Xaar plc
Annual Report and
Financial Statements 2020
Xaar plc Annual Report and Financial Statements 2020
OUR VISION
A world where you
can print anything
you can imagine
01
02
08
09
14
16
18
24
26
28
32
34
38
40
50
51
52
56
58
59
67
72
76
78
97
98
111
111
112
113
114
115
159
160
161
166
167
171
Strategic report
Our guiding principles
Chairman's introduction
Strategy update
Our business model
Marketplace
Our business units
– Printhead
– Product Print Systems
– 3D Printing
Business performance
Stakeholder engagement
Sustainable and responsible business
Key performance indicators
Risk management
Greenhouse gas emissions statement
Board approval of the Strategic
and Annual Reports
Governance
Introduction to Governance
Board of Directors
Board structure
Directors’ report
Corporate Governance statement
Audit Committee
Nomination Committee
Directors’ Remuneration report
Directors’ responsibilities statement
Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement of changes
in equity
Consolidated cash flow statement
Notes to the consolidated financial
statements
Company balance sheet
Company statement of changes
in equity
Notes to the Company financial
statements
Five year record
Notice of the Annual General Meeting
Advisors
About Xaar plc
Innovation and collaboration
Innovation is at the heart of Xaar
We are a world leader in the development of inkjet
technology. Our core business is to design and manufacture
printheads which we sell globally to Original Equipment
Manufacturers (OEMs) and User Developer Integrators
(UDIs). Our technology drives the conversion of analogue
printing and manufacturing methods to digital inkjet, which
is more efficient, more economical and more productive
than the traditional methods it replaces. We also develop
print systems for product decoration and 3D printing
which use our inkjet technology.
We put collaboration at the core of our global partnerships,
helping our customers to unleash the true power of inkjet
technology and open up a world of opportunities for their
business.
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 applications such as
Ceramic Tile Decoration, Graphics, Décor, Labels and Packaging as well as 3D Printing
and Additive Manufacturing.
i Read more on pages 18 to 23
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.
i Read more on pages 24 and 25
3D Printing
Our 3D Printing business unit, in which Xaar 3D sits, develops 3D printing solutions
based on Xaar3D SAF™ technology 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.
i Read more on pages 26 and 27
Strategic ReportXaar plc Annual Report and Financial Statements 2020 02
Strategic Report
Xaar plc Annual Report and Financial Statements 2020
Our guiding principles
WE DO EVERYTHING
WITH PASSION
Xaar plc Annual Report and Financial Statements 2020
Strategic Report
03
In September 2020, when we
announced our new brand
identity and launched the
ImagineX printhead platform,
we also launched a new set
of values to reflect the true
essence of Xaar. We use these
values to guide the way we
behave towards our customers,
our partners and each other.
+ We do everything with passion
+ We are creative
+ We are innovative
+ We have integrity
+ We are collaborative
WE DO EVERYTHING
WITH PASSION
When I joined Xaar, I was particularly struck by the passion
for Xaar’s technology that I came across when I met
everyone for the first time. It was quite inspirational to see
the abundance of enthusiasm for and pride in the fantastic
technology created by a relatively small team of people.
There is a real buzz, everyone is incredibly busy and working
hard, with a positivity and joint sense of purpose.
John Mills
Xaar CEO
04 04
Strategic Report
One creative idea inspires the next
In my experience innovative
solutions rarely come as a
brilliant idea of an individual,
but are typically the result of
teamwork whereby one creative
idea inspires the next.
Renzo Trip
Principal Engineer, Advanced Application Group
Xaar
INNOVATION
CREATIVITY
Creativity
"When I started at Xaar I was
unfamiliar with inkjet and the
printing industry in general.
I did not think in terms of print
resolution, line speed and
greyscale, but rather in terms
of pressure, velocity and volume.
The customers that the Advanced Applications group
typically supports also look at a printhead from a
different perspective. For example, they can see it as a
device to create very thin layers on wafers, to produce
flawless microscopic lenses or to deposit an accurate
amount of drugs. To find ways to achieve these targets
with a technology probably never used in a similar
application before requires experience, expertise,
and ... creativity."
Renzo Trip
Principal Engineer,
Advanced Application Group
Xaar
Strategic ReportXaar plc Annual Report and Financial Statements 2020 05
Nick Jackson
Principal Engineer,
Advanced Application group,
Inventor of Xaar’s High Laydown Technology
Xaar
INNOVATION
CREATIVITY
Innovation
"Three years ago, NKT
collaborated with Xaar and
took the lead in promoting Xaar
2001 printhead in the Chinese
ceramic industry. In the past
three years, NKT has sold more
than 200 digital inkjet machines
with Xaar 2001 printheads in
China, Vietnam, India, Pakistan,
Bangladesh, Iran, Africa and
other countries.
The technical advantages of the 720 dpi and the
innovative High Laydown Technology have greatly
improved the exquisiteness and colour adaptability
of ceramic digital printing, which has brought huge
benefits to our customers.
We believe the introduction of the new Xaar 2002
printhead will further boost the performance of our
machines. In future, NKT will collaborate more closely
with Xaar and especially in the ImagineX platform to
innovate and bring more value to our customers in the
ceramics industry."
Mr Jack Peng
General Manager
New King Time Machinery
Strategic ReportXaar plc Annual Report and Financial Statements 2020 06
Strategic Report
Xaar plc Annual Report and Financial Statements 2020
Long-term thinking and flexibility
INTEGRITY
COLLABORATIVE
Xaar plc Annual Report and Financial Statements 2020
Strategic Report
07
Integrity
"I encourage my team to be
open and honest with our OEM
customers. This builds up trust
and a strong bond.
China and Asia have a huge market potential and there is
a lot of work to be done. Integrity is highly important as it
shows the right values and our Chinese OEMs will treat
us not as a printhead supplier but as a strong business
partner for today and in the future."
Samuel Tam
Xaar General Manager, Asia
INTEGRITY
COLLABORATIVE
Collaborative
"Meta Additive’s binder innovation
would not be possible without the
right printhead. We have been
collaborating with Xaar for about a
year, and we chose them because
first and foremost they have a
reliable printhead technology.
This is crucial for mass manufacturing. Collaboration
and making headway in technology needs clear and open
communication, and that’s what we get from Xaar.
They also give us long-term thinking and flexibility,
meeting us in the middle, and their aim is to support
and grow with us over the long-term. We have a strong
partner in Xaar."
Kate Black
Founder and CTO
Meta Additive
08
Chairman's introduction
In what has been a
challenging year across
global economies, I am
pleased to report excellent
progress at Xaar. Our
challenge has not only
been the impact of the
COVID-19 pandemic and
new ways of working, but
also, under new leadership,
refocusing the business
on our core competencies
and developing a strategy
for growth exploiting the
fundamental strength of our
bulk piezo inkjet technology.
Strategic and operational
highlights
• Implementation of the new strategy
continues to deliver positive customer
engagement
• Strong performance for the Printhead
business with consistent wins of new
customers and projects following
successful shift in go-to market
strategy and focus on markets where
products have a competitive advantage
• ImagineX platform successfully
launched in September 2020 utilising
investment in Thin Film IP, providing
clear product roadmap and compelling
market opportunity
• Investment in customer service centre
in Shenzhen, China, to better service
Xaar’s largest addressable market
A number of changes have been made in
the business: a realignment of our go-to-
market approach with a clear focus on the
value chain and customers, a revitalisation
of our brand and corporate identity and,
importantly, a focus on the technical and
competitive advantages of the Xaar bulk
piezo product range with a pipeline of
new product developments that we plan
to exploit as a part of our new ImagineX
platform.
It has been most pleasing to see the energy
and enthusiasm of the Xaar team, matched
only by the response we have had from
customers, with both existing and new
OEMs and end-users seeking to deploy
Xaar technology in their next generation
products.
Our Printhead business has performed
very strongly this year. Sales were higher
than levels achieved in 2019 and, against
the challenging economic backdrop created
by the pandemic, our order book has
remained consistently strong. We have
been particularly pleased with efficiency
gains made in our printhead operations,
which resulted in both improved gross
margins and strong cash generation from
more efficient use of working capital.
Development of this core platform is a
priority for the Board in 2021 and beyond.
Our product print business, EPS, based
in North America, was impacted by a
fallin demand through the worst of the
pandemic but, with a small grant from
the US Government, made only a small
loss and remains a valuable contributor
to the Group.
• Relocation of Cambridge offices during
2021 will result in £0.7 million full year
cost saving
• Xaar Nitrox, the second product offering
from our ImagineX platform, is officially
launched today
• Engineered Printing Solutions (EPS)
impacted by COVID-19, but good
progress made and strong order book
and pipeline including several new
target markets
• Advanced discussions to divest Xaar 3D
investment.
Xaar 3D was similarly impacted by
COVID-19 restrictions and progress has
been slower than expected. Xaar’s position
in the 3D business is one of technology
enabler and our end goal remains one
of supplying Xaar printheads for use in
3D applications as opposed to becoming
an OEM in the sector. As a result of
programme delays in 2020, and following a
re-evaluation of the further cash investment
required and extended timescales to full
commercialisation of the product, we have
determined that it is in Xaar's best interests
to bring forward the planned sale of Xaar’s
shares in Xaar 3D. The terms of the
proposed revised option arrangement will
be published in due course and subject to
Xaar shareholder approval.
The past 12 months have seen much
change at Xaar. We entered the year with
optimism and a renewed sense of purpose
but of course had no idea of the extent of
challenge we would all face. It is to the
great credit of the whole team at Xaar, in
all businesses and in the many countries
around the world where colleagues live
and work, that they have adapted,
committed to and succeeded in delivering
both solid financial results and a platform
for continued growth.
The Board is encouraged by our progress
this year and, with the prospect of some
return to better market conditions later
in 2021, looks forward with confidence.
Andrew Herbert
Chairman
27 April 2021
Strategic ReportXaar plc Annual Report and Financial Statements 2020 Strategy update
09
Financial highlights
Revenue – Continuing operations
£48.0m
in line with management expectations
(2019: £49.4 million)
Gross margin – Continuing
operations
27%
increased from 25% in 2019, benefitting
from operational leverage in the
business
Gross R&D spend
£4.5m
by continuing operations of £4.5 million,
up £1.4 million on 2019 with investment
focused on the ImagineX platform and
product roadmap
• Positive aEBITDA contribution from
Printhead & EPS businesses
Net cash inflows
£7.1m
Net cash inflow from continuing
operations (2019: £8.4 million)
Annual cost savings
£0.7m
annual cost saving from relocation of
office following comprehensive review
Net cash
£18.1m
Strong closing balance sheet with net
cash, and Treasury deposits, excluding
Xaar 3D (2019: £16.2 million)
In April 2020 we announced a new strategy across the
business and are pleased to say that we continue to make
good progress delivering this and we are already seeing
real benefits from this new approach. We believe we are
on track to return the business to profitability and growth
in the medium term.
Printhead
Our strategy for the Printhead business is:
1. A customer-centric business model that
places the customer, Original Equipment
Manufacturers (OEMs) and User Developer
Integrators (UDIs), at the heart of everything
we do;
2. A focus on markets where Xaar Bulk
Printhead Technology has a competitive
advantage;
3. A product roadmap that will develop the
Bulk Printhead range to offer advantages
over the competition in existing and new
markets; and
4. A marketing and communications plan
that drives home the advantages of our
current products, sells the value and
capabilities of the new products on our
roadmap, and builds trust in the new
business model.
A customer-centric business model
The change in go-to-market strategy which
includes removing distribution channels, a
clear pricing strategy, and a sales process
that is focused on selling the printhead
based on its technical merits and the value
of the relationship with Xaar, has already
started to reap rewards.
As part of the customer-centric focus we
have implemented end-to-end customer
journey management to provide an
enhanced level of service and support
over the entire product lifecycle in order
to reduce their development times, and
therefore time to market, and to also
provide improved aftersales support.
We now have OEMs and UDIs across
multiple applications developing machines
using a range of our products. We have
seen OEM customers return and have
also won new accounts including several
exciting UDI opportunities. We have a
growing pipeline with a significant number
of opportunities which we have a good
chance of winning thanks to our technology
advantages. This will give us additional
opportunities for further vertical integration.
With sales in Asia, and particularly China,
growing significantly, up 56% year-on-year,
customers re-engaging and our sales
pipeline increasing, the Board has decided
to invest in a Chinese customer service
centre in Shenzhen which is ideally situated
to address a large number of existing
and potential customers whilst providing
excellent links to other printing hubs in the
rest of China. The Chinese market is the
largest addressable market in the world
for Xaar printheads and represents an
important growth opportunity.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 10
Strategy update (cont.)
This new facility will enable us to provide
both our existing and potential customers
across the region with a higher level of
service including enhanced technical
support through a demonstration centre,
waveform development and RMA facilities.
These facilities will enable local support
to be provided for all aspects of the
customer product lifecycle from printhead
selection, through machine development
and commercialisation to warranty and
RMA support. We expect to be able to start
welcoming customers to our new customer
service centre in the coming months.
Competitive advantage of our Bulk
Printhead Technology
Xaar’s Bulk Printhead Technology offers
several advantages over the competition
including our Through-Flow (TF) Technology
ink recirculation, High Laydown Technology
and high viscosity capability, which means
our printheads can jet the widest range
of fluids available making them suitable
for a number of applications that other
printheads aren’t. We have focused on
ensuring that the benefits are better
marketed and understood. Together with
our customer-centric business model, this
has enabled us to win a significant number
of new accounts over the last 12 months
whilst building up a strong pipeline of
opportunities.
Through a targeted approach, an effective
business model and printheads for the
right market, we have started to win back
market share in the Ceramics sector and
have established a strong position in the
Glass sector which will enable revenue
growth over the coming years. Our position
in the Coding & Marking (C&M) and Direct
-to-Shape (DTS) sectors remains strong
especially in DTS where we have a clear
competitive advantage over our competitors
due to our TF Technology ink recirculation.
In 3D and Advanced Manufacturing, we are
well positioned due to our ability to print
a wide variety of materials and have an
exciting pipeline of opportunities.
Our mix of customers, both OEM and
UDI, is growing and now spans a variety
of industries from our more traditional
sectors such as Ceramics and Labels to
opportunities in Aerospace, Automotive,
Advanced Manufacturing processes used
in Electronics, and Robotics.
Product roadmap and ImagineX platform
In September 2020 we announced the launch
of our new printhead platform under the
brand name ImagineX. This platform builds
upon several technology and development
programmes from our legacy Bulk and Thin
Film investment. The ImagineX platform
will drive the next phase of Xaar’s success
enabling the business to increase its
addressable market whilst establishing
market leading products across all sectors.
The ImagineX platform will deliver a
number of features over the next few
years which will provide significant
enhancements to the current portfolio;
these include substantially improved speed
and throughput (frequencies up to 150kHz,
equivalent to a threefold increase in speed),
aqueous compatibility, increased throw
distance to improve image quality on curved
surfaces, increased robustness to improve
the life of the printhead and maintain
image quality, higher viscosities enabling
a broader range of fluids to be printed
(above 100cP), and higher resolutions
(up to 1440 dpi). These features will help
strengthen our position in markets where
we are already well represented and will
drive improved adoption in several markets
where we are currently not, such as Wide
Format Graphics, Labels, Packaging and
Textiles. The performance enhancements
in our product roadmap give a clear path
for OEMs to upgrade their products and
maintain their product differentiation.
Several features from the ImagineX
platform are already available and today we
announce the launch of our second product,
the Xaar Nitrox. The Xaar Nitrox delivers
improved print uniformity and is capable of
running at higher frequencies which enable
the printhead to increase its speed and
productivity by 40%. These enhancements
make it ideal for Ceramics, Labels, and
Advanced Manufacturing applications.
The first product from the ImagineX
platform, the Xaar 2002, was launched in
August 2020 following extensive customer
feedback and incorporates several
technology developments, including high
viscosity, high laydown, and AcuChp, as well
as an increased ease of integration for the
OEM. This product has been well received
by the market and is being adopted by
both current and new customers alike.
We are engaged with OEM partners
on several programmes related to our
ImagineX platform, with our partners
committed to alpha and beta trials. The
change to the customer-centric business
model is enabling improved Voice of
Customer and we are engaged with a wide
group of OEMs who are continuing
to provide feedback on the roadmap.
Over the longer term Xaar will increasingly
vertically integrate in order to provide a
more complete printer solution in certain
markets, whilst continuing its primary
business model of selling printheads to
OEMs and UDIs. The additional capabilities
required to achieve this will be added
through either partnership, development
of existing capabilities or acquisition.
Marketing and communications
Twelve months ago, we talked about
needing to rebuild the Xaar brand, regain
the trust of OEMs, and to make sure the
advantages of Xaar technology are well
understood. We have made significant
progress in addressing these issues, whilst
acknowledging there is still more to do.
The combination of communicating the
change in strategy and the new product
roadmap, followed by a revised mission
and vision, and more recently the new
brand and launch of the ImagineX platform,
have helped to shift perceptions of Xaar.
Stakeholders are noticeably more engaged
and excited by the direction Xaar is taking.
This is demonstrated through the positive
customer feedback, in addition to the
growing number of customers engaging
with the business, strong interaction with
the press and positive media coverage
including at conferences such as Future
Print where we officially launched the
ImagineX platform to the marketplace.
The level of engagement from previous
and established customers indicates we
have started to regain their trust. This
has been achieved through our efforts to
build relationships with them, our desire
to listen to their needs and to work with
them to find a solution, and through the
consistent communications they receive.
This has all been reinforced with corporate
messaging on our social media platforms.
The initial customer response has been
encouraging, with the acceptance that
we need to consistently listen and deliver
on our customer needs to fully rebuild
partnerships with them. We are now able to
facilitate the end-to-end customer journey
management, utilising marketing cloud for
better campaigns and lead generation. We
have also been successful in our conversion
of these leads.
The launch of the Xaar 2002 printhead
gave us the opportunity to demonstrate
the advantages of Xaar’s technology and
discuss with customers our product
roadmap. The launch of the ImagineX
platform in September has helped reinforce
the perception that Xaar’s bulk technology
adds real value today and has an exciting
future. With ImagineX, customers can now
see us as a potential partner not only for
their current generation of products but
also for future development programmes.
The closer relationships we now have with
our customers has the added benefit of
enabling better Voice of Customer (VOC)
which in turn allows us to fine tune our
product roadmap and helps place us
front and centre for the customers’ next
generation of products.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 11
With the launch of the Xaar Nitrox we are
also introducing a new naming convention
to link into our new ImagineX platform and
reflect our new brand identity. A significant
amount of work is going into this product
launch which will be the first of several in
the coming 24 months.
To see the new Xaar brand identity and the
ImagineX platform visit www.xaar.com.
Operational gearing
Substantial progress has been made in
reducing the cost base of the Printhead
business in recent years to reduce not
only variable costs but also removing, or
reducing, fixed costs where possible. These
efforts had been obscured by the rate at
which revenue declined, and subsequently
we hadn’t previously seen the expected
positive impact on gross margins and
ultimately the profitability of the business.
With revenues increasing in 2020 we now
see the benefit of these measures as sales
and factory throughput have both increased
and we can leverage the high operational
gearing in the factory and wider business.
This is reflected in the gross margin from
continuing operations improvement, up
5% year-on-year to 27%. A combination of
operational gearing and the reduction in
the SG&A costs have seen adjusted EBITDA
improve £5.4 million year-on-year to £0.0
million.
As the business continues to grow, we
will be able to further leverage our high
operational gearing with modest investment
to support additional sales from the existing
product portfolio or new products released
from the ImagineX platform.
Beyond the factory we continue to review
our cost base. Xaar’s offices on the
Cambridge Science Park are over 25
years old and require investment to bring
them up to a more modern, appropriate
standard. Furthermore, with the reduction
in workforce over the last few years there
is significant excess capacity. The move
to homeworking caused by COVID-19 has
been successful and has proven that flexible
working can be effective for large parts of
the workforce. Following a comprehensive
review, a decision has been taken to
relocate from the Cambridge Science
Park to the nearby Cambridge Research
Park. This move will allow the business to
relocate to smaller premises offering
a more modern and vibrant workplace for
employees and guests. Significantly the
move will also generate savings of £0.7
million per annum from the start of the
second half of 2021.
EPS
Our strategy for the EPS business is
centred on three principles:
1. Focused business development aimed
at utilising existing technologies to
expand into adjacent markets;
2. Increased scalability through the
standardisation of modular components
whilst retaining the ability to meet each
customers’ unique requirements through
customised fixtures and tooling; and
3. Improved controls over pricing and costs.
We have continued to build upon the good
progress made in the first half of the year.
Despite the impact of COVID-19 continuing
to impact our team’s ability to travel we
have been able to deliver improvements on
our focused business development. This
is reflected in the strong order book and
pipeline at the start of 2021 which contains
opportunities from several new target
markets.
Our engineering teams have worked
hard on delivering standardised modular
systems and we continue to see orders won
using this philosophy. This is significant
in that it will not only reduce design costs,
and improve product margins, but will also
reduce the lead-time for the customer.
Combined with improvements in the
quotation process, and cost control, we
expect to see the real benefit of this in
2021 through increases in gross margins
and a faster turnover of machines on the
shopfloor.
These developments aren’t truly reflected in
the full year performance where the rise in
gross margin from the change in strategy,
and related processes, are offset by the
write off and provisioning of slow-moving
legacy inventory and the reduction in
revenue in the second half of 2020.
Additional work has been identified to
take place in 2021 to remediate internal
management and reporting controls to
enable delivery of improved operational
processes and remediate identified
deficiencies, to deliver improvements in
revenue recognition, gross margin and
inventory management.
3D
Xaar’s position in the 3D business is one of
technology enabler and our end goal has
been, and remains to, supply printheads for
use in 3D applications and not become an
OEM in the sector. That was the rationale
behind our joint venture agreement with
Stratasys, a recognised leader in 3D with
a proven track record and strong routes
to market, and the subsequent option
agreement signed with Stratasys.
Alongside its investment in 3D, the Xaar
Board has redefined its core business
strategy during 2020 with a strong focus on
the development of its bulk piezo printhead
business. We have a programme of
investment in technology and new products
and, with a revised commercial model, we
have been successful in both reengaging
with OEM partners and developing new
customer opportunities. Our key focus today
is on building upon this core competency,
increasing our capabilities in deploying
bulk piezo printheads among chosen OEMs
and UDIs, and prioritising investment to
ensure we develop and sustain competitive
advantage as we see increasing demand for
our unique technology solutions. We enter
2021 with a range of further investment
opportunities in both technology through
internal R&D capability and capacity
through the potential for acquisition of
complementary technology, skills and
expertise.
Whilst Xaar 3D has continued to make
progress this year it has been impacted by
the COVID-19 pandemic. This has affected
the programme most significantly in two
areas. Firstly, due to restrictions put in
place in Denmark, the number of people
able to access the Copenhagen facility
has been limited. These limitations have
restricted both the test capacity and the
speed at which testing can take place.
Secondly, travel restrictions have prevented
the team from travelling and has meant
face to face time with the sub-contract
manufacturer has also been limited and
has affected the original timeline of the
alpha and beta programme. As a direct
consequence of these delays we anticipate
Xaar 3D would require further investment
in 2021 (cash decreased in 2020 by £7.0
million to £2.1 million), significantly more
than original plans anticipated.
As a result of the delays in the programme
and the further investment anticipated,
the Xaar Board has considered all options
for the future financing and ownership
structure of Xaar 3D, and accordingly
has held detailed discussions to sell the
remaining stake in Xaar 3D. Terms are still
to be finalised and may potentially differ to
those of the Call Option originally agreed in
2019. The Directors have assessed that the
disposal is highly probable and therefore
Xaar 3D is classified as a discontinued
operation.
The terms of any final agreement will be
subject to Xaar shareholder approval.
Such an arrangement would provide Xaar
3D with the best opportunity to complete
the commercialisation of the HSS product
range in the shortest time, would lead to an
immediate injection of cash and will enable
Xaar to focus on its core business.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 12
Strategy update (cont.)
COVID-19
Following the outbreak earlier in the year
we took measures across the Group to
ensure the health and wellbeing of all our
employees. The business has adapted
incredibly well to these challenges with
much of the organisation operating
effectively from remote locations. In
addition, changes at our manufacturing
facilities have meant that we have been
able to continue production without
compromising the health and safety of our
employees or our production capabilities.
The Xaar Printhead business has a
significant customer base in both China
and EMEA, including a strong customer
presence in both Italy and Spain. Despite
COVID-19 lockdowns in these geographies,
which resulted in a number of short-term
production stops at our customers' facilities
and limited our ability to visit, we have
continued to support and engage with
them and have seen sales into both Asia
and EMEA increase since the second half
of 2019. Our teams have worked hard to
maintain our supply chain and production
capabilities in meeting the requirements
of this increased demand. Our ability to
ensure the continuity of supply has been
well received by our customers and has
helped us secure several orders versus
the competition.
Our US-based EPS business has continued
to operate throughout the period with
little interruption to its manufacturing
operations. As an OEM and supplier to
end users the EPS business has felt the
impact of a slowdown in the economy more
directly than the Printhead business. Full
year sales from Pad Printing machines and
consumables were affected throughout the
second half of the year as end user markets
continued to be impacted by the pandemic.
The EPS business has taken advantage
of the Paycheck Protection Program
(PPP) established by the 2020 US Federal
government Coronavirus Aid, Relief, and
Economic Security Act (CARES Act).
As part of the PPP EPS has taken out a
loan of $1.0 million which under certain
conditions can be waived. The company
meets the criteria for the loan to be waived
and has recognised it as income and
reported it as a government grant (see
note 7 on page 130). EPS is well positioned
to take advantage of any upturn and has
continued to secure orders for use of its
products in various sectors despite the
limitations arising from the pandemic.
Furthermore, it has been able to establish
both a strong pipeline and strong order
book as customers start to plan for their
capital investments again.
The 3D business unit has operations
in Nottingham, UK, and Copenhagen,
Denmark and has seen delays in the testing
and commercialisation of the 3D printers.
These were caused by minor delays in
the supply chain and more significantly by
restrictions in Denmark which limited the
number of individuals who were allowed in
the Copenhagen facility, restricting testing
capacity, and the ability to travel and resolve
issues face to face with the sub-contract
manufacturer.
Both our Printhead business and EPS were
well positioned prior to the pandemic with
strong order books. We believe we are
well positioned to continue to support our
customers and suppliers, and our strong
cash and balance sheet position provides
confidence that we are well placed. We
believe we are well positioned to take
advantage of any economic upturn as
pandemic restrictions recede.
Operating sustainably
Xaar strongly believes that corporate
responsibility is integral to business
success. We uphold the highest of
standards across our business and
comply with all relevant regulations in
the territories in which we operate whilst
enhancing the working environment
for our employees and minimising the
environmental impact of our products.
We have offset all of the UK regulatory
Scope 1 and 2 carbon impact that we made
and reported in 2020. Based on our carbon
footprint reported in 2020 this makes Xaar
a carbon neutral inkjet manufacturer.
We still need to understand the full impact
from our operations and are committed
to continue reducing the impact on the
environment and maintaining our drive to
achieve complete carbon neutrality in line
with the UK’s 2030 goal.
In August 2020 we introduced new
packaging across our printhead portfolio
and now all Xaar’s printheads are shipped
in fully recyclable and biodegradable
cardboard packs with the aim of reducing
our plastic consumption by 1.2 tonnes
per year.
In addition, we have moved electricity supply
for our Printhead business to a green
energy supply, supplementing measures
we are already taking to improve energy
efficiency.
We have also started a project to review
our carbon footprint and the measures we
take to limit this. The results of this review
including definition of appropriate KPIs will
be announced later in the year.
In support of our local community, we
have started a programme of work to
establish apprenticeship and graduate
schemes which we expect to roll out over
the next 12 months. This is aligned with
our sponsorship of local clubs around
Huntingdon and Cambridge in the UK to
drive interest in STEM subjects among
school students.
Our priority during the COVID-19 period has
been to ensure the health and wellbeing
of our employees. Beyond this we have
supported our local community by donating
PPE to the Addenbrookes NHS trust and
manufacturing 3D printed headbands for
protective masks.
We have put in place on-site COVID-19
testing facilities to test all staff on-site
on a twice weekly basis.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 13
Brexit
The Group operates globally and the
impact following the transition phase of
Brexit continues to be monitored. We have
taken action where necessary in moving to
freight carriers to ensure smooth customs
clearance and to date have experienced
little impact. We will continue to evaluate
all transport methods and ensure we
meet any increased burden of audit trail
compliance. As for many businesses, a
greater challenge is potentially that of EU
workers and migration. As a result of Brexit,
the Group is exposed to potential currency
fluctuations.
Brexit and trade barriers continue to be an
integral part of the Group’s ongoing risk
management and review process, for which
solutions to address the risks identified are
explored and implemented. We continue
to believe that the direct consequences of
Brexit will have no material impact on the
Group.
Outlook and summary
We are very pleased with the performance
of the business in 2020. Given the
difficult trading environment and the
wider economic impact of the COVID-19
pandemic, the results are positive. There is
significant work still required to increase
customer trust and capitalise on the many
market opportunities, and the ongoing
pandemic makes it difficult to provide
reliable guidance on the outlook for 2021
and beyond. That said, the short-term
outlook remains good with a strong
order book across the business, and the
continued strength of the Group’s balance
sheet and cash position leave it well placed
to withstand further volatility in the market.
Implementing the new strategy is already
proving successful and we believe this will
continue. The foundations that are being
laid at present will provide a springboard for
future growth and a return to profitability in
the medium term.
