not identify any evidence of
material misstatement related to capitalised
development costs.

We understood the group’s policies on
capitalised development costs and how they
are applied, including the relevant controls,
and performed a walkthrough to validate our
understanding.

We reviewed management’s assessment
on how the development costs of the High
Speed Sintering 3D printer developed by Xaar
3D satisfy the capitalisation criteria of IFRS. In
order to test the costs capitalised we:

• Reviewed the capitalised development

costs opening balance to assess
whether they met the requirements of
IAS 38, through reviewing the work of the
predecessor auditor;

• Agreed capitalised development costs

balance to underlying accounting records;
• Tested a sample of additions to capitalised
development costs against supporting
documentation, ensuring that they were
incurred wholly for the purpose of the
project;

• Confirmed the commencement date

of amortisation in accordance with the
completion of development activity; and
• Performed an analytical review comparing
the nature and magnitude of capitalised
development costs in the current year,
compared to our expectations of the
nature of activity in the year.

We understood the group’s policies on
inventory provisions and how they are applied,
including the relevant controls, and performed
a walkthrough to validate our understanding.

The inventory provisions have been
appropriately updated to reflect the impact
of the latest strategic review on each product
line and resulting future recoverable amount.

We tested obtained evidence to support
the standard costs used and performed
procedures to assess whether only normal
production variances had been capitalised in
the year-end inventory balance and material
abnormal inefficiencies had been appropriately
expensed. This included comparing actual
production rates to budget.

We performed clerical procedures on the
formulaic calculations to evaluate the accuracy
of the inventory provisioning. We performed
procedures to validate the appropriateness of
any management adjustments to the formulaic
calculation.

For a sample of inventory lines, we reviewed
post year-end selling prices in comparison
to the values assumed in the book values
recorded. Where the book value exceeded
realisable value, we considered whether
management had recorded an appropriate
provision.

We discussed with the managing director of
the printhead business and the finance team
the latest sales and marketing strategies and
considered the implications for the level of
provision recorded. This included comparing
forecast product usage to customer orders,
considering historical usage, historical
accuracy of provisioning and understanding
management’s future plans to utilise the
inventory.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements94

Independent auditor’s report to the members of Xaar plc continued

Key audit matters continued
The risks of material misstatement as set out in the table above include those reported by Xaar plc’s previous external auditor, with the following
exceptions: -

• Revenue recognition - we have expanded the Key Audit Matter to also include the judgements and estimates relating to revenue recognised

over-time.

• Impairment of intangibles - we have expanded the Key Audit Matter to include goodwill, as the recoverable amount is based upon the same

forecasts used to support the carrying value of intangible assets for Engineered Printing Solutions.

• New Key Audit Matters - the Key Audit Matters over Going Concern and Consolidation of Xaar 3D were added in the current year, as a result

of the impact of COVID-19 and the current year transaction with Stratasys, respectively.

An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity
within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile,
the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors when assessing the
level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant
accounts in the financial statements, of the 13 reporting components of the Group, we selected 11 components covering entities within the UK, US
and Denmark, which represent the principal business units within the Group.

Of the 11 components selected, we performed an audit of the complete financial information of 9 components (‘full scope components’) which
were selected based on their size or risk characteristics. For the remaining 2 components (‘specific scope components’), we performed audit
procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in
the financial statements either because of the size of these accounts or their risk profile.

The reporting components where we performed audit procedures accounted for 100% of the Group’s loss before tax, 100% of the Group’s
Revenue and 100% of the Group’s Total assets. For the current year, the full scope components contributed 99% of the Group’s loss before tax,
98% of the Group’s Revenue and 100% of the Group’s Total assets. The specific scope components contributed 1% of the Group’s loss before
tax, 2% of the Group’s Revenue and 0% of the Group’s Total assets. The audit scope of these specific scope components may not have included
testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.

The remaining 2 components were non-revenue generating. For these components, we performed other procedures, including analytical review,
testing of consolidation journals and intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of
material misstatement to the Group financial statements.

Xaar plc’s previous external auditor performed full and specific scope audit procedures on components accounting for 93% of the group’s loss
before tax, 97% of the group’s revenue and 85% of the group’s net assets.

Changes from the prior year
There are no significant changes in scoping in comparison to the scoping performed by the predecessor auditor.

Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £247k, which is 0.5% of revenue. We believe that revenue provides us with the most appropriate
basis given it is the main KPI for the group, whilst the group reports an adjusted loss before tax.

We determined materiality for the Parent Company to be £247k, which we capped at the group materiality.

During the course of our audit, we reassessed initial materiality and updated for the final result for the year.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 50% of our planning materiality, namely £124k. We have set performance materiality at this percentage due to this
being the first period for which we are performing the audit.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based
on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of
performance materiality allocated to components was £25k to £93k.

Xaar plcAnnual Report and Financial Statements 201995

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £12k, which is set at 5% of planning
materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon.
The Directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

• Fair, balanced and understandable set out on page 41 – the statement given by the Directors that they consider the annual report and financial

statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• Audit Committee reporting set out on page 59 – the section describing the work of the Audit Committee does not appropriately address matters

communicated by us to the audit; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 56 – the parts of the Directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent

with the financial statements and those reports have been prepared in accordance with applicable legal requirements;

• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures,

given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority
(the ‘FCA Rules’), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements; and

• information about the company’s corporate governance code and practices and about its administrative, management and supervisory bodies and

their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have
not identified material misstatements in:

• the strategic report or the Directors’ report; or
• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures,

given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches

not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting

records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the company.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements96

Independent auditor’s report to the members of Xaar plc continued

Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 86, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to
fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and
implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary
responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.

Our approach was as follows:

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant
are those that relate to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and the UK Corporate Governance Code) and the
relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant
laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing
Rules of the UK Listing Authority, and those regulations relating to health and safety and employee matters.

• We understood how Xaar plc is complying with those frameworks by making enquiries of management, the Company Secretary, the head of

legal and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes, papers
provided to the Audit Committee, discussion with the Audit Committee and any correspondence received from regulatory bodies.

• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by reviewing

the Group’s risk register, enquiry with management and the Audit Committee during the planning and execution phases of our audit. We also
considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts.
We considered the programs and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect
fraud and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit
procedures to address each identified fraud risk including revenue recognition as discussed above. These procedures included testing manual
journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures

involved journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our
understanding of the business; enquiries of the Company Secretary, head of legal, management; and focussed testing, as referred to in the
key audit matters section above. In addition, we completed procedures to conclude on the compliance of the disclosures in the Annual Report
and Accounts with the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code 2018.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address
• We were appointed by the company on 30 August 2019 to audit the financial statements for the year ending 31 December 2019 and
subsequent financial periods. We were appointed as auditors by the Directors and signed an engagement letter on 30 August 2019.

The period of total uninterrupted engagement including previous renewals and reappointments is 1 year, covering the 2019 year-end.

• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain

independent of the group and the parent company in conducting the audit.

• The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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.

Anup Sodhi (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Luton

22 April 2020

Notes:
1. The maintenance and integrity of the Xaar plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Xaar plcAnnual Report and Financial Statements 2019Consolidated income statement
for the year ended 31 December 2019

Revenue
Cost of sales

Gross profit
Research and development expenses
Research and development expenditure credit
Sales and marketing expenses
General and administrative expenses
Impairment losses on financial assets
Restructuring costs
Gain/(loss) on derivative financial liabilities

Operating (loss)/profit
Investment income
Finance costs for leases

(Loss) / profit before tax
Income tax (expense)/credit

(Loss) / profit for the year from continuing operations
Loss from discontinued operations after tax

Loss for the year
Attributable to:
Owners of the Company
Non-controlling interest

Loss for the year

Earnings / (Loss) per share - Total
Basic
Diluted

Earnings / (Loss) per share - Continuing Operations
Basic
Diluted

Notes

9
17

13
13

2019
£’000

2018 Restated
£’000

49,397
(37,435)

11,962
(3,502)
260
(8,410)
(8,689)
(2,715)
(896)
106

(11,884)
103
(110)

(11,891)
(3,501)

(15,392)
(56,082)

60,468
(30,972)

29,496
(6,358)
842
(8,581)
(6,608)
(3,202)
(5,447)
(32)

110
170
—

280
2,406

2,686
(15,166)

(71,474)

(12,480)

(71,051)
(423)

(71,474)

(92.1p)
(92.1p)

(19.4p)
(19.4p)

(12,397)
(83)

(12,480)

(16.1p)
(15.9p)

3.6p
3.6p

Dividends paid in the year amounted to £nil (2018: £6,009,000). Further disclosures are given in note 12.

Consolidated statement of comprehensive income
for the year ended 31 December 2019

Loss for the year

Items that may be reclassified subsequently to profit or loss:

Exchange differences on retranslation of net investment

Tax charge on share option

Other comprehensive (loss) / income for the year

Total comprehensive loss for the year

Total comprehensive loss attributable to:

Owners of the Company

Non-controlling interests

Notes

2019
£’000

2018 Restated
£’000

(71,474)

(12,480)

(192)

—

(192)

202

(41)

161

(71,666)

(12,319)

(71,208)

(458)

(71,666)

(12,234)

(85)

(12,319)

Xaar plcAnnual Report and Financial Statements 2019Financial Statements98

Consolidated statement of financial position
as at 31 December 2019

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use asset

Deferred tax asset

Current assets
Inventories
Trade and other receivables
Current tax asset
Treasury deposits
Cash and cash equivalents

Total assets

Current liabilities
Trade and other payables
Other financial liabilities
Provisions
Derivative financial instruments
Lease liabilities

Net current assets

Non-current liabilities
Deferred tax liabilities
Lease liabilities
Other financial liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity
Share capital
Share premium
Own shares
Translation reserve
Other reserves
Retained earnings

Equity attributable to owners of the Company

Non-controlling interest

Total equity

Notes

2019
£’000

2018 Restated
£’000

14
15
16
17

19
20
20
20
20

23
24
25
21
17

22
17
24

26
27
28
29
30
30

5,333
5,543
20,908
3,561

130

35,475

16,164
9,109
1,788
522
24,800

52,383

87,858

(7,284)
—
(2,947)
(2,996)
(1,450)

(14,677)

37,706

—
(2,521)
—

(2,521)

(17,198)

70,660

7,833
29,328
(2,676)
660
20,921
7,855

63,921

6,739

70,660

5,522
32,796
28,044
—

—

66,362

32,142
21,398
5,142
3,277
24,669

86,628

152,990

(18,958)
(33)
(499)
(936)
—

(20,426)

66,202

(870)
—
(103)

(973)

(21,399)

131,591

7,833
29,328
(3,113)
817
15,144
79,554

129,563

2,028

131,591

The financial statements of Xaar plc, registered number 3320972, were approved by the Board of Directors and authorised for issue on 22 April 2020. They
were signed on its behalf by:

John Mills
Chief Executive Officer

Ian Tichias
Chief Finance Officer

Xaar plcAnnual Report and Financial Statements 2019Consolidated statement of changes in equity
for the year ended 31 December 2019

Share
capital
£’000

Share
premium
£’000

Own
shares
£’000

Other
reserves
£’000

Translation
reserve
£’000

Retained
earnings
£’000

Notes

Non-
controlling
interest
£’000

Total
£’000

Total
equity
£’000

Balance at 1 January 2018

7,833

29,317

(3,642)

14,638

613

98,425 147,184

— 147,184

Loss for the year
Exchange differences on
retranslation of net investment
Tax on items taken directly to equity

Total comprehensive loss for the
year
Issue of share capital
Own shares sold in the year
Dividends paid
Credit to equity for equity-settled
share-based payments
Adjustment arising from change in
non-controlling interest

Balance at 31 December 2018 as
previously reported
Prior period adjustments

Balance at 31 December
2018 restated
Effect of initial application of IFRS 16

Balance at 1 January 2019
restated for IFRS 16
Loss for the year
Exchange differences on
retranslation of net investment

Total comprehensive income for
the year
Own shares sold in the year
Credit to equity for equity-settled
share-based payments
Adjustment arising from change in
non-controlling interest

—

—
—

—
—
—
—

—

—
—

—
11
—
—

—

—
—

—
—
529
—

—

—
—

—
—
—
—

—

(12,276)

(62)

(12,338)

204
—

—
(41)

204
(41)

(2)
—

202
(41)

204
—
—
—

(12,317)
—
(424)
(6,009)

(12,113)
11
105
(6,009)

(12,177)
(64)
11
—
—
105
— (6,009)

—

506

—

506

—

506

—

2,264

7,833
—

29,328
—

(3,113)
—

15,144
—

817
—

79,675 129,684
(121)

(121)

2,200 131,884
(293)

(172)

7,833
—

29,328
—

(3,113)
—

15,144
—

817
—

79,554 129,563
(211)

(211)

2,028 131,591
(213)

(2)

7,833
—

29,328
—

(3,113)
—

15,144
—

817
—

79,343 129,352
(71,051)
(71,051)

2,026 131,378
(71,474)

(423)

—

(157)

—

(157)

(35)

(192)

—
—

—

—
—

—

—
437

—
—

(157)
—

(71,051)
(437)

(71,208)
—

(458)
—

(71,666)
—

—

1,111

—

4,666

—

1,111

—

1,111

—

4,666

5,171

9,837

Balance at 31 December 2019

7,833

29,328

(2,676)

20,921

660

7,855

63,921

6,739

70,660

The nature of retained earnings and other reserves in equity are described in note 30.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements100

Consolidated cash flow statement
for the year ended 31 December 2019

Net cash used in operating activities

Investing activities
Investment income
Treasury amounts withdrawn / (deposited)
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Expenditure on software
Expenditure on licence
Expenditure on capitalised product development

Net cash used in investing activities

Financing activities
Dividends paid
Proceeds from issue of financial instrument
Proceeds from non-controlling interest transactions
Proceeds from the sale of ordinary share capital
Proceeds from issue of ordinary share capital
Payment of lease liabilities and related interest

Net cash provided by / (used in) financing activities

Net increase / (decrease) in cash and cash equivalents
Effect of foreign exchange rate changes on cash balances
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

2019
£’000

2018 Restated
£’000

(9,828)

(9,862)

103
2,755
(1,071)
—
(90)
—
(2,255)

(558)

—
—
12,003
—
—
(1,274)

10,729

343
(212)
24,669

24,800

171
(2,524)
(2,790)
584
(160)
(177)
(1,915)

(6,811)

(6,009)
902
2,115
105
11
—

(2,876)

(19,549)
274
43,944

24,669

Cash and cash equivalents (which are presented as a single class of asset on the face of the consolidated statement of financial position)
comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The carrying amount of these
assets is approximately equal to their fair value.

Xaar plcAnnual Report and Financial Statements 2019Notes to the consolidated financial statements
for the year ended 31 December 2019

101

1. General information
Xaar plc (‘the Group’) is incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given
on the inside back cover. The nature of the Group’s operations and its principal activity is set out in the Strategic Report starting on pages 18 to 25.

h The Strategic Report can be found on pages 18 to 25.

2. Key sources of estimation uncertainty and critical accounting judgements
The key assumptions concerning the future and other sources of estimation uncertainty at the date of the statement of financial position 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:

Accounting Judgements - The Group applies judgement in how it applies its accounting policies, which do not involve estimation, which
could materially affect the numbers disclosed in these financial statements. The key judgements, without estimation, that could have the most
significant effect on the amounts recognised in these financial statements are as follows:

Capitalisation of development costs (accounting judgement) - note 15
As described in note 3, the Group capitalises development expenditure as an intangible asset where the criteria under IAS 38 ‘Intangible Assets’
is met. This requires management to make judgement on when all of the criteria for capitalisation are met and when to cease capitalisation and
start amortising the asset. In 2019, total capitalised development additions amounted to £2,255,000 (2018: £1,915,000).

Consolidation of Xaar 3D (accounting judgement) - notes 21, 35 & 36
Following the additional investment in Xaar 3D Limited by Stratasys Solutions Limited at the end of 2019 the Group considered the application
of IFRS 10 Consolidated Financial Statements. Following this review the Group concluded that it has retained power over the investee, it is
both exposed, and has the right, to variable returns, and it has the ability to use its power to affect these returns. This conclusion was drawn on
the basis of the current share ownership (55% Xaar), the make-up of the Board (Xaar has a majority position), the terms of the call option that
Stratasys holds over the Xaar 3D shares, and the process used to make key strategic and operational decisions including who the key decision
makers are. Based on the option valuation, the Board have concluded that the currently exercisable call option that Stratasys holds over the
remaining 45% of Xaar 3D is not substantive as at the reporting date. While certain matters require the consent of Stratasys, management
have assessed that these only give protective rights over the relevant activities, which are judged at this time to be the development and
commercialisation of the 3D product for it to be produced by a contract manufacturer, an area in which Xaar plc has the expertise. As such,
the Group has concluded it continues to retain control and should therefore continue to consolidate Xaar 3D.

Discontinued operations (accounting judgement) - note 10
Following the cessation of Thin Film activities in September 2019 the Group consider the application of IFRS 5 ‘Non-current Assets Held for
Sale and Discontinued Operations’. Following its cessation, the Thin Film business is an abandoned operation and has met the criteria of a
discontinued operation per IFRS 5. The Group unsuccessfully sought additional investment for its Thin Film operation and has therefore deemed
that the operation should not be classified as held for sale due to the low probability of successfully selling it.

Significant Estimates - The preparation of financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting year. Although these estimates are based on management’s best knowledge of the amount, events or actions,
actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future periods.

The Directors consider the following to be the key estimates applicable to the financial statements, which have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the longer term:

Xaar 3D option – (estimation uncertainty) - note 21
In December 2019 Xaar 3D Holdings granted Stratasys Solutions Limited an option to acquire the remaining shares in Xaar 3D Limited. This
financial liability is measured at fair value. In order to calculate the fair value the Group uses the Black Scholes model. The Black Scholes model
uses a number of inputs that require estimation. Whilst the Group uses third party experts to provide these inputs the estimates remain uncertain.

Inventory provision (estimation uncertainty) - note 19
The Group’s inventory provision at 31 December 2019 of £20,935,000 (2018: £5,082,000) includes £17,815,000 relating discontinued operations
(2018: 2,679,000) and £3,120,000 from continued operations (2018: £2,403,000). All assets, including inventory, that relate to the discontinued
operations have been value at fair value less cost to sell. Provisions in relation to continued operations have been made based on management’s
assessment of customer sell through, market conditions, current and potential competitors, and the ageing profile and quantity of the inventory
on hand. Furthermore, management has assessed the likely time period to sell the inventory and the ability to decrease prices to drive sales.

Credit provision for the allowance of doubtful debts (estimation uncertainty) - note 20
The Group’s provision for doubtful debts of £7,959,000 (2018: £5,178,000) relates to management’s assessment of the ageing profile of
receivables and the risk of collecting unpaid overdue balances. In making the estimate, management has taken steps to assess the ongoing
viability of the customers, the probability and timing of repayment, external factors which may affect the customers’ ability to pay and historical
data relating to settlement of aged debts.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements102

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

2. Key sources of estimation uncertainty and critical accounting judgements continued
Impairment of capitalised development costs (estimation uncertainty) - note 15
The Group determines whether capitalised development costs, and all other non-current assets, are impaired at least on an annual basis. This
requires an estimation of the ‘value-in-use’ of the cash-generating units to which the capitalised development costs are 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 capitalised development
costs at 31 December 2019 was £5,166,000 (2018: £32,337,000).

During 2019, following a strategic review the Directors took the decision to close the Thin Film development projects leading to the impairment
and write down of the Capitalised development costs of £28,494,000. Customers have been provided with the opportunity to implement “last
time buys” of the product developed, and work has been undertaken to identify alternative ways to monetise the Intellectual Property that has
been capitalised, with no significant opportunities readily available, the Directors have estimated that value attributable to previously capitalised
development costs in thin film is nil, and have therefore fully impaired the asset value.

3. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use
in the European Union. Therefore the Group financial statements have been prepared in accordance with Article 4 of the EU IAS regulation.
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) that are applicable to the financial period, as adopted by the European Union.

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The Group financial
statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. The
principal accounting policies adopted are set out below.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company 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. An investor controls another entity, an investee, if and only if the investor
has all of the following: it has power over the investee, exposure or rights to variable returns from its involvement with the investee, and the ability
to use its power over the investee to affect the amount of the investor’s returns. To have power, an investor must have existing substantive rights
that give it the current ability to direct the relevant activities. The investor reassesses whether it controls an entity if facts and circumstances
indicate changes to one or more of the elements of control.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of
acquisition or up to the 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. Foreign exchange gains and losses arising on the
retranslation of trading balances with subsidiaries with different functional currencies are reported in the income statement.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders
that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair
value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement
is made on an acquisition-by-acquisition basis.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests.
Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying
amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the Company.

Xaar plcAnnual Report and Financial Statements 2019103

3. Significant accounting policies continued
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the
Strategic Report on pages 6 to 25. Notes 20, 21 and 24 include a description of the Group’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and
liquidity risk.

The Board have considered the impact of the ongoing COVID-19 impact. Whilst the impact to date on trading and debtor recoverability has
been minimal, the impact of COVID-19 has created a high level of uncertainty as to the outlook for the remainder of the financial year and it is still
too early to ascertain the impact this may have on our full year 2020 revenue and profitability.

The Board have therefore performed a number of stress tests to assess the Group’s ability to continue as a going concern.

The Directors have prepared cash flow forecasts for the Group for a review period of 12 months from the date of approval of the 2019 financial
statements. These forecasts reflect an assessment of current and future market conditions and their impact on the Group’s future cash flow
performance. The forecasts have been sensitised for a reduction in revenue from the second half of 2020 to the end of the review period. The
forecasts have also been reverse stress tested by significantly reducing revenue from the second half of 2020 to the end of the review period,
with some cost mitigations.

In the sensitised scenario the forecasts indicate the Group would still have sufficient cash to continue. In the reverse stress tested scenario,
the Group would run out of cash. However, with some mitigation such as reducing discretionary spend, delaying capital expenditure and
research and development costs, the Group would have sufficient cash. Notwithstanding this, the Group has further options to mitigate a cash
shortfall which have not been factored into the above forecasts, such as staffing reductions, further delaying/stopping capital and research and
development expenditure and applying for certain government support measures. Should it become apparent that sales orders, revenue and/
or cash collections are being affected by a global slowdown, the Directors will undertake a further review on discretionary expenditure, staffing
levels and capital investment to protect the Group’s cash position.

Having considered all the above, including the Group’s current strong cash position, the Directors remain confident in the long-term future
prospects for the Group and its ability to continue as a going concern for the foreseeable future and therefore continue to adopt the going
concern basis in preparing the financial statements.

Adjusted financial measures
Adjusted financial measures comprise adjusted operating profit / (loss), adjusted profit / (loss) before tax, and adjusted diluted earnings per share.
These measures are alternative performance measures (‘APMs’) which are not defined or specified under the requirements of IFRS. These APMs
adjust for recurring and non-recurring items which management consider to have a distorting effect on the underlying results of the Group. These
APMs are used in evaluating management’s performance and in determining management and executive remuneration. Items adjusted for include
share-based payment charges, exchange differences on intra-group transactions, gains and losses on derivative financial instruments, restructuring
and investment expenses and the research and development expenditure credit.

Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment, and allow for variation that can occur due to
volatility in share prices in respect of share based payment charges, or the significant impact of restructuring costs. Net cash includes cash, cash
equivalents and treasury deposits. Gross R&D investment includes the capitalised costs of the High Speed Sintering development programme (and
P4 (Thin Film) technology platform in 2017), and excludes the amortisation cost of P4 (Thin Film) technology platform.

A new adjusted performance measure arising from gains and losses on derivative financial instruments, as these are not deemed a transaction
in the normal course of business, arising from an investment in a separate legal entity for development with the option for disposal. Previously an
APM was calculated to reflect the impact of IAS 38 ‘Intangible Assets’, as this is no longer a method for evaluating management’s performance this
calculation has been removed as an APM and KPI upon which management and executive remuneration may be determined.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements104

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

3. Significant accounting policies continued
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the sum of consideration transferred,
the amount of any non-controlling interests in the acquiree over the net of the acquisition-date fair values 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.

Goodwill
Goodwill 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.

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.

Revenue recognition
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts
collected on behalf of third parties. The Group determines whether to recognise revenue, following a five-step process:
1. Identifying the contract with a customer;
2. Identifying the performance obligations;
3. Determining the transaction price;
4. Allocating the transaction price to the performance obligations; and
5. Recognising revenue when/as performance obligation(s) are satisfied.

Revenue arises from a number of sources but mainly the manufacture and sale of printheads and engineered printing solutions. The Group also
licences intellectual property to third parties as part of Royalty based Revenue. Revenue is shown net of value-added tax, returns, rebates and
discounts and after eliminating sales within the Group.

Revenue from goods and services is recognised in accordance with IFRS 15 when control has been transferred to the customer. For sale of goods
and services revenue is recognised at a point in time, unless specific conditions have been satisfied allowing revenue to be recognised over a
period of time as identified in the five-step process (above) e.g. where the asset produced doesn’t have an alternative use and the Group has an
enforceable right to payment for performance completed to date. An input methodology (based on estimated costs) is used when recognising
revenue over time. Use has been made of the practical expedient not to recognise a significant financing component where the period between

transfer of the good or service and payment is one year or less.

Royalties are recognised on an accruals basis in accordance with the actual revenue trend in the most recent quarterly statements received from
each licensee. The Royalties arise from the licensee’s use of their printheads and our related intellectual property installed in equipment developed
by original equipment manufacturers (‘OEMs’).

A receivable is recognised when the performance obligations are satisfied (e.g. upon shipment, upon delivery as services are rendered or upon
completion of service) as this is the point in time that the consideration is unconditional because only the passage of time is required before the

payment is due, there will be a reservation of title until payment has been received, but control has been transferred.

Xaar plcAnnual Report and Financial Statements 2019105

3. Significant accounting policies continued
Investment income
Investment 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.

Leases
The Group has changed its accounting policy for leases where the Group is the lessee. The new policy and the impact of the change is described
on page 110.

Until 31 December 2018, leases of property, plant and equipment where the Group, as lessee, had substantially all the risks and rewards of
ownership were classified as finance leases. Finance leases were capitalised at the lease’s inception at the fair value of the leased property or, if
lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in other short-
term and long-term payables. Each lease payment was allocated between the liability and finance cost. The finance cost was charged to profit or
loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property,
plant and equipment acquired under finance leases was depreciated over the asset’s useful life, or over the shorter of the asset’s useful life and the
lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.

Interest expense
Interest expense on lease liabilities is a component of finance costs which requires to be presented separately in the income statement.

Foreign currencies
The 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 assets and liabilities, and on the retranslation of monetary assets and liabilities, are
included in the income statement for the period.

In order to hedge its exposure to certain foreign exchange risks, the Group may enter into forward contracts (see page 108 for details of the Group’s
accounting policies in respect of such derivative financial instruments).

h Further information can be found on page 131.

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 date of the statement of financial position. Income and expense items are translated at the average exchange rates
for the period.

Exchange differences arising are recognised in other comprehensive income and taken to the translation reserve. Exchange differences on the
translation of net investments are taken to the translation reserve.

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.

Government and EU grants
Government and EU grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to
them and that the grant will be received. Government and EU grants relating to research and development are treated as income over the periods
necessary to match them with the related costs.

Operating profit/(loss)
Operating profit/(loss) is stated after charging restructuring costs but before investment income and finance costs.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements106

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

3. Significant accounting policies continued
Restructuring costs
Restructuring Cost refers to the one-time expenses or infrequent expenses which are incurred by the Company in the process of reorganising its
business operations with the motive of the overall improvement of the long-term profitability and working efficiency of the Company.

Retirement benefit costs
Payments 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.

Taxation
The 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 date of the statement of financial
position.

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 statement of financial position
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 the date of each statement of financial position 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.

To the extent that the Group receives a tax deduction relating to share-based payment transactions, a deferred tax asset is recognised at the
appropriate tax rate on the difference in value between the market price of the underlying equity as at the date of the financial statements and the
exercise price of the outstanding share options multiplied by the expired portion of the vesting period. As a result, the deferred tax impact of share
options will not be derived directly from the expense reported in the consolidated income statement. Where the deductible difference exceeds the
cumulative charge to the consolidated income statement the excess of the associated tax benefit is recorded directly to equity rather than in profit
or loss.

Deferred tax assets and liabilities are measured on an undiscounted 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.

Xaar plcAnnual Report and Financial Statements 2019107

3. Significant accounting policies continued
Property, plant and equipment
All property, plant and equipment is 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.

Freehold land is not depreciated.

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

Leasehold property improvements

Up to 20 years

Plant and machinery

Buildings

Three to 20 years

Up to 40 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.

Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.

In accordance with IAS 38, an internally generated intangible asset arising from the Group’s development 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;
• The development cost of the asset can be measured reliably;
• The project is technically and commercially feasible;
• The Group intends to and has sufficient resources to complete the project; and
• The Group has the ability to use or sell the services and product developed.

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 assets
Costs incurred in maintaining the patent and trademark portfolio are written off to the income statement as incurred.

Payments in respect of software, 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 goodwill
At the date of each statement of financial position, 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.

Recoverable amount is the higher of fair value less costs of disposal 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.

Where an impairment loss is subsequently reversed, 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.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

108

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

3. Significant accounting policies continued
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first in, first out (‘FIFO’) cost formula, by applying the
standard cost methodology, with costs including 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. 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 instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the
contractual provisions of the instrument. To be classified and measured at amortised cost (if the business model is held to collect) or fair value
through OCI (if the business model is both held to collect and selling financial assets).

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss
are recognised immediately in profit or loss.

Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are
purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of
the financial assets.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (‘SPPI’)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is
performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss,
irrespective of the business model.

Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the life of the debt instrument, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.

Impairment of financial assets
The Group recognises an allowance for expected credit losses (‘ECLs’) for all debt instruments not held at fair value through profit or loss. ECLs
are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects
to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition.
ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). Trade receivables are recognised using a lifetime ECL
approach.

For financial assets carried at amortised cost, the amount of the impairment is the differences between the asset’s carrying amount and the present
value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate.

Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable
and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

Xaar plcAnnual Report and Financial Statements 2019109

3. Significant accounting policies continued
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest method or at fair value through profit or loss (FVTPL).

However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement
approach applies, and financial guarantee contracts issued by the Group, are measured in accordance with the specific accounting policies set out
below:

Financial liabilities are classified at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held
for trading or (iii) it is designated as at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss to the
extent that they are not part of a designated hedging relationship. The net gain or loss recognised in profit or loss incorporates any interest paid on
the financial liability and is included within ‘other gains and losses’ in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial
liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference
between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.

Derivative financial instruments
The 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 forecast transactions.

Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value
at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial
liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset. The impact of the Master
Netting Agreements on the Group’s financial position is disclosed in note 20. A derivative is presented as a non-current asset or a non-current
liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other
derivatives are presented as current assets or current liabilities.

Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host with the effect that some of the cash flows of
the combined instrument vary in a way similar to a stand-alone derivative.

Derivatives embedded in hybrid contracts with a financial asset host within the scope of IFRS 9 are not separated. The entire hybrid contract is
classified and subsequently measured as either amortised cost or fair value as appropriate.

Derivatives embedded in hybrid contracts with hosts that are not financial assets within the scope of IFRS 9 (e.g. financial liabilities) are treated as
separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts
and the host contracts are not measured at FVTPL.

If the hybrid contract is a quoted financial liability, instead of separating the embedded derivative, the Group generally designates the whole hybrid
contract at FVTPL.

An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid instrument to which the
embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements110

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

3. Significant accounting policies continued
Cash and cash equivalents
Cash 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 within a period of up to three months post the date of the statement of financial position and are subject to an
insignificant risk of changes in value.

Treasury deposits
Treasury deposits comprise demand deposits that are convertible to a known amount of cash with an original maturity of between three months
and 12 months and are subject to an insignificant risk of changes in value.

Interest-bearing loans and borrowings
Interest-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.

Equity instruments
Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.

Provisions
Provisions 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 date of the
statement of financial position and are discounted where the effect of the time value of money is material.

A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation
in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it, and
the plan has reached a stage where the decision is unlikely to be reversed. The measurement of a restructuring provision includes only the direct
expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with
the ongoing activities of the entity.

Provisions for the expected cost of warranty obligations under contracts with customers and local sale of goods legislation are recognised in the
month of sale of the relevant products, at the Directors’ best estimate of the expenditure required to settle the Group’s obligation.

Share-based payments
The 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 based on the
satisfaction of non-market based vesting and service conditions.

The fair value of options issued under the Group’s Long-Term Incentive Plan is measured using a stochastic (Monte Carlo binomial) model for grants
made with market based vesting conditions since 2007. 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.

SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated
recognition of the expenses that would have arisen over the remainder of the original vesting period.

Own shares
Own 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.

Xaar plcAnnual Report and Financial Statements 2019111

3. Significant accounting policies continued
Non-controlling interests
The transactions with non-controlling interests are accounted for as equity transactions. For purchases of non-controlling interests, the difference
between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary is deducted from equity.
Gains or losses on disposals to non-controlling interests are also recorded in equity.

New and amended standards adopted by the Group
The Group has applied IFRS 16 ‘Leases’ for the first time for their annual reporting period commencing 1 January 2019. The Group had to change
its accounting policies as a result of adopting IFRS 16. The Group elected to adopt the new rules retrospectively but recognised the cumulative
effect of initially applying the new standard on 1 January 2019. This is disclosed in changes in accounting policies of this note.

New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and
have not been early adopted by the Group. These standards do not have a material impact on the entity in the current or future reporting periods
and on foreseeable future transactions.

Other standards
The following new standards, amended standards and interpretations became effective as at 1 January 2019 but did not have a significant impact
on the Group’s financial statements.

IFRIC Interpretation 23

IFRS 9 (amendments)

IAS 28 (amendments)

IAS 19 (amendments)

Annual IFRS Improvements Process

Uncertainty over Income Tax Treatments

Prepayment Features with Negative Compensation

Long-term Interests in Associates and Joint Ventures

Plan Amendment, Curtailment or Settlement

- IFRS 3 ‘Business Combinations’

Previously held Interests in a joint operation

- IFRS 11 ‘Joint Arrangements’

Previously held Interests in a joint operation

- IAS 12 ‘Income Taxes’

Income tax consequences of payments on financial instruments classified as equity

- IAS 23 ‘Borrowing Costs’

Borrowing costs eligible for capitalisation

Discontinued operations
A discontinued operation is a component of the Group that has been disposed of and that represents a separate major line of business and is part
of a single coordinated plan to dispose of such a line of business. The results of discontinued operations are presented separately in the income
statement and are shown net of tax.

Where an operation is classified as discontinued, the post-tax results of that operation will be presented as a single line item on the face of the
income statement and the cash flows from the discontinued operations will be split between continuing and discontinued operations on the face
of the cash flow statement. Comparatives are restated to distinguish between continuing and discontinued operations.

Changes in accounting policies – IFRS 16
In the current year, the Group, for the first time, has applied IFRS 16 ‘Leases’. The date of initial application of IFRS 16 for the Group is 1 January 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting
by removing the distinction between operating and finance lease, requiring the recognition of a right-of-use asset and a lease liability at
commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for
lessor accounting have remained largely unchanged.

The Group is not party to any material leases where it acts as a lessor, but the Group does have a large number of material property and equipment
leases.

Details of the Group’s accounting policies under IFRS 16 are set out below, followed by a description of the impact of adopting IFRS 16. Significant
judgements applied in the adoption of IFRS 16 included determining the lease term for those leases with termination or extension options and
determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined which is required for all leases..

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with
a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating
expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which
economic benefits from the leased assets are consumed.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements112

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

3. Significant accounting policies continued
Practical expedients adopted on transition
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.
Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into or modified
before 1 January 2019.