By order of the Board
John Mills
Chief Executive
Officer
Ian Tichias
Chief Financial
Officer
27 April 2021
27 April 2021
Strategic ReportXaar plc Annual Report and Financial Statements 2020 14
Our business model
Together with our partners and customers, we have been transforming
the world of inkjet technology for over 30 years
The largest part of Xaar is the Printhead business. Here we sell our inkjet technology
in component form (the printhead) to OEMs who produce and sell the complete
digital printing solution. We also work with User Developer Integrators (UDIs) who are
building their own digital system.
We actively partner and co-develop with
fluid suppliers, hardware and software
integrators as well as substrate suppliers to
deliver a robust and attractive total solution
to our customers.
Our product printing business – EPS –
designs and develops complete industrial
printing machines which we sell to end
users.
Xaar
designs
Xaar
manufactures
Xaar
markets
Xaar
sells
Our 3D Printing business – Xaar 3D – is a
leading developer of 3D printing solutions
based on Xaar3D SAF™ technology. With
investment from Xaar plc and Stratasys,
Xaar 3D can leverage the natural synergies
between global leaders in inkjet technology
and 3D printing technology.
We continually add to our Intellectual
Property (‘IP’) portfolio, and currently
we have over 300 patents and patent
applications. Our R&D staff totals 78
which is 21% of the total workforce.
EPS, our product printing business,
manufactures customised and
bespoke printing solutions in
Vermont, USA.
We have R&D facilities in Cambridge,
Nottingham, Copenhagen, Stockholm,
and Vermont. We also work with
strategic partners to jointly develop
some products. We invest a substantial
proportion of our revenue in R&D
to remain a world leader in inkjet
technology (2020: over 10%).
Xaar manufactures its printheads in
Huntingdon, UK. Xaar’s manufacturing is
capital intensive. The Group has invested
over £70 million in assets and production
facilities in Huntingdon since the plant
opened in 2007. We export over 95% of
our printheads to customers around
the world.
Xaar offers a wide range of industrial
inkjet printheads and print systems
which are designed and produced to
meet the customer-driven requirements
of a range of manufacturing applications.
Primary markets include:
• 3D Printing
• Ceramic Tile Decoration
• Coding & Marking
• Decorative Laminates
• Direct-to-Shape
• Functional Fluid Deposition
• Glass Printing
• Graphics
• Primary Labels
• Packaging
• Product Printing.
Xaar company EPS also sells product
printing equipment, services and
consumables.
Xaar sells direct to OEMs and UDIs
around the world through its global
sales team. Xaar’s highly skilled
application engineers offer the highest
level of technical support to assist OEMs
and UDIs in the successful design,
build, commissioning, and ongoing
maintenance of printing systems.
Europe, Asia and North America are
the primary locations of our current
OEM partners.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 15
We create value for all our
stakeholders
Customers
OEMs and User Developer Integrators,
and also end users, are able to innovate
in their manufacturing methods and their
products as well as benefit from a shorter
distribution chain; they can take products
to market more quickly, implement more
precise and efficient processes, easily
produce short batches, improve productivity,
reduce waste and deliver more creativity.
Shareholders
A key goal at Xaar is to maximise the
long-term growth in value delivered to
shareholders via sustained, consistent
growth in earnings per share. This is
delivered through continued investment
in R&D and producing a pipeline of new
products which deliver a sustained return
on capital employed.
Our employees
Our success depends on the capability and
engagement of our people. We want bright
and driven people who share our values and
passion for developing and manufacturing
world leading technology. We want to
build a culture of innovation, continuous
improvement, delivery of commitments,
transparency and customer focus. We aim
to build long-term relationships with all
our employees by helping them grow and
develop, and by making Xaar an interesting
place to work as well as a great company
to be involved with.
In a difficult year for many, we have focused
on rebuilding trust and engagement
with our people. We have carried out
an employee opinion survey with very
positive results, reflecting our enhanced
communication with employees, both in
frequency and type, and a belief in the
new Company strategy. The data from the
survey has resulted in targeted actions and
improvements specific to different parts of
the business.
We have also continued with the forums
where employees have the opportunity to
meet and chat with all our Non-Executive
Directors along with the Exec Xchange
where our employees get to meet members
of the senior management team in smaller
groups to ask questions and exchange ideas.
Environment
Digital print methods are inherently more
environmentally friendly than the analogue
techniques we seek to replace. Our
research shows that, compared to analogue
alternatives, digital has a huge impact in
reducing energy consumption (by as much
as 55%), water consumption (by up to 60%)
and CO2 emissions (by up to 95%), but also
in reducing pollution and waste materials.
Xaar is committed to reducing its impact
on the environment wherever possible.
Our actuator technology consumes less
energy than competitor alternatives and
our industrial printheads can remain in
use for many years. In addition, we use
a continuous improvement methodology
and we have adopted a manufacturing
ethos of “reduce, reuse and recycle”.
We are committed to adopting advanced
manufacturing techniques in our own
cleanrooms wherever possible. Some of
these techniques reduce manufacturing
waste and eliminate the need for tooling
and parts. In 2020 we moved to packaging
which is 100% recyclable. In addition, we
have commenced a review of our energy
usage under a programme to target
“Carbon Zero by 2030”. Progress to date
includes the transfer of electricity supply
to an environmentally sustainable green
source, the co-ordination of energy efficient
actions via an Energy Reduction Team
and the investigation of energy generation
solutions via supply and installation of
Solar array at our Huntingdon factory.
Digital printing compared to analogue
reduces consumption of up to:
CO2 emissions
95%
Energy consumption
55%
Water consumption
60%
Source: Xaar
Strategic ReportXaar plc Annual Report and Financial Statements 2020 16
Marketplace
From the brightest, most textured ceramic tiles to the smallest, most complex
printed electronics, Xaar's digital inkjet technologies are transforming print
processes in a wide range of markets.
Industrial markets
Ceramic Tile Decoration
The majority of the tile decoration market
uses digital inkjet technology because,
compared to traditional analogue
techniques, it is superior in terms of image
quality and is lower in cost. In addition,
it offers the advantages of flexibility,
inventory reduction and larger tile size
capability. This is a mature market for Xaar
with strong competition. However, with
an average useful life of five to six years,
several hundred new ceramics printers
are required each year for the foreseeable
future. The Xaar 2002 with three variants,
720 dpi resolution and unique High Laydown
Technology for textured tile effects, is the
most versatile printhead family for ceramic
tile decoration on the market.
Decorative Laminates
Realistic wood finishes or creative design
are the key features which sell the board/
plank/finished item. The digital quality
that can be produced with Xaar printheads
matches the quality produced by the
analogue process, thereby offering the
opportunity for more economic short run
work to be undertaken whilst reducing
inventories and improving time-to-market.
Functional Fluid Deposition
Xaar’s focus on functional fluid promotes
our inkjet technology, which offers an
unrivalled method of non-contact, fluid
deposition with incredible precision, control
and speed. Typically applications are
challenging, pushing our technology to and
beyond known limits in markets such as
Flat Panel Display, Semiconductors,
Printed Electronics and Optics.
There is an ever increasing interest in
Xaar’s inkjet technology as part of a
manufacturing process, and through the
work that we do we aim to develop these
medium-term applications into commercial
opportunities.
3D Printing
3D Printing is a manufacturing
methodology that encompasses a range
of processes and applications, with a
common theme of building parts up, usually
layer-upon-layer. This additive approach
ultimately enables manufacturers to
eliminate the need for tooling. There are
significant advantages, including superior
geometric freedom, giving designers much
more capability, and a substantial reduction
in lead time for products. In addition
3D Printing provides the facility to tailor
unique products to consumers, enable
de-centralised manufacturing and shrink
spare part storage.
Glass Printing
Architectural glass is increasingly used
to complement ceramic tiles in modern
commercial design, and is starting to be
used in residential projects also. Functional
glass, such as car windscreens or glass
tops used in induction hob cookers, is
predominantly printed using analogue
screen techniques, but is increasingly
moving to digital to provide production
flexibility and inventory reduction. This is an
emerging sector for digital inkjet.
Many glass printing applications involve
jetting highly viscous inks. Xaar’s TF
Technology provides a competitive
advantage, and the Xaar 2002 is the
leading printhead for glass printing.
Packaging markets
Coding & Marking
Coding & Marking is an application which
relates to printing product identification
codes such as batch numbers, use by dates
and barcodes. Xaar’s technology is used
to print barcodes and logos on outer case/
secondary packaging of consumer goods.
This is an established and stable business,
and competes with alternative technologies
including print and apply, and thermal inkjet.
Primary Labels
Labels are used for many different
applications, including product
identification, name tags, warning and
hazard identification, promotions and as
decals for product decoration. So far only
a minority of this market has converted to
digital printing to date. The change driver
is the delivery of lower cost per copy on run
lengths up to 100,000 impressions.
There is a large range of substrates
and inks in this application which adds
complication to the conversion process.
Xaar excels in two areas of label printing:
colours (including white) and varnish based
finishing effects using Xaar’s High Laydown
Technology.
Direct-to-Shape
Direct-to-Shape is a relatively new
application where bottles and containers
have the image printed directly onto their
surface without the need for a label.
The solution is aimed at reducing unit
costs versus the application of a label.
This approach can also be used as part
of the identity of a brand, and provides
differentiation versus other products that
use paper or plastic labels. Xaar printheads
are the best at printing in a vertical
mode (a frequent requirement for these
applications), thanks to TF Technology.
Other markets
Product Printing
Product Printing covers printing onto
all kinds of industrial objects, including
consumer and promotional items,
packaging, medical, automotive, apparel,
appliances, sports equipment and toys.
Xaar’s printheads are particularly suitable
to these applications because the printhead
design enables the use of a wide range of
fluids as well as configurations options.
In addition, Xaar company Engineered
Printing Solutions (EPS) is a leader in this
sector, providing best-fit custom printing
solutions for many different applications,
including promotional, packaging, medical,
automotive, apparel, appliances, sports
equipment and toys.
Grand- and Wide-Format Graphics
Grand- and Wide-Format Graphics
includes both indoor and outdoor signage
and advertising, including billboards,
posters and point of sale advertising.
It is the most mature industrial inkjet
market, active for over 15 years. Xaar’s
early product range, which included the
Xaar 128 and Xaar 500, was instrumental in
the growth of the digital graphics industry
around the world.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 17
3D Printing
Product Printing
Glass
Strategic ReportXaar plc Annual Report and Financial Statements 2020 18
Our business units
Printhead
From the brightest,
most textured ceramic
tiles to the smallest,
most complex printed
electronics, Xaar's digital
inkjet technologies
are transforming print
processes.
Key figures
Industrial
Packaging
Graphic Arts
Royalty
46%
35%
18%
1%
Printhead revenue
£35.3m
2020
2019
35.3
33.7
Where we excel
• We are the only truly independent inkjet
technology company with 30 years of
experience. Our independence enables
a flexible, collaborative approach to
ensure we remain customer-centric
and focus on their goals
• State-of-the-art UK manufacturing
facilities and an enviable R&D
department staffed by scientists and
engineers with a wealth of inkjet industry
knowledge and expertise
• A comprehensive portfolio of printheads
to cover a wide range of applications
• Engineers with extensive knowledge of
inkjet and its application across many
sectors as well as considerable field
experience. This means they are able
to assist our OEMs in the successful
design, build, commissioning and post-
installation support of all Xaar-based
inkjet systems
• Ready-to-use development kits and
an extensive portfolio of systems
components ensures that OEMs
can get up and running quickly.
Technologies
• TF Technology
• XaarDOT
• AcuDrp Technology
• High Laydown Technology
• Ultra High Viscosity
• Tuned Acuator Manufacturing
• XaarSMART.
i Read more on page 20
2020 summary
We made good progress with the new
strategies for the Printhead business unit
which we announced in April 2020. .
i Read more on page 28
We began to see the positive impact of
the new business model introduced (only
selling to OEMs and UDIs) with consistent
new business wins. This has led to a
growing mix of customers, both OEM and
UDI, across a variety of industries beyond
our more traditional sectors (Ceramics
and Labels) to Aerospace, Automotive
and Advanced Manufacturing.
The Xaar 2002 was launched in August.
Developed using extensive customer
feedback. The Xaar 2002 is being adopted by
new and existing customers. The printhead
incorporates drop in printhead alignment
and tight mechanical tolerances to allow
the printheads to be dropped into the
printbar easier, making set up times faster,
and machine builds quicker. In addition,
thanks to its new advanced Tuned Actuator
Manufacturing – TAM2 – and Xaar AcuChp
Technology, the Xaar 2002 also delivers
visibly improved colour uniformity across
the width of the printhead, further reducing
printhead installation and set-up times,
therefore maximising printer uptime.
The full launch of our ImagineX printhead
platform took place in September, which
provides a clear product roadmap for our
customers and which will deliver some
compelling advantages.
Priorities for 2021
A focus for 2021 is the Xaar Nitrox,
launched in April 2021, and the second
product offering from our ImagineX
platform. As a very versatile, all round
performer, this printhead, which offers a
number of applications a 40% increase
in productivity and more uniform print
quality, is attractive to our Ceramics, Labels
and Additive Manufacturing customer base
in particular.
In China we are opening a Chinese office in
Shenzhen to be able to deliver a higher level
of service and enhanced technical support.
The facility includes a demonstration
centre, waveform development and
RMA facilities.
We will continue focus on building
our relationships with our OEM and
UDI customers. This deeper working
relationship is now facilitating Voice of
Customer work to further develop our
ImagineX platform product roadmap.
In addition we are engaging with OEM
and UDI partners on a number of product
development programmes, with our
partners committed to alpha and
beta trials.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 Xaar plc Annual Report and Financial Statements 2020
Strategic Report
19
19
Our product range
Xaar Nitrox
With unparalleled productivity and performance,
the Xaar Nitrox lets you create without limits
Xaar 2002
High productivity and out of the box exceptional
print quality
Xaar 1003 C
Ultimate versatility in ceramic
tile decoration
Xaar 1003 U
All round reliable high
quality printing for industrial
applications
Xaar 1003 AMx
Highly accurate fluid
deposition for additive
manufacturing
Xaar 1003 AMp
Small drop deposition on an
industrial scale
Xaar 501
High production up-time and
industrial reliability
Xaar 502 O
Industrial reliability and
mineral-oil free inks
Xaar 502 S
Exceptional print quality for
Wide-Format Graphic
Xaar 128
Adaptable printhead with
trouble-free integration
Strategic ReportXaar plc Annual Report and Financial Statements 2020 20
Our business units (cont.)
Printhead – Technologies
Xaar's unique inkjet technologies
We have a number of unique technologies which are incorporated into our
printheads, and which provide distinct advantages to our OEM partners and
their end user customers. Our leading technologies include:
TF Technology
Xaar’s TF Technology is the original and
still the best ink recirculation technology
available. A printhead’s architecture
determines how well ink recirculation is
implemented and therefore influences
the degree to which the method delivers
benefits across today’s wide range
of printing and jetting applications.
Xaar’s TF Technology, together with the
unique Hybrid Side Shooter printhead
architecture, enables ink or other fluids
to flow directly past the back of the
nozzle during drop ejection at very high
flow rates.
This ensures the nozzles are continuously
primed, keeping the printhead
operational and the nozzles firing
and – with the ink in constant motion
– prevents sedimentation and nozzle
blocking, particularly in heavily
pigmented inks. Any air bubbles and
unwanted particles in the ink are also
carried away, improving reliability, even
in the harshest industrial environment.
This makes jetting significantly more
reliable compared to alternative
printhead designs where convoluted
ink flow paths means that recirculation
is close to, but not at the back of the
nozzle.
The main benefits of TF Technology are
unrivalled jetting reliability, outstanding
print quality and an increased production
uptime.
XaarDot
Xaar’s printheads cover three different
drop configurations or three different
modes of drop formation. Xaar’s
customers, therefore, have the flexibility
to choose the right printhead for the
application. XaarDOT (‘Xaar Drop
Optimisation Technology’) encompasses
a range of drop formation options, each
with specific features.
In a variable drop printhead, XaarDOT
is incredibly flexible in giving customers
the choice of what drop size or sizes to
use for a job, both in terms of image
quality and substrate flexibility.
AcuDrp
AcuDrp Technology delivers a number
of advantages unique to Xaar including
dynamic sub drop tuning for every nozzle
in the printhead which helps minimise
drop volume and drop speed variation
across the printhead, and from printhead
to printhead. Therefore banding and
colour density variations are minimised
and changes in nozzle performance over
time are managed effectively.
High Laydown Technology
Xaar’s High Laydown Technology enables
a range of new applications, thanks to its
ability to deposit large quantities of fluid
in each pass. It makes possible printing
very high levels of UV inks or high build
varnish in a single pass for tactile
embellishments on labels, packaging
and commercial print. Braille and label
warning triangles are also possible.
High Laydown Technology delivers
unprecedented ink discharge rates for
gloss and adhesive effects on ceramic
tiles, so that effects can be printed at
high line speeds.
For additive manufacturing applications,
High Laydown Technology offers
increased printing productivity which
significantly accelerates build rate for
parts and the ability to print a broader
range of fluids including higher viscosity
materials; this ultimately results in
tougher 3D printed parts than those
printed with standard inkjet technology.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
21
Tuned Actuator Manufacturing
Actuator performance in each printhead
is optimised with Xaar’s Tuned Actuator
Manufacturing. This process ensures full
scalability with a simple and quick set
up, streamlining printhead replacement,
and achieves consistent print quality
across long print bars with multiple
printheads, at different greyscale levels.
XaarSMART
The Xaar 2001+ family of printheads
incorporates XaarSMART technology
which reports ink temperature and
printhead status in real time so that
printer performance can be easily
adjusted to deliver consistent print
quality throughout a production run.
Ultra High Viscosity
Xaar’s Ultra High Viscosity capability
opens up a wide range of new inkjet
capabilities and applications for
OEMs and manufacturers using Xaar
technology. Most printheads can only
jet materials with viscosities of up to
10-25 centipoise (‘cP’). Thanks to Xaar’s
unique TF Technology and innovative
High Laydown Technology, fluids with
significantly higher viscosities – up to
100 cP – can now be jetted.
The ability to lay down fluids with
higher particle loading and particle
sizes offers advantages such as an
increased colour gamut, opacity and
special effects. In addition, jetting higher
molecular weight photopolymers for
Advanced Manufacturing and 3D printing
applications is made possible.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 22
Strategic Report
Xaar plc Annual Report and Financial Statements 2020
Our business units (cont.)
Printhead – Focus on manufacturing
CUTTING-EDGE
MANUFACTURING
Xaar plc Annual Report and Financial Statements 2020
Strategic Report
Strategic Report
23
23
Xaar’s production
processes are world-
class and lead the way
in inkjet manufacturing.
Our printheads are produced in a highly
automated, cutting-edge factory in
Huntingdon, Cambridgeshire which is ISO
9001 and ISO 14001 certified. Over 95%
of Xaar’s printheads are exported globally,
with Asia, Europe and North America as the
major markets.
Manufacturing on a micron and sub micron
scale takes place in carefully controlled
cleanrooms which have a total footprint of
around 5,000m2.
Initially, Xaar’s printheads were
manufactured in Sweden and in 2007 Xaar
opened its UK factory. Since then we have
invested over £70 million which gives us
sufficient capacity to scale up the printhead
business. Many of the machines used in
the manufacturing process are bespoke as
Xaar’s processes have been built up from 30
years of highly specialised inkjet know-how.
In addition to manufacturing the printheads,
we have specialist test areas for new
developments as well as existing products,
all of which go through a comprehensive
print performance test before packing
and shipment. In 2021 we will be opening
a new customer demonstration centre
to showcase the capabilities of our
technologies.
CUTTING-EDGE
MANUFACTURING
24
Our business units (cont.)
Product Print Systems
Introduction to the Product Print Systems business unit
Engineered Printing Solutions (‘EPS’) is a recognised leader in the industrial
product marking machine industry, providing highly automated machines and
accessories. As well as providing an industry-leading service and support,
EPS occupies a niche position as one of only a few bespoke product marking
machine companies in North America.
Key figures
Digial
Analog
Other
EPS revenue
57%
40%
3%
£m
£12.7m
2020
2019
12.7
15.7
Where we excel
Our core strengths are designing, building
and integrating machines which allow
our customers to product mark their
parts in a highly automated manner,
enabling significant cost savings and
virtually unlimited print flexibility and
personalisation. We offer unparalleled
service and support which in turn ensures
we build long-term relationships with
our customers.
What we achieved in 2020
2020 was a challenging year for Engineered
Printing Solutions due to the impact
of COVID-19. Specifically, two of the
company’s key sectors – Ad Specialty and
Promotional Goods – were hit very hard by
the restrictions put in place to reduce the
spread of the virus.
Whilst EPS saw a reduction in revenue year-
over-year, we generated several long-term
positive outcomes in improved margins,
driven by cost cutting measures, improved
lead times and the further exploitation of
modular standardisation (by pre-building
three core non-custom systems). This
modular approach is starting to win orders.
Outlook for 2021
We will continue to focus our strategy
for the EPS business:
1. Business development aimed at
utilising existing technologies to
expand into adjacent markets;
2. Increased scalability through
the standardisation of modular
components whilst retaining the
ability to meet each customers’
unique requirements through
customised fixtures and tooling; and
3. Deliver operational improvement to
remediate management and financial
controls, stock management, cost
control and increased product
margins.
Progress already made in business
development is reflected in the strong
order book and pipeline at the start of
2021 which contain opportunities from
a number of new target markets.
Operationally, a key focus is the lead-
time reduction initiative that will take
the standard build times down from
26 weeks to 18 weeks to 12 weeks in
two years.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 25
EPS product portfolio
The EPS product portfolio major
technologies:
In all three product portfolios, one of the
key points that separates EPS from its
competition is its ability to integrate and
automate the product marking process.
This includes robotic auto load and unload,
part fixturing, part conveyance, pre-treating
and post-print curing. EPS has designed
and built standalone systems as well as
drop-in integration solutions.
XD-360° Cylindrical Inkjet Printer
The XD-360° is a multi-colour,
UV-LED, high-resolution industrial inkjet
printer built specifically for decorating
cylindrical objects. The XD-360° prints
on flat walled or tapered cups and
bottles with a synchronised printing
and curing operation. Full WW+CMYK,
optional primer and varnish heads are
available.
F-Jet24 and Bottle Jet Digital
Multi-Pass Scanning Systems
This technology is a lower cost, entry
level approach to digital inkjet printing
that is capable of producing high quality,
high resolution images at a slower
speed, but allows for image variability
across multiple parts.
KP-KE Analogue Systems
– Pneumatic Driven and
Servo-Driven machines
Pad Printing employs machine
heads, inks, silicone pads and clichés
to produce a printed product. This
technology is well-suited for long
production runs that do not involve
the changeover of artwork.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 26
Our business units (cont.)
3D Printing
Introduction to
the 3D business
Xaar 3D is developing
3D printing machines
which leverage the
benefits of industrial
Xaar printheads.
Where we excel
Our technical expertise in powder bed
fusion is world-leading.
In addition our process and application
team, including the technology’s original
inventor, bring unparalleled experience
into the design of the product. The
amalgamation of this knowledge has
generated technology ideas under patent
application and know-how that are capable
of pushing the boundaries on industrial
production via 3D Printing.
Our technologies
Our core technologies are predominantly
based on unique implementation of a
powder bed fusion process.
Inkjet printheads and infrared heaters are
used to manufacture products layer by
layer from polymer powder materials at
much higher speeds than other additive
manufacturing processes. Xaar 3D’s
Director of 3D Technology, Professor
Hopkinson, is the original inventor
of the core technology.
These machines deposit a fine layer
of plastic powder, onto which Xaar
piezoelectric printheads print a high
resolution cross-sectional pattern of
the parts to be manufactured. Next,
the complete powder layer is exposed
to infra-red energy, causing the imaged
powder to absorb this energy and fuse.
This process is then repeated layer by
layer until the whole build is complete.
Unlike traditional laser systems, the Xaar
3D process is more consistent, controllable
and cost effective.
Xaar 3D is an independent legal entity
which comprises of Xaar 3D Ltd and
Xaar 3D ApS. It is funded by investments
from Xaar and Stratasys Solutions Ltd.
The company’s core strength lies in its
capabilities and experience in machine
design and development including powder
management and thermal control, as well
as years of experience in application and
materials development for powder bed
fusion. In order to maximise the revenue
opportunity and expedite time-to-market
for Xaar 3D’s products, the Company has
entered a partnership with global leading
3D Printing company Stratasys. In addition,
Xaar 3D is working closely with materials
suppliers and end-customers to assure the
completeness of its product offering.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 27
Our markets and
opportunities
Xaar 3D is focused on enabling industrial
production of products via 3D Printing.
CAGR of 3D Printing is approximately 23%*
and the aspect to which we are focused,
end part production – rather than prototype
part production – is growing at a rate higher
than the overall 3D Printing industry.
Stratasys partnership
In 2018 Xaar announced it would invest with
Stratasys, the world’s largest 3D Printing
company, in a newly formed company, Xaar
3D Limited, to develop 3D printing solutions
based on powder bed fusion. Xaar held
85% of Xaar 3D Ltd shares with Stratasys
holding 15%. Subsequently in December
2019, Stratasys increased its investment in
Xaar 3D to 45% with an option for Stratasys
to acquire the whole of Xaar 3D within three
years.
Progress update
During 2020 we manufactured
commercially designed machines using
our contract manufacturer partner.
With these first machines we completed our
alpha programme in which we tested the
commercial design and demonstrated that
the machines are meeting our performance
expectations and are capable of producing
consistent end-use parts. We also completed
the design and implementation of the
workflow required for production
of parts.
The successful completion of the alpha
programme enabled us to ship the
complete solution for further testing which
also included a series of beta partners
who specialised in the production of plastic
parts in multiple target applications.
Initial feedback from beta customers has
been positive; therefore we are accelerating
the beta programme during Q1 of 2021.
We are currently in advanced discussions
for the disposal of our remaining stake in
Xaar 3D as summarised in the strategy
section (see page 11).
* Pira 2017.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 2020 H1
2020 H2
FY 2020
FY 2019
PH
3.9
4.5
8.4
EPS
6.9
–
–
Total
10.8
4.5
8.4
PH
3.7
5.1
9.7
EPS
5.8
–
–
Total
9.5
5.1
9.7
16.8
6.9
23.7
18.5
5.8
24.3
PH
7.6
9.6
18.1
35.3
EPS
12.7
–
–
12.7
Total
20.3
9.6
18.1
48.0
PH
8.2
7.0
18.5
33.7
EPS
15.7
–
–
15.7
Total
23.9
7.0
18.5
49.4
28
Business performance
Due to the discussions
to divest the remaining
shares in Xaar 3D, the
business will be classified
as an asset held for sale
as at 31 December 2020
and the business will no
longer be classified as
a continuing operation.
Xaar’s continuing
operations, therefore,
consist of the Printhead
and EPS businesses.
Continuing operations
Revenue for the Group of £48.0 million was
in line with management’s expectations
and whilst this represents a year-on-year
decline of £1.4 million (2019: £49.4 million)
it is a very pleasing result given the decline
in Printhead sales in the second half of 2019
and the impact COVID-19 has had on the
EPS business. Group revenues increased
from £23.7 million in the first half of the
year to £24.3 million in the second half
driven by a £1.7 million increase in revenues
from the Printhead business.
Revenue from the Americas fell year-on-
year across the Group, down £3.6 million
(2020: £20.3 million, 2019: £23.9 million),
and also fell £1.3 million half-on-half.
Printhead revenue declined by £0.6 million
to £7.6 million whilst also decreasing £0.2
million half-on-half. Modest growth year-
on-year in the 3D Printing and AVM sector
was offset by declines in both the Coding &
Marking (C&M) and Direct-to-Shape (DTS)
sector and the Wide Format Graphics (WFG)
and Labels sector. Revenue from the EPS
business fell £3.0 million in 2020 to £12.7
million and declined by £1.1 million in the
second half of the year.
Performance in Asia, and China in
particular, has been very successful in
2020. Revenue grew £1.0 million in the
first half of the year to £4.5 million (H2
2019: £3.5 million) and continued to
grow in the second half to £5.1 million.
This growth has largely been driven by
the re-engagement of Chinese Ceramic
customers who began to adopt the Xaar
2001 and have now transitioned to the
newly launched Xaar 2002 for their new
printer builds. Year-on-year revenues have
increased from £7.0 million to £9.6 million,
a 37% increase. This is a real proof point
for the change in strategy, the removal of
distribution channels, the implementation
of a clear pricing strategy, and more
significantly a change in how we interact
and support our customers have all helped
with the speed of adoption of the Xaar 2002
in China.
Whilst revenue in EMEA was down year-
on-year, £18.1 million compared to £18.5
million, we have seen a promising upward
trend in revenue since H2 2019. Revenue
in the first half of the year increased £1.0
million compared to the previous half to
£8.4 million (H2 2019: £7.4 million) and then
increased £1.3 million in the second half to
£9.7 million. Increases in H1 were driven by
the Ceramic sector which stayed flat in H2
whilst increases in H2 were driven by the
C&M and Labels sectors.
Printhead revenue increased £1.6 million
to £35.3 million (2019: £33.7 million) as
we saw revenue increase half-on-half
throughout the year. H1 revenue of £16.8
million was up £2.0 million relative to H2
2019 (£14.8 million) with revenues in H2
rising another £1.7 million to £18.5 million.
Having hit a low of £4.4 million in H2 2019
the Ceramics & Glass sector has increased
half-on-half throughout 2020 to £6.1 million
in H1 and £7.7 million in H2. Full year
revenues are up 13% at £13.8 million (2019:
£12.2 million). Winning back market share
with the launch of the Xaar 2002 in the
Chinese Ceramics market, and to a lesser
extent EMEA, has been a significant driver.
We also established a marketing leading
position in Glass with the Xaar 2002 and
won several accounts in the Glass sector
in 2020, with revenue in H2 2020 increasing
144% compared to H2 2019.