As part of the Group’s adoption of IFRS 16 and application of the modified retrospective approach to transition, the Group also elected to use
the following practical expedients:

• a single discount rate has been applied to portfolios of leases with reasonably similar characteristics;
• right-of-use assets have been adjusted by the carrying amount of onerous lease provisions at 31 December 2018 instead of performing

impairment reviews under IAS 36;

• exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application;
• non-lease components have not been separated from lease components, and instead both components have been treated as a single

component for the purpose of accounting under IFRS 16; and

• hindsight has been used in determining the lease term.

Impact on lessee accounting
Former operating leases
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet.

Applying IFRS 16, for all leases (except as noted above), the Group now recognises right-of-use assets and lease liabilities in the consolidated
balance sheet, initially measured at the present value of the future lease payments as described above.

Lease incentives (e.g. rent free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under
IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight line basis.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 ‘Impairment of Assets’. This replaces the previous
requirement to recognise a provision for onerous lease contracts.

Under IFRS 16 the Group recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement,
whereas under IAS 17 operating leases previously gave rise to a straight-line expense in other operating expenses.

Under IFRS 16 the Group separates the total amount of cash paid for leases that are on balance sheet into a principal portion (presented within
financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. Under IAS 17 operating lease
payments were presented as operating cash outflows.

Former finance leases
The main differences between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement of the residual
value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group recognises as part of its lease liability only the amount
expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. This change did
not have a material effect on the Group’s consolidated financial statements.

Financial impact
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and
lease liabilities. Provisions for onerous lease contracts have been derecognised and operating lease incentives previously recognised as liabilities
have been de-recognised and factored into the measurement of the right-to-use assets and lease liabilities.

Xaar plcAnnual Report and Financial Statements 2019113

3. Significant accounting policies continued
Impact on lessee accounting continued
Financial impact continued
The Group has chosen to use the table below to set out the adjustments recognised at the date of initial application of IFRS 16:

Non-current assets
Right of use assets

Current assets
Trade and other assets

Total impact on assets

Current liabilities
Trade and other payables
Lease liabilities

Non-current liabilities
Lease liabilities
Deferred tax liabilities

Total impact on liabilities

Equity - restated
Retained earnings
Non-controlling interest

As previously
reported as at
31 December
2018
£’000

Impact of
IFRS 16
£’000

As restated at
1 January
2019
£’000

—

3,127

—

21,398

(19)

21,379

3,108

(18,958)
—

278
(1,164)

(18,680)
(1,164)

—
(870)

79,554
2,028

(2,475)
40

(3,318)

(211)
(2)

(213)

(2,475)
(830)

79,343
2,026

Of the total right-of-use assets of £3.13 million recognised at 1 January 2019, £3.05 million related to leases of property and £0.08 million
to leases of machinery.

The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised
at 1 January 2019.

Operating lease commitments disclosed under IAS 17 at 31 December 2018
Short-term and low value lease commitments straight-line expensed under IFRS 16
Effect of discounting
Payments due in periods covered by extension options that are included in the lease term
Other adjustments on transition

Lease liabilities recognised at 1 January 2019

£’000

3,148
(4)
(152)
599
48

3,639

In terms of the income statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in
depreciation and interest expense compared to IAS 17. During the period ended 31 December 2019, in relation to leases under IFRS 16 the
Group recognised the following amounts in the consolidated income statement:

Depreciation
Interest expense
Short-term lease expense

£’000

1,061
110
53

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

114

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

4. Reconciliation of adjusted financial measures

Operating (loss) / profit before tax from continuing operations

Share-based payment charges
Exchange differences on intra-group transactions
(Gain) / loss on derivative financial liabilities
Restructuring costs
Research and development expenditure credit

Adjusted Operating (loss) / profit from continuing operations
Investment Income
Finance costs - for leases

Adjusted (loss) / profit from continuing operations before tax

Note

2019
£’000

2018 Restated
£’000

(11,884)

110

9
17

912
601
(106)
896
(260)

(9,841)
103
(110)

(9,848)

235
(628)
32
5,447
(842)

4,354
170
—

4,524

Adjusted financial measures are alternative performance measures, which adjust for recurring and non-recurring items that management
consider to have a distorting effect on the underlying results of the Group.

Share-based payment charges include the IFRS 2 charge for the period of £1,111,000 (2018: £506,000) and the credit relating to National
Insurance on the outstanding potential share option gains of £199,000 (2018: £271,000). These costs were included in the general and
administrative expenses in the consolidated income statement.

Exchange differences relating to the United States, Danish and Swedish operations represent exchange gains or losses recorded in the
consolidated income statement as a result of operating in the United States, Denmark and Sweden. These costs were included in general and
administrative expenses in the Consolidated income statement.

Gain/loss on derivative financial instruments relate to gains and losses made on call option contracts. These amounts are included on the
consolidated income statement under (Gain)/loss on derivative financial liabilities.

Restructuring costs of £896,000 (2018: £5,447,000) relates mainly to 2019 redundancy programme, of which £87,000 is accrued as at year-
end. The calculated impact of the restructuring at Corporation Tax rate of 19% would be £170,000. In the prior year, restructuring costs of
£5,447,000 relates mainly to the impairment of fixed assets of £3,126,000 used by the Printhead business unit. The fair value less costs of
disposal is less than the value in use and hence the recoverable amount of the relevant assets has been determined on the basis of their value
in use. The remaining costs in prior year relate to expenses incurred and provisions made in relation to a reorganisation, the closure of the
manufacturing facility in Sweden in 2016, and investment related expenditure.

The research and development expenditure credit relates to the corporation tax relief receivable relating to qualifying research and development
expenditure. This item is shown on the face of the Consolidated income statement.

Diluted earnings per share from continuing operations

Share-based payment charges
Exchange differences on intra-group transactions
(Gain) / Loss on derivative financial asset
Restructuring costs
Tax effect of adjusting items

Note

2019
Pence per share

2018 Restated
Pence per share

(19.4p)

1.2p
0.8p
(0.2p)
1.2p
(0.4p)

3.6p

0.3p
(0.8p)
—
7.1p
(0.2p)

Adjusted diluted earnings per share from continuing operations

(16.9p)

10.0p

This reconciliation is provided to enable a better understanding of the Group’s results.

Xaar plcAnnual Report and Financial Statements 2019
115

5. Revenue
The Group derives its revenue from contracts with customers for the transfer of goods and services over time and at a point in time in the
following major segments. This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 Operating
Segments in note 6.

Continuing Operations

Printhead
Product Print Systems
3D Printing

2019
£’000

33,681
15,698
18

2018
£’000

46,709
13,658
101

49,397

60,468

Product Print Systems has contracts with customers where the performance obligations are partially unsatisfied at 31 December 2019.
The transaction price allocated to partially satisfied and unsatisfied performance obligations at 31 December 2019 are as set out below.
The transaction price allocated to partially satisfied performance obligations have been recognised in the year while the transaction price
allocated to partially unsatisfied performance obligations has not been recognised.

Continuing Operations

Transaction price allocated to partially satisfied performance obligations
Transaction price allocated to partially unsatisfied performance obligations

2019
£’000

647
754

2018
£’000

1,066
395

Total transaction price for partially completed contracts

1,401

1,461

Management expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 December 2019 totalling £754,000
will be recognised during the 2020 financial year (2018: £395,000 recognised in 2019). No significant financing components have been
provided to customers.

6. Business and geographical segments
For management reporting purposes, the Group’s operations are analysed according to the three operating segments of ‘Printhead’, ‘Product
Print Systems’, and ‘3D Printing’. These three operating segments are the basis on which the Group reports its primary segment information and
on which decisions are made by the Group’s Chief Executive Officer and Board of Directors, and resources allocated. Each business unit is run
independently of the others and headed by a general manager. The Group’s chief operating decision maker is the Chief Executive Officer.

Segment information for continuing operations is presented below:

Year ended 31 December 2019

Revenue
Total segment revenue

Result
Adjusted (loss) / profit from continuing operations before tax
Share-based payment charges
Exchange differences relating to intra-group transactions

Gain on financial instrument
Restructuring
Research and development expenditure credit

Profit / (Loss) before tax from Continuing operations

Printhead
£’000

Product Print
Systems
£’000

3D Printing
£’000

Unallocated
£’000

Consolidated
£’000

33,681

15,698

—

49,397

(8,326)
—
(483)

—
(951)
29

(9,731)

(21)
—
—

—
55
—

(1,501)
—
(118)

106
—
231

—
(912)
—

—
—
—

(9,848)
(912)
(601)

106
(896)
260

(1,282)

(912)

(11,891)

Share-based payment charges include the IFRS 2 charge for the period and the credit relating to National Insurance on the outstanding potential
share options.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

116

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

6. Business and geographical segments continued

Year ended 31 December 2018 (Restated) - Continuing Operations

Revenue
Total segment revenue

Result
Adjusted profit / (loss) before tax
Share-based payment charges
Exchange differences relating to intra-group transactions
Restructuring
Gain / (loss) on financial instrument
Research and development expenditure credit

Profit / (Loss) before tax from continuing operations

Segment assets - Total Operations

Printhead

Product Print Systems

3D Printing

Total assets

Printhead
£’000

Product Print
Systems
£’000

3D Printing
£’000

Unallocated
£’000

Consolidated
£’000

46,709

13,658

101

—

60,468

4,567
—
631
(4,381)
—
838

1,655

407
—
—
(982)
—
—

(575)

(450)
—
(3)
(84)
(32)
4

(565)

—
(235)
—
—
—
—

(235)

4,524
(235)
628
(5,447)
(32)
842

280

2019
£’000

58,117

14,776

14,964

2018
£’000

124,242

15,611

13,137

87,858

152,990

Assets are allocated to the segment which has responsibility for their control.

No information is provided for segment liabilities as this measure is not provided to the chief operating decision maker.

Other segment information - Total Operations

Year ended 31 December 2019

Depreciation and amortisation
Share-based payment charges
Capital expenditure

Year ended 31 December 2018

Depreciation and amortisation
Share-based payment charges
Capital expenditure

Notes

15, 16, 17

Notes

15, 16

Printhead
£’000

4,908
—
2,091

Printhead
£’000

6,430
—
2,861

Product
Print
Systems
£’000

386
—
198

Product
Print
Systems
£’000

366
—
217

3D
Printing
£’000

566
—
3,220

3D
Printing
£’000

68
—
2,169

Unallocated
£’000

Consolidated
£’000

—
912
—

5,860
912
5,509

Unallocated
£’000

Consolidated
£’000

—
235
—

6,864
235
5,247

Xaar plcAnnual Report and Financial Statements 2019

117

2019
£’000

33,681
15,698
18

49,397

Restated
2018
£’000

46,709
13,658
101

60,468

6. Business and geographical segments continued
Revenues from major products and services – Continuing Operations

Printhead
Product Print Systems
3D Printing

Consolidated revenue (excluding investment income)

Geographical information
The Group operates in three principal geographical areas: EMEA, the Americas and Asia. The Group's revenue from external customers
and information about its segments (non-current assets excluding deferred tax assets and other financial assets) by geographical location
is detailed below:

EMEA
Asia
– China
– Japan
– Other
The Americas (including USA)

Revenues are attributed to geographical areas on the basis of the customer's operating location.

EMEA
Asia
The Americas (including USA)

Revenue from external customers
Continuing operations

2019
£’000

18,491

5,101
1,338
530
23,937

49,397

Restated
2018
£’000

22,170

4,617
11,963
789
20,929

60,468

Non-current assets - Total Operations

2019
£’000

27,396
6
8,073

35,475

Restated
2018
£’000

58,128
8
8,226

66,362

Non-current assets, being Goodwill, Other intangible assets, Property, plant and equipment, Right of use assets and the Deferred tax asset,
are attributed to the location where they are situated.

Information about major customers
There are no customers whose revenue exceeds 10% of total revenues from continuing operations (2018: one customer whose revenue
exceeds 10% of total revenues from continuing operations, with revenue of £9.9 million (16% of total revenues from continuing operations)).
No other single customer contributed 10% or more to the Group’s revenue in either 2019 or 2018.

Revenue from the top five customers represents 23% of revenues (2018: 33%).

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

118

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

7. (Loss)/profit for the year
(Loss) / profit for continuing operations in the year has been arrived at after charging/(crediting):

Research and development expenses (net of capitalised development costs)*
Grants towards research and development including the research and development expenditure credit
Depreciation of property, plant and equipment
Depreciation of right of use asset
Amortisation of capitalised development costs (included in research and development expenses)
Amortisation of software (included in general and administrative expenses)
Amortisation of licence (included in general and administrative expenses)
(Profit)/loss on disposal of property, plant and equipment
Cost of inventories recognised as expense
Impairment of other financial assets
Total fees payable to the Company’s auditor and its associates

2019
£’000

3,502
(262)
3,359
1,061
136
87
14
(18)
34,411
2,715
225

Restated
2018
£’000

6,358
(928)
3,974
—
493
63
7
—
27,799
3,202
288

* Total spend on research and development in 2019, before capitalised and amortised development costs included in note 15, was £5,714,,000 (2018: £8,273,,000).

Grant income includes £260,000 (2018: £842,000) in respect of the research and development expenditure credit and £2,000 (2018: £86,000)
of grant income in support of the 3D Printing Projects.

Auditor’s remuneration

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services to the Group
– The audit of the Company’s subsidiaries

Total audit fees

– Interim review
Total non-audit fees

Total fees payable to the Company’s auditor and its associates

2019
£’000

175

195

30
30

225

2018
£’000

240

262

26
26

288

The Audit Committee has considered the independence of the auditor in relation to non-audit services throughout the year. A description of
the work of the Audit Committee is set out in the Corporate Governance statement on pages 59 and 60 and includes an explanation of how
auditor’s objectivity and independence is safeguarded when non-audit services are provided by the auditor.

h The Audit Committee report can be found on page 59.

Xaar plcAnnual Report and Financial Statements 2019119

8. Staff costs
The average monthly number of persons employed by the Group including Executive Directors was as follows:

Research and development
Sales and marketing
Manufacturing and engineering
Administration

Their aggregate remuneration comprised:

Wages and salaries
Social security costs
Pension costs
Share-based payments

2019
Number

2018
Number

77
53
247
60

437

Restated
2018
£’000

23,965
2,341
1,053
235

27,594

74
86
291
65

516

Previously reported
2018
£’000

21,895
2,341
1,053
235

25,524

Notes

2019
£’000

21,518
2,035
951
912

25,416

Share-based payment charges include the IFRS 2 charge for the period (£1,111,000) and a credit relating to National Insurance on the
outstanding potential share option gains (£199,000). Wages and Salaries have been restated in 2018 to reflect a correction in the disclosure of
direct and indirect salary costs included in cost of goods sold this has increased reported wages and salaries by £2,070,000.

9. Investment income

Interest receivable on cash and bank balances, and treasury deposits

2019
£’000

103

2018
£’000

170

10. Discontinued operations
On 26 September 2019 Xaar announced the cessation of all Thin Film activities. This resulted in an impairment charge of £39,000,000 in the
interim 2019 financial statements which is made up of £28,500,000 of intangible assets, £5,400,000 of property, plant and equipment and
£5,100,000 working capital.

Thin Film activities are included within the Printhead business unit. The results of Thin Film related activies for the year are shown below:

Revenue from contracts with customers
Expenses

Loss before tax from discontinued operations
Income tax credit

2019
£’000

1,586
(61,587)

(60,001)
3,918

2018
£’000

3,066
(18,415)

(15,349)
183

Loss after tax from discontinued operations

(56,082)

(15,166)

Xaar plcAnnual Report and Financial Statements 2019Financial Statements
120

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

10. Discontinued operations continued
Included in the Expenses of £61,587,0000 for 2019 is £1,712,000 for the buy back of inventory from a distributor ,which was subsequently
impaired given the discontinuance of the Thin Film business. This is a reclassification from the 2019 interims where this was relating to the
original entry treated as a reversal of revenue. The reclassification has resulted in Revenue increasing by £4,332,000, cost of goods sold (based
on the original sale) increasing by £2,620,000, and Expenses (for writedowns) increasing by £1,712,000.

The net cash flows incurred by Thin Film business unit are, as follows:

Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow / (outflow) from financing activities

Notes

2019
£’000

(17,647)
(321)
—

2018
£’000

(15,684)
(391)
—

Net cash (outflow) / inflow from discontinued operations

(17,968)

(16,075)

Earnings per share

Basic. profit / (Ioss) for the year from discontinued operations
Diluted, profit / (loss) for the year from discontinued operations

2019

(72.7p)
(72.7p)

13
13

2018

(19.7p)
(19.5p)

Potential ordinary shares are treated as dilutive if their conversion to ordinary shares would decrease earnings per share or increase loss per
share. Therefore in 2019, the diluted earnings per share is not impacted by the effect of dilutive potential ordinary shares.

11. Tax

Current tax – UK
Current tax – overseas

Amounts under provided in previous years

Total current income tax charge

Deferred tax – origination and reversal
Adjustment in respect of prior years

Total deferred tax credit

Total tax credit for the year

Notes

2019
£’000

153
113

266
281

547

(1,054)
90

(964)

(417)

2018
£’000

241
10

251
238

489

(3,355)
277

(3,078)

(2,589)

The rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2018: 19%). Taxation for other jurisdictions is calculated at
the rates prevailing in the respective jurisdictions.

The Finance (No.2) Act 2017, which was substantively enacted on 6 September 2017, provided for a reduction in the main rate of UK
corporation tax from 19% to 17% on April 1, 2020. As deferred tax assets and liabilities are measured at the rates that are expected to apply
in the periods of the reversal, deferred tax balances at December 31, 2019 have been calculated at the rate at which the relevant balance is
expected to be recovered or settled.

Following the UK Budget on 11 March 2020, the government have announced that legislation will be introduced in Finance Bill 2020 to amend
the main rate of UK corporation tax to 19%. However, as this legislation has not been substantively enacted at the balance sheet date, this
effect has not been included in these financial statements. There is expected to be no overall effect from the reversal of the rate from 17% to
19% to the deferred tax balance at the balance sheet date (this is due to the fact that the net deferred tax position for U.K entities is nil).

The note to the cash flow statement (note 31) shows repayments of tax for £3,392,000 during the year (2018: payments of £471,000).

The closing deferred tax liability at 31 December 2019 has been calculated at 17% reflecting the tax rate at which the deferred tax liability is
expected to be reversed in future periods. Details on deferred tax assets are disclosed in note 22.

Xaar plcAnnual Report and Financial Statements 2019

121

11. Tax continued
In addition to the amount charged to the income statement and other comprehensive income, the following amounts relating to tax have been
recognised directly in equity:

Current tax
Excess tax deductions in relation to share-based payments on exercised options
Foreign exchange movement

Deferred tax
Arising on transactions with equity participants:
Change in estimated excess tax deductions in relation to share-based payments
Foreign exchange movement

Notes

Total income tax recognised directly in equity

The charge for the year can be reconciled to the profit per the income statement as follows:

(Loss) / profit before tax from continuing activities

Loss before tax from discontinuing activities

Accounting loss before income tax
Tax on ordinary activities at standard UK rate of 19.00% (2018: 19.00%)
Effect of:
Expenses not deductible for tax purposes
(Non-taxable) / non-deductible foreign exchange differences
Effect of different tax rates of subsidiaries operating overseas
Enhanced tax deduction for patent box
Effect of change in UK corporation tax rate on deferred tax
Current year losses not recognised
Derecognition of previously recognised deferred tax balances
Prior year adjustments

Total tax credit for the year

Income tax expense / (credit) reported in the statement of profit and loss

Income tax expense credit attributable to discontinued operations

2019
£’000

2018
£’000

—
13

—
4

(1)
—

(1)

42
—

2019
£’000

(11,891)

Restated
2018
£’000

279

(60,001)

(15,349)

(71,892)
(13,659)

(15,070)
(2,863)

557
—
43
—
65
8,364
3,842
371

(417)

3,501

(3,918)

392
(25)
(110)
(904)
379
—
—
542

(2,589)

(2,406)

(183)

(417)

(2,589)

The expenses not deductible for tax purposes mainly relate to depreciation on non-qualifying assets and share-based payments.

The effective tax rate for the year is 1% (2018: 17%). The low percentage this year is due to losses no longer being recognised for deferred
tax. For 2019 if the prior year adjustments and derecognition of previously recognised deferred tax balances alongside current year losses not
recognised were excluded the effective tax rate would have been 17% (2018: 20%).

Xaar plcAnnual Report and Financial Statements 2019Financial Statements122

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

12. Dividends

Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2018 of nil (2017: 6.8p) per share
Interim dividend for the year ended 31 December 2019 of nil (2018: 1.0p) per share

Total distributions to equity holders in the year

Proposed final dividend for the year ended 31 December 2019 of nil (2018: nil) per share

No interim or final dividend was proposed or paid for the year ended 31 December 2019.

13. Earnings per share – basic and diluted
The calculation of basic and diluted earnings per share is based on the following data:

Earnings
Earnings for the purposes of basic earnings per share being net
(Loss) attributable to equity holders of the parent

from continuing operations

from discontinued operations

Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options

2019
£’000

—
—

—

2018
£’000

5,238
771

6,009

—

2019
£’000

2018 Restated
£’000

(71,051)

(14,969)

(56,082)

(12,397)

2,769

(15,166)

77,116,331

76,957,142

—

941,350

Weighted average number of ordinary shares for the purposes of diluted earnings per share

77,116,331

77,898,492

Basic
Diluted

Continuing operations:
Basic
Diluted

Discontinued operations:
Basic
Diluted

2019
Pence per share

2018
Pence per share

(92.1p)
(92.1p)

(19.4p)
(19.4p)

(72.7p)
(72.7p)

(16.1p)
(15.9p)

3.6p
3.6p

(19.7p)
(19.5p)

Potential ordinary shares are treated as dilutive if their conversion to ordinary shares would decrease continuing earnings per share or increase
continuing loss per share. Accordingly there is now a dilutive impact in the prior year following classification of Thin Film as discontinued.
However, in 2019, the diluted continuing earnings per share is not impacted by the effect of dilutive potential ordinary shares.

The weighted average number of ordinary shares for the purposes of basic earnings per share is calculated after the exclusion of ordinary shares
in Xaar plc held by Xaar Trustee Ltd, the Xaar plc ESOP Trust and the matching shares held in trust for the Share Incentive Plan.

For 2019, there were share options granted over 978,915 shares that would not have been included in the diluted earnings per share calculation
because they were anti-dilutive at the year-end (2018: 541,008 shares had not been included).

The performance conditions for LTIP awards over 1,733,172 shares (2018: 1,581,632 shares) have not been met in the current financial year
or are not expected to be met in future financial periods, and therefore the dilutive effect of those shares have not been included in the diluted
earnings per share calculation.

Adjusted earnings per share
This adjusted earnings per share information is considered to provide a fairer representation of the Group’s trading performance year on year, as
it removes items which, in the Board’s opinion, do not reflect the underlying performance of the Group.

Xaar plcAnnual Report and Financial Statements 2019123

13. Earnings per share – basic and diluted continued
The calculation of adjusted EPS excluding share-based payment charges, exchange differences relating to intra-group transactions,
restructuring and acquisition expenses, is based on continued operation earnings of:

Earnings / (loss) on continuing operations for the purposes of basic earnings per share being
Net profit / (loss) attributable to equity holders of the parent

Share-based payment charges
Exchange differences relating to intra-group transactions
(Gain) / loss on derivative financial assets
Restructuring costs
Tax effect of adjusting items

Adjusted (loss) / profit after tax - continuing operations

2019
£’000

2018 Restated
£’000

(14,969)

912
601
(106)
896
(337)

(13,003)

2,769

235
(629)
32
5,447
(95)

7,759

Tax effect of adjusting items is calculated at current Corporation tax rate (19%) less any disallowed tax items.
The denominators used are the same as those detailed above for both basic and diluted earnings per share.
Adjusted earnings per share on continuing operations is earnings per share excluding the items adjusted for as detailed above:

Adjusted basic
Adjusted diluted

2019
Pence per share

2018 Restated
Pence per share

(16.9p)
(16.9p)

10.1p
10.0p

Adjusted EPS on continuing operations is considered to provide a fairer representation of the Group’s trading performance year on year.

14. Goodwill
The carrying amount of goodwill at 31 December 2019 was £5,333,000 (2018: £5,522,000).

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. Goodwill occurred from the acquisition of Engineered Print Solutions (EPS) in July 2016.

Product Print Systems (a single CGU)
Balance at the beginning of the year

Foreign currency translation

Balance at the end of the year

2019
£’000

5,522

(189)

5,333

2018
£’000

5,212

310

5,522

Goodwill relates to the acquisition of Engineered Print Solutions in July 2016 (a Company incorporated in USA). As part of the changes to the
reportable segments in the prior year, the goodwill stated above is now wholly attributed to Product Print Systems (a single CGU).

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Having performed
impairment testing, no impairment has been identified and therefore no impairment loss has been recognised in 2019 (2018: £nil).

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 and expected changes to selling prices and direct costs during the period.

A budget was prepared for a period of 5 years and a terminal value determined using a prudent 2% growth rate in Engineered Print Solutions,
based on OECD growth rates.

The Group prepared cash flow forecasts derived from the most recent financial forecasts reviewed by management for the next three years and
these have been used in the value-in-use calculation. The discount rate applied to the cash flow projections is 12.1% (2018: 8.4%) and reflects
external third party advice on the discount rate associated with Engineered Print Solutions. The discount rate reflects the risk free rate, equity
beta and local market premium as calculated at the year-end.

Sensitivity analysis has been completed on each key assumption in isolation and this indicates that reasonable changes in key assumptions
on which we have based our determination of the recoverable amount would not cause the carrying amount of goodwill to exceed its
recoverable amount.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements124

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

15. Other intangible assets

Cost
At 1 January 2018
Additions
Exchange Movements

At 1 January 2019
Additions
Transfer
Exchange movements
Disposals

At 31 December 2019

Amortisation
At 1 January 2018
Charge for the year

At 1 January 2019
Charge for the year
Transfers
Disposals
Impairment

At 31 December 2019

Carrying amount:
At 31 December 2019
At 31 December 2018

Capitalised
development
costs
£’000

Licences
acquired
£’000

Software
£’000

Total
£’000

39,550
1,915
—

41,465
2,255
17
—
—

43,737

7,059
2,069

9,128
923
26
—
28,494

38,571

5,166
32,337

533
177
6

716
—
(3)
(4)
—

709

533
7

540
14
—
—
—

554

155
175

3,223
160
—

3,383
90
(2)
—
(18)

3,453

3,036
63

3,099
87
62
(17)
—

3,231

222
284

43,306
2,252
6

45,564
2,345
12
(4)
(18)

47,899

10,628
2,139

12,767
1,024
88
(17)
28,494

42,356

5,543
32,796

Internally generated product development costs relate to the Platform 2, Platform 3 and Platform 4 ranges of printheads and technology. It also
includes the capitalisation of the product development costs that relate to the High Speed Sintering 3D printer developed by Xaar 3D. Platform
2 and Platform 3 are fully amortised.

Amortisation of Platform 4 commenced in August 2017 and was being amortised over a period of 20 years prior to the decision to cease all
Thin Film activities. Following the decision to discontinue the Thin Film operation the Platform 4 range has been fully impaired (an impairment
of £28,494,000) based on its fair value less costs to sell.

The development of the High Speed Sintering 3D printer was completed in December 2019 and amortisation commenced over a ten year
period.

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

The amortisation period for software is three to five years and for other product development costs incurred on the Group’s product
development is ten years.

As at 31 December 2019 the Group had not entered into any contractual commitments for the acquisition of intangible assets.

Xaar plcAnnual Report and Financial Statements 201916. Property, plant and equipment

Land and
buildings
£’000

Leasehold
property
£’000

Plant and
machinery
£’000

Furniture,
fittings and
equipment
£’000

Assets in the
course of
construction
£’000

Cost
At 1 January 2018
Additions
Transfers
Exchange movements
Disposals

At 1 January 2019
Additions
Transfers
Exchange movements
Disposals

At 31 December 2019

Depreciation
At 1 January 2018
Charge for the year
Exchange movements
Disposals
Impairment

At 1 January 2019
Charge for the year
Transfer
Exchange movements

Disposals

Impairment

1,125
—
—
67
—

1,192
—
532
(41)
1

1,684

57
7
—
—
—

64
17
242
(3)

—

14,937
1,145
788
(9)
(3,440)

13,421
50
628
(29)
(25)

14,045

10,798
654
(55)
(3,235)
60

8,222
576
(480)
(1)

(18)

78,212
1,503
1,300
(187)
(10,094)

70,734
1,421
1,111
(46)
(5,059)

68,161

54,793
3,969
(194)
(9,747)
3,195

52,016
3,089
(293)
(47)

(5,122)

5,049

4,189
96
15
16
(551)

3,765
83
(182)
(16)
(16)

3,634

3,318
95
(10)
(518)
3

2,888
94
444
(2)

(16)

—

At 31 December 2019

320

8,303

54,692

3,408

3,974
251
(2,103)
2
(2)

2,122
96
(2,102)
(5)
(3)

108

—
—
—
—
—

—
—
—
—

—

Carrying amount
At 31 December 2019

At 31 December 2018

1,364

1,128

5,742

5,199

13,468

18,717

225

878

108

2,122

125

Total
£’000

102,437
2,995
—
(111)
(14,087)

91,234
1,650
(12)
(138)
(5,102)

87,632

68,966
4,725
(259)
(13,500)
3,258

63,190
3,776
(87)
(53)

(5,156)

5,054

66,724

20,908

28,044

Impairments in 2018 of £3,258,000 primarily relate to the write down of assets at the manufacturing site for Xaar’s printheads. These were for
old and obsolete machines. Impairments in 2019 of £5,054,000 are almost all in relation to the Thin Film discontinued operation, these assets
have been valued at fair value, less costs of disposal of nil.

As at 31 December 2019 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £71,000 (2018: £90,000).

17. Leases
The Group and its subsidiaries have adopted IFRS 16 restrospectively from 1 January 2019, but have not restated comparatives for the 2018
reporting period, as permitted under specific transition provisions in the standard. The reclassifications and adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The new accounting policies, measurement and the
impact of the change in accounting policy are disclosed in note 3.

The Group has lease contracts for various items of buildings, equipment and vehicles used in its operations. The Group’s obligations under its
leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets
and some contracts require the Group to maintain certain financial ratios.

The Group also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value.

The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements126

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

17. Leases continued
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:

Buildings
£’000

Equipment
£’000

Vehicles
£’000

Total
£’000

Cost
At 1 January 2019 (restated)
Additions
Disposals
Exchange movements

At 31 December 2019

Depreciation
At 1 January 2019 (restated)
Charge for the year
Exchange movements

At 31 December 2019

Carrying amount
At 31 December 2019

At 1 January 2019 (restated)

12,204
1,494
(6)
(28)

13,664

9,159
1,025
(15)

10,169

3,495

3,045

99
20
—
—

119

25
31
—

16
—
—
—

8
5
—

12,319
1,514
(6)
(28)

13,799

9,192
1,061
(15)

10,238

3,561

3,127

Set out below are the carrying amounts of lease liabilities (included under current and non-current liabilities on the statement of financial position)
and the movements during the period:

At 1 January 2019 (restated)
Additions
Accretion of interest
Payments
Exchange movement

At 31 December 2019

Current
Non-current

£’000

3,639
1,507
110
(1,274)
(11)

3,971

1,450
2,521

The table below summarises the maturity profile of the Group’s financial liabilities based upon the contractual undiscounted payments as at
31 December 2019.

On demand
Less than three months
Four to twelve months
One to five years
More than 5 years

£’000

—
292
1,250
2,530
97

4,169

Xaar plcAnnual Report and Financial Statements 201917. Leases continued
The following are the amounts recognised in profit or loss:

Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases (included in administrative expenses)

Total amount recognised in profit or loss

127

£’000

1,061
110
53

1,224

Under IAS 17 the total cost of lease payments (excluding short-term leases) included in operating expenses would be £1,274,000, under IFRS
16 the depreciation and interest cost are £1,171,000. The IFRS 16 transition has decreased operating expenses in 2019 by £103,000.

18. Subsidiaries
A 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.

19. Inventories

Raw materials and consumables
Work in progress
Finished goods

2019
£’000

8,938
3,258
3,968

16,164

2018
£’000

11,124
2,315
18,703

32,142

The cost of inventories recognised as an expense includes £19,891,000 (2018: £3,299,000) in respect of inventory write-downs, and has been
offset by £1,090,000 (2018: £1,745,000) in respect of the reversal of such write-downs. The reversal of such write-downs arose from specific
projects related to finished goods and raw materials i.e. Printbar release, 1003 Built under concession, 1002 write-off in the year, and PZT wafer
write down.

Gross stock was £37,099,000 (2018: £37,224,000) with inventory provisions of £20,935,000 (2018: £5,082,000). The provision of £20,935,000
included £17,815,000 in relation to discontinued operations and £3,120,000 for continuing operations. Inventory for discontinued operations has
been recognised at fair value.

20. Other financial assets
The fair value of all financial assets and financial liabilities approximates their carrying value.

Trade and other receivables

Amount receivable for the sale of goods
Allowance for doubtful debts

Other debtors
Prepayments

Current tax asset

2019
£’000

14,407
(7,959)

6,448
1,634
1,027

9,109

1,788

2018
£’000

23,825
(5,178)

18,647
894
1,857

21,398

5,142

No amounts are expected to be settled in more than 12 months.

Trade receivables
The average credit period taken on sales of goods is 48 days (2018: 113 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 the Bank of England 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. Trade receivables over 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined
by reference to past default experience.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements128

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

20. Other financial assets continued
Trade receivables continued
The maximum exposure to credit risk is the carrying amount of the financial assets as disclosed on page 127. 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, four customers each
represented greater than 5% of the total receivables balance, totalling £7.5 million (2018: £13.6 million). The total due from these customers
represents 15% (2018: 22%) of the Group’s revenue.

Included in the Group’s trade receivables balance are debtors with a carrying amount of £2.1 million (2018: £7.6 million) at the reporting date for
which the Group has not provided:

1–30 days overdue
30–60 days overdue
60–90 days overdue
90–120 days overdue
Over 120 days overdue

Total receivables

Movement in the allowance for doubtful debts:

Balance at the beginning of the year
Impairment losses increased

Balance at the end of the year

2019
£’000

801
434
228
61
570

2,094

2019
£’000

5,178
2,781

7,959

2018
£’000

1,575
451
252
353
4,995

7,626

2018
£’000

510
4,668

5,178

The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade
receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current
financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate
and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The Group has recognised a loss
allowance of 2.9% against all receivables, excluding those with a specific provision against them. Most of the debt over 120 days has been
provided in full and relates to a small number of customers were none of the debt is expected to be recovered through normal trading. A
provision is made against trade receivables until such time as the Group believes the amount to be irrecoverable (such as the bankruptcy of a
customer or emerging market risks, which would render the receivable irrecoverable), after which the trade receivable balance is written off.

Ageing of impaired trade receivables:

Current
1–30 days overdue
30–60 days overdue
60–90 days overdue
90–120 days overdue
Over 120 days overdue

Total

2019
£’000

132
45
25
15
361
7,381

7,959

2018
£’000

—
—
—
—
—
5,178

5,178

The Directors have considered the sensitivity of doubtful debts and a 1% increase on the ECL percentage would equate to an additional
£144,000 allowance. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

Xaar plcAnnual Report and Financial Statements 2019129

20. Other financial assets continued
Treasury deposits
Treasury deposits comprise bank deposits with an original maturity of between three months and 12 months. The carrying amount of these
assets approximates their fair value.

Treasury deposits

2019
£’000

522

2018
£’000

3,277

Cash and cash equivalents
Cash 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:

Cash

2019
£’000

2018
£’000

24,800

24,669

The 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.

21. Financial instruments
Fair value measurements
The following table combines information about:

• Classes of financial instruments based on their nature and characteristics;
• The carrying amounts of financial instruments;
• Fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and
• Fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed.

Fair value hierarchy Levels 1 to 3 are based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on

observable market data (unobservable inputs).