The C&M and DTS sector declined 3% year-
on-year (2020: £11.5 million. 2019: £11.9
million). Whilst C&M has remained largely
flat year-on-year, DTS declined 16% with
the majority of the decline taking place in
the Americas. With DTS still in its relative
infancy, revenue from this sector remains
volatile and largely driven by new machines
from customers switching their production
lines over to a digital solution. We remain
confident in our ability to drive the adoption
of digital solutions in this sector in the long
run. Our current product portfolio, and the
ImagineX product roadmap, make the C&M
and DTS sector an area for potential growth
in the long-term.
WFG and Labels revenue was up 13% at
£6.3 million (2019: £5.6 million). As with
the Ceramics & Glass sector we have seen
improvements half-on-half throughout 2020
with growth in H1 (H1 2020: £2.9 million,
H2 2019: £2.8 million) driven by WFG and
growth in the second half (H2 2020: £3.4
million) driven by Labels.
3D Printing and Advanced Manufacturing
(AVM) have stayed relatively flat year-
on-year (2020: £2.5 million, 2019: £2.6
million) with gains in 3D Printing offset by a
Table A – Revenue by region – Continuing operations
£m
Americas
Asia
EMEA
Total
reduction in revenues from AVM. Similar to
DTS, the AVM market for printheads is still
relatively small but growing, and revenues
can vary year-on-year depending on the
number of production lines, or production
processes, that are switched over to digital
printing. Both 3D Printing and AVM are
markets where we are well positioned to
take advantage of growth opportunities,
but development cycles can be long,
therefore, it can take a number of years
for a customer to reach full production
and ultimately significant demand for
printheads.
Revenues from Packing & Textiles
remain modest. Our ability to target this
sector effectively is somewhat limited
by our current product range. However,
advancements in the product portfolio
driven by the ImagineX platform should
make this large sector more accessible in
the future. Full year revenue of £0.9 million
was flat year-on-year.
Royalties from the single remaining
licensee declined 42% (2020: £0.4 million,
2019: £0.6 million) which is in line with the
declining royalty rate. This royalty rate will
decline again in both 2021 and 2022 before
ceasing altogether thereafter.
Revenue from the EPS business declined
by £3.0 million to £12.7 million (2019: £15.7
million) as COVID-19 impacted on a number
of markets addressed by their Pad Printing
machines and consumables; Ad Speciality
and Promotional Products were hit
particularly hard. Whilst the first half was
helped by a strong order book, particularly
on the digital inkjet side, we saw a decline
in sales in the second half from both Pad
Printing and digital inkjet as companies
held off making large capital commitments,
and demand for consumables, which
declined significantly in Q2, only partially
recovered. Despite this we have been able
to strengthen the pipeline and order book
and are well placed to return to growth in
H1 2021 as companies start to invest in
capital equipment again and those markets
affected by the pandemic, such as Ad
Speciality and Promotional Products, start
to rebound.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 29
Table A – Revenue by region – Continuing operations
£m
Americas
Asia
EMEA
Total
2020 H1
2020 H2
FY 2020
FY 2019
PH
3.9
4.5
8.4
EPS
6.9
–
–
Total
10.8
4.5
8.4
PH
3.7
5.1
9.7
EPS
5.8
–
–
Total
9.5
5.1
9.7
16.8
6.9
23.7
18.5
5.8
24.3
PH
7.6
9.6
18.1
35.3
EPS
12.7
–
–
12.7
Total
20.3
9.6
18.1
48.0
PH
8.2
7.0
18.5
33.7
EPS
15.7
–
–
15.7
Total
23.9
7.0
18.5
49.4
Table B – printhead revenue
£m
2020 H1
2020 H2
FY 2020
FY 2019
Ceramic & Glass
C&M and DTS
WFG & Labels
3D Printing & AVM
Packaging & Textiles
Royalties
Total
6.1
6.0
2.9
1.3
0.4
0.2
7.7
5.5
3.4
1.1
0.5
0.2
13.8
11.5
6.3
2.5
0.9
0.4
16.8
18.5
35.3
12.2
11.9
5.6
2.6
0.9
0.6
33.7
* Figures (£m) and percentages (%) are subject to rounding.
Table C – EPS revenue
£m
Digital inkjet
Pad printing
Other
Total
2020 H1
2020 H2
FY 2020
FY 2019
4.0
2.7
0.2
6.9
3.2
2.4
0.2
5.8
7.2
5.1
0.4
12.7
6.8
8.1
0.8
15.7
Var
1.6
(0.4)
0.6
(0.2)
–
(0.3)
1.6
Var
0.4
(3.0)
(0.4)
(3.0)
Var %
13%
(3%)
13%
(5%)
1%
(42%)
5%
Var %
7%
(37%)
(49%)
(19%)
* Figures (£m) and percentages (%) are subject to rounding.
Sales and marketing spend for the year
was £6.0 million (2019: £8.1 million). The
decline in spend of £2.1 million year-on-
year largely relates to cost savings in the
Printhead business unit following the
restructuring of the business in the second
half of 2019. Further savings were seen in
both the Printhead and EPS businesses due
to COVID-19 which limited our ability to visit
customers and led to the cancellation of the
majority of tradeshows which one, or both,
businesses would have attended.
General and administrative expenses
increased £0.3 million from £7.7 million in
2019 to £8.0 million in 2020.
Impairment reversals on financial assets
were £0.9 million (2019: £2.7 million loss).
This reversal predominantly relates to a
distribution channel used by the Printhead
business and the collection of a customer
debt previously provided for.
Other operating income in the period of
£0.8 million relates to the US Government's
COVID-19 support and the Paycheck
Protection Program (PPP) loan taken out
by the EPS business which is expected to be
forgiven in the first half of 2021, having met
all qualifying criteria during 2020.
Gross profit for the year increased by
£0.7 million to £13.0 million (2019: £12.3
million) driven by an increase in the gross
margin to 27% (2019: 25%). This was the
result of an improvement in the Printhead
business unit’s gross profit which, whilst
helped by increased revenue, was primarily
caused by an increase in the gross margin
from 22% in 2019 to 27% in 2020. 2019
was characterised by an underutilisation
of the factory as throughput was lowered
or cut in order to reduce inventory which
had reached excessive levels on several
product lines. In 2020, whilst we continued
to improve our working capital position,
and reduced inventory by another £4.5
million (2019: £6.1 million reduction in
inventory), the higher level of demand, and
the fact finished goods inventory is now at
sustainable levels, meant the factory output
went up year-on-year. With inventories of
finished goods now at sustainable levels
the Printhead business is well placed to
take advantage of increased demand and
utilise its high level of operational gearing
to deliver further improvements in the
gross margin.
Gross profit for the EPS business declined
£1.2 million in the year to £3.4 million (2019:
£4.6 million). Whilst gross margins were
down year-on-year (2020: 27%, 2019: 30%)
the fall in gross profit is largely attributable
to the decline in revenue which was down
£3.0 million year-on-year. The gross
margins for EPS were negatively impacted
in the second half by a 22% decline in
machine sales as companies focused on
maintaining their cash position and put
planned capital investment on hold. The
gross margins were further impacted by
inventory provisions of £0.6 million related
to legacy products. Excluding these one-off
provisions, gross margins were 31%, up 1%
on 2019 despite the lower revenue.
R&D spend of £4.5 million was up £1.4
million on 2019 (2019: £3.1 million). ). This
reflects the investment in the ImagineX
platform which will be central to our long-
term growth.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 30
Business performance (cont.)
Restructuring costs of £0.8 million
predominantly relate to the final costs in
liquidating the legacy Swedish entities and
provisions for the dilapidation and exit of the
office on the Cambridge Science Park.
The adjusted EBITDA for continuing
operations in the year was a £0.1 million
profit (2019: £4.9 million loss).
The adjusted loss before tax from continuing
operations was £3.9 million, compared to
£8.0 million loss in 2019. The performance
of the Printhead business improved £4.6
million from a £8.0 million loss in 2019 to a
£3.4 million loss in 2020 driven by increased
sales, a much improved gross margin,
and a reduction in operating expenditure
despite increased R&D investment. The EPS
business went from a £0.1 million profit in
2019 to a £0.5 million loss in 2020 due to
the impact of COVID-19 on revenue, and the
write off and provisioning of legacy inventory.
The loss before tax under IFRS was £4.3
million (2019: £10.9 million), £0.4 million
higher than adjusted loss before tax.
Restructuring costs of £0.8 million, foreign
exchange losses on intra-group loans of
£0.3 million, and share-based payments of
£0.3 million were partially offset by other
operating income £0.8 million and an R&D
expenditure credit of £0.1 million. Loss per
share from continuing operations was 5.7p
(2019: loss 18.7p).
Discontinued operations
A £10.3 million loss was recorded in relation
to discontinued operations (2019: £57.3
million) with cash outflows for the period
of £12.1 million (2019: £17.2 million). The
Thin Film business, which was classified as
discontinued in 2019, recorded a loss of £3.7
million which primarily relates to inventory
commitments and supplier liabilities.
All liabilities in regard to the Thin Film
business have now been settled. As a result
of the intended sale of Xaar 3D, which is
assessed as highly probable, that business
has been classified as a discontinued
operation held for sale. The 3D business
recorded a loss of £6.4 million in 2020
(2019: £1.2 million loss). The increased level
of losses in the business primarily relate
to R&D expenses recognised in the period
which increased by £4.5 million with gross
R&D expenditure increasing by £1.8 million.
In 2019 much of the gross R&D spend was
treated as capitalised development, this
only ceased at the end of November 2019
and with the amortisation of capitalised
R&D commencing in December 2019.
The year-on-year change in the net
capitalisation/amortisation of R&D
was £2.7 million.
Table D – Movement in net cash* (including 3D)
£'000
Cash & Treasury Deposits – Continuing operations
Cash & Treasury Deposits – 3D operations
Cash & Treasury Deposits at the end of the year
Cash & Treasury Deposits at the beginning of the year
Total Net Cash Outflow
Effect of foreign exchange rate changes on cash balances
2020
2019
18,117
2,120
20,237
25,322
(5,085)
57
16,177
9,145
25,322
27,946
(2,624)
211
Decrease in net cash for the Group
(5,028)
(2,413)
Consisting of:-
Total cash inflow from continuing operations
7,073
8,405
Cash outflow from Xaar 3D business
Xaar 3D - Proceeds from share capital and share sale
Net cash outflow from Thin Film operation
(7,018)
–
(4,852)
12,002
(5,083)
(17,968)
Decrease in net cash for the Group
(5,028)
(2,413)
* Net cash is defined as cash and cash equivalents, plus treasury deposits.
Loss for the year
The loss for the Group was £14.7 million
(2019: £71.7 million) with the loss per share
of 15.2p (2019: loss 92.5p).
Strong cash focus and
improved working capital
position
The net cash position remains strong
with continuing operations generating
£7.1 million of cash.
The Group's continuing operations continue
to generate cash with a net increase
attributable to continuing operations of
£7.1 million for the year (2019: £8.4 million
on a like for like basis and £14.8 million
total). Due to cash outflow on discontinued
operations, total net cash declined in the
year £5.1 million (2019: £2.6 million).
Operating cash flows before movements in
working capital for continuing operations
improved from an outflow of £4.9 million to
an inflow of £1.4 million. This was largely
due to the improvements in the adjusted
EBITDA (2020: £0.1 million, 2019: loss
£4.9 million) and reduced expenditure
on restructuring following the extensive
restructuring of the business in the final
part of 2019 (2020: £0.8 million, 2019: £1.5
million). Operating cash flows were further
helped by £0.8 million of US Government
grants.
As part of the Group’s strong cash focus
working capital remains a key area. Driven
primarily by a £5.1 million reduction in
inventory, £6.7 million of cash was released
from working capital to give cash generated
by operations of £8.1 million (2019: £7.6
million). Factoring in tax receipts of £0.3
million (RDEC related), and expenditure
on property, plant and equipment (PPE),
intangible assets and lease liabilities,
continuing operations generated £7.1
million of cash (2019: £8.4 million). Whilst
down year-on-year, 2019 performance
was assisted by £2.6 million of income
taxes received (£1.6 million of RDEC and a
net inflow of £1.0 million corporation tax)
and movement in working capital of £12.6
million as the business tried to address
the significant excess inventory position at
the end of 2018 and the large receivables
position with a number of distributors.
Discontinued operations consumed cash of
£12.1 million (2019: £17.2 million). The cash
outflow from Thin Film operations was £5.1
million (2019: £18.0 million). This was driven
primarily by supplier liabilities and the
build out of inventory for a small number of
customers. With all liabilities now settled
and inventory in place, cash flows in future
years will be minimal.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 Strategic Report
31 31
Dividend
No dividend has been declared for
2020. The Board recognises the importance
of regular income to many investors but
believes that it would be inappropriate
to reinstate payment of dividends before
sustainable profits are restored.
Table E – Cash flow table – Continuing operations (excluding 3D)
aEBITDA
Restructuring
Depreciation of right of use assets
Government grant (PPP loan)
Other
Operating cash flows before movements in working capital
Movement in working capital
Cash generated by operations
Income taxes (paid)/received
Net cash used in investing and other financing activities
Net increase in cash and cash equivalents from
continuing operations
Proceeds from the sale of share in Xaar 3D
Total cash inflow to continuing operations
2020
62
(754)
1,107
819
144
1,378
6,735
8,113
351
(1,391)
7,073
–
7,073
2019
(4,857)
(1,518)
962
–
473
(4,940)
12,574
7,634
2,618
(1,847)
8,405
6,372
14,777
in current tax assets to £0.4 million (2019:
£1.8 million), a £0.8 million increase in
trade debtors and other receivables, and
£1.9 million of cash generated by the rest
of the business.
The 3D business has been classified as
held for sale with £10.2 million of assets
reclassified as at the end of 2020.
Current liabilities, excluding liabilities
associated with Xaar 3D (held for sale),
increased by £0.5 million. Excluding
£0.9 million of 3D liabilities at the end
of 2019 current liabilities increased £0.4
million. Provisions, which at the end of
2019 primarily related to the Thin Film
operation, declined by £2.5 million to £0.4
million (2019: £2.9 million). Lease liabilities
decreased from £1.3 million to £1.1 million
primarily as a result of the decision to
relocate from the Cambridge Science Park
to the nearby Cambridge Research Park.
These declines were offset by an increase
in trade and other payables in relation
to the Printhead and EPS businesses of
£2.6 million (2020: £9.9 million, 2019: £7.3
million); these increases were primarily
driven by increased supplier liabilities
and bonus accruals within the Printhead
business.
Non-current liabilities, which all mainly
relate to lease liabilities recorded under
IFRS 16, decreased by £1.0 million in the
year.
Cash outflows from the 3D business
excluding share issues increased from
£4.9 million in 2019 to £7.0 million in 2020.
The increase represents the accelerated
investment in R&D and go-to-market
functions prior to the commercialisation
of the 3D printers. In 2019 the investment
was offset by £5.6 million from the issue
of ordinary share capital which was not
repeated in 2020.
Excluding cash from the 3D business, which
is now held for sale, net cash increased
from £16.2 million in 2019 to £18.1 million
in 2020 despite the need to settle the final
Thin Film liabilities.
Strong balance sheet
Non-current assets declined £10.8 million
in the year from £35.5 million to £24.7
million. This was driven by a reclassification
of 3D assets to current assets held for sale
(2020: £6.1 million, 2019: £6.7 million), £1.0
million depreciation of right of use assets,
and a £2.8 million reduction in PPE and
intangible assets as new purchases were
controlled in with line with the Group's cash
focus and therefore depreciation exceeded
capital expenditure.
Current assets, excluding the disposal
group assets held for sale, declined £13.9
million from £52.7 million in 2019 to £38.8
million. A significant proportion of this
decline is attributable to the reclassification
of the 3D business to an asset group held
for sale with £4.0 million of current assets
at the end of 2020 being reclassified. The
remaining £4.4 million decline is primarily
as a result of the £5.7 million reduction in
inventory across the Printhead and EPS
businesses (2020: £10.4 million, 2019: £16.1
million), a £1.4 million reduction
Strategic ReportXaar plc Annual Report and Financial Statements 2020 32
Stakeholder engagement
Identifying our key stakeholder groups makes our business better
The Directors have ongoing
engagement with all our key
stakeholders: Our Investors.
Our People. Our Communities,
and Our Partners.
The Directors continually review
the impact that any decisions will
have on these key stakeholders.
The Board regularly reviews
the Company’s principal
stakeholders and how it engages
with them. This is achieved
through information provided
by management and by direct
engagement with stakeholders
themselves.
We aim to work responsibly
with our stakeholders, including
suppliers. The Board has
reviewed its anti-corruption and
anti-bribery, equal opportunities
and whistle-blowing policies.
The key Board decisions made
in the year are set out below:
• Response to COVID-19
• Determine Xaar 3D as asset held
for sale
• Relocation of HQ office space to
Cambridge Research Park
• Investment in ImagineX platform
and development of new products
• Branding activities for re-launch
of Xaar to OEM customers
• Investment in new legal entity in
China to support growth.
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.
Material issues
• Financial performance
• Our strategy
• Long-term viability
• How the Group meets its environmental, social and
governance objectives.
• Operating in an ethical environment
• Progression and personal development opportunities
• Culture
• Values
• Remuneration
• Diversity and inclusion
• Workforce engagement.
Engagement methods
• Annual General Meeting
• Annual Report and Accounts, results statements, trading updates and
press releases for new branding and ImagineX product launches
• Regular interactions between Directors and shareholders via investor
relations roadshow and one-on-one meetings or video calls
• Further details of shareholder engagement are reported in the
Directors' Remuneration Report (pages 78 to 96).
• Response to COVID-19 to secure a safe working environment and
initiate a working from home policy where appropriate.
• Annual review and renewal of corporate policies and procedures
• Annual employee appraisal by managers and development plan
• Establish apprenticeship and graduate training schemes
• Recruitment, Retention and Development plans
• Regular business forums with Non-Executive Directors and senior
management update calls to all employees
• Further details of employee engagement are reported in the
Directors Remuneration Report (pages 78 to 96), and Sustainable and
responsible business (pages 34 and 35).
• Economic and operational impact of Group businesses on
• Provide PPE and 3D printed visors to local NHS hospital
• Environmental impact of operations, both directly and
intention to further improve environmental performance
• Developing the reporting of emissions across the Group with the
local communities
indirectly
• Being able to demonstrate clear environmental, social and
governance policies and how these are measured.
• Communication and involvement of employees in office relocation
• Charitable donations determined by employees for local charities
• Further details of activities in the community are reported in
Sustainable and responsible business (pages 34 and 35).
• Operational strength and the ability to meet customer
• Developing high-quality products in conjunction with customers to
• Ability to provide high-quality solutions and technical
• Ensuring we remain competitive with a strong, differentiated
requirements
expertise and advice
value proposition
requirements.
•
Innovation with R&D to develop new solutions to customer
spend in new ImagineX platform
equip them to maximise productivity and operational efficiency to
utilise less energy and fewer raw materials
• Maintaining effective customer relationship management tools to
support the identification of customer needs
• Focus on continued innovation and prioritisation of R&D resource and
• Key account management structure across the businesses to
encourage meaningful, consistent and ongoing engagement with OEM
and UDI customers
•
Investment in China subsidiary to be closer to strategic customers.
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.
• Ensuring an ethical supply chain
• Potential disruption of supply chain
• Competitiveness
• Financial performance
• Research and development investment.
• Review of supply chain to minimise impact of Brexit / TCA
• Effective and regular communication with suppliers with standardised
procedures
• Ensuring high standards throughout our Tier 1 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 strategic suppliers to optimise
• Ensuring that Xaar values are shared with our business partners and
operational efficiency
suppliers.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 33
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.
Material issues
• 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.
Engagement methods
• Annual General Meeting
• Annual Report and Accounts, results statements, trading updates and
press releases for new branding and ImagineX product launches
• Regular interactions between Directors and shareholders via investor
relations roadshow and one-on-one meetings or video calls
• Further details of shareholder engagement are reported in the
Directors' Remuneration Report (pages 78 to 96).
• Response to COVID-19 to secure a safe working environment and
initiate a working from home policy where appropriate.
• Annual review and renewal of corporate policies and procedures
• Annual employee appraisal by managers and development plan
• Establish apprenticeship and graduate training schemes
• Recruitment, Retention and Development plans
• Regular business forums with Non-Executive Directors and senior
management update calls to all employees
• Further details of employee engagement are reported in the
Directors Remuneration Report (pages 78 to 96), and Sustainable and
responsible business (pages 34 and 35).
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
• Economic and operational impact of Group businesses on
• Provide PPE and 3D printed visors to local NHS hospital
local communities
• Developing the reporting of emissions across the Group with the
• Environmental impact of operations, both directly and
intention to further improve environmental performance
indirectly
• Being able to demonstrate clear environmental, social and
governance policies and how these are measured.
• Communication and involvement of employees in office relocation
• Charitable donations determined by employees for local charities
• Further details of activities in the community are reported in
Sustainable and responsible business (pages 34 and 35).
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.
• Operational strength and the ability to meet customer
requirements
• Ability to provide high-quality solutions and technical
expertise and advice
• Ensuring we remain competitive with a strong, differentiated
• Developing high-quality products in conjunction with customers to
equip them to maximise productivity and operational efficiency to
utilise less energy and fewer raw materials
• Maintaining effective customer relationship management tools to
support the identification of customer needs
value proposition
• Focus on continued innovation and prioritisation of R&D resource and
•
Innovation with R&D to develop new solutions to customer
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.
• Ensuring an ethical supply chain
• Potential disruption of supply chain
• Competitiveness
• Financial performance
• Research and development investment.
spend in new ImagineX platform
• Key account management structure across the businesses to
encourage meaningful, consistent and ongoing engagement with OEM
and UDI customers
•
Investment in China subsidiary to be closer to strategic customers.
• Review of supply chain to minimise impact of Brexit / TCA
• Effective and regular communication with suppliers with standardised
procedures
• Ensuring high standards throughout our Tier 1 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 strategic suppliers to optimise
operational efficiency
• Ensuring that Xaar values are shared with our business partners and
suppliers.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 34
Sustainable and responsible business
Working in responsible ways
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.
During 2020 the impact of COVID meant the
clubs were not held as frequently as would
normally be the case.
During the initial COVID lockdown in
2020, the Group donated both additional
cleanroom PPE gowns and masks, and
3D printed visors were manufactured for
distribution to the local NHS hospital.
i Non-financial information statements are
indexed in the Directors' Report on page 59
Social responsibility
• Xaar employees usually raise 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. Unfortunately due
to the Coronavirus pandemic in 2020
we were unable to participate in charity
fundraisers this year, instead charity
nominations took place in November
2020 with Hinchingbrooke Special Care
Baby Unit (donation made January 2021)
and Wood Green Animal Shelter selected
to receive £2,000 each
• Xaar usually sponsors 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 £3,150
(2019: £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, was paused
during 2020 as a consequence of COVID
restrictions
• 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 has commenced a review of
its energy usage under a programme to
target “Carbon Zero by 2030”; actions to
date incorporate:
• Transfer of electricity supply to an
environmentally sustainable green
source
• Co-ordination of energy efficient
actions via an Energy Reduction Team
• Investigation of energy generation
solutions via supply and installation
of Solar array at Huntingdon.
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
Our guiding principles
WE DO
EVERYTHING WITH
PASSION
INNOVATION
CREATIVITY
INTEGRITY
COLLABORATIVE
Our new brand identity and launch of the
ImagineX printhead platform.
A new set of values to reflect the true
essence of Xaar.
Guide the way we behave towards our
customers, our partners and each other.
i Read more on pages 2 and 3
i Read more on pages 4 and 5
i Read more on pages 6 and 7
Strategic ReportXaar plc Annual Report and Financial Statements 2020 35
the most relevant and to have the greatest
potential impact on its key stakeholder
groups of customers, employees and
suppliers.
• real or suspected infection with HIV/AIDS;
• membership of a trade union;
• pregnancy, maternity and paternity;
The Group has a proactive Health and
Safety System modelled on OHSAS 18001/
HSG65 in Cambridge, Huntingdon and
Nottingham.
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.
The Group's policies are incorporated into
the Xaar Code of Conduct, including:
• Xaar Anti-bribery and Corruption policy
• Xaar Anti-money Laundering policy
• Xaar Corporate Criminal Offence policy
• Xaar Employee Share Dealing Code.
i The anti-bribery and corruption policies
of the Group are set out in the Corporate
Governance section on page 67
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.
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;
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.
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:
2020
Male/
Female
2019
Male/
Female
All employees
311/77
297/69
Directors
Senior managers
4/1
40/9
6/1
42/8
Employees
267/67
249/60
The 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 and as a minimum complies to
HSG65. 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 UK and
European legislation.
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
and 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 and 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 and
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.
During the COVID pandemic the safety and
wellbeing of our employees has been and
continues to be our overriding priority. Our
executive and senior management team
have monitored events closely to ensure
that we have been able to react quickly to
an ever-changing situation. At the start of
the pandemic we enabled working from
home at short notice for those who were
able to do so, and in the workplace we took
actions to introduce enhanced hygiene
and social distancing measures, screens,
temperature checks, use of face coverings
and more recently workplace lateral
flow testing.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 36
Sustainable and responsible business (cont.)
Task Force on Climate-related Financial Disclosures (TCFD)
Despite the pandemic, the focus on climate change has not diminished.
Policy-makers, regulators, industry and wider society all increasingly recognise
the urgent need to adapt.
Background
The TCFD’s recommendations continue
to be adopted internationally. According
to the TCFD Status Report 2020, more
than 1,500 organisations have now voiced
their public support. Over 110 regulators
and government organisations are TCFD
supporters, including the UK Government,
Bank of England and the FCA. The private
finance agenda of the UN Climate Change
Summit 2021 (COP26) also features TCFD
implementation as an objective.
The FRC has carried out a thematic review
of how climate-related issues are being
addressed across its various areas of
responsibility, including governance,
corporate reporting, audit and professional
oversight.
In November 2020, the UK Chancellor of the
Exchequer announced the UK’s intention
to move towards mandatory TCFD-aligned
disclosures across the UK economy by
2025, with most measures to be in place by
2023. Within the roadmap presented by HM
Treasury, premium listed companies (like
Xaar plc) will be expected to comply with the
reporting requirements by the end of 2021,
from January 2022 to be included in the
Annual Reporting framework.
Xaar’s response:
Digital print methods are inherently more
environmentally friendly than the analogue
techniques we seek to replace.
Our research shows that, compared to
analogue alternatives, digital has a huge
impact in reducing energy consumption (by
as much as 55%), water consumption (by up
to 60%) and CO2 emissions (by up to 95%),
but also in reducing pollution and waste
materials.
Xaar is committed to reducing its impact on
the environment wherever possible,
with Senior Independent Director Alison
Littley having specific responsibility for
ESG matters.
As part of the management of emerging
risks within the risk register, the Board has
received initial information on the potential
risks and opportunities that are presented
by requirements for managing climate
change risk, and meeting the Task Force
on Climate-related Financial Disclosures
requirements in the next year.
Recent years have seen further progress
internally to identify improvements in both
electrical and energy usage and to reduce
the greenhouse gas emissions of the
Company recorded in Scope 1 and 2
(see GHG page 50).
As part of the development to ensure
affordable and clean energy, Xaar is in the
process of entering into a supply contract in
2021 for the supply of green electricity from
a renewable source.
Xaar has also initiated a project to remove
packaging complexity and improve
sustainability, and introduced new packaging
for its products in 2020, removing plastic as
a packaging material, reducing its plastic
consumption by 1.2 tonnes per year. All Xaar’s
printheads will be shipped in fully recyclable
and biodegradable cardboard packs by the
end of the year.
https://www.xaar.com/en/news/2020/
sustainable-packaging-delivers-for-all/
The management have set up a “Carbon
Zero by 2030” team to identify metrics
and targets that could be used by
the organisation and develop other
opportunities to reflect sustainable
development goals to target continuation
in the reduction in emissions to zero.
We still need to understand the full impact
from our operations and are committed
to continue reducing the impact on the
environment and maintaining our drive to
achieve complete carbon neutrality in line
with the UK’s 2030 goal.
Potential UN Sustainable Development Goal targets
Ensure access to affordable,
reliable, sustainable and
modern energy for all.
What can business do?
Check your energy efficiency.
Source your energy from
renewable sources. Check
what impact your energy need
has on the local community.
Promote sustained, inclusive
and sustainable economic
growth, full and productive
employment and decent work
for all.
What can business do?
Put a value on the economic
impact generated by the
jobs your company creates
to evidence your licence to
operate. Check you have a
policy on human rights and
that it is being adhered to
throughout your supply chain.
Check what programmes
you have in place to reduce
workplace injury and recruit
and retain people with disability
– are both improving?
Build resilient infrastructure,
promote inclusive and
sustainable industrialisation
and foster innovation.
What can business do?
Review your transport and
building infrastructure to
identify efficiencies. Consider
investing in local transport
improvements that would
deliver a direct business benefit
to you. Check how disruptive
technologies or innovative
business models could impact
your market. Explore your
digital potential (both what you
do and how you do it).
Ensure responsible
consumption and production
patterns.
What can business do?
Check what you are doing to
manage scarce resources. Set
and meet targets to reduce
energy and resource intensity
in production and use. Assess
the waste disposal of your
company. Reduce the need
for new resources and waste
disposal by extending product
life, repairing, reusing, re-
manufacturing and recycling
products. Adopt circular
economy principles.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 37
The core recommendations
Governance
Strategy
Risk
management
Metrics
and targets
Governance
The organisation's governance around climate-related
risks and opportunities.
Strategy
The actual and potential impacts of climate-related risks
and opportunities on the organisation's business, strategy,
and financial planning.