2019

Trade and other receivables
Treasury deposits
Cash and bank balances
Trade and other payables
Derivative financial instrument

FVTPL –
designated
£’000

FVTPL –
mandatorily
measured
£’000

—
—
—
—
—

Financial assets

Financial liabilities

Amortised
cost
£’000

8,082
522
24,800
—
—

FVTPL –
mandatorily
measured
£’000

—
—
—
—
(2,996)

Amortised
cost
£’000

—
—
—
(7,284)
—

Total
£’000

8,082
522
24,800
(7,284)
(2,996)

Additional disclosure for Lease Liabilities is reported in note 17.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements130

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

21. Financial instruments continued

2018

Trade and other receivables
Treasury deposits
Cash and bank balances
Trade and other payables
Other financial liabilities due within one year
Other financial liabilities due after
more than one year
Derivative financial instrument

Financial assets

Financial liabilities

FVTPL –
designated
£’000

FVTPL –
mandatorily
measured
£’000

—
—
—
—
—

—
—

—
—
—
—
—

—
—

Amortised
cost
£’000

19,541
3,277
24,669
—
—

—
—

FVTPL –
mandatorily
measured
£’000

—
—
—
—
—

—
(936)

Amortised
cost
£’000

—
—
—
(18,958)
(33)

(103)
—

Total
£’000

19,541
3,277
24,669
(18,958)
(33)

(103)
(936)

Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table
gives information about how the fair value of these financial assets and financial liabilities are determined (in particular, the valuation technique(s)
and inputs used).

Financial asset/ financial
liabilities

Valuation technique(s) and
key input(s)

Significant unobservable
input(s)

Derivative financial instrument
(Level 3)

Underlying price of the share.

Volatility of the underlying share.

Black-Scholes model. The
following variables were
taken into consideration:
current underlying price of
the underlying share, options
strikeprice, time until expiration
(expressed as a percent of a
year), implied volatility of the
underlying share and LIBOR.

Relationship and sensitivity
of unobservable inputs to fair
value

8% increase / (decrease) would
result in a £427,000 increase in
the fair value and a £347,000
decrease. 10% increase /
(decrease) would result in
£280,000 increase in the fair
value and £265,000 decrease.

There were no transfers between Level 1 and 2 during the current or prior year.

The only financial liabilities measured subsequently at fair value on Level 3 fair value measurement represent written call options relating to a
business combination. In July 2018 Xaar signed an investment agreement with Stratasys Solutions Limited (‘Stratasys’) which granted Stratasys
a 15% share of Xaar 3D Limited (‘Xaar 3D’) and two written call options to acquire a further 10% and 5%. These options gave Stratasys the
right, but not the obligation, to acquire GBP denominated shares in Xaar 3D for a fixed price which was denominated, and to be settled, in USD.
At the 1 January 2019 the fair value of these options was £936,000. On the 4 December 2019 Stratasys exercised the first of the two options
granting them a further 10% share in Xaar 3D. At the same time Xaar 3D and Stratasys agreed to extinguish the second option, thereby settling
both options in the year. On the 4 December 2019 Xaar 3D Holdings sold to Stratasys a 20% share in Xaar 3D. As a consequence Stratasys
now owns 45% of Xaar 3D with the remaining 55% owned by Xaar 3D Holdings. As part of the agreement between Xaar 3D Holdings and
Stratasys, Xaar 3D Holdings granted Stratasys a written call option to acquire its remaining 55% shareholding in Xaar 3D. As with the original
option agreement between the Xaar 3D and Stratasys the new options are USD denominated giving rise to a new derivative financial liability.
This liability was valued at a fair value of £2,996,000 at the 31 December 2019. Additional disclosure information is provided in note 36 Non-
Controlling interest and note 35 Related Party Transactions.

Balance at 1 January 2019
Issues
Settlements
Total gains or losses - in profit or loss

Balance at 31 December 2019

2019
£’000

(936)
(2,908)
742
106

(2,996)

2018 restated
£’000

—
(904)
—
(32)

(936)

Xaar plcAnnual Report and Financial Statements 2019131

21. Financial instruments continued
Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis continued
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.

Financial risk management objectives
The 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 cash and treasury deposits. Other financial assets and liabilities, such as trade debtors
and trade creditors, arise directly from the Group’s operating activities.

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 20 and to liquidity risk is discussed in note 24.

The Group’s exposure has been calculated with reference to these balances as at the year-end.

Interest rate risk
As the Group currently has no borrowings, its exposure to interest rate risk relates to the interest rate on its cash, cash equivalent and treasury
deposit balances. 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.

If interest rates had been 2% higher/reduced to 0% and all other variables were held constant, the Group’s profit for the year ended
31 December 2019 would increase by £0.2 million or decrease by £0.1 million (2018: increase by £0.6 million or decrease by £0.2 million).
There would be no effect on equity reserves.

Foreign currency risk
The Group receives approximately 35% of its revenues in US Dollars and 10% of its revenue in Euros, which are partially naturally hedged by
supplies in these currencies, but the remainder requires conversion into Sterling in order to fund the remaining costs of the UK operations.
The Group has R&D operations in Sweden, and therefore incurs costs and holds cash balances in Swedish Krona. In 2017, the Group had a
manufacturing facility in Sweden which was closed in 2016 and legacy working capital balances denominated in Swedish Krona remain in the
Group’s Swedish companies prior to the dissolution of these entities.

The Group is mainly exposed to foreign currency risk resulting from transactions in US Dollars, Euros and Swedish Krona. 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 and equity (due to changes in the fair value of monetary assets, liabilities and forward currency contracts).
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 inter-company 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 or equity.

Effect of a 10% increase in relevant exchange rate on:
Profit or loss
Other equity
Effect of a 10% decrease in relevant exchange rate on:
Profit or loss
Other equity

Euro
currency impact

US Dollar
currency impact

Swedish Krona
currency impact

2019
£’000

(90)
—

110
—

2018
£’000

(229)
—

280
—

2019
£’000

(342)
(227)

418
276

2018
£’000

2019
£’000

2018
£’000

(1,024)
(202)

1,251
247

(12)
57

15
(48)

(22)
40

27
(52)

Capital risk management
The 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. No Dividend is proposed for 2019.

h Further information can be found on page 122 (note 12).
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. 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%.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements
132

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

21. Financial instruments continued
Capital risk management continued
The gearing ratio (excluding IFRS 16 leases) at the year-end is as follows:

Net debt
Total Equity
Gearing ratio

2019
£’000

—
70,660
0%

2018
£’000

—
131,591
0%

The Group is not subject to externally imposed capital requirements.

Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has
adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across different industries and geographical areas. Ongoing credit evaluation
is performed on the financial condition of accounts receivable.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit
rating agencies.

22. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting periods:

At 1 January 2018
Charge/(credit) to income
Charge to equity

At 1 January 2019 as reported
Impact of IFRS 16 on transition

At 1 January 2019 restated
(Credit)/charge to income
(Credit)/charge for discontinued operations
Foreign exchange movement

At 31 December 2019

Accelerated tax
depreciation
£’000

Share-based
payment
£’000

Untaxed
reserves
£’000

Tax losses
£’000

5,219
(162)
—

5,057
(40)

5,017
(56)
(4,256)
—

705

(549)
356
43

(150)
—

(150)
110
—
—

(40)

—
148
—

148
—

148
(148)
—
—

—

(105)
(3,306)
—

(3,411)
—

(3,411)
2,829
—
—

(582)

Other
temporary
difference
£’000

(660)
(114)
—

(774)
—

(774)
220
337
4

(213)

Total
£’000

3,905
(3,078)
43

870
(40)

830
2,955
(3,919)
4

(130)

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial
reporting purposes:

Deferred tax liabilities
Deferred tax assets

Being: Deferred tax assets / (liabilities) from continuing operations
Being: Deferred tax assets / (liabilities) from discontinued operations

The deferred tax has changed from a liability in 2018 to a deferred tax asset in 2019.

2019
£’000

—
130

130
—

2018 Restated
£’000

(830)
—

3,089
(3,919)

There has been two major changes in deferred tax during the year:
1. It was deemed that a deferred tax asset should no longer be recognised in relation to XaarJets losses; this has resulted in the release of the

£3.2 million deferred tax asset.

2. In contrast to this most of the accelerated tax depreciation has been released. It is mainly due to the discontinued Thin Film operation. The
deferred tax liability for expenditure capitalised under IAS 38 (where revenue deductions had been previously claimed for Thin Film) was fully
released in the current year which resulted in a deferred tax credit of £4.3 million.

As at 31 December 2019, the Group had unused tax losses of £65.8 million (2018: £24.6 million) available to offset against future profits. As at
31 December 2019 the Group has an unrecognised deferred tax assets in respect of these losses totalling £62.7 million (2018: no unrecognised
deferred tax asset for losses). These losses may be carried forward indefinitely. As at 31 December 2019, the Group has unused capital losses
of £1.1 million (2018: £1.1 million) available for offset against future gains.
No deferred tax asset has been recognised in respect of these capital losses as it is not considered probable that there will be future chargeable
gains available. These losses may be carried forward indefinitely.

Xaar plcAnnual Report and Financial Statements 2019133

23. Trade and other payables

Trade payables and accruals

2019
£’000

7,284

2018
£’000

18,958

Trade payable and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit taken for trade
purchases is 27days (2018: 45 days).

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

24. Other financial liabilities
Other financial liabilities consist of lease incentives, which as part of the IFRS 16 transition have been released in 2019.

Within one year
In the second year
In the third to fifth years inclusive
Over five years

Less: amount due for settlement within 12 months (shown under current liabilities)

Amount due for settlement after 12 months

2019
£’000

—
—
—
—

—
—

—

2018
£’000

33
31
67
5

136
(33)

103

The amounts included above are not considered to be materially different from the present value of their carrying amounts.

Liquidity risk
The 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 order to mitigate the Group’s liquidity risks, the Group can choose 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.

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 manages liquidity risk by maintaining adequate reserves and banking
facilities by continuously monitoring cash flows and matching the maturity profiles of financial assets and liabilities. Given the current level
of cash availability there are currently no overdraft or bank loan facilities arranged with Banks either drawn or undrawn.

Non-derivative financial liabilities of £7,284,000 (2018: £19,094,000) comprise trade creditors of £7,284,000 (2018: £18,958,000) and lease
incentives of nil (2018: £136,000). The trade creditors are within current liabilities. Of the lease incentives in 2018, £33,000 were within current
liabilities and £103,000 within non-current liabilities with a range of maturity dates which are set out as above. The inherent liquidity risk of these
financial liabilities is managed within the overall liquidity risk of the Group as described above.

The Group’s policy is to invest any 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 no more than 12 months.

25. Provisions

At 1 January 2018
Additional provision in the year
Utilisation of provision
Release of provision

At 1 January 2019
Additional provision in the year
Utilisation of provision
Release of provision

At 31 December 2019

Warranty and
commercial
agreements
£’000

Restructuring
£’000

171
592
(105)
(451)

207
206
(166)
—

247

1,740
891
(2,339)
—

292
2,641
(233)
—

2,700

Total
£’000

1,911
1,483
(2,444)
(451)

499
2,847
(399)
—

2,947

Xaar plcAnnual Report and Financial Statements 2019Financial Statements134

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

25. Provisions continued
The warranty and commercial agreements provision represents management’s best estimate of the Group’s liability related to claims against
product warranties or commercial sales agreements. The timing of the utilisation of this provision is uncertain.

Additional restructuring provisions of £2,642,000 have been added primarily in relation to the strategic review of the business and redundancy
programme, utilisation of £233,000 relates to the consolidation of the office and research facilities in the Cambridge area, and the conclusion of
the 2018 redundancy programme.

26. Share capital

Issued and fully paid:
78,334,296 (2018: 78,334,296) ordinary shares of 10.0p each

2019
£’000

2018
£’000

7,833

The Companies Act 2006 abolished the legal requirement for a Company to have an authorised share capital. The Articles of Association were
amended to remove the authorised share capital article following approval via special resolution at the AGM on 19 May 2010.

The movement during the year on the Company’s issued and fully paid shares was as follows:

At beginning of year
Exercise of share options

At end of year

2019
Number

2018
Number

78,334,296
—

78,329,296
5,000

78,334,296

2019
£’000

7,833
—

7,833

The Company has one class of ordinary shares which carry no right to fixed income.

Scheme

Xaar plc 2004 Share Option Plan

Xaar plc Share Save Scheme

Xaar plc 2017 Share Save Scheme

Xaar plc 2013 Share Incentive Plan

Date of grant

22 November 10
1 June 11
1 May 12

Number of
shares under
option as at
31 December
2019

10,000
40,000
90,000

Number of
shares under
option as at
31 December
2018

10,000
65,000
100,000

140,000

175,000

1 November 15
1 November 16

—
22,676

79,176
45,129

22,676

124,305

1 November 17

1 November 18

19,351

182,295

96,933

918,341

1 December 19

1,196,152

—

17 April 13
16 April 14
14 April 16
13 April 17

1,397,798

1,015,274

8,105
11,079
16,206
8,000

43,390

8,422
12,956
19,870
11,280

52,528

Total share options outstanding at 31 December

1,603,864

1,367,107

2018
£’000

7,833
1

7,833

Subscription
price per
share

211.0p
250.0p
226.5p

417.0p
407.0p

344.0p

142.0p

34.0p

0.0p
0.0p
0.0p
0.0p

Xaar plcAnnual Report and Financial Statements 2019

135

26. Share capital continued
Options granted under the Xaar plc 2004 Share Option Plan are ordinarily exercisable within three to ten years after the date of the grant.
The maximum value of approved options, under the Xaar plc 2004 Share Option Plan, which may be granted to individual employees is £30,000.

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

Awards under the Xaar plc Share Incentive Plan are ordinarily exercisable between three and five years after the date of the grant.

Long-Term Incentive Plan
Performance Share Awards outstanding under the Xaar plc 2007 Long-Term Incentive Plan are as follows:

Date of grant

3 May 11
2 April 12
1 May 12
2 April 15
28 September 15
7 December 15
1 April 16
11 May 16
27 June 16
25 August 16
6 September 16
1 December 16

All awards under this scheme are exercisable within three to ten years after the date of grant.

Performance share awards have been made under the Xaar plc 2017 Long-Term Incentive Plan as follows:

Date of grant

16 May 17
3 April 18
1 June 18
2 April 2019
30 April 2019
4 October 2019

All awards under this scheme are exercisable within three to ten years after the date of grant.
27. Share premium account

Balance at 1 January
Premium arising on issue of equity shares

Balance at 31 December

Number of
shares under
option as at
31 December
2019

Number of
shares under
option as at
31 December
2018

4,533
60,417
66,872
111,077
3,695
9,354
58,579
14,019
8,400
—
700
15,093

7,081
60,417
79,564
184,628
9,033
12,088
370,759
57,018
18,000
57,710
8,250
22,640

352,739

887,188

2019
Number of shares

2018
Number of shares

194,079
199,396
—
127,821
80,648
180,328

537,777
615,044
40,000
—
—
—

782,272

1,192,821

2019
£’000

29,328
—

29,328

2018
£’000

29,317
11

29,328

Xaar plcAnnual Report and Financial Statements 2019Financial Statements136

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

28. Own shares

Balance as at 1 January
Sold in the year

Balance at 31 December

2019
£’000

(3,113)
437

2018
£’000

(3,642)
529

(2,676)

(3,113)

Of this balance, £20,000 (2018: £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 £2,656,000 (2018: £3,093,000) represents the cost of 966,410 (2018: 1,125,304) 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 2019 was £585,000 (2018: £1,765,000).
29. Translation reserves

Balance at 1 January
Exchange differences on retranslation of net investment

Balance at 31 December

2019
£’000

817
(157)

660

2018
£’000

613
204

817

Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only, from their
functional currency into the parent’s functional currency, being Sterling, are recognised directly in the translation reserve.

30. Retained earnings and other reserves

Share-based
payments
£’000

Other
reserves
£’000

Total other
reserves
£’000

Balance at 1 January 2018
Net loss for the year
Dividends paid
Tax taken directly to equity
Own shares sold in the period
Movement in valuation of share options

Balance at 31 December 2018 as reported
Prior period Adjustments
Balance at 31 December 2018 restated

Effect of initial application of IFRS 16
Balance at 1 January 2019 restated IFRS 16

Net loss for the year
Own shares sold in the period
Charge to equity for equity-settled share-
based payments
Adjustment arising from change in non-
controlling interest
Balance at 31 December 2019

Notes

Merger
reserve
£’000

1,105
—
—
—
—
—

1,105
—
1,105

—
1,105

—
—

—

—
1,105

13,048
—
—
—
—
506

13,554
—
13,554

—
13,554

—
—

1,111

—
14,665

Retained
earnings
£’000

98,425
(12,276)
(6,009)
(41)
(424)
—

79,675
(121)
79,554

(211)
79,343

Total
£’000

113,063
(12,276)
(6,009)
(41)
(424)
506

94,819
(121)
94,698

(211)
94,487

14,638
—
—
—
—
506

15,144
—
15,144

—
15,144

—
—

(71,051)
(437)

1,111

—

1,111

4,666
5,151

4,666
20,921

—
7,855

4,666
28,776

485
—
—
—
—
—

485
—
485

—
485

—
—

—

The 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 cumulative charge made under IFRS 2 in relation to share options and LTIP awards.
Other reserves represent the non-distributable portion of the dividend received in Xaar plc from Xaar Digital Limited.

Xaar plcAnnual Report and Financial Statements 2019137

2018
£’000

280

(15,349)

(15,069)

235
4,725
—
2,139
3,258
(1,737)
(170)

—

(689)
—
(3)
32
(1,383)

(8,662)
(12,817)
9,364
2,724

(9,391)
(471)

(9,862)

2019
£’000

(11,891)

(60,001)

(71,892)

912
3,776
1,061
1,024
39,013
(2,610)
(103)

110

447
(106)
(18)
—
1,267

(27,119)
12,172
11,059
(9,332)

(13,220)
3,392

(9,828)

31. Notes to the cash flow statement

(Loss) / Profit before tax from continuing operations

Loss before tax from discontinued operations

Total loss before tax

Adjustments for:
Share-based payments
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of assets
Research and development expenditure credit
Investment income

Interest expense - finance cost for leases

Foreign exchange losses / (gains)
Gain on re-measurement of derivative liability
Profit on disposal of property, plant and equipment
(Increase) / Decrease on disposal of minority interest in subsidiary
Decrease / (Increase) in provisions

Operating cash flows before movements in working capital
Decrease / (Increase) in inventories
Decrease in receivables
(Decrease) / Increase in payables

Cash used in operations
Income taxes received / (paid)

Net cash used in operating activities

During the year non cash investing activity pertains to purchase of property, plant and equipment by the Company on credit amounting to
£114,000 (2018: £354,000).