Risk management
The processes used by the organisation to identify, assess,
and manage climate-related risks.
Metrics and targets
The metrics and targets used to assess and manage
relevant climate-related risks and opportunities.
Initial actions in 2021 are focused upon:
• We have offset all of the UK regulatory
Scope 1 and 2 carbon impact that we
made and reported in 2020. Based on
our carbon footprint reported in 2020
this makes Xaar a carbon neutral inkjet
manufacturer
• Identify targets and metrics applicable to
Xaar, to measure across the organisation
• Preparation and identification of Scope 3
emissions within the supply chain
• Identify actions to remove natural gas as
an energy and heat source, or replace
with a renewable gas supplier e.g. biogas
• Identify tier 1 suppliers and their
disclosures around climate change
and GHG emissions
• Green energy projects to identify
additional energy and GHG savings:
• Investigate Solar panel installation
at Huntingdon location to generate a
proportion of electricity ourselves.
• Electric vehicle chargers installation
for employee and delivery vehicles.
• LED light installations to further
reduce the utilisation of electricity
• Review product return policy, to identify
possibilities for improvements in
responsible consumption in production
and remanufacturing of products,
reduction in plastic use, reclaiming raw
materials, recovery of any heavy metals,
copper, lead etc.
• Set, measure and disclose a zero waste
to landfill target, any waste not recycled
being sent to a waste to energy recovery
process.
Disclosures
Recommended disclosures
Governance
Disclose the
organisation’s governance
around climate-related
risks and opportunities.
Strategy
Disclose the actual and
potential impacts of
climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
Risk
management
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
Metrics and
targets
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
a. Describe the board’s oversight of climate-
related risks and opportunities.
b. Describe management’s role in assessing
and managing climate-related risks and
opportunities.
a. Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long-term.
b. Describe the impact of climate-related
risks and opportunities on the organisation’s
businesses, strategy, and financial planning.
c. Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario.
a. Describe the organisation’s processes for
identifying and assessing climate-related
risks.
b. Describe the organisation’s processes for
managing climate-related risks.
c. Describe how processes for identifying,
assessing, and managing climate-related
risks are integrated into the organisation’s
overall risk management.
a. Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process.
b. Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
c. Describe the targets used by the
organisation to manage climate-related
risks and opportunities and performance
against targets.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 38
Strategic Report
Xaar plc Annual Report and Financial Statements 2020
Key performance indicators
Our progress in numbers
We monitor progress
against the delivery of
our strategic goals using
financial key performance
indicators (‘KPIs’).
Revenue
Profit
Continuing operations
Gross margin – Continuing operations %
27%
2020
2019
27%
25%
The increase in the gross profit for
the Group can be attributed to the
performance of the Printhead business.
This was driven by the operational
leverage in the business with increased
product throughput absorbing greater
costs in 2020 (2019: 25%).
Loss before tax £m
– Continuing operations
(£4.3m)
2020
2019
(4.3)
(10.9)
Loss before tax from continuing
operations represents operating loss
after investment income and finance
costs (2019: £10.9 million loss).
Adjusted loss before tax £m
– Continuing operations
(£3.9m)
2020
2019
(3.9)
(8.0)
Adjusted loss before tax from continuing
operations represents the loss before tax
adjusted for recurring and non-recurring
items. Reconciliation of adjusted financial
measures is provided in note 4 (page 126)
(2019: loss £8.0 million).
£48.0m
Total revenue for the Group was £48.0
million, down £1.4 million year-on-year
(2019: £49.4 million). Revenue declined
3% year-on-year.
Revenue by sector £m
2020
2019
2020
2019
2020
2019
2020
2019
28.9
30.5
12.4
12.8
6.3
5.6
0.4
0.6
Declining EPS revenue due to COVID (3.0
million) in the industrial sector. WFG and
Labels sectors increased throughout
the year with full year revenue up 13%.
Royalties from the single remaining
licensee declined and will continue to
decline in both 2021/22 before ceasing.
Industrial
Packaging
Graphic Arts
Royalties
Revenue by region £m
2020
2019
2020
2019
2020
2019
18.1
18.5
9.6
7.0
20.3
23.9
The significant reduction of revenue
in Americas is primarily due to the
sales decline in the EPS business.
Performance in Asia, and China in
particular, was successful with growth
of £2.6 million in Printheads driven by
re-engagement of Chinese Ceramic
customers who began to adopt the Xaar
2001 and have now transitioned to the
newly launched Xaar 2002 for their new
printer builds. EMEA was slightly lower,
but we have seen a promising upward
trend in H2 2020 driven by C&M and
Labels sectors.
EMEA
Asia
Americas
Xaar plc Annual Report and Financial Statements 2020
Strategic Report
39
Net cash
Cash and cash equivalents comprise cash
at bank (£18.0 million) and short-term
highly liquid investments with an original
maturity of three months or less. Net cash
incl.Treasury deposits of £0.1 million.
Cash & Treasury deposits £m
£18.1m
2020
2019
18.1
25.3
2019: £25.3 million comprising cash £24.8
million and Treasury deposits of £0.5
million (including £9.1 million 3D cash).
Net cash inflow from continuing
operations £m
£7.1m
2020
2019
7.1
8.4
Net cash inflow (incl Treasury deposits)
from continuing operations was £7.1
million as consequence of improved
aEBITDA performance and further
improvements in working capital (2019:
£8.4 million).
Gross R&D investment £m
£4.5m
2020
2019
4.5
3.1
Gross R&D investment (continuing
operations) reflects the investment in the
ImagineX platform (£4.5 million). 2019
investment excludes amortisation of Xaar
3D development costs and impairment of
Thin Film (2019 restated: £3.1 million).
Adjusted diluted earnings / (loss) per
share – continuing operations
(5.2p)
2020
2019
(5.2p)
(15.1p)
Adjusted EPS – Continuing cperations
is considered to provide a fairer
representation of the Group’s trading
performance year on year. (2019: (15.1p).
EPS performance is one of the criteria
for the new LTIP.
i See more on page 126 and page 135
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’) was introduced in 2020.
Metrics will be set to reflect the key
challenges seen across the business
and specific units for that year.
i See the Directors' Remuneration
Report on page 78
Xaar uses adjusted figures as key
performance measures in addition
to those reported under IFRS, as the
Board believes 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 other
operating income, 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.
i See more on page 83 and page 126
2019 comparatives are based
on continuing operations (where
relevant) and are therefore restated to
incorporate adjustments arising from
financial instruments and discontinued
operations.
40
Risk management
Managing our risks
Key risk areas
The risks around our business are set out in more detail on pages 43 to 49, but the key
risk areas can be identified as being associated with the following:
Market
Risk owner: CEO John Mills
1. Competition
2. Identification of market
3. Commercialising and
5. Coronavirus (‘COVID-19’)
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.
requirements
Successfully developing
products with the
characteristics that meet
market requirements within
the necessary timescale.
maintaining products with
cutting edge technology
Creating value by generating
innovative products.
4. Merger and acquisition
opportunities
Seek opportunities to expand,
create synergies and generate
greater shareholder value.
– External
Tracking the potential global
impact and external risks
arising from pandemic
response and impact on
customers / supply chain.
Operational
Risk owner: CEO John Mills
6. Organisational capability
7. Coronavirus (‘COVID-19’) –
8. Brexit
10. Partnerships
Having the right people in the
right roles.
Internal / Company
Tracking the potential local
impact and response to
pandemic and operational
internal risks on employees
or organisation.
Tracking the impact of
the Trade & Co-operation
agreement between UK & EU.
9. Manufacturing facility
Diversifying products,
locations and manufacturing
partners to alleviate
operational issues.
Working with the right
companies, at the right time
on the right terms to deliver
long-term value.
IT
Risk owner: CFO Ian Tichias & Group IT Director – Graeme Smith
11. IT systems and information
12. IT transformation
failures
Failure of our IT infrastructure
or key IT systems. Further,
failure to build resilience
at the time of investing in
and implementing new IT
infrastructure or IT systems.
Failure to achieve our IT
transformation objectives due
to poor prioritisation, ineffective
change management and a
failure to understand and
deliver the IT infrastructure, IT
systems, and business process
changes required.
13. Cyber security risk –
see incident response
Loss of systems or confidential
data due to a malicious cyber-
attack, leading to disruption to
business operations and loss
of data.
Financial
Risk owner: CFO Ian Tichias
14. Ability to access sufficient
15. Customer credit exposure
16. Inventory obsolescence
17. Exchange rates
capital
Ability to access sufficient
capital to fund growth
opportunities.
Offering credit terms ensuring
recoverability is reasonably
assured.
Holding excess inventory levels
when compared to demand,
that leads to increased risk
of obsolescence and write-off
before consumption.
Monitoring global economic
events and mitigating any
resulting significant
exchange rate impacts.
Strategic ReportXaar plc Annual Report and Financial Statements 2020 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.
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.
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.
Prepare
r o l Id
e
n
tif
t
n
nitor & c o
o
M
R
i
s
k
r
e
s
p
Xaar’s
approach
to risks
o
n
se R i s k a
y
r
i
s
k
s
s s e ssment
41
During 2020, the senior management and
Board re-evaluated the existing principal
risks, to consider emerging/alternative
risks, with significant developments within
the IT risk being expanded to cover increase
in principal risks arising from cyber-security.
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 2021,
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, with particular
reference to TCFD reporting requirements
in 2022 (see page 36).
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. The internal control
and risk management 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 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, risk management
systems and internal control 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. Significant
deficiencies in internal control were
identified in EPS during the external audit
process in respect to financial statement
close process and management controls
(see Audit Committee report on page 74),
and an action plan has been developed to
be implemented in 2021.
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.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
42
Risk management (cont.)
Cyber security – Xaar
Group IT security incident
As communicated in Company
announcements in 2020, Xaar experienced
a critical security incident on 4 October
2020 when the Group’s IT infrastructure was
hit by a Ransomware attack.
As one of the affected systems was our
HR system, we immediately notified the
Information Commissioner's Office (ICO) of
the Personal Data Breach. We co-operated
with the Information Commissioner
throughout the investigation and were
informed on 27 October that no further
regulatory action would be taken.
Our quick response to the issue by shutting
down IT systems across multiple sites
contained the attack and limited the impact
from it, however data was encrypted by the
Ransomware on several systems. We did
not experience any significant impacts to
business operations and we successfully
fulfilled all customer orders in the period
following the attack.
We engaged external cyber security experts
to investigate the attack and other key IT
partners to assist with the safe recovery of
the affected systems. Recovery activities
continued for several weeks following the
attack and were completed by the end of
November. The forensic investigation into
the attack confirmed that no data was
extracted.
While working to recover our IT systems, we
have focused on using the insights gained
in the process to further strengthen our
IT security and data protection platforms.
We will continue this important work
going forward as documented in our Risk
management activities.
The external fees incurred responding to
and recovering from this security incident
were £35k.
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.
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 of these
categories. The financial element of the
impact rating is the amount of money that
is “at risk”.
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.
Type of risk
Market risk
Financial risk
Operational risk
IT risk
Increase
Decrease
Same
New
Certain
Possible
Probable
y
t
i
l
i
b
a
b
o
r
P
8
7
5
17
4
6
13
10
11
15
12
14
3
Unlikely
16
Remote
2
1
9
w
o
l
y
r
e
V
w
o
L
i
m
u
d
e
M
Impact
h
g
H
i
i
h
g
h
y
r
e
V
Strategic ReportXaar plc Annual Report and Financial Statements 2020
43
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.
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. 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.
Likelihood
Magnitude
Change
Probable
Very High
2. Failure to
identify market
requirements
Products need to meet the changing
demands of the market, including
regulatory changes.
Regular, specific and detailed reviews are held to assess
current and anticipated market requirements, including
expected regulatory changes.
Possible
Very High
Failure to meet future market
requirements/specifications could
impact on long-term revenue and
profit.
These reviews include regular customer visits between
senior executives, technical experts and R&D team
members to develop a culture of innovation that focuses
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.
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.
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.
Probable
High
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.
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.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
44
Risk management (cont.)
Risk and link
to business unit
Impact
Mitigation
Likelihood
Magnitude
Change
Market (cont.)
4. Merger and
acquisition
opportunities
5. Coronavirus
(COVID-19) –
External
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.
In the uncertain environment of
a global pandemic the impact of
COVID-19 can be felt within the entire
customer base and supply chain.
We operate in a global environment
with significant exposure as part
of the new business model to OEM
customers in China, Europe and USA.
Any slowdown in the global economy
could lead to delays in capital
investment for new equipment that
utilises Xaar printhead.
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.
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.
Whilst it is difficult for a company individually to mitigate
against a global economic slowdown, taking a portfolio
approach on risk factors enables Xaar to spread the risk
throughout its customer base, rather than previously relying
upon distribution as a business model.
Certain
High
NEW
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.
Xaar has improved its customer relationships and remains
close to its customers to be able to respond quickly to any
slowdown; the opening of the China subsidiary will enable
an agile response specifically in this market.
Order books and manufacturing processes are closely
aligned with goods manufactured to customer order.
Newly developed printhead will enable Xaar to diversify into
a broader customer base and new vertical markets.
Scenario planning alongside stress testing and reverse
stress testing to identify and develop alternative solutions,
as guidance and requirements change during an evolving
event.
Assessment has taken place by the Board of the impact
upon the 3D operation, and work has commenced to identify
an appropriate solution to de-risk and transfer ownership of
the 3D business.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
Risk and link
to business unit
Impact
Mitigation
45
Key of change
Increase
No change
Decrease
Likelihood
Magnitude
Change
Operational
6. Organisational
capability
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.
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.
An updated suite of Learning and Development tools is
being developed to ensure key skills are developed and
enhanced. Internal courses are developed in conjunction
with the Institute of Learning and Management (ILM) to
support key manager development. A new graduate and
apprenticeship programme is to be launched in 2021.
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.
7. Coronavirus
(‘COVID-19’)
– Internal /
Operations
Impact across all business operations
and locations:
We have stopped all international travel and remote access
and business continuity testing has been performed.
Certain
Medium
Reduction in staff availability
and development of commercial
opportunities.
Employees where possible are working from home, we have
communicated sick and self-quarantine policies to all our
staff.
With the continued uncertainty
associated with the virus it is too early
to assess the impact on the Group's
financial performance.
IT infrastructure – see 11. IT risk
There has been minimal impact upon the manufacturing
operations in Huntingdon, with work being performed to
new shift patterns to reduce the number of staff on site at
any one time. COVID secure working practices have been
introduced across all sites with handwashing, face coverings
and safe working spaces being mandatory for all employees.
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.
In 2020 no claims for furlough or job support were
requested from the UK Government. A claim was submitted
in the USD for a government loan that was subject to
conditions to obtain relief and has been recorded as a
Government grant.
Further assessment will be made against available
Government support schemes, should the need arise.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
46
Risk management (cont.)
Risk and link
to business unit
Impact
Mitigation
Likelihood
Magnitude
Change
Operational (cont.)
8. Brexit
The United Kingdom’s decision to
leave the European Union presents
both risk and opportunities to the
Company.
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.
Certain
Low
The formal trade negotiations
concluded at the end of 2020 and are
now governed by the Trade and Co-
operation agreement reached between
the UK and the European Union.
A 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.
The free movement of employees and
recruitment of potential employees
are key focus areas under the new
arrangements.
We remain exposed to currency
fluctuations that could result from
the United Kingdom decision to
leave the EU.
A review of import and export tariffs identified minimum
effect on the raw materials and finished goods.
Non-tariff barriers (i.e. import/export documents) are being
reviewed with our freight forwarders and couriers to ensure
pro-active compliance with documentation requirements
from 1 January 2021.
Identify and support EU, EEA or Swiss employees requiring
advice in completion of application to the EU Settlement
Scheme by June 2021.
Xaar will become a licensed sponsor for recruitment of
EU nationals. This does not apply to Irish citizens or those
whose eligible status is covered by 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.
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.
The Group has sufficient cash resources to protect against
any short-term volatility.
9. Loss of
manufacturing
facility
10. Partnerships
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 sites or our
partners’ manufacturing sites were to
experience an incident this could have
operational and supply chain issues
for the business.
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.
Formal disaster recovery plans are maintained and
reviewed. Appropriate precautions are taken in all factories
and warehouses to safeguard against theft and fire.
Unlikely
Very 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 IP and Legal team focuses on the extensive review of
legal agreements and in particular IP with such partners.
Probable
Medium
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.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
Risk and link
to business unit
Impact
Mitigation
47
Key of change
Increase
No change
Decrease
Likelihood
Magnitude
Change
IT
11. IT systems and
information failures
COVID-19: IT network resilience and
access to information via hardware
and software capabilities.
Inability to operate effectively or loss of
operating capability.
Loss of information, incurring financial
or regulatory penalties.
Reputational impact, business
disruption and potential deterioration
in customer relationships.
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
Developed and communicated a new IT Vision statement
and IT Strategy which is clearly aligned to our overall
business objectives.
Developed a three-year IT Transformation Programme to
deliver the necessary enhancements to our IT infrastructure
and IT systems. This includes investment in moving
to a hybrid cloud model, strengthening the resilience
and security of our IT infrastructure, rationalising and
modernising our business systems, and re-aligning systems
with improved operational business processes.
Consolidating more of our critical manufacturing and
finance processes into our Epicor ERP system and
delivering improved engagement with our existing and
potential new customers through our Salesforce based
CRM platform.
Placing increased focus on ensuring that continuity plans
for critical IT systems are tested and current as the IT
infrastructure and systems are changed.
Developing the IT Service Delivery maturity and increasing
capacity in the Group IT function.
12. IT
Transformation
Partial or complete failure to deliver
the key elements of the IT strategy and
achieve the Vision for IT.
Inability to progress sufficiently quickly
to avoid disproportionate increases
in the operational cost base as the
business grows.
Lack of alignment between business
processes and IT systems.
New risk: As a result of planning and
initiating a major IT Transformation
Programme in Q4 2020.
Designed the IT Transformation Programme to deliver the
three-year plan for IT which has been generated from the
IT Vision and Strategy and has been aligned with three-year
plans from all the key operational functions within the
business.
Probable
High
NEW
Established executive-level governance and oversight for the
IT Transformation activities to ensure that the Programme is
adequately resourced, milestones achieved and to approve
key rollout decisions.
Active engagement with business stakeholders across the
organisation and direct involvement in the Programme.
Undertaking real-time project delivery management
and assurance activities throughout the Transformation
Programme.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
48
Risk management (cont.)
Risk and link
to business unit
Impact
Mitigation
IT (cont.)
13. Cyber threat and
information security
Inability to operate effectively or
significant loss of operating capability
and business disruption.
Implemented a Multi-Factor Authentication solution for VPN
to reduce the likelihood of remote attacks. MFA to be rolled
out across all key systems in 2021.
Likelihood
Magnitude
Change
Possible
High
NEW
Unauthorised access to data, breach
of information security and data
protection regulations incurring
financial penalties from regulators.
Reputational impact, business
disruption and potential deterioration
in customer relationships.
Potential loss of Intellectual Property
or exposure of commercially sensitive
information.
Extensive resources expended in
responding to security incidents and
recovering from them. IT security
breaches or disruption (loss of
network), unauthorised access or
mistaken disclosure of information.
New risk: As a result of the cyber
attack suffered by Xaar in October
2020, a general increase in the threat
level, and increases in the financial
and reputation impact from such
attacks, we have separated this from
inclusion in other IT risks to enable
a much clearer focus on this area
of IT risk.
Our ability to access sufficient
capital/liquidity may restrict growth
opportunities for our organisation, as
well as the strategic plan and vision.
Significant investment is required to
bring new products to market and
ramp up to meaningful volumes.
Financial
14. Ability to access
sufficient capital
Strengthened our Enterprise Backup Solution by
incorporating a third immutable copy of all system
data in a secure public cloud environment.
Prioritisation of infrastructure and systems rationalisation
to reduce the available attack surface for malicious cyber
attackers.
Implemented a risk-based security testing approach
across IT infrastructure and systems to identify ongoing
vulnerabilities and prioritise remediation.
Inclusion of a Security Work stream in the IT Transformation
Programme, with an in-depth externally conducted IT
Security Assessment to be completed in Q1 2021.
IT Service maturity and increased capacity in the Group IT
function will enable us to enhance our Security Operations
capability.
Employees are trained on the risks of phishing and best
practices for information security.
Access to information is only provided on a “need-to-know”
and “least privilege” basis consistent with the user’s role
and requires the appropriate authorisation.
The Group has implemented cost reduction actions to focus
resources on key initiatives and to achieve breakeven under
current volume requirements.
Probable
High
The Group has sufficient cash available for execution
and delivery of the turnaround strategy within agreed
timescales.
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).
Strategic ReportXaar plc Annual Report and Financial Statements 2020 49
Key of change
Increase
No change
Decrease
Risk and link
to business unit
Impact
Mitigation
15. 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 lifecycle. The Group is at
risk to the extent that a customer may
be unable to pay the debt on time, thus
impacting working capital.
This risk is mitigated by strong ongoing customer
relationships, close monitoring of product launches by the
customer in the marketplace 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.
Likelihood
Magnitude
Change
Probable
Medium
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.
Significant level of existing debts written off — recoverability
of remaining outstanding debts as distributors run down
balances.
Previous OEM customers being on boarded with favourable
payment terms depending upon credit history — exposure to
Chinese manufacturers – payments in advance.
Put in place appropriate stock holding policies, ensuring
these are reviewed frequently and change dynamically in
line with market/business conditions.
Unlikely
Medium
Identify and write off obsolete or slow moving stock items,
review work in progress to determine profitability of
contracts and revenue recognition for EPS.
Enforcing lead times for customer orders to ensure we have
the most accurate forecast in place as far out as possible.
Continually develop forecasting techniques so that stock
requirements can be predicted with great accuracy.
Ongoing supplier negotiation to reduce minimum order
quantities to prevent obsolescence and inflated inventory.
The risk has reduced compared to prior year, following
cessation of Thin Film activities and operational improvements.
Our treasury policy allows us to hedge.
There is a partial natural hedge for foreign currency
movements.
Cash flows are constantly reviewed and action is taken
when appropriate.
i See ‘Brexit’ risk above for further disclosure.
Possible
Low
16. Inventory
obsolescence
17. Volatility in
exchange rates
Holding too much inventory increases
the risk of obsolescence, theft
and other costs of holding stock.
Furthermore, working capital
restrictions created by excess
inventories could affect Xaar's liquidity
or prevent investment in new products
or identified future acquisitions.
Conversely, too little inventory risks
stock outs, missed sales opportunities
and ultimately damage to Xaar's
reputation. Insufficient buffers in raw
materials increases Xaar's exposure
to supply chain issues – particularly
during times of economic uncertainty
(see Brexit) or health emergencies
(see COVID).
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.
The Group is exposed to currency
transactional risk relating to day-to-
day sales and purchases across GBP,
USD, EUR and SEK.
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.
Strategic ReportXaar plc Annual Report and Financial Statements 2020
50
Greenhouse gas emissions 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. Please refer to page 15 for what
Xaar is doing to offset its carbon usage.
Assessment parameters
Baseline year
1 January 2013 to 31 December 2013
Consolidated approach
Operational control
Boundary summary
All entities and all facilities under operational control
included subject to the materiality threshold applied
Consistency with the
financial statements
The only variation is that leased properties deemed to
be under operational control have been included in Scope
1 and 2 emissions
Materiality threshold
Materiality has been set at Group level at 5%*
Assessment methodology
Greenhouse Gas Protocol and ISO 14064-1 (2006)
Intensity ratio
Emissions per £m turnover exc. royalties (2020: £47.6m)
* The total of any excluded emission sources is estimated to be less than 5% of Xaar plc’s total reported emissions.
UK energy usage 9.67MWh / 1,706 tCO2e; included in this is 2.35 MWh of renewable energy attributes, in the form of
Guarantees of Origin from renewable wind sources.
1,815
Scope 2
Indirect emissions
(tCO2e)
Scope 1
Direct emissions
(tCO2e)
KWh
(tC02e)
6,263
6,000
14,058,636
5,000
14,187,311
Global
energy use
KWh
4,432
4,088
4,000
3,000
2,000
1,000
4,475
11,506,598
3,128
2,623
(57.02 tCO2e/£m)
12,474,406
11,270,047
1,741
(36.59 tCO2e/£m)
10,573,687
10,115,714
162
2014
162
2015
167
2016
148
2017
125
2018
108
(2.35 tCO2e/£m)
74
(1.58 tCO2e/£m)
2019
2020
15,000,000
14,000,000
13,000,000
12,000,000
11,000,000
10,000,000
Strategic ReportXaar plc Annual Report and Financial Statements 2020 Board approval of the Strategic and Annual Reports
Board approval
51
The section 172 statement forms part of this Strategic Report – please see page 53.
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 27 April 2021 and is signed on
its behalf by:
Andrew Herbert
Chairman
Alison Littley
Senior Independent Director
John Mills
Chief Executive Officer
Chris Morgan
Non-Executive Director
Ian Tichias
Chief Finance Officer
GovernanceXaar plc Annual Report and Financial Statements 2020
52
Introduction to Governance
An introduction from our Chairman
We all lead with integrity, passion
and courage to inspire everyone to
live our values. We overcome our
challenges through innovation
and deliver on promises to our
customers, winning together.
Andrew Herbert
Chairman
Dear Shareholders
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.
Purpose, 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 September 2020, when we announced
our new brand identity and launched the
ImagineX platform, we also launched a new
set of values to reflect the true essence of
Xaar and which we use to guide the way
we behave towards our customers, our
partners and each other.
These values are our guiding principles:
+ We do everything with passion
+ We are creative
+ We are innovative
+ We have integrity
+ We are collaborative
The past 12 months have
seen much change at
Xaar, with a new brand
identity and set of values
launched in 2020.
2021 focus areas
• Continue the development and rollout
of new products and solutions under
the ImagineX platform
• Conclude negotiations in amendment
of the Call Option for disposal of
Xaar 3D Group to be submitted to
shareholder approval
• Improvements to internal control and
financial reporting environment within
EPS
• Task Force for Climate-related
Financial Disclosures (TCFD) to be
incorporated into 2021 reporting
• Identify non-organic growth
opportunities across the business
environment.
Board changes
This year saw significant changes to Board
membership including a new Chair, a new
CFO and a new Non-Executive Director.
The Nomination Committee has reviewed
and concluded that, in the initial period
of implementation of the new business
strategy, and in the face of stringent cost
measures implemented elsewhere in the
business, it is appropriate to maintain three
rather than the previously four independent
Non-Executive Board members. This
position remains under review by the
Committee to ensure the Board and its
Committees maintain appropriate skills
and experience and that the majority of the
Board remains independent.
Looking ahead
The past 12 months have seen much
change at Xaar.
The Board continues to provide effective and
independent oversight of the Company’s
strategy and its broad business operation,
within a framework of effective controls and
prudent risk assessment.
Additional work will be undertaken in 2021
to address internal control issues raised
during the external audit within EPS, and to
identify the roadmap for compliance with the
TCFD reporting requirements by end of 2021.
Andrew Herbert
Chairman
27 April 2021
GovernanceXaar plc Annual Report and Financial Statements 2020 53
Section 172 Statement
Decisions of the Board take into account not just short-term, but also medium and
long-term consequences, which are carefully considered and balanced, having regard
to the sometimes conflicting needs and priorities of the business, its customers,
partners, employees and other stakeholders.
The decision to potentially divest the
3D business will create a cash funding
pool available for investment into
targeted development of the ImagineX
platform to strengthen both the existing
product portfolio and existing customer
relationships, but also to develop new
product solutions and new revenue
streams in new customer sectors.
The Directors’ report and Corporate
governance report set out in greater detail
Xaar’s policy towards its employees. Xaar’s
value is created through innovation, which
is a product of motivated employees.
They are of central importance to Xaar’s
success, and the Directors believe that
the Xaar culture and core values create an
environment for engaged and successful
employees. The Xaar HR team supports
managers to look after employee needs,
and the Directors review an annual
employee engagement survey, which
ensures that employee interests and
needs are at the kept forefront of the
Board agenda.
Three virtual ‘Meet the NEDs’ employee
sessions took place in 2020, hosted by
each of the Non-Executive Directors.
Topics discussed were wide ranging with
discussions around the new strategy and
direction of the business, remuneration,
employee training and opportunities for
development.
Governance highlights
at a glance
Key governance activities
• Establish new Executive and
Non-Executive Board
membership following significant
personnel changes in 2020
• Undertake a review of the way
the Board works and identify
improvements in both agenda
and delivery of Board material
• Conduct an internal review
of Board effectiveness and
performance during the year.
We are pleased to confirm that throughout
the year ended 31 December 2020, the
Company has followed the provisions of
the UK Corporate Governance Code 2018
(‘the Code’), and has either complied or
explained why a provision has not been
followed. An explanation of non-compliance
in post employment shareholdings is
provided in the Directors' Remuneration
report (page 71).
Xaar works with the global leaders of
the digital inkjet technology industry.
Accordingly, the highest standards of
business are demanded. Xaar works with
these global leaders, at the forefront
of business, industry and technological
innovation, to ensure these standards
are constantly challenged and improved.
The competing needs of the various
stakeholders of the Company are monitored
and reviewed at management and Board
level. Where conflicting needs arise, advice
is sought from the wider Board and, as
necessary, from Xaar advisors. Through
the careful balancing of stakeholder needs,
Xaar seeks to promote success for the
long-term benefit of shareholders.
Regular communication sessions were
organised with the Executive Directors,
including presentation of the three year
business plan via webinar to all employees,
with a question and answer session.
Xaar's success depends on strategic
relationships with key partners, OEM
customers and suppliers, so the Board
maintains ongoing oversight of these.
Monthly management packs report to the
Board on the status of key relationships,
which have Board-level engagement
from an operational perspective.