From the consolidated cashflow statement net cash (including treasury deposits) generated from continuing operations (excluding proceeds from
transactions with non-controlling interest) amounted to £3,400,000.

Further information of cashflows from discontinued operations can be found on note 10.

32. Operating lease arrangements
From 1 January 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low-value leases.

See note 3 in Changes in Accounting Policies and note 17 Leases.

Minimum lease payments under operating leases recognised as an expense in the year:
Fixtures, fittings and equipment
Land and buildings

2019
£’000

53
—

2018
£’000

82
1,692

1,774

Xaar plcAnnual Report and Financial Statements 2019Financial Statements138

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

32. Operating lease arrangements continued
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:

Within one year
In the second to fifth years inclusive
After five years

Fixtures, fittings and equipment

Land and buildings

2019
£’000

—
—
—

—

2018
£’000

12
17
—

2019
£’000

—
—
—

—

2018
£’000

741
2,262
116

3,119

The operating leases in respect of fixtures, fittings and equipment extend over a period of up to five years.

33. Share-based payments
Equity-settled share option scheme
The 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 standard vesting period is three years.

An option granted under the Xaar plc 2004 Share Option Plan from 2011 onwards 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, Xaar plc has achieved positive adjusted profit before tax as
shown in the consolidated income statement in the Company’s Annual Report and Accounts for any of the three years ending during the vesting
period. One third of the shares subject to the option granted rounded to the nearest whole share, will vest based on the performance condition
being met per year for each of the three years ending in the vesting period. If the adjusted profit before tax as shown in the consolidated income
statement in Xaar plc’s Annual Report and Accounts for any relevant year is restated before the option becomes exercisable, the restated figure
shall, unless the Remuneration Committee determines otherwise, be applied in determining whether the above targets are met. In addition,
options shall only become exercisable in respect of any shares if the Committee in its absolute discretion determines that the overall financial
performance of Xaar plc over the performance period is satisfactory.

The Xaar 2007 and 2017 Share Save Schemes provides an opportunity to all UK employees to save a set monthly amount (up to £500) over
three years towards the exercise of a discounted share option, which is granted at the start of the three years.

The Xaar Share Incentive Plan provides an opportunity for all UK employees to buy shares from their pre-tax remuneration up to the limit
permitted by the relevant tax legislation (£1,500 per year for the awards made in 2013 and 2014, £1,800 per year for awards made from 2015)
and are awarded additional shares for free on a matching basis; the Company currently operates the plan on the basis of a 1:1 match but may
award matching shares up to the maximum ratio permitted by the relevant tax legislation (currently a 2:1 ratio).

Options and awards under the Xaar 2007 and 2017 Share Save Schemes and Xaar Share Incentive Plan are not subject to performance
conditions.

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, or five
years in the case of the Share Incentive Plan (being the contractual lives), the options expire. Save as permitted in the share option scheme rules,
options ordinarily lapse on an employee leaving the Group.

Details of the share options outstanding during the year are as follows:

Outstanding at beginning of year
Granted during the year
Lapsed during the year
Exercised during the year

Outstanding at the end of the year

Exercisable at the end of the year

Number
of share
options

1,367,107
1,196,152
(951,559)
(7,836)

1,603,864

159,184

2019

Weighted
average
exercise
price (£)

1.87
0.34
1.91
—

0.72

2.04

Number
of share
options

1,018,299
931,141
(535,097)
(47,236)

1,367,107

275,554

2018

Weighted
average
exercise
price (£)

3.22
1.42
3.59
2.48

1.87

2.69

The weighted average share price at the date of exercise for share options exercised during the period was £0.86 (2018: £3.34). The options
outstanding at 31 December 2019 had a weighted average remaining contractual life of three years (2018: Three years). In 2019, options were
granted on 1 December. The aggregate of the estimated fair values of the options granted on those dates is £0.25 million. In 2018, options were
granted 1 November. The aggregate of the estimated fair values of the options granted on those dates is £0.82 million.

Xaar plcAnnual Report and Financial Statements 2019139

2019

£0.43
£0.34
61%
3 years
0.60%
0.00%

2018

£1.78
£1.42
62%
3 years
1.00%
0.15%

33. Share-based payments continued
Equity-settled share option scheme continued
The inputs into the Black-Scholes model are as follows:

Weighted average share price
Weighted average exercise price
Weighted average expected volatility
Expected life
Risk-free rate
Weighted average expected dividends

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 Plan
The Company’s Long-Term Incentive Plan is open to all employees of the Group.

All LTIP share awards granted before 2015 are subject to the achievement of EPS performance conditions, the number of shares that vest
will depend on the EPS growth of the Company for the three financial years of the Company commencing on 1 January of the year of grant,
as follows:

(1) None of the 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 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 Awards will vest if the Company’s EPS growth exceeds growth in the RPI by at least 10% compound p.a.
(4) 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.
LTIP share awards granted in 2015 onwards are subject to the achievement of different performance conditions depending on the level of the
employee. The number of shares that vest will depend on for the three financial years of the Company commencing on 1 January of the year
of grant, and are subject to one, two, three, four or five of the conditions as set out below:

(1) Absolute cumulative EPS performance over the period, whereby 25% of the Awards will vest if the threshold target is achieved, below

threshold 0% will vest and up to a maximum of 100% if the maximum EPS target or higher is achieved.

(2) For 2015 and 2016 grants,TSR relative to FTSE TechMARK All Share Index, whereby 25% of the Awards will vest if the median rank in the
comparator Group is achieved, below median 0% will vest and up to a maximum of 100% if the upper quartile or higher is achieved. For
2017 and 2018 grants,TSR outperformance multiplier determined by comparison to the FTSE Small Cap Index, whereby a performance
multiplier of between 116.7% (for upper quartile performance) and 150% or 200% (for upper decile performance) is applied to the base
award relating to awards granted with EPS and revenue performance conditions.

(3) For 2015 and 2016 grants, Achievement of positive adjusted profit before tax as shown in the consolidated income statement in the

Company’s Annual Report and Accounts for any of the three years ending during the vesting period. One third of the shares subject to
the option granted rounded to the nearest whole share, will vest based on the performance condition being met per year for each of the
three years ending in the vesting period. If the adjusted profit before tax as shown in the consolidated income statement in Xaar plc’s
Annual Report and Accounts for any relevant year is restated before the option becomes exercisable, the restated figure shall, unless the
Remuneration Committee determines otherwise, be applied in determining whether the above targets are met. In addition, options shall only
become exercisable in respect of any shares if the Committee in its absolute discretion determines that the overall financial performance of
Xaar plc over the performance period is satisfactory.

(4) From 2017, revenue growth over the period, whereby 25% of the Awards will vest if the threshold target is achieved, below threshold 0% will

vest and up to a maximum of 100% if the maximum revenue growth target or higher is achieved.

(5) From 2018, revenue from new products in the third year in the vesting period, whereby 25% of the Awards will vest if the threshold target

is achieved, below threshold 0% will vest and up to a maximum of 100% if the maximum revenue target or higher is achieved.

(6) From 2019, Adjusted Basic EPS over the performance period, whereby 25% of the Awards will vest if the threshold target is achieved, below
threshold 0% will vest and up to a maximum of 100% if the maximum EPS target or higher is achieved. TSR element over the performance
period, whereby 25% of the Awards will vest if the median target v comparator group is achieved, below threshold 0% will vest and up to a
maximum of 100% if the TSR ranking of the company is ranked in the upper quartile of the comparator group.

There are also a number of LTIP share awards granted that are subject to the achievement of different performance conditions for specific
individuals, dependent on revenue or profit performance over a set performance period.

In addition, options shall only become exercisable in respect of any shares if the Committee in its absolute discretion determines that the
overall financial performance of Xaar plc over the performance period is satisfactory. All awards that will vest will be calculated on a straight-line
basis. All awards made under this scheme are exercisable within three to ten years after the date of grant. Save as permitted in the Long-Term
Incentive Plan rules, awards lapse on an employee leaving the Group.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

140

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

33. Share-based payments continued
Long-Term Incentive Plan continued
Key individuals have previously been invited to participate in a bonus matching scheme where matching LTIP share awards are granted when
the employee invests their bonus in Xaar shares and retains ownership of these shares for the duration of the LTIP share award vesting period.
The matching share award is a 1 for 1 match on the pre-tax value of the bonus used to acquire bonus investment shares. Matching LTIP share
awards are subject to the same performance criteria as all other LTIP awards.

Details of performance share awards outstanding during the year are as follows:

Awards outstanding at start of year
Granted during the year
Lapsed during the year
Exercised during the year

Awards outstanding at end of year

Exercisable at the end of the year

2019

2018

2,080,009
829,149
(1,615,254)
(158,893)

1,992,945
909,737
(662,185)
(160,488)

1,135,011

2,080,009

255,948

352,811

The weighted average share price at the date of exercise for awards exercised during the period was £0.72 (2018: £2.76). The options
outstanding at 31 December 2019 had a weighted average remaining contractual life of seven years (2018: eight years). In 2019, Performance
Share Awards were made in April and October. The aggregate of the estimated fair values of grants made on those dates is £0.5 million.
In 2018, Performance Share Awards were made in April and June. The aggregate of the estimated fair values of grants made on those dates is
£2.2 million.

The estimated fair values for grants with non-market based performance conditions were calculated using the Black-Scholes model. The inputs
into the Black-Scholes model were as follows:

Weighted average share price
Weighted average exercise price
Weighted average expected volatility
Weighted average expected life
Weighted average risk free rate
Weighted average expected dividends

2019

£0.96
£nil
44%
3 years
0.76%
0.00%

2018

£3.34
£nil
36%
3 years
0.87%
3.05%

The estimated fair values for grants with market based performance conditions were calculated using the Monte Carlo model. The inputs into the
Monte Carlo model were as follows:

Weighted average share price
Weighted average exercise price
Weighted average expected volatility
Weighted average expected life
Weighted average risk free rate
Weighted average expected dividends

2019

£0.79
£nil
56%
4 years
0.83%
0.00%

2018

£3.34
£nil
36%
4 years
0.98%
3.05%

The Group recognised total expenses of £1,111,000 and £506,000 related to all equity-settled share-based payment transactions in 2019 and
2018, respectively.

Xaar plcAnnual Report and Financial Statements 2019141

34. Retirement benefit schemes
Defined contribution schemes
The 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 total cost charged to the income statement in respect of these schemes during 2019 was £951,000 (2018: £1,053,000). As at
31 December 2019 contributions of £94,000 (2018: £215,000) due in respect of the current reporting period had not been paid over to
the schemes.

35. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note.

Following the transaction in December 2019 which increased the shareholding owned by Stratasys Solutions Limited (‘SSYS’) in Xaar 3D Limited
from 15% to 45%, the shareholding determines that they are a related party to Xaar plc. The related party transactions were:

• SSYS part exercised its existing option, which was granted to SSYS under the terms of the Initial Transaction in 2018, to acquire additional

Xaar 3D Shares in return for a $4 million investment in Xaar 3D, increasing its shareholding in Xaar 3D to 25%.

• Xaar sold to SSYS, 20%. of the enlarged share capital of Xaar 3D for $10 million.
• Subsequently, Xaar and SSYS together invested $3.25 million in Xaar 3D on a fully-preemptive basis as follows:

- Xaar re-invested $1.79 million into Xaar 3D by way of an additional share subscription; and
- SSYS invested $1.46 million into Xaar 3D by way of an additional share subscription.

Following such share subscriptions, Xaar hold 55% of the enlarged issued share capital of Xaar 3D, and SSYS hold 45%. of the enlarged issued
share capital of Xaar 3D.

In addition, Xaar granted SSYS a call option to acquire its remaining 55% shareholding in Xaar 3D for at least $33 million (being the greater of
$33 million and 2 x revenue for previous 12 months), the option is exercisable during the three year period following completion of the Additional
Investment Agreement (‘Call Option’). Exercising such Call Option will entitle Xaar to receive royalties on products and services sales for up to 15
years, subject to a $10 million cap.

Additional disclosure on the transaction is included in note 21 - Financial Instruments and note 36 Non Controlling Interest

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

Remuneration of key management personnel
The actual remuneration of the Directors, who are the key management personnel of the Group, is disclosed in the Directors Remuneration Report.
The contractual employee benefits are set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.

h Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration report

on page 67.

Short-term employee benefits
Post-employment benefits
Share-based payments

2019
£’000

947
53
90

1,090

2018
£’000

1,022
71
(140)

953

Xaar plcAnnual Report and Financial Statements 2019Financial Statements
142

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

36. Non-controlling interest
Summarised financial information in respect of each of the Group’s subsidiaries that has a material non-controlling interest is set out below.
The summarised financial information below represents amounts before intro-group eliminations. During the year the Group entered an
agreement with Stratasys Solutions Limited, increasing their shareholding in Xaar 3D Limited from 15% to 45%, with an option to acquire
100% shareholding within three years. 2018 has been restated to reflect changes to assumptions in relation to the valuation of the original 3D
option with Stratasys, resulting in an increase of £293,000 in the derivative liability to £936,000.

The terms of the 2019 call option allow for Stratasys to purchase the remaining 55% of Xaar 3D Ltd for at least $33 million, which is exercisable
at any time within three years of closing. The fair value of the option is a £2.9 million derivative liability and is disclosed further in note 21.

The management judgement is that the shareholding and option call held by Stratasys are assessed as having significant influence but does not
exercise control over Xaar 3D Ltd and which is therefore subject to consolidation as a subsidiary of Xaar plc. This judgement will be reassessed
at each reporting period end.

Stratasys have not consolidated Xaar 3D Limited into their financial statements, presenting their investment under other non-current assets in
their consolidated Balance Sheet.

Xaar 3D Limited

Statement of financial position

Current assets
Non-current assets
Current liabilities
Non-current liabilities

Equity attributable to owners of the Company
Non-controlling interests (2019: 45% / 2018: 15%)

Income statement and other comprehensive income

Revenue
Expenses

Loss for the year

Loss attributable to owners of the Company
Loss attributable to the non-controlling interests

Loss for the year

Total comprehensive loss attributable to owners of the Company
Total comprehensive loss attributable to the non-controlling interest

Total comprehensive loss for the year

Cash flow statement

Net cash inflow / (outflow) from operating activities
Net cash inflow / (outflow) from investing activities
Net cash inflow / (outflow) from financing activities

Net cash inflow / (outflow)

2019
£’000

2018 Restated
£’000

10,057
6,909
(1,432)
(558)

14,976
6,739

9,347
3,549
(2,893)
(143)

9,860
1,479

2019
£000

2018 Restated
£000

18
(1,219)

(1,201)

(778)
(423)

(1,201)

(778)
(458)

(1,236)

60
(616)

(556)

(473)
(83)

(556)

(473)
(85)

(558)

2019
£’000

2018 Restated
£’000

(2,434)
(2,299)
5,511

778

(809)
6,034
3,017

8,242

Xaar plcAnnual Report and Financial Statements 2019143

2019
£’000

2018 Restated
£’000

2,028
(2)
5,171
(458)

6,739

—
—
2,113
(85)

2,028

36. Non-controlling interest continued

Non-controlling interest equity

Balance at 1 January
Effect of initial application of IFRS 16
Adjustment arising from change in non-controlling interest
Share of other comprehensive expense for year

Balance at 31 December

37. Prior period restatement
The financial statements include a prior period restatement in relation to the recognition of the derivative financial instrument which represents
contingent consideration relating to a business combination. The adjustment relates to a correction to the fair value of the option granted to the
non-controlling interest in Xaar 3D Limited at both the inception date and prior year-end. This has then reclassified from restructuring costs to
loss on derivative liabilities.

Furthermore there is also a prior period restatement in respect of the allocation of profit / loss from continuing and discontinued operations
(further information can be found on note 10).

The following tables summarise the impact of the prior period restatement on the financial statements of the Group for the twelve month period
ended 31 December 2018:

Consolidated income statement

Revenue
Cost of sales

Operating (loss) / profit
Investment income

(Loss)/profit before tax
Income tax credit / (expense)

(Loss) / profit for the year from continuing operations
Loss for the year from discontinued operations

Loss for the year

Attrributable to:
Owners of the Company
Non-controlling interests

Earnings per share from continuing operations (Restated)
Basic

Diluted

2018
£’000

63,534
(39,085)

24,449
(14,682)
1,737
(9,071)
(7,512)
(4,681)
(5,337)
—

(15,097)
170

(14,927)
2,589

(12,338)
—

(12,338)

(12,276)
(62)

(12,338)

(15.9p)

(15.7p)

3D Option
adjustment
£’000

Discontinued
Operation
£’000

—
—

—
—
—
—
—
—
(110)
(32)

(142)
—

(142)

(121)
(21)

(142)

(3,066)
8,113

5,047
8,324
(895)
490
904
1,479
—
—

15,349
—

15,349
(183)

15,166
(15,166)

—
—

—

(0.2p)

19.7p

19.5p

2018
restated
£’000

60,468
(30,972)

29,496
(6,358)
842
(8,581)
(6,608)
(3,202)
(5,447)
(32)

110
170

280
2,406

2,686
(15,166)

(12,397)
(83)

(12,480)

3.6p

—

(12,480)

Xaar plcAnnual Report and Financial Statements 2019Financial Statements144

Notes to the consolidated financial statements continued
for the year ended 31 December 2019

37. Prior period restatement continued

Consolidated statement of comprehensive income

Loss for the year

Exchange differences on retranslation of net investment
Tax charge on share options

Other comprehensive income for the year

Note

2018
£’000

2018
adjustment
£’000

2018
restated
£’000

(12,338)

(142)

(12,480)

202
(41)

161

—
—

—

202
(41)

161

Total comprehensive loss for the year

(12,177)

(142)

(12,319)

Attrributable to:
Owners of the Company
Non-controlling interests

Consolidated statement of financial position

Current liabilities
Derivative financial instruments

Equity
Retained earnings

Equity attributable to owners of the Company

Non-controlling interests

Total equity

Condensed consolidated cash flow statement

Proceeds from issue of financial instrument
Income from non-controlling interest

(12,113)
(64)

(12,177)

31-Dec-18
as previously
reported
£’000

(121)
(21)

(142)

(12,234)
(85)

(12,319)

31-Dec-18
adjustment
£’000

31-Dec-18
restated
£’000

(643)

(293)

(936)

79,675

129,684

2,200

131,884

31-Dec-18
as previously
reported
£’000

753
2,264

(121)

(172)

(293)

31-Dec-18
adjustment
£’000

149
(149)

79,554

129,563

2,028

131,591

31-Dec-18
restated
£’000

902
2,115

38. Non-adjusting post balance sheet event – COVID-19
The impact of COVID-19 has created a high level of uncertainty as to the outlook for the remainder of the financial year and it is still too early to
ascertain the impact this may have on our full year 2020 revenue and profitability. Should it become apparent that sales orders, revenue and/or
cash collections are being affected by a global slowdown, the Directors will undertake a further review on discretionary expenditure and capital
investment to protect the Group’s cash position.