Product performance is constantly
monitored, and customer feedback
continuously captured through regular
account meetings, which are always
attended by management-level, and often
Director-level, representatives.
Xaar seeks to make a positive contribution
to its community, at local and global levels,
and to minimise as far as possible its
impact on the environment. Xaar backs
its employees’ interests in community
activities, supporting them in terms of
time to attend to these commitments and
financial backing.
i Further details on practical steps Xaar
has taken during the COVID pandemic
can be found in the Strategy update (page
12) and Sustainable and Responsible
business report (page 35).
Board attendance
Director
%
attendance
Director
%
attendance
John Mills
Andrew Herbert
Chairman
100
Chief Executive Officer 100
100
Ian Tichias
CFO
Chris Morgan
Non Executive Director 100
100
Alison Littley
Senior Independent
Director
GovernanceXaar plc Annual Report and Financial Statements 2020 54
Introduction to Governance (cont.)
Q&A with Ian Tichias and John Mills
This year saw significant changes to Board membership, with a new executive
management team, including a new CEO and CFO
John Mills Chief Executive Officer
User Developer
Integrators are turning
to Xaar’s technology
because it goes beyond
the typical capabilities
of inkjet.
John Mills
CEO
What attracted you to
Xaar?
Of all the inkjet businesses in the
Cambridge area, Xaar was top of the list
of companies I’d like to run, so when
the opportunity arose, obviously I was
delighted. I have always been aware of the
fundamental benefits of Xaar’s technology
but also some of the limitations. In my
previous role at Inca I would never have
adopted Xaar technology because the
limitations outweighed the benefits for our
application. Moving to Xaar has given me
the chance to eliminate those limitations
and to showcase the compelling benefits
of Xaar’s technology, which is very exciting.
What do you bring to the
role of CEO?
A technical background and many years
in inkjet companies has certainly been
useful to quickly get to grips with the
complex nature of Xaar’s products and to
see the unique advantages and potential
of the technology. My five years as CEO
of OEM Inca Digital gave me a great
understanding of what our customers
need from Xaar in order to drive success
in their own businesses. It was clear to
me that Xaar’s business model and route
to market created confusion, specifically
with our OEM customers.
We have now adopted a clear single route
to market through our OEM and UDI
customers and are already starting to
see the impact of the changes made.
What do you see as the
main opportunities for
Xaar in the coming year?
The progress made to date has allowed us
to regain customer trust which opens new
business opportunities. We are starting to
gain more interest from User Developer
Integrators looking to build print systems
for their own specific applications
which might fall outside of the typical
capabilities of inkjet. UDIs are turning to
Xaar’s technology because it goes beyond
the typical, offering the widest application
window, handling a broader range of
fluids, viscosities and printing modes.
We will also progress the roadmap to
deliver products that offer real value
propositions to our customers, which will
in turn enable them to drive the success of
their own businesses with our technology.
In addition, we are developing integrated
solutions to enable our customers to
easily adopt inkjet technology and get to
market more quickly and efficiently.
GovernanceXaar plc Annual Report and Financial Statements 2020 55
Ian Tichias Chief Financial Officer
It’s an exciting
challenge – to rebuild
the Company and be
involved in shaping a
new, better Xaar.
Ian Tichias
CFO
What attracted you to
Xaar?
The main thing that attracted me to Xaar
was the opportunity and potential of the
Company and what Xaar could achieve.
Huge potential such as this is really
exciting and motivating. In addition, Xaar
is an established business and has had
such a good reputation for innovation and
expertise in its field which presents me
with an exciting challenge – to rebuild the
Company and to be involved in shaping a
new, better Xaar.
What do you bring to the
role of CFO?
Having spent 17 years in the pharma
industry, I bring to Xaar substantial
experience gained in successful, well
managed and organised businesses.
My career has been built across a number
of functions, not just finance, and I have a
good track record of building successful
teams and driving high performance
through strong leadership and direction.
Knowing what good looks like and
applying best practice gives confidence
to know what needs to be done to make
the most of Xaar’s potential. Overall, it’s
quite a broad leadership background which
means I can easily adapt to deliver what the
business needs as it develops and grows.
What do you see as the
main opportunities for
Xaar in the coming year?
We’re at the start of an exciting
opportunity for Xaar. We have a lot of
ambition and determination. We will
move forward in careful, measured
steps, embedding quality process and
behaviours across the Company. We
will make sure we have the right teams
focused on the right goals and that the
whole Company is aligned. The result will
be a structured, stable and sustainable
business. The good news is we are
already making steady progress! Over
the next year we will continue to build
on this, to put in place a stable platform
to successfully develop Xaar into the
foreseeable future.
GovernanceXaar plc Annual Report and Financial Statements 2020 56
Board of Directors
Andrew Herbert
Chairman
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
N R
N
Appointed to the Board
2016
Qualifications
• FCMA Chartered Management
Accountant
• BA (Hons) in Business Studies.
Skills and experience
• 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.
Appointed to the Board
2019
Qualifications
• Ph.D Physics.
Appointed to the Board
2020
Qualifications
• ACA Institute of Chartered Accountants in
England & Wales
Skills and experience
• Five years as CEO at Inca Digital
• BSc (Hons) Economics & Maths,
University of Leeds.
• 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.
Skills and experience
• 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 focused finance operations
that drive efficiency and commercial
performance beyond finance.
GovernanceXaar plc Annual Report and Financial Statements 2020 57
Key to Committee
A
R
N
Audit
Remuneration
Nomination
Chair
Member
Board composition
Executive Director 2
Non-Executive Director 2
Chair 1
Board diversity
Male 4
Female 1
Board tenure
0-3 years 3
3-6 years 2
Chris Morgan
Non-Executive Director
Alison Littley
Senior Independent Director
A
R N
R
A N
Appointed to the Board
2016
Appointed to the Board
2020
Skills and experience
• 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
• Currently a Non-Executive Director for
San Diego based additive manufacturing
company, Intrepid Automation.
Skills and experience
• Over 25 years’ experience within
international blue chip organisations,
including multinational manufacturing,
supply chain and marketing services
roles
• Strong international leadership
background of building effective
management teams and third-party
relationships gained through a variety of
senior management positions in Diageo
plc, Mars Inc and an Agency to HM
Treasury, where she was Chief Executive
Officer
• For the past nine years Alison has been
a Non-Executive Director (NED) of
both international PLCs and privately
owned businesses. She is currently
NED at Norcros plc, and the family-
owned Osborne construction company
consisting of Osborne Group Holdings Ltd
and Rosewood Group Holdings Ltd.
GovernanceXaar plc Annual Report and Financial Statements 2020 58
Board structure
Board of Directors
Management Committee
Principal 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.
Chris Morgan Chair
Appointed 1 April 2020
i See page 72
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.
Andrew Herbert Chair
Appointed 1 April 2020
i See page 76
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.
Alison Littley Chair
Appointed 1 July 2020
i See page 78
GovernanceXaar plc Annual Report and Financial Statements 2020 Directors’ report
Report on the affairs of the Group
59
The Directors present their Annual Report together with the financial statements
and auditor’s report for the year ended 31 December 2020.
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 in the Strategic Report. The following cross-referenced material is incorporated into this Directors’ report.
Non-financial information statement – Subject Matter
Section/Page
Principal Risks and uncertainties
Risk Management on pages 40-49
Business model
Employee engagement
Strategic Report on page 14
Strategic Report on page 15
Stakeholder engagement on page 32
Directors’ Remuneration report on page 79
Equality, Diversity, Inclusion and Human Rights
Sustainable and responsible business on page 35
Disabled employees
Supplier engagement
Engagement with customers and other business relationships
(including community engagement)
Sustainable and responsible business on page 35
Stakeholder engagement on page 32
Strategic Report on page 15
Stakeholder engagement on page 32
Sustainable and responsible business on page 34
Greenhouse gas emissions and environmental policies
Sustainable and responsible business (TCFD) on page 36
GHG statement on page 50
Political donations
Sustainable and responsible business on page 34
Ethics and Governance, including Code of Conduct, Anti-bribery
and corruptions policies
Sustainable and responsible business on page 35
Corporate Governance section on page 68
Branches
In addition to the subsidiaries disclosed in note 11 of the Company’s separate financial statements on page 165, there is a branch
in Stockholm, Sweden through which research and development activities are conducted. Xaarjet Overseas Limited also has sales
branches in Haryana, India (closed in 2021) and Hong Kong.
Dividends
No interim or final dividend was proposed or paid for the year ended 31 December 2020.
i Details on dividends are set out in note 13 on page 134.
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.
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 32. 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.
i 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 69.
GovernanceXaar plc Annual Report and Financial Statements 2020 60
Directors’ report (cont.)
Treasury
The Group’s policy enables it to use financial instruments to hedge foreign currency exposures. The main trading currency of the Group
is GBP Sterling. The Group’s use of financial instruments and the related risks are discussed further in notes 21 and 22.
At the 2020 AGM held on 2 June 2020, 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.
The Company did not purchase any shares for cancellation or to be held as treasury shares in 2020 or 2019.
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
Ian Tichias
Chief Finance Officer (appointed 1 March 2020)
Margaret Rice-Jones
Senior Independent Director (retired 30 June 2020)
Chris Morgan
Non-Executive Director
Alison Littley
Senior Independent Director (appointed 1 May 2020, Senior Independent Director 1 July 2020)
i Brief biographical descriptions of the Directors are set out on pages 56 and 57.
i Full details of their interests in shares of the Company and its subsidiary undertakings are included in the Directors’ Remuneration report
on page 90.
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 2020 are
as follows:
Andrew Herbert
John Mills
Ian Tichias
Chris Morgan
Alison Littley
Number of
ordinary shares of
10p each
31 December
2020
Number of
ordinary shares of
10p each
31 December
2019
100,000
125,000
50,000
—
—
—
—
—
—
—
There have been no changes in the Directors’ interests in shares of the Company between 31 December 2020 and 27 April 2021. Directors’
interests in options in the Company and in deferred bonuses (in shares) are shown in the Directors’ Remuneration report. The Executive
Directors are required to receive a portion of their bonus in deferred shares. At the point in which the bonus is approved each year, the
shareholding is then increased accordingly.
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 was in place during the year and remains in force as at the date of
approving the Directors’ report.
GovernanceXaar plc Annual Report and Financial Statements 2020 61
Share capital
As at 31 December 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:
Top 10 shareholders (by parent company) – at 31 December 2020
Schroders
Aberforth Partners
Hargreaves Lansdown PLC
Invesco
Interactive Investor Trading
Columbia Threadneedle Investments
Fidelity Worldwide Investment (FIL)
Barclays Bank
Chelverton Asset Mgt
River & Mercantile Asset Mgt
Total
Number
of ordinary
shares held
Percentage
of issued
share capital
22,238,789
8,461,333
5,508,346
4,070,814
3,618,360
3,520,252
2,836,253
2,395,398
2,331,826
2,211,608
57,192,979
28.39%
10.80%
7.03%
5.20%
4.62%
4.49%
3.62%
3.06%
2.98%
2.82%
73.01%
During the period 31 December 2020 to 26 April 2021, 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:
Changes in material shareholdings since 31 December 2020
Schroder Investment Mgt (London) (decrease in shareholding from 28.39% to 27.33%)
Columbia Threadneedle Investments (increase in shareholding from 4.49% to 6.69%)
Hargreaves Lansdown PLC (decrease in shareholding from 7.03% to 6.54%)
Odyssean Capital LLP (increase in shareholding from 2.69% to 5.09%)
Interactive Investor Trading (decrease in shareholding from 4.62% to 3.57%)
Fidelity Worldwide Investment (FIL) (decrease in shareholding from 3.62% to 3.23%)
Barclays Bank (decrease in shareholding from 3.06% to 2.80%)
River & Mercantile Asset Mgt (decrease in shareholding from 2.82% to 1.77%)
Number
of ordinary
shares held
Percentage
of issued
share capital
21,406,643
27.33%
5,241,342
5,119,423
3,982,500
2,796,503
2,534,063
2,190,041
1,389,995
6.69%
6.54%
5.09%
3.57%
3.23%
2.80%
1.77%
COVID-19 statement
The health and wellbeing of our colleagues, shareholders and the wider community in which our Company operates is a priority for us.
The Directors have carefully considered the impact on the meeting of the constantly evolving COVID-19 situation and the UK Government’s
restrictions and guidance on, amongst other things, public gatherings and social distancing. As at the date of publication of the notice of
the Annual General Meeting, it is anticipated that this year’s AGM will be held as a closed meeting. Accordingly, save for the Chairman
of the Meeting and such other persons as the Chairman of the Meeting may decide should be admitted for the purposes of forming a
quorum, shareholder attendance in person at the AGM will not be permitted.
The Company will continue to closely monitor the developing impact of COVID-19 and the latest legislation and guidance issued by the UK
Government. If circumstances evolve such that the Directors consider that, within safety constraints and in accordance with government
guidance, arrangements regarding attendance at the Annual General Meeting can change, the Company will notify shareholders as soon
as reasonably practicable of any such changes via a Regulatory Information Service and on our website. We encourage shareholders to
monitor the Company’s website and regulatory news services for any updates in relation to this year’s AGM.
Given the uncertainty around whether shareholders will be able to attend the AGM, we strongly recommend that shareholders exercise
their votes by submitting their proxy as set out in the Notice of Meeting. This will ensure that your vote will be counted if attendance at the
meeting is restricted (which is likely to be the case due to the ongoing COVID-19 restrictions). All shareholders are strongly recommended
to vote electronically at www.signalshares.com as your vote will automatically be counted. In addition, should a shareholder have a question
that they would have raised at the meeting, we ask that they send it by email to investor.relations@xaar.com before 5.00 pm on 9 June 2021.
Answers to the questions will be published on our corporate website (www.xaar.com) after the AGM.
Annual General Meeting
i The notice convening the Annual General Meeting is set out on pages 167 to 170.
Resolutions 1 to 9 set out in the notice of the meeting deal with the ordinary business to be transacted at the meeting. The special
business to be transacted at the meeting is set out in Resolutions 10 to 13.
GovernanceXaar plc Annual Report and Financial Statements 2020 62
Directors’ report (cont.)
Re-election of Directors
Resolutions 4 to 8
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.
Directors’ Remuneration report
Resolution 9
This Resolution seeks shareholder approval for the Directors’ Remuneration report.
i The Directors’ Remuneration report can be found on pages 78 to 96 (inclusive) of the Annual Report and Financial Statements.
In accordance with regulations which came into force on 1 October 2013, Resolution 9 offers shareholders an advisory vote on the
implementation of the Company’s existing remuneration policy.
Power to issue securities
Resolutions 10, 11 and 12
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 10, 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 26 April 2021) and up to an additional aggregate nominal value
of £5,222,286 (corresponding to approximately two thirds of the issued share capital at 26 April 2021) 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 11 and 12
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 11, 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 12, 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.
If Resolutions 11 and 12 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.
GovernanceXaar plc Annual Report and Financial Statements 2020 63
Authority to purchase own shares
Resolution 13
It is proposed by Resolution 13, 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 higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase
is carried out (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 26 April 2021 (including options
awarded under LTIP which may be satisfied by subscription for new shares) was 3,480,593. This represents 4.4% 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 2020
would represent 5.2% of the reduced issued ordinary share capital.
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
167 to 170.
i The notice of the Annual General Meeting is on pages 167 to 170.
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 167 to 170 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.
GovernanceXaar plc Annual Report and Financial Statements 2020 64
Directors’ report (cont.)
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 the 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
i Directors’ interests in the share capital of the Company are shown in the table on page 60.
i Major interests (i.e. those greater than 3%) of which the Company has been notified are shown on page 61.
Company share schemes
The Xaar plc ESOP Trust holds 0.9% (2019: 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.
Going concern
i 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 9 to 13 and Business performance on pages 28 to 31.
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 19. The Group reported a loss after tax for the year ended 31 December 2020 of £14.7 million, of which
£10.3 million related to discontinued operations, being the final costs relating to Thin Film and the Xaar 3D business which is expected to
be sold. Notes 21 and 22 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
Group’s day to day working capital requirements are expected to be met through the current cash and cash equivalent resources (including
Treasury deposits) at the balance sheet date of 31 December 2020 of £18.1 million. The Group was debt free as at 31 December 2020 and
across each of the going concern scenarios described below.
GovernanceXaar plc Annual Report and Financial Statements 2020 65
Whilst the impact of COVID-19 on the performance of the business over the last year has not been significant, the long-term implications
of the spread of the virus remain uncertain making it difficult to determine the impact on the 2021 financial performance. The Board
has therefore considered the performance of the different businesses across the Group and each of their funding requirements before
performing a number of stress tests. The base going concern case assumes that the disposal of Xaar 3D completes as described in note
37 and the Strategic update on page 11, however excludes the anticipated consideration. Conservatively, a second case which excludes
the disposal of Xaar 3D has been applied. In both cases the downturn in revenue across the entire Group required to prevent the business
continuing as a going concern would have to be severe and is not plausible given the nature and size of the order book and the trading
experience of the printhead and EPS segments during COVID-19 conditions to date. 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 aligning performance related pay to actual results.
The Group continues to enjoy a strong cash position and is well positioned to cope with the current situation. The Board remains confident
in the long-term future prospects for the Group and its ability to continue as a going concern for the foreseeable future.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future, based on the Group’s forecasts and projections for the period to 30 April 2022, 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.
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.
i Details of which are outlined in the CEO report and in the strategic review on pages 9 to 13.
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.
i The principal risks and uncertainties faced by the Company are included on pages 40 to 49.
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
face appropriately and that these are considered in all of the financial models.
The Board has 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.
A reverse stress test of the business based on the business having insufficient liquidity to continue trading was modelled. The scenarios
run focused predominantly on significant declines in revenue. In these scenarios, the Directors have considered the actions that would be
taken if these events were to become a reality. These actions include reduced capital expenditure, suspension of bonus plans, and a delay
in R&D programmes. These results confirmed the Group would be able to withstand these scenarios.
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 2023.
GovernanceXaar plc Annual Report and Financial Statements 2020 66
Directors’ report (cont.)
Auditor
Ernst & Young LLP were re-appointed in 2020 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
i The Directors who were members of the Board at the time of approving the Directors’ report are listed on page 51.
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 27 April 2021 and is signed on its behalf by:
John Mills
Chief Executive Officer
GovernanceXaar plc Annual Report and Financial Statements 2020 Corporate Governance statement
67
The Board’s primary objective remains the acceleration of the transformation strategy,
ensuring long-term, sustainable growth for the benefit of the Company’s shareholders
and wider stakeholders. This includes an ongoing commitment to the highest
standards of corporate governance.
The 2018 UK Corporate Governance 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.
Application of the main principles of the Code
The Board has considered and implemented the provisions of the 2018 Code effective 1 January 2019.
We are pleased to confirm that throughout the year ended 31 December 2020, the Company has followed the principles and provisions
of the UK Corporate Governance Code 2018 (‘the Code’), which applies to all companies with a premium listing on the London Stock
Exchange, and has either complied with the provision or explained why the provision has not been followed.
The current policy post-employment shareholding do not fully comply with the Code, and an explanation is provided in the Directors'
Remuneration report on page 71.
The terms of reference for the Audit, Nomination and Remuneration Committees reflect the changes in the 2018 Code, with the
Committees addressing additional requirements of them.
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.
This statement outlines the processes the Company has undertaken throughout the year to apply the Code and demonstrates compliance
with each provision. An explanation of how the main principles have been applied during 2020 is set out below.
The disclosures in respect of the Takeovers Directive (as implemented in the UK) are included in the Directors’ report and form part of this
report.
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 and 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 Italy, India, Hong Kong, Sweden and Denmark.
i Refer to page 14 for the Xaar business model.
In accordance with the Directors’ duties in Section 172 of the Companies Act 2006, the Board considers the likely consequences of any
decision in the long-term. The Board incorporates the basis on which the Company generates and preserves value in formation of the
strategy and strategic decision-making.
GovernanceXaar plc Annual Report and Financial Statements 2020 68
Corporate Governance statement (cont.)
During 2020, the Board transformation progressed with the executive Board incorporating the new CEO, CFO and Chair being appointed,
the continuation in the business turnaround in developing a more 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 customers’ requirements, with a clear product roadmap leading to the launch of ImagineX platform and new IP and product
launches.
In the year ended 31 December 2020, the Company invested approximately £7.0 million in Xaar 3D. Due to delays caused by the impact
of the COVID-19 pandemic on the development of Xaar 3D products, the Directors believe there was a risk that the Xaar 3D programme
might take longer than anticipated when it entered into the original Call Option with Stratasys, and subsequently the Company would be
required to commit additional funds to Xaar 3D. Following a re-evaluation of the further cash investment required and extended timescales
to full commercialisation of the product, we have determined that it is in Xaar’s best interests to bring forward the planned sale of Xaar’s
shares in Xaar 3D.
The terms of the proposed revised option arrangement will be published in due course and are subject to Xaar shareholder approval.
Such an arrangement would provide Xaar 3D with the best opportunity to complete the commercialisation of the HSS product range in the
shortest time, would lead to an immediate injection of cash and would enable Xaar to focus on its core business.
The Board is responsible for establishing, assessing and monitoring the Company’s purpose, values, strategy, and culture. In doing so,
the Board ensures the alignment of the Company’s culture and the transformation programme.
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.
i See Shareholder communications as part of the Directors’ Remuneration report on page 80.
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.
Following a general meeting, voting results are published on the Company’s website. If the votes against a resolution exceeded 20%, an
explanation would also be published on the website. At the most recent AGM in 2020, there were no resolutions with more than 1% of votes
cast against the Board’s recommendation. The Company engages with shareholders both throughout the year and specifically in respect of
new or significantly amended resolutions in order to ensure the Board’s recommendation is aligned with the members’ views.
Shareholders can access up-to-date Company information from the Investors section of the Xaar website at www.xaar.com.
The Board has 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 is in Directors’ Remuneration report page 78 and Sustainable
and responsible business page 34.
The Board has formally introduced workforce engagement sessions to be held at least three times a year. With the impact of COVID,
the three sessions taking place in 2020 were held virtually, hosted by each of the Non-Executive Directors. Topics discussed were wide
ranging but focused mainly around the new strategy and direction of the business, remuneration, employee training and opportunities for
development
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. Internal controls are in place to ensure that any
related party transactions involving Directors, or their connected parties, are conducted on an arm’s length basis. Each member of the
Board is familiar with the procedure to follow in relation to conflicts of interest and the process is operated efficiently.
GovernanceXaar plc Annual Report and Financial Statements 2020 69
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.
The Chairman, Andrew Herbert, was deemed independent on appointment in 2020. There exists a clear division of responsibilities
between the Chair and the Chief Executive Officer, which is exercised by John Mills. 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 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.
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 Non-Executive Directors are identified on pages 56 and 57 of the Annual Report and a short biography provided. The Board has
determined that each Non-Executive Director is independent in character and judgement; commits sufficient time and energy to the
role; and continues to make a valuable contribution to the Board and its Committees. The Board keeps under review whether there are
relationships or circumstances which are likely to affect, or could appear to affect, their independence.
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. Camila Cottage was re-appointed as Company Secretary on 1 February 2021.
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 and responsible business on 35.
The Board of Directors comprises the Chairman, two Executive Directors and two Non-Executive Directors.
The Board considers Alison Littley, 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 a less active one for the Nomination Committee,
with the appointment of Alison Littley as Senior Independent Director following the retirement of Margaret Rice-Jones in June 2020.
The Board conducted an internal review of the effectiveness of itself, with each Non-Executive Director, the Chairman and the Board
Committees in December 2020. 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.
i Further details of the activities of the Nomination Committee can be found on page 76.
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.
GovernanceXaar plc Annual Report and Financial Statements 2020 70
Corporate Governance statement (cont.)
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 2020 AGM, with the exception of Alison Littley who was appointed just prior to the AGM and
whose appointment was confirmed by the Board. All Directors will stand for re-election at the 2021 AGM.
i The biographies of the Directors, set out on pages 56 to 57, contain the evaluation of skills and experience beneficial to the Company
so that the Board recommends the re-election or election of each Director.
4. Audit, risk and internal control
i The role and responsibilities of the Audit Committee are set out in the Audit Committee section on pages 72 to 75.
i The Directors' assessment of the Group’s internal control environment as required under the UK Corporate Governance Code is set out on
page 74 under ‘Internal controls and compliance’.
The Audit Committee, led by Chris Morgan, 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. The Board has
satisfied itself that Chris Morgan has recent and relevant financial experience and that the Audit Committee as a whole has competence
relevant to the sectors in which the Company operates.
i The significant accounting judgements and estimation uncertainties that the Audit Committee has considered in relation to the financial
statements are set out in the Audit Committee section on pages 72 to 73 and in note 2 to the accounts on pages 115 to 116.
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 8 to 31, 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.
The Board has confirmed on page 41 of the Annual Report that it has carried out a robust assessment of the principal and emerging risks
facing the Company, including those that could threaten its values, reputation, business model, future performance, solvency or liquidity.
Descriptions of those risks and how they are mitigated are set out on pages 42 to 49.
i 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 40 to 49.
The Board explains on pages 64 and 65 of the Annual Report how it has assessed the prospects of the Company over the longer term and
why it considers a three-year period to be appropriate for the purposes of this assessment. The Board confirms that it has a reasonable
expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over this period.
The Committee has formally identified the Chief Executive Officer as responsible for health and safety and the Chief Financial Officer
as responsible for risk assessment.
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.
The Remuneration Committee's primary role is to recommend to the Board the senior remuneration strategy and framework, giving due
regard to the financial and commercial health of the Company and to ensure the Executive Directors and senior management are fairly
rewarded for their individual contributions to the Company's overall performance. The remit of the Committee also includes considering
the appropriateness of the senior remuneration framework when reviewed against arrangements throughout the rest of the organisation,
determining the terms of employment and remuneration for Executive Directors and senior managers, including recruitment and
termination arrangements, approving the design, targets and payments for all annual incentive schemes that include Executive Directors
and senior managers and agreeing the design, targets and annual awards made for all share incentive plans requiring shareholder
approval.
i Details of the activities of the Remuneration Committee can be found in the Remuneration Committee section on page 78 and in the
Directors’ Remuneration report on pages 78 to 96.
GovernanceXaar plc Annual Report and Financial Statements 2020 Summary of Board meeting attendance in 2020
Eleven Board meetings were held in 2020.
Name
John Mills
Ian Tichias1
Robin Williams2
Andrew Herbert
Margaret Rice-Jones3
Alison Littley4
Chris Morgan
1 Ian Tichias was appointed to the Board on 1 March 2020.
2 Robin Williams retired from the Board on 31 March 2020.
3 Margaret Rice-Jones stepped down from the Board on 30 June 2020.
4 Alison Littley was appointed to the Board on 1 May 2020, and appointed Senior Independent Director on 1 July 2020.
Board Committees
Summary of Committee membership:
Name
Andrew Herbert
Alison Littley
Chris Morgan
John Mills1
1 The Committee invites the CEO to attend meetings when the subject matter deems their presence appropriate.
Summary of Committee meeting attendance in 2020:
Name
Andrew Herbert
Robin Williams
Alison Littley
Margaret Rice-Jones
Chris Morgan
Ian Tichias
John Mills
71
Meetings attended
11 (11)
11 (11)
3 (3)
11 (11)
8 (8)
6 (6)
11 (11)
Audit Committee
Remuneration
Committee
Nomination
Committee
No
Yes
Chair
No
Yes
Chair
Yes
No
Chair
Yes
Yes
Yes
Audit Committee
Remuneration
Committee
Nomination
Committee
4 (4)
n/a
3 (3)
1 (1)
4 (4)
3 (3)
4(4)
9 (9)
3 (3)
5 (5)
5 (5)
9 (9)
5 (5)
9 (9)
1 (1)
n/a
n/a
1 (1)
1 (1)
1 (1)
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 2020 the Company has followed the provisions set out in the Code, and has either complied
with the provisions of the 2018 Code or explained why the provision has not been followed.
The current policy post-employment shareholding do not comply fully with the UK Code, as it doesn’t include a minimum two-year
post-employment holding. This is partially mitigated through applying the leaver provisions set out on page 84. The Committee will keep
this under review and will update the guideline when a new remuneration policy is introduced.
The Board confirms the 2020 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 27 April 2021 and is signed on its behalf by:
John Mills
Chief Executive Officer
GovernanceXaar plc Annual Report and Financial Statements 2020 72
Audit Committee
The Audit Committee (the ‘Committee’) is appointed by the Board from the
Non-Executive Directors of the Company. The Committee’s terms of reference
were 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.
Audit Committee composition and meetings
Andrew Herbert was Chair of the Audit Committee until 31 March 2020, when he stepped down from the Committee and became
Chairman of the Xaar Board on 1 April 2020. Chris Morgan was appointed Chair of the Audit Committee on 1 April 2020, Chris’ previous
roles have given him senior executive and financial experience working across a number of technology and digital printing sectors and
across a number of jurisdictions. Alison Littley joined the Audit Committee upon appointment to the Board on 1 May 2020. Alison also
brings a breadth of experience including executive experience in complex, international business operations. Margaret Rice-Jones retired
from the Board and stood down from the Audit Committee on 30 June 2020. Additional information on our skills and experience can be
found in the Board biographies set out on pages 56 and 57.
The Audit Committee met formally on four occasions during the year and details of the attendance at meetings by members of the Audit
Committee are set out on page 71. Please see the tables on page 71 for details of the Committee members in the year and the number of
Committee meetings attended. At the Committee’s request, other members of the Board and senior management may be invited to attend
the Audit Committee’s meetings based on the meeting agenda.
Report from the Committee Chairman
I am pleased to present the Audit Committee’s report describing our work during the past year. Ernst & Young LLP (EY) was reappointed as
the Group external auditor at the Annual General Meeting and Adrian Bennett is the engagement partner.
The Audit Committee’s primary responsibilities are the following:
• 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
• To conduct any tender process and make recommendation to the Board on the appointment, remuneration and terms of engagement
of 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. For example, the Audit Committee has requested that management present an action
plan in early 2021, to remediate certain internal control deficiencies identified within EPS.
The effectiveness of the Audit Committee was reviewed as a part of the overall Board evaluation exercise and no significant issues
were identified.
GovernanceXaar plc Annual Report and Financial Statements 2020 73
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:
• Going concern/impact of COVID-19/extensive stress testing of cash position
• Revenue recognition
• Consolidation of Xaar 3D Ltd – assessment of control
• Valuation of Xaar 3D Call Option with Stratasys
• Recoverability of receivables
• Impairment of goodwill, intangible assets and PPE
• Inventory valuation and obsolescence
• The Committee also considered the significant deficiencies in internal control identified within EPS as part of the year end audit process,
as described in page 74.
Key areas of management judgement
The Committee has reviewed and challenged management judgement in respect of the following areas:
Accounting judgements
• Capitalisation of development costs – note 16
The development of the High Speed Sintering in 3D was completed in December 2020, the cost and accumulated depreciation has been
reclassified as part of an asset group held for sale, the Audit Committee reviewed a technical paper in consideration of this treatment.
• Consolidation of Xaar 3D – notes 22,34 and 35
A review was undertaken to consider the requirements of IFRS 10, with a technical report presented to the Audit Committee and ex-
ternal auditors to determine the appropriate treatment of the majority shareholding of Xaar 3D and the significant control interests of
Stratasys Solutions Limited.
• Discontinued operations – note 11
The accounting treatment on the closure of Thin Film operations, and the potential disposal of the Xaar 3D business to be reclassified
as held for sale and discontinued operations has been considered and presented to the Audit Committee and external auditors.
Estimation uncertainty
• Xaar 3D option – note 22
The Xaar 3D option is a financial liability measured at fair value, which is calculated using the Black-Scholes model, the model uses a
number of inputs that require estimation: the underlying price of the shares, the option strikeprice, time until expiration and implied
volatility of underlying shares and LIBOR. Third party experts are used to provide these inputs, but the estimates remain uncertain.
• Inventory provision – note 20
A policy is used to calculate the inventory provisions based upon use and ageing of inventory, a significant proportion of the inventory
provision relates to discontinued operations.
• Credit provision for the allowance of doubtful debts – note 21
A review has been undertaken to consider the requirements of IFRS 9 and the expected credit loss provision requirements based on
historical default and loss experience.
• Impairment of capitalised development costs – note 16
The impairment of capitalised development costs relates to the full impairment of the Thin Film development costs in 2019, the transfer
of 3D development costs to asset group held for sale has not led to an impairment valuation.
• Impairment of goodwill in relation to EPS – note 15
The Group tests goodwill annually for impairment. A budget has been prepared for EPS and a cash flow forecast derived to determine
a value in use calculation. The recoverable amount is estimated and discounted with regards to a discount rate applicable to EPS, this
reflects external third party advice and input estimates of the risk free rate, equity beta and market premium calculated at the year end.
Sensitivity analysis is undertaken, but the estimates remain uncertain and rely upon forward guidance.
i Additional disclosure in relation to key sources of estimation uncertainty and critical accounting judgements is provided in the Group
financial statements – note 2 on pages 115 and 116.
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 confirms
that taken as a whole, they are fair, balanced and understandable, and provide the information necessary for shareholders to assess the
position, performance, strategy, and business model of the Company
• Reviewed Going Concern and Viability Statements
• Reviewed reports from the external auditor on their work and findings
GovernanceXaar plc Annual Report and Financial Statements 2020 74
Audit Committee (cont.)
• Reviewed the effectiveness of the Group’s internal control environment
• Reviewed and challenged the forecasts and scenarios relating to COVID-19 impact on the Going Concern and Viability Statements
and reviewed the associated disclosures around COVID-19 and is 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 (as described on
pages 41 and 42), 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.
During the external audit process, significant deficiencies in internal control were identified in the EPS subsidiary in respect of the
adequacy of (i) controls in the financial reporting close process to ensure the completeness and accuracy of closing entries, (ii) controls
over revenue to ensure amounts recognised at year-end are complete and accurate, specifically management review of inputs and
calculations for the valuation of accrued income recognised at year-end (see note 5) and (iii) controls over inventory management and
valuation of inventory and work in progress (see note 20). Adjustments were identified and processed as appropriate in the audited results.
The Audit Committee reviewed the work of the external auditors in the relevant areas and determined that further work will be undertaken
by management to develop an action plan to implement improved management, financial statement close process and controls within
EPS, and to present these improved controls to the Audit Committee for evaluation in 2021.
The Committee undertakes this evaluation having:
• Reviewed the internal audit task list that in 2020 was unable to progress as planned due to the impact of COVID restricting the ability
to travel to overseas sites alongside requirements to work from home. A review was undertaken for the approach of internal audit and
greater methodology emphasis on management controls
• Reviewed the internal financial controls and risk management systems
• Reviewed fraud detection and the systems and controls for the prevention of bribery including employee confirmation of abiding
by the Code of Conduct, Anti-bribery & Corruption, and Whistle-blowing policies
• Reviewed and approved actions for improvements to Treasury Management
• The Committee considered and challenged reports from the internal auditors on the effectiveness of internal controls and noted the
material weaknesses identified by the external audit process in financial reporting close and management controls of EPS.
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,
with the exception of the EPS internal controls identified above.
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 65.
External audit
• Following the conclusion and sharing of the 2019 audit results, there was an extensive collaborative effort by the Xaar and the EY teams
to review the process in detail and identify improvements for future audit efforts including working team adjustments to better handle
engagement given the dynamic COVID-19 situation. This process work and the related recommendations were reviewed by the Audit
Committee and were instrumental in aiding the planning of the 2020 audit
• The Audit Committee provided a forum for reporting and discussion with the Group’s external auditors in respect of the Group’s
half-year and full-year results. The Committee had dedicated time for these activities and reviewed the audit work with emphasis
on significant risk areas identified and discussed by the external auditor in their report
• The scope of the audit work to be undertaken by the auditor was reviewed and agreed on
• The Committee aligned the fees to be paid to the external auditor relating to their services rendered for the annual audit and
interim review
• The independence and objectivity of the external auditor was assessed by the Committee.
The Chairman of the Audit Committee will be available at the AGM to answer any questions about the work of the Committee.
FRC’s Audit Quality Review
EY’s external audit of the Company for the year ending December 2019 was subject to an FRC Audit Quality Review (AQR) during the second
half of 2020. The Committee has been kept fully informed of the progress and conclusions of the review with no key findings to report and
certain good practices identified. The AQR review focused on a number of key audit matters including revenue recognition, consolidation
of Xaar 3D, recoverability of receivables, impairment of goodwill and intangible assets, and the impact of COVID-19. These remain areas of
audit focus in the current year, with the Committee continuing to oversee the proposed approach and conclusions.
GovernanceXaar plc Annual Report and Financial Statements 2020 75
External auditor
This was the second year for Ernst & Young LLP (EY) as the Company’s auditor having first been appointed in July 2019. The Committee
has met with the auditor on at least three occasions during the year and it is expected that the Committee will continue to meet with the
auditor a minimum of two times each year. The Chief Executive Officer and Chief Financial Officer, and other relevant managers and Board
members, attend these sessions 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 8 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 ongoing
basis. In completing the review of the effectiveness of the annual audit in 2020, the Committee was able to conclude the audit undertaken
by Ernst & Young LLP 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 on the 2021 results and
reported on in next year’s Annual Report.
Chris Morgan
Chair of the Audit Committee
GovernanceXaar plc Annual Report and Financial Statements 2020 76
Nomination Committee
The Nomination Committee is appointed by the Board from the Non-Executive
Directors of the Company and the Chief Executive Officer. The Chair of the Committee
is Andrew Herbert.
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 71
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 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
review its terms of reference annually 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 Committee’s role in composition, succession and evaluation of the Board is 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 considers relevant skills, experience, knowledge and ability without gender or ethnicity bias.
All appointments are made on merit and suitability against objective selection criteria with consideration of, amongst other things, the
benefits of diversity, including gender.
The Board has not established a specific diversity policy in respect of its membership but is cognisant of the benefits of a rich mix
of backgrounds, experience and skills. The present Board is 20% female versus 80% male (one female and four males). The Board
has not set any measurable objectives in respect of a diversity quota but appointments made to the Board in the past three years have
demonstrated our inclusive approach, which the Nomination Committee expects to maintain for any and all future appointments.
i Further disclosure of information in respect of diversity and equal opportunities policies for the Group is in the Sustainable and responsible
business report on pages 34 and 35.
Key issues and activities
This year saw significant changes to Board membership including a new Chair, a new CFO and a new Non-Executive Director.
Following the Strategic Review conducted during 2019 and the appointment of John Mills as CEO in October 2019, further changes to the
Board were implemented as described in the Committee’s report last year. Ian Tichias was appointed as CFO from 1 March 2020. Andrew
Herbert was appointed Chair of the Board on 1 April 2020 and Alison Littley was appointed as a Non-Executive Director on 1 May 2020.
Margaret Rice-Jones, Senior Independent Director and former chair of the Remuneration Committee, stood down as planned on 30 June
2020 leaving the Board comprising two Executive and three independent Non-Executive Directors (see pages 56 and 57).
The Committee has reviewed and concluded that, in the initial period of implementation of the new business strategy, and in the face
of stringent cost measures implemented elsewhere in the business, it is appropriate to maintain three rather than the previously
four independent Non-Executive Board members. This position remains under review by the Committee to ensure the Board and its
Committees maintain appropriate skills and experience and that the majority of the Board remains independent.
The Committee has considered organisational development and succession planning and, in association with the Remuneration Committee,
has worked alongside executive management in reviewing senior management development. A number of senior appointments have been
made during 2020 to strengthen the executive team as the Company rebuilds competencies appropriate to its new strategy.
GovernanceXaar plc Annual Report and Financial Statements 2020 77
Board appointments
The process adopted by the Committee in respect of any appointment to the Board is, firstly, to identify the specific skills and experience
sought and then, secondly, to conduct a search 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 is engaged. Even if a suitable internal candidate exists, 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
makes a formal offer of employment to the candidate.
In seeking a new Non-Executive Director during 2020, specifically with appropriate experience to take over the role of Chair of the
Remuneration Committee, we engaged the services of external search firm Independent Search Partnership to identify appropriate
candidates to fill this role. Independent Search Partnership have no other connection with the Group and are independent advisors.
The recruitment process concluded in April 2020 with the announcement of Alison Littley’s appointment. Alison took over as Chair of the
Remuneration Committee and Senior Independent Director on 1 July 2020 when Margaret Rice-Jones stood down from the Board.
As part of the recruitment process the Committee ensures appropriate disclosure of other demands on Directors’ time. The Board of
Directors’ profiles disclose any external appointments on pages 56 and 57. No Executive Directors have a non-executive role, 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.
Andrew Herbert
Chair of the Nomination Committee
GovernanceXaar plc Annual Report and Financial Statements 2020 78
Directors' Remuneration report
Statement from the Chairman of the Remuneration Committee
Dear Shareholder
On behalf of the Board, for the first time as Chair of the Remuneration Committee, I am pleased to present the Directors’ Remuneration
report for 2020. I would like to extend my gratitude to my predecessor, Margaret Rice-Jones, for her dedicated contribution and service as
the previous Chair of the Committee.
The Remuneration report is divided into three sections: the Chair’s introduction; a summary of the key elements of the Directors’
Remuneration Policy that was approved at the Annual General Meeting in 2020, and the Annual Remuneration Report, which explains how
the Remuneration Policy was implemented in 2020 and how it will be applied in 2021.
Performance outcomes for the year ended 31 December 2020
In light of the impact of the COVID-19 pandemic across global economies, 2020 was undoubtedly an extraordinary year for businesses, as
well as for us all personally. Whilst Xaar was not immune to the effects of the pandemic, we are pleased to report excellent progress. A
strong balance sheet, a well managed cash position and most importantly, the hard work of the team ensured Xaar continues to navigate
the current economic climate.
Under new leadership, excellent progress has been made refocusing the business on our core competencies and developing a strategy for
growth exploiting the fundamental strength of our bulk piezo inkjet technology. As detailed in the Chairman’s introduction implementation
of the new strategy continues to deliver positive customer engagement. Our Printhead business has performed strongly this year with
consistent wins of new customers and projects following successful shift in go-to-market strategy and focus on markets where products
have a competitive advantage. We have been particularly pleased with efficiency gains made in our Printhead operations, which resulted in
both improved gross margins and strong cash generation from more efficient use of working capital. Our ImagineX platform successfully
launched in September 2020 utilising investment in Thin Film IP, providing a clear product roadmap and compelling market opportunity.
Our Product Print Systems business (EPS) was impacted by a fall in demand through the worst of the pandemic, but remains a valuable
contributor to the Group with a strong order book and pipeline including several new target markets. The sale of Xaar 3D is at an advanced
stage to divest the Xaar 3D investment.
Revenue for the year from continuing operations was £48 million, in line with management expectations. Our balance sheet remains
strong with net cash excluding Xaar 3D of £18.1 million and positive net cash inflows (including treasury deposits) from continuing
operations of £7.1 million. Our share price has also increased significantly since January 2020. This performance has been delivered whilst
primarily operating in a remote working environment. A testament to the pro-active management and leadership of our CEO, John Mills
and our CFO, Ian Tichias and the commitment of all our people.
Annual bonus outturn for 2020
For the financial year ended 31 December 2020, the CEO and CFO were eligible for a maximum annual bonus of up to 125% and 100% of
base salary respectively. At the start of the year annual bonus targets were set based on performance against adjusted Group profit before
tax (50%), cash flow improvement (30%) and 3D revenue targets (20%).
Taking into account the impact of the launch of the new strategy in September 2020, the Committee carefully considered how the
performance goals set at the start of 2020 should be assessed:
• No changes were made to the stretching adjusted Group profit before tax targets set at the start of the year to reflect the Group’s focus
on improving the profitability of the Company and, in particular, the Printhead business unit
• The cash flow targets set reflect the importance of protecting the cash position of the business and improving operational cash flow.
Cash flow performance for 2020 bonus purposes was focused on operating cash flow from trading activities. Therefore, the cash
performance targets and actual results excluded residual cash payments made during 2020 in respect of commitments outstanding at
the end of 2019, following termination of the Thin Film development programme
• Reflecting the change in focus for the Xaar 3D business, from growing revenues, to an alternative ownership structure, the 3D revenue
target was replaced with strategic goals for the 3D business linked to working closely with Stratasys to continue to optimise the future of
the project.
The resulting overall bonus outcome for 2020 was 43.27% of the maximum bonus opportunity (£162,271 for the CEO and £75,726 for the
CFO). The Committee gave careful consideration to this outcome in respect of various internal and external factors including the fact that
no employee was furloughed or made redundant as a result of COVID-19 during 2020, and our share price has increased significantly over
the course of the year (see page 91 for further details) and concluded that this was consistent with the shareholder and wider workforce
experience during the year. Full disclosure of the bonus targets and outcomes is provided on pages 88 and 89.
In line with the new Remuneration Policy approved in 2020, 30% of the bonus earned will be deferred in shares and subject to a two-year
deferral period, with the balance delivered in cash. To provide further alignment with shareholders for 2020, the deferred element of bonus
earned based on the 3D strategic goals will be forfeited in the event that the Stratasys transaction does not complete and gain shareholder
approval by 30 June 2021.
Long-Term Incentive Plan (LTIP) awards for 2020
As detailed in the Remuneration report last year, the LTIP awards granted to John Mills and Ian Tichias during 2020 were set as a fixed
number of shares – 365,000 shares and 170,000 shares respectively. Based on the share price at the date of grant, the LTIP grants in
2020 equate to circa. 72% and 48% of salary for the CEO and CFO respectively. The 2020 LTIP grants were based on Adjusted EPS from
continuing operations performance for the final year of the three-year performance period (i.e. Adjusted EPS from continuing operations
for the year ending 31 December 2022) (60% of the award) and relative TSR performance against the companies in the FTSE SmallCap
Index (40% of the award) measured over a three-year performance period to 31 December 2022 (see page 79 for performance conditions).
In line with the UK Corporate Governance Code, there is a further two-year holding period following the end of the performance period.
GovernanceXaar plc Annual Report and Financial Statements 2020 79
Buy-out awards granted to Ian Tichias as compensation for awards forfeit
when he left his previous employer
Ian Tichias joined the Group as CFO on 1 March 2020. In accordance with our recruitment policy, the following awards were made in 2020 in
order to compensate him for losses he incurred when he joined Xaar as CFO.
• an annual bonus payment of £65,420 payable in cash on 24 April 2020; and
• an LTIP grant in April 2020 over 50,000 shares with a face value of £20,500 at the date of grant to compensate for options forfeited when
he left his previous employer. This award is subject to a performance condition of Xaar achieving an adjusted profit before tax measured
over the three-year performance period to 31 December 2022.
Implementation of the Policy in 2021
Base salaries
Executive Directors
The CEO’s salary was set at £300,000 on appointment in October 2019 and was not increased in 2020. The CFO’s salary was set at £210,000
on appointment in March 2020.
Reflecting the significant progress made during the year and the improved profitability of the Group, the Committee has determined that,
with effect from 1 January 2021, the base salary for John Mills will be increased to £315,000 and the base salary for Ian Tichias will be
increased to £220,500.
It is intended that future base salary increases that are higher than the general rises for employees will be phased over time and will be
subject to their continued performance and contribution in role, Group performance (including profitability) and overall positioning against
the market.
Non-Executive Directors
Fees for Non-Executive Directors will be increased by 2.5% with effect from 1 January 2021 which is aligned with the general increase
given to all employees.
2021 annual bonus
The maximum opportunity for the CEO and CFO will be unchanged at 125% and 100% of base salary respectively for 2021. The core
performance metrics of the bonus for 2021 are profit and cash generated from operations. 30% of any bonus earned will be deferred in
shares and subject to a two-year deferral period. The Committee has discretion to amend formulaic outputs such that in addition to overall
business performance, circumstances that were unexpected or unforeseen (or any other reasons at the discretion of the Committee) will
be considered.
Long-term incentives
Reflecting the strong recovery in our share price, the maximum LTIP award in 2021 will be capped at 150% of base salary for the CEO and
100% of salary for the CFO. 2021 LTIP awards will be based on Cumulative Adjusted EPS performance (60% of the award) and relative
TSR performance against the companies in the FTSE SmallCap Index (40% of the award). Cumulative Adjusted EPS and relative TSR
performance will be measured over a three-year performance period to 31 December 2023. As noted above, there is a further two-year
holding period following the end of the performance period.
TSR will operate as follows against the peer group (FTSE SmallCap Index):
• Threshold – ie 25% – at median performance with respect to peer group
• Target – straight line between threshold and maximum
• Maximum – at upper quartile performance with respect to peer group.
As for 2020, given the turnaround position of the Company, the Board considers that the EPS performance targets for the LTIP awards to
be granted in 2021 to be commercially sensitive information at this time but, as in past years, will fully disclose the exact measurements
retrospectively. We will revert to publishing any measurement targets in advance as we have done in the past as soon as possible.
Employee engagement
Our employee forum, comprising all three Non-Executive Directors and a group of employees drawn from both the Cambridge and
Huntingdon sites, has continued to engage while in a remote working environment. During 2020 a significant portion of time was spent on
the wellbeing and health and safety of our employees in addition to the launch of the new strategy for the business. Employees are drawn
from a wide range of functions to ensure all views are represented. They continued to meet with the Non-Executive Directors remotely
during 2020.
GovernanceXaar plc Annual Report and Financial Statements 2020 80
Directors' Remuneration report (cont.)
Shareholder engagement and voting outcomes
The Committee engages directly with major shareholders and their representative bodies, where it considers there to be material
changes to the Policy or our executive remuneration framework. The Committee consulted with major shareholders prior to the 2020
AGM on changes to the Policy and was very pleased to receive over 99% of votes in favour of both the Policy and the advisory vote on the
Remuneration report. We hope we will again receive your support for the resolutions relating to remuneration at the forthcoming AGM
We remain committed to a responsible approach to executive pay, as I trust this Directors’ Remuneration report demonstrates. We believe
that the Policy operated as intended and consider that the remuneration received by the Executive Directors in respect of 2020 was
appropriate, taking into account Group and personal performance and the experience of shareholders and employees.
As always, I am happy to meet or speak with shareholders if there are any questions or feedback on our approach to executive
remuneration, and I hope that we will earn your support at the forthcoming AGM on 16 June 2021.
Alison Littley
Chairman of the Remuneration Committee
27 April 2021
GovernanceXaar plc Annual Report and Financial Statements 2020
81
Directors’ Remuneration Policy
Our Directors’ Remuneration Policy was approved by shareholders at the 2020 AGM held on 2 June 2020, and is set out in full on pages 75
to 85 of the 2019 Annual Report and Accounts, which are available on the Company’s website at https://www.xaar.com/media/2182/xaar-
annual-report-2019-online-v2.pdf. We have set out below a summary of those parts of the Policy that we think shareholders will find the
most useful.
The Directors’ Remuneration Policy is not audited.
Policy table for Executive Directors
The table below summarises each of the elements of the remuneration package for the Executive Directors.
Base salary
Objective
Operation
Core element of fixed remuneration that provides the basis to recruit and retain talent necessary
to deliver the business strategy.
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 2021 are shown on page 94.
Performance measure
Not applicable.
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.
GovernanceXaar plc Annual Report and Financial Statements 2020 82
Directors' Remuneration report (cont.)
Retirement benefits
Objective
Operation
Provide an appropriate level of retirement benefit (or cash allowance equivalent) as part of a market-
competitive total remuneration package.
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
Company pension contribution (or cash allowance equivalent) not exceeding the contribution available to the
majority of the workforce (currently 6% of base salary).
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.
30% of any bonus will be deferred in shares and subject to a two–year deferral period. The balance is
delivered in cash.
Additionally, Directors may opt to invest in the Company SIP (refer to note 32 for details).
Opportunity
Overall maximum annual bonus is 125% of salary for Chief Executive Officer and 100% for Chief Financial
Officer and Chief Operations Officer. 50% of the maximum bonus can be earned for on-target performance.
Performance measures
The annual bonus is assessed against financial and/or strategic targets which are determined by the
Remuneration Committee. Stretching performance targets are set each year reflecting the business
priorities that underpin Group strategy.
The proposed performance measures for the 2021 annual bonus are adjusted profit before tax (70%) and
cash flow (30%).
The Committee may vary the weighting of these measures and could add alternative measures in future years.
GovernanceXaar plc Annual Report and Financial Statements 2020 83
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
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 applicable performance conditions. There will be a
further two-year holding period.
Vested LTIP options must be exercised within ten years of the date of grant. Under the rules of the LTIP, the
Remuneration Committee has discretion to satisfy vested LTIP awards in cash.
On the vesting/exercise of an LTIP award, the Remuneration Committee has the discretion to decide that
Executives can receive an amount (in cash or shares) equal to the dividends paid or payable between
the date of grant and the vesting of an award on the number of shares which have vested. However, the
Committee would only settle dividend equivalents for an Executive Director in cash where the particular
circumstances made that appropriate – for example in the event of a regulatory restriction on the delivery
of shares, or in respect of the tax arising on the vesting or release of the award.
Awards may vest early on a change of control (or other relevant event) subject to the satisfaction of the
performance conditions (as determined by the Remuneration Committee) and pro-rating for the LTIP was
previously approved by shareholders in April 2007.
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.
For threshold performance, 25% of award will vest.
Straight-line vesting applies between threshold and maximum vesting.
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 2021 LTIP award will be measured based on:
• Cumulative Adjusted EPS – 60%
• The Company’s relative TSR performance against the companies in the FTSE Small Cap All-Share
Index – 40%
• Cumulative Adjusted EPS and relative TSR performance will be measured over a three-year performance
period to 31 December 2023.
The Remuneration Committee retains the discretion to alter the weighting of measures and to apply
alternative or additional measures in future years.
GovernanceXaar plc Annual Report and Financial Statements 2020 84
Directors' Remuneration report (cont.)
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 200%
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 shareholdings is to apply the “leaver” provisions under the Company’s share
plans as regards both unvested awards and awards which are vested but subject to a holding period.
Malus, clawback and underpin provisions
The Remuneration Committee has the right to:
• Reduce any LTIP awards which have not yet vested (i.e. a malus provision) if an act or omission contributes to a material misstatement
of the Group’s financial statements or results in material loss or reputational damage for the Company
• Recover cash or shares which have been paid or transferred (i.e. a clawback provision) in the event of a corporate failure, serious
misconduct or an act or omission contributes to a material misstatement of the Group’s financial statements or results in material loss
or reputational damage for the Company, for a period up to two years following determination of the vesting outcome
• Apply an underpin to LTIP vesting and bonus achievement and to flex the weighting of performance measure in the event of early vesting
as a result of change of control.
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; and
• 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 and the Chief Executive Officer. 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.
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 are set as a fixed annual fee and 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.
GovernanceXaar plc Annual Report and Financial Statements 2020 85
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 an HMRC approved SAYE and invites all employees to participate, therefore encouraging wider workforce share
ownership.
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
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.
Andrew Herbert
Alison Littley
Chris Morgan
Date of letter of appointment
Date of appointment
Unexpired term of contract
on 31 December 2020
15 April 2016
22 April 2020
2 December 2015
1 June 2019
1 May 2020
4 January 2019
18 months
28 months
12 months
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.
GovernanceXaar plc Annual Report and Financial Statements 2020
86
Directors' Remuneration report (cont.)
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.
• The Committee engages directly with major shareholders and their
representative bodies where it considers there to be material changes to
the Policy or our executive remuneration framework to ensure there is
transparency on our Policy and its implementation
Simplicity
Remuneration structure should avoid complexity
and its 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, values
and strategy.
• Employees have a forum where they can raise questions and give feedback
about the Remuneration Policy directly to the Non-Executives.
• A core reward principle of our Policy is to operate a simple and transparent
framework which can be readily cascaded
• The remuneration framework is made up of three key elements: fixed pay
(including base salary, retirement and benefits); annual bonus; and a separate
long-term incentive
• The structure is simple to understand for both participants and shareholders,
and is aligned to the strategic priorities for the business.
• Annual bonus and LTIP targets are set at levels which reward high
performance, but which do not encourage inappropriate business risk
• Both the annual bonus and LTIP are subject to malus and clawback provisions.
This allows the Committee to have appropriate regard to risk considerations
• Annual bonus deferral and the application of the two-year holding period to
awards under the LTIP provide longer-term alignment with shareholders’
interests
• The Committee also has discretion to override formulaic outcomes, which may
not accurately reflect the underlying performance of the Group.
• The range of possible pay awards available to Executive Directors under the
current Policy were clearly set out in the 2020 Directors’ Remuneration report
prior to the Policy being voted on.
• We believe total remuneration should fairly reflect performance of the
Executive Directors and the Group as a whole, taking into account underlying
performance and shareholder experience
• The Committee considers the approach to wider workforce pay and policies
when determining the Directors’ Remuneration Policy to ensure that it is
appropriate in this context.
• The Board is focused on ensuring a healthy culture exists across the entire
Group which supports our focus on delivery of commitments, innovation,
continuous improvement and being open and transparent. We believe that
the Executive Directors and wider management team set the standards for
behaviour and conduct across the Group
• Our incentive schemes are aligned with our strategy to return to sustainable
long-term growth and profitability.
GovernanceXaar plc Annual Report and Financial Statements 2020 87
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 2020.
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 2020 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 2020
Executive
John Mills
Ian Tichias1
Non-Executive
Andrew Herbert (Chairman)2
Alison Littley3
Chris Morgan
Robin Williams4
Margaret Rice-Jones5
Year ended 31 December 2019
Director
Executive
John Mills6
Doug Edwards7
Non-Executive
Robin Williams (Chairman)
Margaret Rice-Jones
Chris Morgan
Andrew Herbert
Salary/fees(a)
£’000
Benefits(b)
£’000
bonus(c)
£’000
Bonus(d)
£’000
Others(e)
£’000
Pension(f)
£’000
Performance
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
300
175
80
32
48
23
25
27
36
–
–
–
–
–
162
76
–
–
–
–
–
–
66
–
–
–
–
–
4
4
–
–
–
–
–
18
11
–
–
–
–
–
511
368
80
32
48
23
25
345
288
80
32
48
23
25
166
80
–
–
–
–
–
Salary/fees
£’000
Benefits
£’000
Bonus
£’000
Others
£’000
Pension
£’000
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
67
271
102
48
44
47
6
59
–
–
–
–
46
–
–
–
–
–
–
–
–
–
–
–
3
27
–
–
–
–
122
357
102
48
44
47
122
357
102
48
44
47
–
–
–
–
–
–
Shomit Kenkare8
Salary/fees(a)
$’000
294
Benefits(b)
$’000
Bonus(c)
$’000
Others(d)
$’000
Pension(e)
$’000
Total
remuneration
$’000
Total fixed
remuneration
$’000
Total variable
remuneration
$’000
32
–
–
29
356
356
–
1 Ian Tichias joined the Board on 1 March 2020.
2 Andrew Herbert became Chairman on 1 April 2020.
3 Alison Littley joined the Board on 1 May 2020.
4 Robin Williams stepped down as Chairman on 31 March 2020.
5 Margaret Rice-Jones stepped down from the Board on 30 June 2020.
6 John Mills became CEO and joined the Board on 11 October 2019.
7 Doug Edwards stepped down from the Board on 11 October 2019.
8 Shomit Kenkare stepped down from the Board on 31 December 2019 and his salary was paid in US Dollars.
GovernanceXaar plc Annual Report and Financial Statements 2020
88
Directors' Remuneration report (cont.)