Given the above, it is not possible to estimate the financial effect of COVID-19 disruption.

The Group will, as part of its usual period end reporting process, conduct impairment reviews across all cash generating units. The process
will be informed by any impact arising from challenging trading environments and macro-economic weakness, exacerbated by the uncertainty
created by COVID-19.

There is the potential should global macro-economic weakness persist, for write down of goodwill and investment valuation alongside increases
in inventory provisions and bad debt provisions and write offs should customers enter financial difficulty. We aim to mitigate this customer risk
categorising customers as either paying in advance or by securing suitable credit insurance coverage on certain customers according to input
from external credit agencies.

The Group continues to enjoy a strong cash position and is well positioned, given further opportunities for cost mitigation and use of government
support if required, to cope with the current situation.

Xaar plcAnnual Report and Financial Statements 2019Company balance sheet
as at 31 December 2019

Fixed assets
Investments

Current assets
Debtors
Cash at bank and in hand

Total assets

Creditors: amounts falling due within one year
Trade and other payables
Provisions

Net current assets

Total assets less current liabilities

Net assets

Capital and reserves
Called up share capital
Share premium account
Other reserves
Own shares
Share-based payment reserve
Profit and loss account

Equity shareholders’ funds

145

2018
£’000

32,062

58,792
245

59,037

91,099

(12,116)
(78)

(12,194)

46,843

78,905

7,833
29,328
35,729
(3,093)
3,160
5,948

78,905

Notes

8
8

2019
£’000

32,893

50,159
4,201

54,360

87,253

(8,646)
(119)

(8,765)

45,595

78,488

7,833
29,328
36,561
(2,656)
3,440
3,982

78,488

Xaar plc reported a loss for the financial year ended 31 December 2019 of £1,512,000 (2018: loss of £506,000).

The financial statements of Xaar plc, registered number 3320972, were approved by the Board of Directors and authorised for issue on
22 April 2020. They were signed on its behalf by:

John Mills
Chief Executive Officer

Ian Tichias
Chief Finance Officer

Xaar plcAnnual Report and Financial Statements 2019Financial Statements146

Company statement of changes in equity
for the year ended 31 December 2019

At 1 January 2018
Loss for the financial year

Total comprehensive income
for the period
New shares issued
Own shares sold in the period
Dividends paid
Share option exercises
Deferred tax on share-based
payment transactions
Capital contribution for share-based
payments

Share-based payments

Called up
share capital
£’000

Notes

7,833
—

Share premium

account
£’000

29,317
—

Other
reserves
£’000

35,169
—

Own
shares
£’000

Share-based
payments
£’000

Profit and
loss account
£’000

Total
£’000

(3,622)
—

3,214
—

12,894
(506)

84,805
(506)

—

—
—
—
—
—

—

11
—
—
—
—

—

—
—
—
—
—

560

—

—
529
—
—
—

—

—
—
—
—
—

—

(54)

(506)

—
—
(6,009)
(424)
(7)

—

11
529
(6,009)
(424)
(7)

560

(54)

At 31 December 2018 as reported

7,833

29,328

35,729

(3,093)

3,160

5,948

78,905

Effect of initial application
of IFRS 16

—

Balance at 1 January 2019 restated

7,833

29,328

35,729

(3,093)

3,160

5,966

78,923

Loss for the financial year

Total comprehensive expense
for the period
Own shares sold in the period
Share option exercises
Capital contribution for share-based
payments

Share-based payments

At 31 December 2019

—

—
—
—

—

—
—
—

—

—
—
832

—

437
—
—

—

—
—
—

(1,512)

—
(472)
—

437
(472)
832

—

280

—

280

7,833

29,328

36,561

(2,656)

3,440

3,982

78,488

The share premium account and other reserves are non-distributable.

Other reserves represent the profit from the sale of a subsidiary, the non-distributable portion of the dividend received in Xaar plc from Xaar
Digital Limited and the capital contribution to investments relating to share-based payments.

The share-based payment reserve represents the cumulative charge made under IFRS 2 in relation to share options and LTIP awards.

Full details of share capital, share premium and own shares are given in notes 26, 27 and 28 to the consolidated financial statements.

Xaar plcAnnual Report and Financial Statements 2019Notes to the Company financial statements
for the year ended 31 December 2019

147

1. Significant accounting policies
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006 and in accordance with FRS 101
(‘Financial Reporting Standard 101’) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. The results of Xaar plc
are included in the consolidated financial statements of Xaar plc.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets,
presentation of a cash flow statement and certain related party transactions.

Where required, equivalent disclosures are given in the consolidated financial statements of Xaar plc.

The financial statements have been prepared under the historical cost convention.

The principal accounting policies adopted are the same as those set out in note 3 of the consolidated financial statements except as noted
below. They have all been applied consistently throughout the year and the preceding year.

Share-based payments
The share-based payment reserve represents the cumulative charge made under IFRS 2 in relation to share options and LTIP awards. The costs
related to employees contracted with other Group entities are recharged from Xaar plc to the related entity.

Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the
Strategic Report on pages 6 to 19. Notes 20, 21and 24 include a description of the Company’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and
liquidity risk.

After making enquiries, and having regard to the principal risks the Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future, based on the Company’s forecasts and projections for the next 12
months, taking account of reasonably possible changes in trading performance. For this reason, we continue to adopt the going concern basis
in preparing the financial statements.

Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment and includes capital contributions arising from share-
based payments. Each year, the Company carries out impairment tests of its investments which require estimates to be made of the value in use
of its CGUs and groups of CGUs. The value in use calculations are dependent on estimates of future cash flows, long-term growth rates and
appropriate discount rates to be applied to future cash flows. Having modelled a number of sensitivities, it was concluded that no reasonably
foreseeable change in the key assumptions used in the impairment model would result in a significant impairment charge being recorded in the
financial statements.

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. Utilising transition rules, as the merger valuation arose from transactions
before the introduction of FRS101, the transaction has utilised grandfathering relief rather than recalculating and presenting under appropriate
FRS101 treatment.

Dividends
Dividend income is recognised when an irrevocable right to receive payment has been established provided that it is probable that the economic
benefits will flow to the Company and the amount of income can be measured reliably.

2. Loss for the year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the year.

The average number of employees throughout 2019 was 31 (2018: 34). Staff costs amounted to £1.9 million (2018: £2.5 million). Information
about the remuneration of Directors is provided in the audited part of the Directors’ Remuneration report on page 67. For the remuneration of
key management personnel of the Company see note 35 of the consolidated financial statements.

h The Directors’ Remuneration report can be found on page 67.

The audit fee for the audit of the Company’s financial statements in 2019 was £20,000 (2018: £22,000).

The figures for the auditor’s remuneration for the Company required by regulation 5(1)(b) of the Companies (Disclosure of Auditor Remuneration
and Liability Limitation Agreements) Regulations 2008 are not presented as the consolidated financial statements comply with this regulation on
a consolidated basis.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements148

Notes to the Company financial statements continued
for the year ended 31 December 2019

3. Fixed asset investments

Subsidiary undertakings held at cost
At beginning of the year
Additions in the year
Disposals in the year
Capital contributions arising from share-based payments

At end of the year

The Directors believe that the carrying value of the investments is supported by their underlying net assets.

4. Debtors

Amounts receivable within one year
Amounts owed by Group undertakings
Amounts receivable after more than one year
Deferred tax asset (see below)

Deferred tax asset at 1 January
Effect of initial application of IFRS 16

Restated Deferred tax asset at 1 January

Deferred tax movement on IFRS 16
Deferred tax movement on share option

Deferred tax asset at 31 December

Deferred tax asset due after more than one year

2019
£’000

2018
£’000

32,062
—
—
831

32,893

25,473
6,035
(6)
560

32,062

2019
£’000

2018
£’000

50,159

58,748

—

50,159

58,792

2019
£’000

44
(4)

4
(44)

—

2018
£’000

135
—

135

—
(91)

Amounts owed by Group undertakings are trading balances and interest is not charged.

For additional disclosures relating to current and deferred taxation, see notes 11 & 22 to the consolidated financial statements.

Xaar plcAnnual Report and Financial Statements 2019

5. Creditors

Amounts falling due within one year
Amounts owed to Group undertakings
Accruals

2019
£’000

8,593
53

8,646

Amounts owed to Group undertakings are trading balances under normal commercial terms and interest is not charged.

For additional disclosures relating to financial liabilities, see note 24 to the consolidated financial statements.

6. Provisions

At 1 January
Additional provision in the year
Release of provision

At 31 December

7. Dividends

Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2018 of nil pence (2017: 6.8 pence) per share
Interim dividend for the year ended 31 December 2019 of nil pence (2018: 1.0 pence) per share

Total distributions to equity holders in the period

Proposed final dividend for the year ended 31 December 2019 of nil pence (2018: nil) per share

2019
£’000

78
119
(78)

119

2019
£’000

—
—

—

149

2018
£’000

11,862
254

12,116

2018
£’000

—
78
—

2018
£’000

5,238
771

6,009

—

8. Share capital and share premium account
Full details of movements in share capital and the share option schemes, and share premium are given in notes 26 and 27 to the consolidated
financial statements.

9. Share-based payments
Equity-settled share option scheme
The 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 note 33 to the consolidated financial statements. If the options remain unexercised after a period of ten years from the date of grant,
42 months in the case of the Share Save Scheme, or five years in the case of the Share Incentive Plan, the options expire. Save as permitted in
the share option scheme rules, options lapse on an employee leaving the Company.

The weighted average share price at the date of exercise for share options exercised during the period was £1.32 (2018: £3.01). The options
outstanding at 31 December 2019 had a weighted average remaining contractual life of three years (2018: nine years), and a range of exercise
prices between 0 pence and 403 pence (2018: 0 pence and 417 pence).

The performance conditions relating to the above share options and the exercise prices of options outstanding at the year-end are given in
note 33 to the consolidated financial statements.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

150

Notes to the Company financial statements continued
for the year ended 31 December 2019

9. Share-based payments continued
Long-Term Incentive Plan
The 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 performance conditions. Full details of the performance conditions are shown in note 33 of the
consolidated financial statements. All awards made under this scheme are exercisable within three to ten years after the date of grant. Save as
permitted in the Long-Term Incentive Plan rules, awards lapse on an employee leaving the Company.

The weighted average share price at the date of exercise for awards exercised during the period was £0.73 (2018: £3.40). The awards
outstanding at 31 December 2019 had a weighted average remaining contractual life of nine years (2018: eight years). All awards have
a £nil exercise price.

10. Subsidiary undertakings
The following entities are the subsidiary undertakings of the Company:

Country
of incorporation

Address of
registered office

Principal
activity

Issued and fully
paid up share
capital

Proportion of
ordinary share
capital held by
the Company

Name

Xaar Technology
Limited
XaarJet Limited

England & Wales Science Park, Cambridge,
CB4 0XR
England & Wales Science Park, Cambridge,
CB4 0XR

XaarJet (Overseas)
Limited
Xaar Trustee
Limited1
Xaar Digital Limited England & Wales Science Park, Cambridge,

England & Wales Science Park, Cambridge,
CB4 0XR
England & Wales Science Park, Cambridge,
CB4 0XR

Xaar 3D Holdings
Limited
Xaar 3D Limited2

Xaar 3D ApS3

Xaar Group AB

CB4 0XR
England & Wales Science Park, Cambridge,
CB4 0XR
England & Wales Science Park, Cambridge,
CB4 0XR
c/o Bygning OBV 028, Otto Busses
Vej 5 A,1. sal., 2450 Kobenhavn SV,
Denmark
Science Park, Cambridge,
CB4 0XR

Denmark

Sweden

XaarJet AB4

Sweden

USA

Xaar US Holdings
Inc.
Engineered Printing
Solutions5
Xaar Americas Inc.5 USA

USA

Science Park, Cambridge,
CB4 0XR
1209 Orange Street, Wilmington,
New Castle County, Delaware, USA
201 Tennis Way, East Dorset,
VT 05253, USA
1000 Post and Paddock, Suite 405,
Grand Prairie, TX 75050, USA

1 Xaar Trustee Limited shares are held by Xaar Technology Limited.
2 Xaar 3D Limited shares are held by Xaar 3D Holdings Limited.
3 Xaar 3D ApS shares are held by Xaar 3D Limited.
4 XaarJet AB shares are held by Xaar Group AB.
5 Xaar Americas Inc and Engineering Printing Solutions are held by Xaar US Holdings Inc.

100 ordinary £1 shares

100%

Research and development 4,445,322 ordinary

£1 shares
2 ordinary £1 shares

1 ordinary £1 share

2 ordinary £1 shares

Manufacturing, research
and development and sales
and marketing
Sales and marketing

Trustee

Treasury

Holding Company

1,100 ordinary shares of
£0.01 each
2,400 ordinary shares of
£0.01 each

Manufacturing, research and
development
Research and development 500 ordinary shares of

Holding Company

Manufacturing

Holding Company

Manufacturing, sales and
marketing
Sales and marketing

DKK 100 each

1,137,000 ordinary
shares
of SEK 0.09 each
1,000 ordinary shares of
SEK 100 each
6,000 shares of common
stock $1 each
100 shares of common
stock $1 each
10,000 shares of
common stock US$1 each

100%

55%

100%

Xaar plcAnnual Report and Financial Statements 2019151

11. IFRS 16 transition
As indicated in note 3 of the consolidated financial statements, the Group and its subsidiaries have adopted IFRS 16 restrospectively from
1 January 2019, but have not restated comparatives for the 2018 reporting period, as permitted under specific transition provisions in the
standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1
January 2019. The new accounting policies are disclosed in the equivalent disclosure in note 3 of the consolidated financial statements.

On adoption of IFRS 16, the Company recognised lease liabilities in relation to leases which had previously been classified as operating leases
under the principals of IAS 17 ‘Leases’. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 January 2019 was 3%.

The impact of the change in accounting policy affected the following items in the balance sheet on 1 January 2019.

Non current assets
Right of use asset

Total impact on assets

Current liabilities
Lease liabilities

Non-current liabilities
Deferred tax liabilities

Total impact on liabilities

Equity
Retained earnings

Operating lease commitments disclosed under IAS 17 at 31 December 2018

Lease liabilities recognised at 1 January 2019

At 31 December
2018
(as previously
reported)
£’000

Impact of IFRS 16
£’000

At 1 January 2019
(as restated)
£’000

—

5,948

(18)

5,930

£’000

In terms of the income statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in
depreciation and interest expense compared to IAS 17. During the year ended 31 December 2019, in relation to leases under IFRS 16 the
Group recognised the following amounts in the consolidated income statement:

Depreciation

12. Non-adjusting post balance sheet event – COVID-19
As indicated in note 38 of the consolidated financial statements which addresses the impact of COVID-19 on the Group.

Given the uncertainty it is not possible to determine the financial effect of COVID-19 disruption on the Company which could include, for
example,the impairment of investments in subsidiaries or receivables.

£’000

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

152

Five year record

2019
Continuing
Operations
£’000

2018 Restated
Continuing
Operations
£’000

2018
£’000

2017
£’000

2016
£’000

2015
£’000

Summarised consolidated results
Results
Revenue
Gross profit
Adjusted (loss)/profit before tax (note 4)
Adjusted (loss)/profit after tax

Adjusted diluted earnings per share (note 4)
Dividends pence per share
Assets employed
Net cash*

49,397
11,962
(9,848)
(13,349)

(17.4p)
—

60,468
29,496
4,524
6,930

10.0p
1.0p

63,534
24,449
(11,721)
(7,483)

(9.7p)
1.0p

100,142
47,045
18,012
16,413

20.7p
10.2p

96,178
44,667
19,482
16,587

21.2p
10.0p

93,472
44,690
20,819
19,024

24.5p
9.45p

25,322

27,946

44,697

49,321

69,747

* Net cash is made up of cash and cash equivalents, treasury deposits less borrowings.

Xaar plcAnnual Report and Financial Statements 2019Notice of the Annual General Meeting

153

COVID-19 statement
In the lead up to the Annual General Meeting, we are closely monitoring the impact of the COVID-19 virus in the United Kingdom. In light of current
public health advice and “Stay at Home” legislation recently introduced, external shareholders (i.e. shareholders who do not also hold office as a
director of the Company) are prohibited from attending the Annual General Meeting in person. Shareholders attempting to attend the meeting will
be refused admission. Instead of attending this year’s AGM, shareholders are asked to exercise their votes by submitting their proxy as set out in
the Notice of Meeting. All shareholders are strongly recommended to vote electronically at www.signalshares.com as your vote will automatically be
counted. Given the currently escalating situation sending a paper proxy is no guarantee of having your vote counted. In addition, should a shareholder
have a question that they would have raised at the meeting, we ask that they send it by e mail to investor.relations@xaar.com before 5.00 pm on
25 May 2020. Answers to the questions will be published on our Corporate website (www.xaar.com) after the AGM.

Notice is hereby given that the twenty-third Annual General Meeting (‘AGM’) of Xaar plc (the ‘Company’) will be held at Xaar plc, 316 Science Park,
Milton Road, Cambridge, CB4 0XR on Tuesday 2 June 2020 at 9:30am for the following purposes:

Ordinary business
To consider and, if thought fit, pass the following Resolutions which will be proposed as Ordinary Resolutions:

1. THAT the Company’s annual financial statements for the financial year ended 31 December 2019 , together with the Directors’ report and auditor’s

report on those financial statements, be received and adopted.

2. THAT Ernst & Young LLP be re-appointed as the Company’s auditors 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.

3. THAT the Directors be authorised to determine the remuneration of the auditors.

4. THAT Dr Robert Mills be re-elected as a Director of the Company.

5. THAT Andrew Herbert be re-elected as a Director of the Company.

6. THAT Christopher Morgan be re-elected as a Director of the Company.

7. THAT Ian Tichias be re-elected as a director of the Company.

8. THAT the Directors’ remuneration report (excluding the Directors’ remuneration policy which is set out on pages 63 to 85 of the Annual Report) for

the year ended 31 December 2019 be approved

Special business
To consider and, if thought fit, pass the following Resolutions which will be proposed in the case of Resolution 9 as an Ordinary Resolution and in the
case of Resolutions 10 to 12 as Special Resolutions:

9. THAT, in substitution for all existing authorities including the authority conferred on the Directors of the Company by Article 4(b) of the Company’s
Articles of Association, pursuant to and in accordance with section 551 of the Companies Act 2006 (‘Act’) the Directors of the Company be
hereby generally and unconditionally authorised to exercise all powers of the Company to allot equity securities (within the meaning of section 560
of the Act), or grant rights to subscribe for, or convert any security into, shares in the Company (‘Rights’):

(i) up to an aggregate nominal value of £2,611,143 (being the nominal value of approximately one third of the issued share capital of the

Company); and

(ii) up to an aggregate nominal value of £5,222,286 (being the nominal value of approximately two thirds of the issued share capital of the
Company) (such amount to be reduced by the nominal amount of any equity securities allotted or Rights granted under paragraph (i)) in
connection with an offer by way of a rights issue (as defined in the Listing Rules issued by the Financial Conduct Authority pursuant to Part VI
of the Financial Services and Markets Act 2000) or other pre-emptive offer to:

(a) the holders of ordinary shares of 10 pence each in the capital of the Company (‘ordinary shares’) in proportion (as nearly as may be practicable) to

the respective numbers of ordinary shares held by them; and

(b) holders of other equity securities, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider

necessary, and so that, in each case, the Directors of the Company may impose any limits or restrictions and make any arrangements which they
consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in,
or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other matter, such authority to expire on
the earlier of the next Annual General Meeting of the Company held after the date on which this resolution becomes unconditional and the date
15 months after the passing of this Resolution, save that the Company may at any time before such expiry make any offer(s) or enter into any
agreement(s) which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors may allot shares or
grant Rights in pursuance of any such offer(s) or agreement(s) as if the authority conferred hereby had not expired. This Resolution revokes and
replaces all unexercised authorities previously granted to the Directors to allot shares or grant Rights but without prejudice to any allotment of
shares or grant of Rights already made, offered or agreed to be made pursuant to such authorities.

10. THAT, subject to the passing of Resolution 9, the Directors of the Company be authorised to allot equity securities (as defined in section 560 of the
Act) for cash under the authority conferred by that Resolution and/or to sell ordinary shares held by the Company as treasury shares as if section
561 of the Act did not apply to any such allotment or sale, provided that such authority shall be limited to:

Xaar plcAnnual Report and Financial Statements 2019Financial Statements154

Notice of the Annual General Meeting continued

Special business continued
(a) the allotment of equity securities in connection with an offer of equity securities (but, in the case of the authority granted under paragraph (ii) of

Resolution 9, by way of a rights issue only):

(i)

to the holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and

(ii)

to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary,

but subject to such exclusions or other arrangements as the Directors of the Company may deem necessary or expedient in relation to
treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any
regulatory body or stock exchange; and

(b) the allotment of equity securities or sale of treasury shares (otherwise than pursuant to paragraph (i) of this Resolution) to any person up to an

aggregate nominal amount of £391,672.

The authority granted by this Resolution will expire at the conclusion of the Company’s next Annual General Meeting after the passing of this
Resolution or, if earlier, at the close of business on the date 15 months after the passing of this Resolution, save that the Company may, before
such expiry make offers or agreements which would or might require equity securities to be allotted (or treasury shares to be sold) after the
authority expires and the Directors of the Company may allot equity securities (or sell treasury shares) in pursuance of any such offer or agreement
as if the authority had not expired.

11. THAT, subject to the passing of Resolution 9, the directors of the Company be authorised in addition to any authority granted under Resolution 10
to allot equity securities (as defined in section 560 of the Act) for cash under the authority conferred by Resolution 9 and/or to sell ordinary shares
held by the Company as treasury shares as if section 561 of the CA 2006 did not apply to any such allotment or sale, provided that such authority
shall be:

(a) limited to the allotment of equity securities or sale of treasury shares up to an aggregate nominal amount of £391,672; and

(b) used only for the purpose of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction
which the Directors of the Company determine to be an acquisition or other capital investment of a kind contemplated by the Statement of
Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice.

The authority granted by this Resolution will expire at the conclusion of the Company’s next Annual General Meeting after this Resolution is
passed or, if earlier, at the close of business on the date 15 months after the passing of this Resolution, save that the Company may, before
such expiry make offers or agreements which would or might require equity securities to be allotted (or treasury shares to be sold) after
the authority expires and the Directors of the Company may allot equity securities (or sell treasury shares) in pursuance of any such offer or
agreement as if the authority had not expired.

12. That the Company be generally and unconditionally authorised for the purposes of section 701 of the Act to make one or more market purchases

(within the meaning of section 693(4) of the Act) of ordinary shares provided that:

(a) the maximum aggregate number of ordinary share authorised to be purchased is 11,671,810 (representing 14.9% of the issued ordinary

share capital);

(b) the minimum price (excluding expenses) which may be paid for an ordinary share is the par value of the shares;

(c) the maximum price (excluding expenses) which may be paid for an ordinary share is an amount equal to the higher of (i) 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, and (ii) the amount stipulated by article 5(1) of the Buy-back and
Stabilisation Regulation 2003;

this authority shall expire at the conclusion of the next Annual General Meeting of the Company, or, if earlier, at the close of business on the
date which is 15 months after the passing of this Resolution unless renewed, revoked or varied before that time; 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.

13. That, the Directors’ Remuneration Policy, the full text of which is contained in the Directors’ Remuneration report for the year ended 31 December

2019 and which is set out in pages 63 to 85 of the Annual Report. Which will take effect at the conclusion of this meeting, be approved.

14. That the amendments to the Xaar 2017 Long-Term Incentive Plan, as shown in the marked-up version of the plan rules produced to the meeting,

be and they are hereby approved and the Directors be and are generally authorised to adopt the amendments and to do all acts and things that
they consider necessary or expedient to give effect to the amendments. (Further details included in note 17 of the Notice of AGM).

By order of the Board
Ian Tichias
Company Secretary

22 April 2020

Xaar plcAnnual Report and Financial Statements 2019

155

Notes
1. A member entitled to attend and vote at the meeting may appoint one or more proxies to exercise all or any of the member’s rights to attend,
speak and vote at the meeting. A proxy need not be a member of the Company but must attend the meeting for the member’s vote to be
counted. If a member appoints more than one proxy to attend the meeting, each proxy must be appointed to exercise the rights attached to a
different share or shares held by the member. If a member wishes to appoint one or more proxies they may do so at www.signalshares.com, if
not already registered you will need your Investor code to do so, this can be found on your share certificate. If paper proxy forms are required,
the member should contact the registrars’ helpline on 0871 664 0300 (calls cost 12 pence per minute plus network extras). If you are outside
the United Kingdom, please call +44 371 664 0300 (calls will be charged at the applicable international rate). We are open between 9.00 a.m.
– 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Submission of a proxy vote shall not preclude a member from
attending and voting in person at the meeting in respect of which the proxy is appointed or at any adjournment thereof.

2. To be effective, the proxy vote must be submitted at www.signalshares.com so as to have been received by the Company’s registrars not less
than 48 hours (excluding weekends and public holidays) before the time appointed for the meeting or any adjournment of it. Any power of
attorney or other authority under which the proxy is submitted must be returned to the Company’s registrars, Link Asset Services, PXS1, 34
Beckenham Road, Beckenham, Kent, BR3 4ZF. If a paper form of proxy is requested from the registrar, it should be completed and returned
to Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF to be received not less than 48 hours before the time of the
meeting.

3. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights
(a ‘Nominated Person’) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to
be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder
as to the exercise of voting rights.

4. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 2 above does not apply to Nominated

Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company.
In accordance with Regulation 41 of the Uncertified Securities Regulations 2001, the Company specifies that only those members entered
on the register of members of the Company as at close of business on 31 May 2020 (or in the event the meeting is adjourned, on the register
of members 48 hours before the time of any adjourned meeting) shall be entitled to attend or vote at the meeting in respect of the number of
shares registered in their name at that time. Changes to entries on the register of members after close of business on 31 May 2020 (or in the
event the meeting is adjourned, on the register of members less than 48 hours before the time of any adjourned meeting) shall be disregarded
in determining the rights of any person to attend or vote at the meeting.

6. Copies of Directors’ service agreements, the terms of appointment of Non-Executive Directors, the register of Directors’ interests kept by the
Company under section 808 of the Companies Act 2006, the Xaar plc 2004 Share Option Plan, the Xaar plc 2007 Share Save Plan, the Xaar
plc 2017 Share Save Plan, Xaar plc 2007 Long-Term Incentive Plan, the Xaar Share Incentive Plan and the Xaar 2017 Long-Term Incentive
Plan will be available 15 minutes prior to the commencement of the meeting and will remain open and accessible during the continuance of the
meeting to any person attending the meeting.

7. Biographical details of all Directors offering themselves for re-appointment are set out on pages 44 and 45 of the Annual Report and Accounts.
The Company announced in September 2019, that Margaret Rice-Jones would not seek re-election at this year’s Annual General Meeting
as she was intending to leave the Board at the time of the Meeting. It remains the case that Margaret will not seek re-election at the Annual
General Meeting on the basis that she will soon leave the Board. However, given the uncertainty of the current environment, Margaret has
agreed to remain in office until the end of June so as to ensure an orderly transition once her successor is identified.

8. Shareholders should note that it is possible that, pursuant to requests made by shareholders of the Company under section 527 of the

Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to: (i) the audit of the
Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii)
any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and
reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the shareholders requesting
any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is
required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company’s
auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual
General Meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a
website.
In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that: (i) if a
corporate shareholder has 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 Chairman will vote (or withhold a vote) as corporate representative in accordance with
those directions; and (ii) if more than one corporate representative for 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 guidance issued by the Institute of
Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The
guidance includes a sample form of appointment letter if the Chairman is being appointed as described in (i) above.

10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the
procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members
who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.

Xaar plcAnnual Report and Financial Statements 2019Financial Statements
156

Annual Report and Financial Statements 2019

Xaar plc

Notice of the Annual General Meeting continued

Notes continued
11. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST

Proxy Instruction’) must be properly authenticated in accordance with CRESTCo’s specifications, and must contain the information required
for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or
is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by
the issuer’s agent (ID RA10) by 9:30 am on 31 May 2020. For this purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message
by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.

12. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that CRESTCo does not make
available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation
to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a
CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by
any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are
referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated

Securities Regulations 2001 (as amended).

14. As at 7.00am on 21 April 2020, the Company’s issued share capital comprised 78,334,296 ordinary shares of 10 pence each. Each

ordinary share carries the right to one vote at a general meeting of the Company, except for the shares held in trust for the Xaar Share
Incentive Plan totalling 100,124 ordinary shares and, therefore, the total number of voting rights in the Company as at 7.00am on 21 April
2020 is 78,234,172.

15. Any member attending the meeting has the right to ask questions. The Company must answer any such question relating to the business

being dealt with at the meeting but no such answer need be given if: (a) to do so would interfere unduly with the preparation for the meeting
or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a
question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.

16. You may vote your shares electronically at www.signalshares.com. On the home page, search “Xaar plc” and then log in or register, using

your Investor Code. To vote, click on the “Vote Online Now” button.

17. Resolution 14 relates to proposed amendments to the Xaar 217 Long-Term Incentive Plan (the ‘LTIP’). The LTIP was approved by

shareholders at the AGM on 16 May 2017 and certain amendments are proposed, to provide more administrative flexibility and to reflect
the proposed new Directors’ Remuneration Policy. The rules of the LTIP marked-up to show the proposed changes will be available for
inspection on the Company’s website at www.xaar.com from the date of this Notice until the close of the Annual General Meeting. The
changes for which shareholder approval is required are as follows.
(a) The LTIP includes a limit on the value of shares over which awards may be granted during any financial year of the Company. This limit
is not being increased, and awards granted to the Company’s Executive Directors will be consistent with the Company’s Directors’
Remuneration Policy. However, recognising that in certain circumstances awards in respect of a financial year may not be made during
that financial year, the limit is proposed to be varied so that it applies to awards in respect of a financial year rather than awards during
a financial year. This will mean that if awards are not made during a particular financial year, the LTIP opportunity for that year can be
granted in the following year (without affecting the opportunity for that subsequent year).

(b) The LTIP provides that in assessing the limit on awards, the market value of a share must be the middle market quotation of a share
on the dealing day before grant, or the average of such quotations for up to five days. The rules are proposed to be varied so that
the Remuneration Committee may determine the market value of a share for these purposes. This is to give flexibility in appropriate
circumstances, and there is no intention to change the Company’s current practice. Awards granted to the Company’s Executive
Directors will be consistent with the Company’s Directors’ Remuneration Policy.

(c) The LTIP provides that awards cannot vest before the third anniversary of grant. The rules are proposed to be varied so that awards
may vest before this date. There is no intention to change the length of the performance period, but this amendment will mean that
where awards are granted later than usual (for example due to regulatory restrictions) they can vest following assessment of the
performance conditions, without the vesting being deferred as a result of the deferral of the grant.

Other changes will be made to the rules of the LTIP, for which shareholder approval is not required. These changes are to reflect the
proposed new Directors’ Remuneration Policy and are as follows.
(a) To enable the operation of the post-vesting holding period on a “gross” basis, so that the participant is unable to acquire shares

before the end of that holding period. The rules are also amended to permit the award of dividend equivalents over the holding period
(reflecting that the participant will not own the shares and so will not be entitled to the dividends) and to reflect the impact of cessation
of employment during the holding period.

(b) To enable the Remuneration Committee to make the delivery of shares subject to the participant agreeing to take any action required

by the Remuneration Committee in connection with any post-employment shareholding requirement.

18. A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.xaar.com.

157

Advisors

Registered office
316 Science Park
Cambridge CB4 0XR

Registered number
3320972

Company Secretary
Ian Tichias

Brokers
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London EC4V 3BJ

Solicitors
Mills & Reeve LLP
Botanic House
100 Hills Road
Cambridge CB2 1PH

N+1 Singer
One Bartholomew Lane
London EC2N 2AX

Registered auditor
Ernst & Young LLP
Cambridge Business Park
Cowley Rd
Cambridge CB4 0WZ

Bankers
HSBC Bank plc
Vitrum Building
St John’s Innovation Park
Cowley Road
Cambridge CB4 0DS

Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Unsolicited mail:
The Company is obliged by
law to make its share register
publicly available should a
request be received. As a
consequence, shareholders may
receive unsolicited mail from
organisations that use it as a
mailing list. Shareholders wishing
to limit the amount of such mail
should either write to Mailing
Preference Service, DMA House,
70 Margaret Street, London
W1W 8SS, register online at
www.mpsonline.org.uk or call
the Mailing Preference Service
(‘MPS’) on +44 (0)845 703
4599. MPS is an independent
organisation which offers a free
service to the public.

Warning to shareholders –
boiler room scams
Each year in the UK, £1.2bn is
lost to investment fraud, with
the average victim losing around
£20,000. What is more, it is
estimated that only 10% of the
people that become victims of
investment fraud actually report it.

Investment scams are becoming
ever more sophisticated –
designed to look like genuine
investments, they are increasingly
difficult to spot. They are targeted
at those most at risk, typically
people in retirement who are
actively seeking an investment
opportunity.

Protect yourself
1. Reject cold calls

If you have been cold called
with an offer to buy or sell
shares, it is likely to be a
high-risk investment or scam.
You should treat the call with
extreme caution. The safest
thing to do is hang up.
If you are offered unsolicited
investment advice, discounted
shares, a premium price
for shares you own, or free
company or research reports,
you should get the name of
the person and organisation
contacting you and take these
steps before handing over any
money.

2. Check the firm on the

Financial Services Register
at www.fca.org.uk/register

The Financial Services

Register is a public record of
all the firms and individuals in
the financial services industry
that are regulated by the FCA.

Use the details on the

Financial Services Register to
contact the firm.

3. Get impartial advice
Think about getting impartial

financial advice before
you hand over any money.
Seek advice from someone
unconnected to the firm that
has approached you.

REMEMBER, if it sounds
too good to be true, it
probably is!

If you use an unauthorised
firm to buy or sell shares
or other investments, you
will not have access to
the Financial Ombudsman
Service or Financial Services
Compensation Scheme if
things go wrong.

Report a scam
If you suspect you have been
approached by fraudsters please
tell the FCA using the share
fraud reporting form at www.fca.
org.uk/scams, where you can
find out more about investment
scams.

You can also call the FCA
Consumer Helpline on +44
(0)800 111 6768.

If you have lost money to
investment fraud, you should
report it to Action Fraud on +44
(0)300 123 2040 or online at
www.actionfraud.police.uk.

h Find out more at

www.fca.org.uk/scamsmart

Xaar plcAnnual Report and Financial Statements 2019Financial Statements

Xaar plc
316 Science Park
Cambridge CB4 OXR

T +44 (0) 1223 423663
E info@xaar.com