The figures in the single figure table on page 87 are derived from the following:
(a) Salary/fees
The amount of base salary/fees received in the year.
(b) Benefits
This is the taxable value of benefits and the flexible benefits allowance received in the year.
This includes any relocation allowance claimed in 2020.
(c) Performance bonus
(d) Bonus
(e) Others (LTIPs and SAYE)
The value of the bonus earned in respect of the year. 30% of the bonus earned will be deferred in shares and
subject to a two-year deferral period with the balance delivered in cash. To provide further alignment with
shareholders, the deferred element of bonus earned based on the 3D strategic goals will be forfeited in the
event that the transaction does not complete by 30 June 2021.
The value of any other bonus; for Ian Tichias, this is a bonus payment of £65,420 to compensate him for
remuneration forfeit when he joined Xaar as CFO.
The value of performance related incentives vesting in respect of the financial year and the value
of SAYE options granted based on the fair value of the options/shares at grant.
The Performance Share Awards granted under the LTIP in April 2018 to former Executive Directors have
lapsed. The current Executive Directors did not hold LTIPs that would have vested in respect of the financial
year ending 31 December 2020.
(f) Pension
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
The CEO’s salary was set at £300,000 on appointment in October 2019 and was not increased in 2020. The CFO’s salary was set at £210,000
on appointment in March 2020.
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.
Benefits include any relocation allowance claimed in 2020. Ian Tichias was given relocation cost assistance to the value of £18,000.
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. Non-Executive
Directors do not receive pension contributions.
Annual bonus
For the financial year ended 31 December 2020, the CEO and CFO were eligible for a maximum annual bonus of up to 125% of base salary
and 100% of base salary respectively. Annual bonus targets were set based on performance against adjusted Group profit before tax (50%),
cash flow improvement (30%) and 3D revenue targets (20%).
As discussed in the statement from the Chairman of the Remuneration Committee, taking into account the impact of the launch of the new
strategy in September 2020, the Committee carefully considered how the performance goals set at the start of 2020 should be assessed.
Reflecting the change in focus for the Xaar 3D business from growing revenues to an alternative ownership structure, the 3D revenue
target was replaced with strategic goals of the 3D business. Details of the bonus targets and outcomes are shown in the table below.
Adjusted Group PBT*
Cash flow from operations**
Weighting
50%
30%
Threshold
(0% of
maximum vests)
Target
(50% 0f
maximum
vests)
Maximum
(100% vesting)
Actual
% of maximum
vesting
(£12.3m)
(£8.2m)
(£2.7m)
(£10.6m)
25.13%
(£3.3m)
–
£4.4m
£1.7m
69.03%
Strategic goals for Xaar 3D
20% Performance out-turn based on Committee’s assessment of
50%
progress with product development and testing in Xaar 3D
and working closely with Stratasys to optimise the approach
to commercialisation of the product range. The Committee
determined that an on-target performance against these
strategic goals for the 3D business was merited.
Overall out-turn
43.27%
* The Adjusted Group PBT target is the adjusted loss before tax from continuing operations as defined in note 4, plus the adjusted loss before tax for Xaar 3D.
** The cash performance targets and actual results excluded residual cash payments made during 2020 in respect of commitments outstanding at the end of 2019, following
termination of the Thin Film development programme.
GovernanceXaar plc Annual Report and Financial Statements 2020 89
The bonus out-turns for 2020 are detailed in the table below.
John Mills
Ian Tichias
% of
maximum
opportunity
vesting
43.27%
43.27%
% of salary
Total
Cash
54.09%
43.27%
£162,271
£75,725
£113,588
£53,008
Deferred
shares**
£48,680
£22,718
** In line with the new Remuneration Policy approved in 2020, 30% of the bonus earned will be deferred in shares and subject to a two-year deferral period with the balance delivered
in cash. To provide further alignment with shareholders, the deferred element of bonus earned based on the 3D strategic goals will be forfeited in the event that the transaction
does not complete by 30 June 2021.
The Committee gave careful consideration to this outcome in respect of various internal and external factors including the fact that no
employee was furloughed or made redundant as a result of COVID-19 during 2020, our share price has increased significantly over the
course of the year, revenue for the year was £48 million in line with management expectations and excellent progress has been made
refocusing the business on our core competencies and developing a strategy for growth exploiting the fundamental strength of our bulk
piezo inkjet technology
Long-term incentives awarded during the financial year
The table below outlines awards made under the LTIP to Executive Directors in 2020:
Award basis
Performance
condition
Number
of shares
Face value
of the award2
£’000
Vesting
at threshold
Performance
period
Vesting date
4 June 2023
4 June 2020
John Mills
29 April 20201
4 June 2020
Ian Tichias
Performance
Share Plan
awards
Performance
Share Plan
awards
EPS & TSR
365,000
aPBT
50,000
EPS & TSR
170,000
215
21
100
25% of award
1 January 2020 to
31 December 2022
25% of award
1 January 2020 to
31 December 2022
29 April 2023
4 June 2023
1 LTIP awards were granted to Ian Tichias in April 2020 over 50,000 shares at £0.41 (being the mid-market price on the preceding day) with a face value of £20,500 at the date of
grant. This was to compensate for options forfeited when he left his previous employer. This award is subject to a performance condition of Xaar achieving an adjusted profit before
tax measured over the three-year performance period to 31 December 2022.
2 The share price used to calculate the face value of the Performance Share award granted on 4 June 2020 was £0.59 being the mid-market price on the day prior to award date.
As detailed in the Remuneration report last year, the LTIP awards granted to John Mills and Ian Tichias during 2020 were set as a fixed
number of shares – 365,000 shares and 170,000 shares respectively. Based on the share price of £0.59 at the date of grant, the LTIP grants
in 2020 equate to circa. 72% and 48% of salary for the CEO and CFO respectively. The 2020 LTIP grants were based on Adjusted EPS
performance for the final year of the three-year performance period (i.e. Adjusted EPS for the year ending 31 December 2022) (60% of the
award) and relative TSR performance against the companies in the FTSE SmallCap Index (40% of the award) measured over a three-year
performance period to 31 December 2022 (performance conditions disclosed on page 79). In line with the UK Corporate Governance Code,
there is a further two-year holding period following the end of the performance period. Given the turnaround position of the Company, the
Board considers the EPS performance targets for the LTIP awards granted in 2020 to be commercially sensitive information at this time
but, as in past years, will fully disclose the exact measurements retrospectively.
GovernanceXaar plc Annual Report and Financial Statements 2020
90
Directors' Remuneration report (cont.)
Shareholding guidelines and total shareholdings of Directors
On 16 May 2017, the Remuneration Committee introduced a shareholding guideline of 200% 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 extent to which each Executive Director has met the shareholding guideline is shown in the table below:
Name
Executive Directors
John Mills
Ian Tichias
Non-Executive Directors
Andrew Herbert
Robin Williams (Resigned 31 March 2020)
Margaret Rice-Jones (Resigned 30 June 2020)
Shareholding
guidelines
Current
shareholdings
(% of salary)
Type Owned outright
Vested
Subject to
performance
conditions
Not subject to
performance
conditions
Total as at
31 December
2020
Unvested
200% of
salary
200% of
salary
(74%)
(42%)
Shares
LTIP options
Shares
LTIP options
125,000
–
50,000
–
Shares
100,000
Shares
10,000
Shares
5,700
–
–
–
–
–
–
–
–
545,328
–
220,000
–
–
–
–
5,294
–
5,294
–
–
–
125,000
550,622
50,000
225,294
100,000
10,000
5,700
Shares valued at closing price on 31 December 2020 (£1.78) and salaries at 31 December 2020 (CEO £300,000 and CFO £210,000).
There have been no changes in the Directors’ holdings in the share capital of the Company, as set out in the table above, between
31 December 2020 and 27 April 2021. Chris Morgan and Alison Littley hold no shares or options in Xaar plc. These figures do not include
the 30% of the bonus earned that will be deferred in shares and subject to a two-year deferral period with the balance delivered in cash.
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 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 this report.
Name
John Mills
Ian Tichias
As at
1 January
2020 (1)
180,328
–
365,000
180,328
365,000
–
–
–
50,000
170,000
220,000
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
As at
31 December
2020
Share price
at date
of grant
Grant date
Earliest date
of exercise
Expiry date
–
–
–
–
–
–
–
–
–
–
–
180,328
4 October 2019
£0.452
4 October 2022
4 October 2029
365,000
4 June 2020
£0.59
4 June 2025
4 June 2030
545,328
50,000
29 April 2020
£0.41
29 April 2023
29 April 2030
170,000
4 June 2020
£0.59
4 June 2025
4 June 2030
220,000
(1) 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
three-year vesting period.
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 scheme has
not been used since 2017 but may be used at an appropriate point in the future. 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
John Mills
Ian Tichias
As at
1 January
2020
–
–
Granted
during
the year
5,294
5,294
Lapsed
during
the year
Exercised
during
the year
As at
31 December
2020
Grant date Exercise price
Earliest date of exercise
Expiry date
–
–
–
–
5,294
2 November 2020
£1.02
2 November 2023
2 May 2024
5,294
2 November 2020
£1.02
2 November 2023
2 May 2024
GovernanceXaar plc Annual Report and Financial Statements 2020
91
Payments for loss of office made during the year
No payments for loss of office were made in 2020.
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 All Share Index and FTSE SmallCap Index (of which Xaar is now a member), which the Remuneration Committee
considers to be the most appropriate indices 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
l
a
V
500
400
300
200
100
0
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Xaar
FTSE TechMARK All Share
FTSE Small Cap
This graph shows the value, by 31 December 2020, of £100 invested in Xaar on 31 December 2010, compared with the value
of £100 invested in the FTSE TechMARK All Share and FTSE SmallCap Indices on the same date.
The other points plotted are the values at intervening financial year-ends.
Source: Datastream (Thomson Reuters).
This graph shows the value, by 31 December 2020, of £100 invested in Xaar on 31 December 2010, 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.
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 2020
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
Total
remuneration
Annual bonus
as a %
of maximum
opportunity
LTIP as a %
of maximum
opportunity
511
122
357
502
594
429
571
562
1,379
649
1,244
43.27%
0%
0%
12%
0%
12.5%
48%
0%
83%
53%
100%
n/a
0%
0%
0%
50%
0%
0%
100%
100%
100%
100%
1. Doug Edwards was CEO from 1 January until 10 October 2019, and John Mills was CEO from 11 October to 31 December 2019.
2. John Mills did not earn a performance bonus in respect of 2019. He received a buy-out bonus to compensate him for loss of income to join Xaar.
GovernanceXaar plc Annual Report and Financial Statements 2020
92
Directors' Remuneration report (cont.)
Percentage change in Directors’ remuneration
The table below shows the percentage change in each Director’s salary/fees, benefits and bonus and average remuneration of full-time
employees on a full-time equivalent basis between the year ended 31 December 2019 and the year ended 31 December 2020, and the
average percentage change in the same remuneration over the same period in respect of the employees of the Company on a full-time
equivalent basis.
Ian Tichias and Alison Littley were appointed to the Board during 2020 and, accordingly, have been excluded from the table below.
For the purposes of the table below, the average employee has been defined as being within 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.
Year
John Mills
Salary/Fees
Benefits
Bonus
2020
2019
% increase
2020
2019
% increase
2020
2019
% increase
300,000
300,000
-
27,000
27,000
162,271
205,970
(21%)
Andrew Herbert
80,000
47,000
70%
Robin Williams (Chairman)
90,000
102,000
(12%)
Margaret Rice-Jones
49,000
48,000
Chris Morgan
48,250
44,000
2%
10%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
n/a
Comparator employee group
38,779
37,833
2.5%
1,163
1,135
2.5%
2,675
1. John Mills – became CEO on 11 October 2019, therefore 2019 salary, benefits and bonus figures have been annualised to provide comparison.
2. Andrew Herbert became Chairman on 1 April 2020 and received an annual fee of £90,000 from this date. Remuneration prior to this date and during 2019 was as a Non-Executive
Director.
3. Robin Williams stepped down in March 2020. His fees have been annualised to provide comparison (and reflect the agreement that the Chairman fees would be reduced to £90k
p.a. in 2020).
4. Margaret Rice Jones stepped down on 30 June 2020. Her 2020 fees have been annualised to provide a comparison.
5. Average employee – Full-time equivalent median employee of Xaar plc. Zero bonus in 2019.
6. Ian Tichias – joined Xaar as CEO on 1 March 2020. No comparison is possible to 2019.
7. Alison Littley joined the Board on 1 May 2020 so there is no 2019 data to compare.
GovernanceXaar plc Annual Report and Financial Statements 2020 93
CEO pay gap ratio
The following table sets out the ratio of the CEO’s total remuneration in respect of FY20 (taken from the single figure table on page 87) to
the 25th percentile, 50th percentile (i.e. the median) and the 75th percentile full-time equivalent (FTE) of the Group’s UK employees. In line
with the applicable regulations, the corresponding ratios for 2019 are also included. The basis for the 2019 CEO total remuneration was
based on the sum of the two CEOs that served during that year.
Year
2020
2019
Method
25th percentile
Median pay ratio
75th percentile
Option A
Option A
15:1
17:1
11:1
12:1
8:1
8:1
The median and quartile figures have been determined based on Option A as this was stated in government guidance as the most
statistically accurate method. Remuneration for other employees for the purposes of the calculations was as at 31 December in each year.
In line with the applicable regulations, we have set out below for the same employee percentiles (and for the CEO) their total remuneration
in respect of 2019 and 2020 and the salary component of that remuneration.
Year
2020
2019
CEO total remuneration
(salary component of
total remuneration)
25th percentile
employee total
remuneration (salary
component of total
remuneration)
Median employee total
remuneration (salary
component of total
remuneration)
75th percentile
employee total
remuneration (salary
component of total
remuneration)
£511k
(£300k)
£479k
(£338k)
£33k
(£29k)
£28k
(£26k)
£46k
(£34k)
£39k
(£33k)
£64k
(£50k)
£57k
(£52k)
The reduction in the 2020 pay ratios relative to the 2019 pay ratios is attributable to a change in the remuneration of the CEO and the
employees receiving a bonus for the 2020 performance. The Committee believes the median pay ratio is consistent with the pay, reward
and progression policies for the UK employees taken as a whole.
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 2020.
Dividends paid to shareholders
Group-wide expenditure on pay for all employees (note 9)
2020
£’000
–
21,629
2019
£'000
–
25,416
Change %
–
(15%)
GovernanceXaar plc Annual Report and Financial Statements 2020 94
Directors' Remuneration report (cont.)
Implementation of Directors’ Remuneration Policy for the financial year commencing
1 January 2021
Information on how the Company intends to implement the Policy for the financial year commencing 1 January 2021 is set out in the
statement from the Chairman of the Remuneration Committee and is summarised below.
Basic salary and fees
The proposed base salary increases for the Executive Directors are shown below:
John Mills
Ian Tichias
Review date
2020
2021
% increase
1 Jan 2021
1 Jan 2021
£300,000
£210,000
£315,000
£220,500
5%
5%
As explained in the statement from the Chairman of the Remuneration Committee these increases reflect the significant progress made
during the year under the leadership of John Mills and Ian Tichias, the improved profitability of the Group and the increased size of the
Group.
Fees for Non-Executive Directors will be increased by 2.5% with effect from 1 January 2021 which is aligned with the general increase
given to all employees.
Andrew Herbert
Alison Littley
Chris Morgan
Chairman
Rem Com & SID
Audit Committee & 3D
£4,000
£4,000
1 Jan 2021
1 Jan 2021
1 Jan 2021
£90,000
£45,000
£45,000
£92,250
£46,125
£46,125
2.5%
2.5%
2.5%
Additional duties
Additional fees
Review date
2020
2021
% increase
Annual bonus
The maximum opportunity for the CEO and CFO will be unchanged at 125% and 100% of base salary respectively for 2021. The
performance metrics for the bonus for 2021 are adjusted Group profit before tax (70%) and cash generated from operations (30%).
30% of any bonus earned will be deferred in shares and subject to a two-year deferral period. The Committee has discretion to amend
formulaic outputs such that in addition to overall business performance, circumstances that were unexpected or unforeseen (or any other
reasons at the discretion of the Committee) will be considered.
The Board considers the Group profit and cash targets for 2021 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
Reflecting the strong recovery in our share price, the maximum LTIP award in 2021 will be capped at 150% of base salary for the CEO and
100% of salary for the CFO . 2021 LTIP awards will be based on:
1. Cumulative Adjusted EPS performance (60% of the award); and
2. Relative TSR performance against the companies in the FTSE SmallCap Index (40% of the award).
Cumulative Adjusted EPS and relative TSR performance will be measured over a three-year performance period to 31 December 2023 with
a further two-year holding period following the end of the performance period.
As for 2020, given the turnaround position of the Company, the Board considers the EPS performance targets for the LTIP awards to be
granted in 2021 to be commercially sensitive information at this time but, as in past years, will fully disclose the exact measurements
retrospectively. We will revert to publishing any measurement targets in advance as we have done in the past as soon as possible. The
performance conditions in relation to the TSR benchmark and performance are disclosed on page 79.
GovernanceXaar plc Annual Report and Financial Statements 2020
95
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.
Please see the tables on page 71 for details of the Committee members in the year and the number of Committee meetings attended.
The Remuneration Committee is currently chaired by Alison Littley. The other members during the year ended 31 December 2020 were
Andrew Herbert and Chris Morgan. All members of the Remuneration Committee are considered independent within the meaning of the
UK Corporate Governance Code.
Role and responsibilities of the Remuneration Committee
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 taking into account workforce related pay and policies and the alignment of incentives and rewards with culture
• To determine, on behalf of the Board, the specific remuneration and other benefits of Executive Directors, senior management and the
Company Secretary (including pension contributions, bonus arrangements, long-term incentives and service contracts)
• To review the design of all share incentive plans and oversee any major changes in employee benefit structures
• To ensure appropriate stakeholder input into the work of the Committee with specific focus on employees through regular employee
engagement.
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.
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 directorship outside the Group.
Key issues and activities
The key activities of the Remuneration Committee during 2020 are shown below:
Remuneration Committee’s key activities in 2020
Executive Directors’ and
senior management
remuneration
Share incentives plans
Governance
Wider workforce
Assess 2019 bonus and LTIP outcomes
Set the remuneration for the Executive Directors, senior management and the Company Secretary
Agree the remuneration package for Ian Tichias on his appointment as CFO on 1 March 2020
Finalise and approve 2020 bonus and 2020 LTIP targets
Review update on market practice and corporate governance
Review of Executive Director shareholdings against shareholding guidelines
Review the impact of the launch of the new strategy and consider how the performance goals set at the start of
2020 should be assessed
Review eligibility for LTIP awards
Approve grant of LTIP awards
Approve grant of SAYE awards
Engagement with shareholders on the new Remuneration Policy approved by shareholders at the 2020 AGM
Consider and approved the Annual Report on Remuneration
Consider the background of COVID-19 and its impact on remuneration
Review proposed annual pay increases for the wider workforce
Review proposed bonus payments for the wider workforce
Agree improved processes for the Remuneration Committee to monitor wider workforce pay and policies
GovernanceXaar plc Annual Report and Financial Statements 2020 96
Directors' Remuneration report (cont.)
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 financial year, the Committee received independent advice from Deloitte LLP, which was appointed by the Committee, in
relation to the Committee’s consideration of matters relating to Directors’ remuneration. Deloitte LLP was appointed in 2019 following
a formal tender process. Fees for advice provided to the Remuneration Committee during the year were £8,000. Fees were charged
on a time and disbursements basis.
Deloitte LLP is a member of the Remuneration Consultants Group and voluntarily operates under its code of conduct in its dealing
with the Remuneration Committee. The Remuneration Committee continued to review the appointment of Deloitte LLP and is satisfied
that all advice received was objective and independent.
Deloitte also provide advice to the Company on the operation of its employee share plans.
Shareholder voting
The following table sets out actual voting in respect of the resolution to approve the Directors’ Remuneration report for the year ended
31 December 2019 and in respect of the resolution to approve the Directors’ Remuneration Policy approved at the 2020 AGM.
Number of votes
Resolution 8 – Directors’ Remuneration report for the year ended 31 December 2019
Resolution 13 – Directors’ Remuneration Policy
Approval
This report was approved by the Board on 27 April 2021 and signed on its behalf by:
For (including)
discretion)
50,592,544
(99.88%)
50,592,544
(99.41%)
Against
Withheld
58,713
(0.12%)
299,077
(0.59%)
261,809
21,445
Alison Littley
Remuneration Committee Chairperson
GovernanceXaar plc Annual Report and Financial Statements 2020
Directors’ responsibilities statement
97
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 Accounting Standards in conformity with the requirements of
the Companies Act 2006 (‘IFRSs’) 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 FRS 101 has 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 Company will continue in
business.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
• Select and apply accounting policies in accordance with IAS 8
• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information
• Provide additional disclosures when compliance with the specific requirements in 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 Group’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 Group’s and Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to
ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Group and the Company 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.
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.
The Directors of Xaar plc are listed on pages 56 and 57.
This responsibility statement was approved by the Board of Directors and is signed on its behalf by:
John Mills
Chief Executive Officer
27 April 2021
GovernanceXaar plc Annual Report and Financial Statements 2020 98
Independent 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 2020 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in 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.
We have audited the financial statements of Xaar plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2020 which comprise:
Group
Parent company
Consolidated statement of financial position as at
31 December 2020
Balance sheet as at 31 December 2020
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 11 to the 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 Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting
Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in 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.
We are independent of the group 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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 99
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to
continue to adopt the going concern basis of accounting included:
• We understood the process undertaken by management to perform the going concern assessment, including the evaluation of the
ongoing impact of COVID-19 on the Group and the Group’s access to available sources of liquidity;
• We obtained management’s going concern assessment, including the cash flow forecasts for the going concern period to 30 April 2022.
The Group has modelled a base case which is consistent with the assumptions used in the Group’s impairment assessments (adjusted
to exclude the consideration expected to be received on the 3D disposal); a downside scenario which assumes the proposed sale of the
Xaar 3D business doesn’t go ahead; and a reverse stress test based on liquidity in order to determine how much additional downside
in trading could be absorbed before the cash and cash equivalents run out. No debt facilities are in place, nor required in any of these
scenarios.
• We evaluated the key assumptions underpinning the Group’s forecasts. In particular, we compared the trading projections in
management’s base case and downside scenario to the Group’s performance including contracted order book and pipeline since the
onset of the COVID-19 pandemic;
• We considered the results of management’s reverse stress test scenario and independently calculated what changes to key assumptions
would result in the Group having insufficient cash and cash equivalents. We also considered mitigating actions such as reducing non-
essential capital expenditure, assessing whether they were within management’s control and whether they were supported by the actual
mitigation achieved in response to COVID-19, to date. We considered whether the combination of changes to key assumptions could
plausibly lead to the Group’s liquidity being eliminated within the period assessed;
• We tested the clerical accuracy of the models used to prepare the Group’s going concern assessment; and
• We assessed the appropriateness of the Group’s disclosures concerning the going concern basis of preparation.
We observed that whilst the Group reported a loss after tax for the year ended 31 December 2020 of£14.7m (2019: £71.7m), a significant
portion of this was the loss from discontinued operations after tax of £10.3m (2019: £57.3m). As set out in Note 37 and the Strategic Update
(page 11), the Group are expecting to sell their remaining stake in Xaar 3D, which is the rationale for the two going concern scenarios noted
above. The consideration for this transaction has been excluded from both scenarios. The net decrease in cash and cash equivalents for
the year ended 31 December 2020 was £4.7m (2019: net increase of £0.3m), resulting in a closing cash and cash equivalents at
31 December 2020 of £20.1m (2019: £24.8m). The Group were debt free at the Balance Sheet date and across the forecast period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern over the period to
30 April 2022.
In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability
to continue as a going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of four components and audit procedures
on specific balances for a further seven components.
• The components where we performed full or specific audit procedures accounted for 100% of Revenue,
100% of adjusted Loss before tax, and 100% of Total assets.
Key audit matters
• Revenue recognition
• Carrying value of goodwill and intangible assets
• Recoverability of receivables
• Consolidation of Xaar 3D
• Valuation of inventory
• EPS significant deficiencies
Materiality
• Overall group materiality of £240,000 which represents 0.5% of revenue.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 100
Independent auditor’s report (cont.)
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
each company 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 company.
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 14 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 four components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining seven 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% (2019: 100%) of the Group’s Revenue, 100% (2019:
100%) of the Group’s adjusted Loss before tax and 100% (2019: 100%) of the Group’s Total assets. For the current year, the full scope
components contributed 93% (2019: 98%) of the Group’s Revenue, 95% (2019: 99%) of the Group’s adjusted Loss before tax and 97% (2019:
100%) of the Group’s Total assets. The specific scope components contributed 7% (2019: 2%) of the Group’s Revenue, 5% (2019: 1%) of the
Group’s adjusted Loss before tax and 3%(2019: 0%) of the Group’s Total assets. The audit scope of these 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 three components were not 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.
Changes from the prior year
There is no significant change in the overall coverage from full and specific scope components. Five components that were designated as
full scope in the prior year have been designated as specific scope in the current year. These were designated as full scope in the prior
year given we were also engaged as statutory auditor, however as detailed in note 38, the subsidiary audit exemption has been taken in the
current year, hence we have only performed the procedures on these components necessary to support the Group audit opinion.
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 101
Key observations communicated to
the Audit Committee
Revenue was recognised in accordance with
the Group’s accounting policies following the
correction of audit adjustments identified
in the EPS business and we identified no
evidence of management override in respect
of inappropriate manual journals recorded
in revenue.
In respect of the EPS business and revenue
recognised over time we identified a
significant deficiency in internal control as
summarised in the related Key Audit Matter
below.
Risk
Our response to the risk
Revenue recognition (£48.0 million
– continuing operations, 2019: £49.4
million – continuing operations)
Refer to the Audit Committee Report
(page 73); Accounting policies (page 116);
and note 5 of the Consolidated Financial
Statements (page 127).
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 group 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.
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.
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.
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 considering
recent collection history and the ageing
of receivables.
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 assess whether, where the
credit note relates to the audit period, 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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 102
Independent auditor’s report (cont.)
Risk
Our response to the risk
Key observations communicated to
the Audit Committee
Revenue recognition (£48.0 million
– continuing operations, 2019: £49.4
million – continuing operations)
continued
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 103
Key observations communicated to
the Audit Committee
We agree with management’s conclusion
that no impairment of goodwill is required
in the current year.
We have concluded that the methodology
applied is reasonable, that the forecast
period is appropriate and that management’s
models are mathematically accurate.
The additional sensitivity disclosures in
note 14 of the Group financial statements
adequately reflect that a reasonably possible
change in certain key assumptions could
lead to a different conclusion in respect of
the recoverability of goodwill.
Risk
Our response to the risk
Carrying value of goodwill and intangible
assets (£5.4 million, 2019: £10.9 million)
Refer to the Audit Committee Report
(page 73); Accounting policies (page 121);
and note 15 of the Consolidated Financial
Statements (page 137).
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
and recent trading losses, 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, did not 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
and impact of COVID-19 to date and over the
forecast period.
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.
We audited the related disclosures with
reference to the requirements of IAS 36 and
confirmed their consistency with the audited
impairment models.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Key observations communicated to
the Audit Committee
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.
104
Independent auditor’s report (cont.)
Risk
Our response to the risk
Recoverability of receivables (£6.2
million net of provisions of £0.6 million,
2019: £6.4 million net of provisions of
£8.0 million)
Refer to the Audit Committee Report
(page 73); Accounting policies (page 122);
and note 21 of the Consolidated Financial
Statements (page 141).
Whilst the majority of aged open balances
are fully provided, 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.
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
2020, 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 assessed the adequacy of management’s
provision for expected credit losses by
reviewing recent historical losses with
consideration given to current trading
conditions and potential future losses.
We recalculated managements provision,
testing related inputs as appropriate.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 105
Key observations communicated to
the Audit Committee
We agree with management’s judgement
that Xaar continues to control the 3D
business as at 31 December 2020.
The inventory provisions have been
appropriately updated to reflect the impact
of the latest strategic review and resulting
future recoverable amount.
In respect of the EPS business and inventory
management, we identified a significant
deficiency in internal control as summarised
in the related Key Audit Matter below.
Risk
Our response to the risk
Consolidation of Xaar 3D
Refer to the Audit Committee Report
(page 73); Accounting policies (page 116);
and note 22 of the Consolidated Financial
Statements (page 144).
Management judgement is required as to
whether the Group still controls Xaar 3D
Limited and consequently whether the
Group should continue to consolidate Xaar
3D in accordance with IFRS 10, given that
Stratasys has a 45% shareholding and
a call option to purchase the remaining
share capital at any point over a three-year
period to December 2022.
Further consideration was required as to
whether the held for sale classification
at the year end impacts upon the control
conclusion.
As detailed in note 2, management
concluded that the Group continues to
control Xaar 3D and should therefore
continue to consolidate the business
in the Group financial statements.
Valuation of inventory (£10.4 million
including provision of £24.6 million, 2019:
£16.2 million including provision of £21.3
million)
Refer to the Audit Committee Report
(page 73); Accounting policies (page 122);
and note 20 of the Consolidated Financial
Statements (page 141).
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 have obtained and reviewed management’s
accounting paper and the signed shareholder
agreement setting out their control
conclusion as at the year end. We have
compared the content of this paper 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 considered
whether there have been any changes to the
relevant activities, including specifically the
following areas:
• Whether the written call option was in the
money and likelihood of exercise;
• 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 confirmed there were no changes to the
supply agreement between Xaar/Xaar 3D
and distribution agreement between Xaar
3D/Stratasys.
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.
We obtained calculations 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. We checked that
inventory was appropriately revalued to
actual cost at the period end.
We performed tests of clerical and
mathematical accuracy on management’s
inventory provision calculations.
We performed procedures to validate
the appropriateness of any management
judgements applied in calculating inventory
provisions.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 106
Independent auditor’s report (cont.)
Risk
Our response to the risk
Key observations communicated to
the Audit Committee
Valuation of inventory (£10.4 million
including provision of £24.6 million, 2019:
£16.2 million including provision of £21.3
million) continued
EPS business
As disclosed within the Corporate
Governance Statement on page 70 and
Audit Committee Report on page 74, three
significant deficiencies were identified
in relation to the EPS business and its
controls over:
• Inventory management and valuation
• Revenue recognised over time and the
valuation of accrued income at year end
• The financial statement close process
These deficiencies were identified as
part of the external audit process and
manifested themselves in a significant
number of audit differences. Adjustments
were made to correct for the financial
impact of the issues arising from these
deficiencies and management have
disclosed the deficiencies in accordance
with the UK Corporate Governance Code,
however further action is required in 2021
to remediate the underlying process and
control issues.
We discussed 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.
We executed our planned audit approach
over the EPS business. As a result of the
audit differences identified we performed
additional procedures to understand the root
cause of the issues and to establish whether
the audit differences reflected the total
error within the account balances impacted.
These procedures were supplemented
by additional sample testing and audit
procedures to test the appropriateness
of the revisions made by management to
reconciliations.
We reassessed the materiality applied in our
audit of the EPS business and re-assessed
the associated aggregation risk.
We increased the level of Partner oversight
and review of our work over the EPS
business to further mitigate the additional
risk presented by the identified control
deficiencies
We met with the Board of Directors
to understand the process they had
undertaken to assess the effectiveness of
the risk management and internal control
systems and their remediation plans.
We reviewed the disclosures made
within the Annual Report and Accounts
for compliance with the UK Corporate
Governance Code and consistency with the
findings from the audit process.
We reported and discussed the deficiencies
we identified at EPS with the Audit
Committee and made a number of related
internal control recommendations.
The sections of the annual report that
describe the review of the effectiveness of
the entity’s risk management and internal
control system and related significant
deficiencies in EPS, are materially
consistent with the financial statements and
our knowledge obtained in the course of
performing the audit.
In the prior year, our auditor’s report included a key audit matter in relation to capitalised development costs and COVID-19. Given there
were no further capitalised development costs in the current year, this was removed as a key audit matter. Given the continued impact
of COVID-19, we have embedded this within the other key audit matters listed above, such as the impairment of goodwill and intangible
assets, as opposed to it being a separate key audit matter.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 107
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 £240,000 (2019: £247,000), which is 0.5% (2019: 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 £240,000, 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% (2019: 50%) of our materiality, being £120,000 (2019: £124,000). We have maintained performance
materiality at this percentage reflecting our observations of the Group’s systems and processes, susceptibility of the financial statements
to management override and historical audit findings.
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 £24,000 to £91,000 (2019: £25,000 to £93,000).
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 £12,000 (2019: £12,000),
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 contained within the annual report.
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.
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 course of 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 themselves. 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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 108
Independent auditor’s report (cont.)
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 statement 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.
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 64;
• Directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and why the period is
appropriate set out on page 65;
• Directors’ statement on fair, balanced and understandable set out on page 51;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 41;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
pages 41 and 74; and
• The section describing the work of the Audit Committee set out on page 72.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 109
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 97, 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
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including
fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company 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, 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 programmes 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 programmes 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.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 110
Independent auditor’s report (cont.)
Other matters we are required to address
• Following the recommendation from the Audit Committee we were appointed by the company on 2 June 2020 to audit the financial
statements for the year ending 31 December 2020 and subsequent financial periods.
• The period of total uninterrupted engagement including previous renewals and reappointments is 2 years, covering the years ending
2019 and 2020.
• 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.
Adrian Bennett
Senior statutory auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
27 April 2021
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Consolidated income statement
for the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Research and development expenses
Research and development expenditure credit
Sales and marketing expenses
General and administrative expenses
Impairment reversal / (losses) on financial assets
Restructuring costs
Other operating income
Gain on derivative financial liabilities
Operating loss
Investment income
Finance costs for leases
Loss before tax
Income tax expense
Loss 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
Loss per share – Total
Basic
Diluted
Loss per share – Continuing operations
Basic
Diluted
Dividends paid in the year amounted to £nil (2019: £nil).
Consolidated statement of comprehensive income
for the year ended 31 December 2020
Loss for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on retranslation of net investment
Tax on items taken directly to equity
Other comprehensive income/(loss) for the year
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Owners of the Company
Non-controlling interests
111
Restated
2019
£’000
49,379
(37,089)
12,290
(3,081)
29
(8,104)
(7,718)
(2,715)
(1,519)
–
(87)
(10,905)
65
(97)
(10,937)
(3,497)
(14,434)
(57,297)
2020
£’000
47,984
(34,974)
13,010
(4,535)
142
(5,970)
(8,022)
946
(754)
819
77
(4,287)
47
(82)
(4,322)
(52)
(4,374)
(10,295)
(14,669)
(71,731)
(11,685)
(2,984)
(71,308)
(423)
(14,669)
(71,731)
(15.2p)
(15.2p)
(5.7p)
(5.7p)
(92.5p)
(92.5p)
(18.7p)
(18.7p)
Notes
5
22, 36
10
18, 36
12, 36
11
35
14
14
14
14
Notes
2020
£’000
Restated
2019
£’000
(14,669)
(71,731)
240
(5)
235
(258)
–
(258)
(14,434)
(71,989)
35
(11,466)
(2,968)
(14,434)
(71,531)
(458)
(71,989)
Financial StatementsXaar plc Annual Report and Financial Statements 2020 112
Consolidated statement of financial position
as at 31 December 2020
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
Derivative financial instruments
Assets held for sale
Disposal group assets held for sale
Total assets
Current liabilities
Trade and other payables
Provisions
Derivative financial instruments
Lease liabilities
Liabilities associated with the disposal group
Net current assets
Non-current liabilities
Lease 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
The financial statements of Xaar plc, registered number
3320972, were approved by the Board of Directors and
authorised for issue on 27 April 2021. They were signed
on its behalf by:
Notes
15
16
17
18
23
20
21
21
21
21
22
17
11
24
25
22
18
11
18
26
27
28
29
30
30
35
2020
£’000
5,152
207
17,147
2,078
139
24,723
10,355
9,751
425
161
17,956
160
43
38,851
9,968
48,819
73,542
(9,940)
(357)
(2,919)
(1,064)
Restated
2019
£’000
5,333
5,543
20,908
3,561
130
35,475
16,530
9,109
1,788
522
24,800
–
–
52,749
–
52,749
88,224
(7,973)
(2,947)
(2,996)
(1,450)
(14,280)
(15,366)
(1,589)
–
(15,869)
(15,366)
32,950
37,383
(1,515)
(1,515)
(2,521)
(2,521)
(17,384)
(17,887)
56,158
70,337
7,833
29,328
(1,957)
818
21,167
(4,802)
7,833
29,328
(2,676)
594
20,921
7,598
52,387
63,598
3,771
6,739
56,158
70,337
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
Financial StatementsXaar plc Annual Report and Financial Statements 2020
Consolidated statement of changes in equity
as at 31 December 2020
113
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 2019
7,833
29,328
(3,113)
15,144
817
79,343
129,352
2,026
131,378
Loss for the year
Exchange differences on
retranslation of net investment
Total comprehensive income
for the year as reported
Correction of error
Total comprehensive income
for the year as restated
Own shares sold in the year
Credit to equity for equity-settled
share-based payments
Adjustment arising from change
in non-controlling interest
Restated total equity at the beginning of the
financial year
Loss for the year
Tax on items taken directly to equity
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
437
–
–
–
–
–
–
–
(71,051)
(71,051)
(423)
(71,474)
(157)
–
(157)
(35)
(192)
(157)
(71,051)
(71,208)
(458)
(71,666)
(66)
(257)
(323)
–
(323)
(223)
–
(71,308)
(437)
(71,531)
–
(458)
–
(71,989)
–
–
1,111
–
4,666
–
–
–
1,111
–
1,111
–
4,666
5,171
9,837
7,833
29,328
(2,676)
20,921
594
7,598
63,598
6,739
70,337
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
719
–
–
–
–
–
–
–
(11,685)
(5)
(11,685)
(5)
(2,984)
–
(14,669)
(5)
224
–
224
16
240
224
–
(11,690)
(710)
(11,466)
9
(2,968)
–
(14,434)
9
–
246
–
–
246
–
246
36
28
9
28
9
Balance at 31 December 2020
7,833
29,328
(1,957)
21,167
818
(4,802)
52,387
3,771
56,158
The nature of retained earnings and other reserves in equity is described in note 30.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 114
Consolidated cash flow statement
for the year ended 31 December 2020
Net cash used in operating activities
Investing activities
Investment income
Treasury deposits withdrawn
Purchase of derivative financial instrument
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Expenditure on software
Expenditure on capitalised product development
Net cash used in investing activities
Financing activities
Proceeds from non-controlling interest transactions
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
Cash and cash equivalents attributable to assets held for sale
Cash and cash equivalents
Notes
31
10
21
18
11
21
2020
£’000
2019
£’000
(2,807)
(9,828)
64
361
(130)
(1,098)
167
–
–
(636)
–
(1,224)
103
2,755
–
(1,071)
–
(90)
(2,255)
(558)
12,003
(1,274)
(1,224)
10,729
(4,667)
(57)
24,800
20,076
2,120
17,956
343
(212)
24,669
24,800
–
24,800
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Notes to the consolidated financial statements
for the year ended 31 December 2020
115
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 8 to 31.
i The Strategic Report can be found on pages 8 to 31.
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 16
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 2020, total capitalised development additions amounted to £nil (2019: £2,255,000) given
capitalisation ceased on Xaar 3D in the prior year and no projects have met the capitalisation criteria in the current year.
Consolidation of Xaar 3D (accounting judgement) – notes 22, 34 and 37
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 has 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.
The proposed amendment of the call option (see note 37 – Non-adjusting post balance sheet event) is subject to shareholder approval, and
does not alter the contractual terms in place as at the year end, Xaar plc retains and is exposed to the rights and obligations associated
with its shareholding as at that date. As such, the Group has concluded it continues to retain control and should therefore continue to
consolidate Xaar 3D at the year end.
Discontinued operations (accounting judgement) – note 11
Following the Board decision in December 2020 to amend the terms of the call option in relation to Xaar 3D the Group considered the
application of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
The 3D business meets the criteria of a discontinued operation per IFRS 5 given it has been previously been reported as a major line of
business and the disposal is highly probable in the next 12 months. The Group has a commitment to a plan to sell the asset with an active
programme in place to complete the sale, which is expected to achieve a reasonable sale price in relation to its current fair value.
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 22
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 20
The Group’s inventory provision at 31 December 2020 of £24,621,000 (2019: £20,935,000) includes £21,256,000 relating to discontinued
operations (2019: £17,815,000) and £3,365,000 from continuing operations (2019: £3,120,000). All assets, including inventory, that relate
to the discontinued operations have been valued at the lower of the carrying amount and 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
Financial StatementsXaar plc Annual Report and Financial Statements 2020 116
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
time period to sell the inventory and the ability to decrease prices to drive sales.
2. Key sources of estimation uncertainty and critical accounting judgements (cont.)
Credit provision for the allowance of doubtful debts (estimation uncertainty) – note 21
The Group’s provision for doubtful debts of £622,000 (2019: £7,959,000) 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.
Impairment of capitalised development costs (estimation uncertainty) – note 16
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 2020 was £76,000 (2019: £5,166,000).
The value of capitalised development costs in relation to Xaar 3D has been transferred into Assets held for sale.
Impairment of goodwill – Engineered Print Solutions (EPS) (estimation uncertainty) – note 15
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 2020 (2019:
£nil). Management has performed sensitivity analysis on its reasonable worst case scenario for the EPS business and it been completed
on each key assumption in isolation. This analysis indicates that reasonable changes in the 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.
Revenue recognition – Engineered Print Solutions (EPS) (estimation uncertainty) – note 5
Engineered Print Solutions recognises revenue on the stage of completion of the customer contract and performance obligations in the
manufacture of bespoke machinery and equipment for delivery to the customer.
Each month an assessment is undertaken of the work in progress and stage of completion in both supply of individual components and
labour hours allocated to the project against the expected project manufacture costs. The revenue determined is recognised upon the
proportion and stage of completion of the performance obligations.
This assessment enables an estimate to be undertaken for the expected profitability of the customer contract, costs incurred to date, and
costs to complete, but are subject to a level of uncertainty until the work in progress is finalised and the completed machinery is available
for final delivery and acceptance by the customer.
The transaction price allocated to partially satisfied and unsatisfied obligations at 31 December 2020 are set out in note 5.
3. Significant accounting policies
Basis of accounting
The Group financial statements have been prepared in accordance with International Accounting Standards (IAS) in conformity with the
requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards (IFRS) adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial information has been prepared on the basis of all
applicable IFRS, including all International Accounting Standards (IAS), Standing Interpretations Committee (SIC) interpretations and
International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards
Board (IASB) that are applicable to the financial period.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 117
3. Significant accounting policies (cont.)
Basis of consolidation (cont.)
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.
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 19. The Group reported a loss after tax for the year ended 31 December 2020 of £14.7 million, of which
£10.3 million related to discontinued operations, being the final costs relating to Thin Film and the Xaar 3D business which is expected to
be sold. Notes 21 and 22 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
Group’s day to day working capital requirements are expected to be met through the current cash and cash equivalent resources (including
Treasury deposits) at the balance sheet date of 31 December 2020 of £18.1 million. The Group was debt free as at 31 December 2020 and
across each of the going concern scenarios described below.
Whilst the impact of COVID-19 on the performance of the business over the last year has been not been significant the long-term
implications of the spread of the virus remain uncertain making it difficult to determine the impact on the 2021 financial performance.
The Board has therefore considered the performance of the different businesses across the Group and each of their funding requirements
before performing a number of stress tests. The base going concern case assumes that the disposal of Xaar 3D completes as described
in note 37 and the Strategic update on page 11, however excludes the anticipated consideration. Conservatively, a second case which
excludes the disposal of Xaar 3D has been applied. In both cases the downturn in revenue across the entire Group required to prevent the
business continuing as a going concern would have to be severe and is not plausible given the nature and size of the order book and the
trading experience of the Printhead and EPS segments during COVID-19 conditions to date. 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 aligning performance related pay to actual results.
The Group continues to enjoy a strong cash position and is well positioned to cope with the current situation. The Board remains confident
in the long-term future prospects for the Group and its ability to continue as a going concern for the foreseeable future.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future, based on the Group’s forecasts and projections for the period to 30 April 2022, 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.
Adjusted financial measures
Adjusted financial measures relate to continuing operations and comprise 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, other income 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
e.g. 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 represents the cost of research and development on
continuing operations in the year. No amounts have been capitalised in the current year, as the criteria have not been achieved.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 118
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
3. Significant accounting policies (cont.)
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 licenses 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, based on 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.
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.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 119
3. Significant accounting policies (cont.)
Foreign currencies (cont.)
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 143 for details of the
Group’s accounting policies in respect of such derivative financial instruments).
i Further information can be found on page 143.
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.
When the Group's foreign operations are liquidated or disposed, exchange differences previously recognised through other comprehensive
income and the translation reserve will be recycled and recognised through the income statement.
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, or in the case of the Payment Protection Program (PPP) for COVID-19 support
provided by the US Government, that it meets the criteria for the loan to be waived and recognised as grant income.
Operating profit/(loss)
Operating profit/(loss) is stated after charging restructuring costs but before investment income and finance costs.
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
the 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 enacted or substantively enacted 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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 120
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
3. Significant accounting policies (cont.)
Taxation (cont.)
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.
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
Shorter of the lease term and 20 years
Plant and machinery
Three to 20 years
Furniture, fittings and equipment
Three to 20 years
Buildings
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 three to 20 years. 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.
Licence
Software
Shorter of the licence term and 20 years
Three to 15 years
Financial StatementsXaar plc Annual Report and Financial Statements 2020
121
3. Significant accounting policies (cont.)
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.
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.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Generally
an incremental borrowing rate approach is applied.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in substance fixed payments), less any lease incentives;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group re-measures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is
re-measured by discounting the revised lease payments using a revised discount rate;
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in
which cases the lease liability is re-measured by discounting the revised lease payments using the initial discount rate (unless the lease
payments change is due to a change in a floating interest rate, in which case a revised discount rate is used);
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-
measured by discounting the revised lease payments using an incremental borrowing rate at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment
losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore
the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.
The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 122
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
3. Significant accounting policies (cont.)
Leases (cont.)
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the
related right-of use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of
the lease. The Group does not have any leases that transfer ownership of the underlying asset. The Group does not have any leases with a
purchase option where there is a reasonable expectation that the option will be exercised.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture),
the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within the
consolidated income statement.
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.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 123
3. Significant accounting policies (cont.)
Derecognition of financial assets (cont.)
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.
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.
The written call option that Xaar 3D Holdings granted Stratasys to acquire its remaining 55% shareholding in Xaar 3D in 2019 is a financial
liability measured subsequently at fair value at Level 3 fair value measurement. The valuation technique used is the Black-Scholes model.
Further detail is included in note 22 - Financial instruments.
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.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 124
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
3. Significant accounting policies (cont.)
Embedded derivatives (cont.)
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.
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 with a maturity of three months or less 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’. 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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 125
3. Significant accounting policies (cont.)
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.
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.
Non-current assets (or disposal groups) held for sale
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying
amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial
assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically
exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell.
A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any
cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset
(or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for
sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from
the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other
liabilities in the balance sheet.
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 co-ordinated 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.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 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 2020 but did not have a significant
impact on the Group’s financial statements.
Amendments to IAS 1 and IAS 8 – Definition of material
Amendments to IFRS 3 – Definition of a Business
Amendments to IFRS 7, IFRS 9 and IAS 39 – Interest Rate Benchmark Reform
Revised Conceptual Framework for Financial Reporting
Financial StatementsXaar plc Annual Report and Financial Statements 2020 126
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
4. Reconciliation of adjusted financial measures
Loss before tax from continuing operations
Share-based payment charges
Exchange differences on intra-group transactions
(Gain) / Loss on derivative financial liabilities
Restructuring costs
Other operating income
Research and development expenditure credit
Adjusted loss before tax from continuing operations
Interest income
Interest charge arising from IFRS 16
Depreciation of property, plant and equipment
Amortisation of intangible assets
Adjusted EBITDA from continuing operations
Note
9
22, 36
7
10
18
17, 18
16
2020
£’000
Restated
2019
£’000
(4,322)
(10,937)
348
347
(77)
754
(819)
(142)
(3,911)
(47)
82
3,856
82
62
910
499
87
1,519
–
(29)
(7,952)
(65)
97
2,970
93
(4,857)
EBITDA is calculated as statutory operating profit before depreciation, amortisation and impairment of property, plant and equipment,
intangible assets and goodwill. Adjusted EBITDA is calculated as EBITDA excluding other adjusting items as defined.
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 £242,000 (2019: £1,109,000) and the debit relating to National
Insurance on the outstanding potential share option gains of £106,000 (2019: credit £199,000). These costs were included in the general
and administrative expenses in the consolidated income statement and exclude the Xaar 3D charge of £5,000 )2019: 2,000).
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 intragroup transactions 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 £754,000 (2019: £1,519,000) relate to costs incurred and provisions made in relation to reorganisation. In the prior
year, it relates mainly to the 2019 redundancy programme. The calculated impact of the restructuring at corporation tax rate of 19% would
be £143,000 (2019: £289,000). The cash related to restructuring is £518,000 (2019: £896,000).
Other operating income of £819,000 (2019: £nil) relates to a forgivable $1 million loan between Engineered Print Solutions (EPS) and TD
bank and is backed by the US Federal Government (Small Business Administration); further details are provided under note 7. The loan
was taken out as part of the government backed scheme. The Company considers that it has met the requirements of the waiver, and
therefore expects it to be waived the loan has therefore been treated as a government grant under IAS 20. A cash receipt of the same
amount was received.
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. Cash receipts of £1,460,000 (2019: £1,587,334) were received in
relation to 2018 and 2019 RDEC claims submitted.
Basis and Diluted earnings (loss) per share from continuing operations
Share-based payment charges
Exchange differences on intra-group transactions
(Gain) / Loss on derivative financial asset
Restructuring costs
Other operating income
Tax effect of adjusting items
Note
14
2020
Pence per share
2019 Restated
Pence per share
(5.7p)
0.5p
0.5p
(0.1p)
1.0p
(1.1p)
(0.3p)
(18.7p)
1.2p
0.6p
0.1p
2.0p
–
(0.3p)
Basic and Adjusted diluted earnings (loss) per share from continuing operations
14
(5.2p)
(15.1p)
This reconciliation is provided to enable a better understanding of the Group’s results.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 127
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
2020
£’000
35,283
12,701
2019
£’000
33,681
15,698
47,984
49,379
Product Print Systems has contracts with customers where the performance obligations are partially unsatisfied at 31 December 2020.
The transaction price allocated to partially satisfied and unsatisfied performance obligations at 31 December 2020 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
Total transaction price for partially completed contracts
2020
£’000
950
956
2019
£’000
647
754
1,906
1,401
Management expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 December 2020 totalling
£956,000 will be recognised during the 2021 financial year (2019: £754,000 recognised in 2020).
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. There is no aggregation of segments for disclosure purposes.
The Xaar 3D business which we expect to divest in the first half of 2021 has been reclassified as held for sale and discontinued operations,
hence the 3D Printing is presented separately in note 11 and the 2019 comparatives has been restated accordingly.
Segment information for continuing operations is presented below:
Year ended 31 December 2020
Revenue
Total segment revenue
Result
Adjusted loss from continuing operations before tax
Share-based payment charges
Exchange differences relating to intra-group transactions
Restructuring
Gain on financial instrument
Research and development expenditure credit
Other operating income
Profit / (loss) before tax from continuing operations
Printhead
£’000
Product Print
Systems
£’000
Unallocated
£’000
Consolidated
£’000
35,283
12,701
–
47,984
(3,431)
–
(347)
(754)
77
142
–
(4,313)
(480)
–
–
–
–
–
819
339
–
(348)
–
–
–
–
–
(3,911)
(348)
(347)
(754)
77
142
819
(348)
(4,322)
Share-based payment charges include the IFRS 2 charge for the period and the charge or credit relating to National Insurance on the
outstanding potential share options, excluding the charge attributable to Xaar 3D as discontinued operations £5,000 (2019: £2,000).
Financial StatementsXaar plc Annual Report and Financial Statements 2020
128
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
6. Business and geographical segments (cont.)
Year ended 31 December 2019
Revenue
Total segment revenue
Printhead
£’000
Product Print
Systems
£’000
Unallocated
£’000
Restated
Consolidated
£’000
33,681
15,698
–
49,379
Result
Adjusted loss from continuing operations before tax
Share-based payment charges
Exchange differences relating to intra-group transactions
Restructuring
Loss on financial instrument
Research and development expenditure credit
(8,019)
–
(499)
(1,574)
(87)
29
67
–
–
55
–
–
Profit / (Loss) before tax from continuing operations
(10,150)
122
Segment assets – Continuing operations
Printhead
Product Print Systems
Total assets
–
(910)
–
–
–
–
(910)
2020
£’000
48,816
14,487
63,303
(7,952)
(910)
(499)
(1,519)
(87)
29
(10,938)
2019
£’000
58,118
14,776
72,894
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 – Continuing operations
Year ended 31 December 2020
Depreciation and amortisation
Impairment of PPE
Share-based payment charges
Capital expenditure
Year ended 31 December 2019
Depreciation and amortisation
Impairment of PPE
Share-based payment charges
Capital expenditure
Notes
16, 17, 18
9
16, 17, 18
Notes
16, 17, 18
9
16, 17, 18
Printhead
£’000
4,302
158
–
957
Printhead
£’000
3,701
–
–
2,091
Product
Print
Systems
£’000
367
115
–
574
Product
Print
Systems
£’000
386
–
–
198
Unallocated
£’000
Consolidated
£’000
–
–
348
–
4,669
273
348
1,531
Unallocated
£’000
Consolidated
£’000
–
–
910
–
4,087
–
910
2,289
Financial StatementsXaar plc Annual Report and Financial Statements 2020
6. Business and geographical segments (cont.)
Revenues from major products and services – Continuing operations
Printhead
Product Print Systems
Consolidated revenue (excluding investment income)
129
2020
£’000
35,283
12,701
47,984
Restated
2019
£’000
33,681
15,698
49,379
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
2020
£’000
2019
£’000
18,113
18,473
7,936
1,235
420
20,280
47,984
2020
£’000
16,755
38
7,791
24,584
5,101
1,338
530
23,937
49,379
Non-current assets
2019
£’000
27,266
6
8,073
35,345
Non-current assets, being Goodwill, Other intangible assets, Property, plant and equipment and Right of use assets 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 during the current and preceding year.
No other single customer contributed 10% or more to the Group’s revenue in either 2020 or 2019.
Revenue from the top five customers represents 26% of revenues (2019: 23%).
Financial StatementsXaar plc Annual Report and Financial Statements 2020
130
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
7. Government grants
The accounting policy in relation to the adopted and applicable treatment of government grants is disclosed in note 3, in accordance with
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.
Xaar plc and its UK based subsidiaries have decided not to take part in any of the Government support schemes arising from the COVID-19
crisis.
• No employees have been placed on furlough and no claims made via the Coronavirus Job Retention Scheme (CJRS)
• No submissions have been made for financial support via either the Coronavirus Business Interruption Loan Scheme (CBILS) or Bounce
Back Loan Scheme (BBLS)
• The UK entities operate primarily under a VAT repayment position due to the significant level of export sales, so do not utilise the
government scheme in deferring VAT payments
• Xaar 3D Aps based in Denmark has also not taken part in any government support measures in response to COVID-19
• No submission has been made for salary compensation, which could arise due to employees that could otherwise have been fired. No
employees have left the business
• Xaar 3D Aps operates in a repayment position for Danish VAT, and like the UK has not utilised the extension available for repayments.
A Xaar group company based in the USA, Engineered Print Solutions (EPS), has taken part in the US Government Loan scheme which
has provided a $1 million Loan (£819k), which under certain provisions linked to maintaining employment and avoiding redundancy can
be waived. The company considers that it has met the requirements of the waiver, and therefore expects it to be waived, the Loan has
therefore been treated as a government grant. The Group has presented this amount as exceptional income in the consolidated income
statement. Government support grants are recognised in the consolidated income statement on a systematic basis over the periods in
which the related revenue or expense for which the grants are intended to compensate. Further details are provided under note 4.
8. Loss for the year
Loss 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)
Loss/(profit) 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
2020
£’000
4,535
(142)
3,400
1,107
82
81
–
99
31,467
946
402
* Total spend on research and development in 2020, before capitalised and amortised development costs included in note 16, was £4,535,000 (2019: £3,081,000).
Grant income includes £142,000 (2019: £29,000) in respect of the research and development expenditure credit.
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
– Prior year overrun
Total audit fees
– Interim review
Total non-audit fees
Total fees payable for the continuing operations
Total fees payable for the discontinued operations
Total fees payable to the Company's auditors and its associates
2020
£’000
20
272
70
362
40
40
402
38
440
Restated
2019
£’000
3,081
(29)
2,946
962
94
85
–
(18)
34,392
2,715
213
2019
£’000
20
163
–
183
30
30
213
12
225
Financial StatementsXaar plc Annual Report and Financial Statements 2020 131
8. Loss for the year (cont.)
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 72 to 75 and includes an explanation of how
auditor’s objectivity and independence is safeguarded when non-audit services are provided by the auditor.
9. 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
2020
Number
2019
Number
78
47
193
47
365
2020
£’000
18,784
1,752
740
353
21,629
77
53
247
60
437
2019
£’000
21,518
2,035
951
912
25,416
Notes
33
Share-based payment charges comprise the IFRS 2 charge for the period £246,000 (2019: £1,111,000) and a charge relating to National
Insurance on the outstanding potential share option gains £107,000 (2019: £199,000 credit), of which a charge of £5,000 (2019:£2,000)
relates to discontinued operations in Xaar 3D.
10. Investment income
Interest receivable on cash and bank balances, and treasury deposits
Group
£’000
47
3D
£’000
2020
Total £’000
24
72
Group
£’000
65
3D
£’000
Restated 2019
Total £’000
38
103
Group interest accrued receivable of £8,000 at year end (2019: £nil), Cash interest received at year end was £64,000 (2019: £103,000).
11. 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 of working capital.
The Thin Film business which was discontinued in 2019 incurred costs in 2020 which mainly related to supplier liabilities and inventory for
last time buy sales. All liabilities have now been settled and we maintain a small level of inventory which we expect to sell in the first half of
2021. Of the total Group net assets, £271,000 is related to Thin Film which is not included in net assets held for sale.
As detailed in the strategic and financial update the Xaar 3D business which we plan to divest in the first half of 2021 has been reclassified
as held for sale and a discontinued operation given the disposal has been assessed as highly probable.
The results of Thin Film and 3D related activities for the year are shown below:
Revenue
Expenses
Loss before income tax
Income tax credit
Thin Film
2020
£’000
258
(3,922)
(3,664)
–
3D
2020
£’000
734
(7,175)
(6,441)
(190)
Total
2020
£’000
992
(11,097)
(10,105)
(190)
Thin Film
2019
£’000
1,586
(61,587)
(60,001)
3,918
3D
2019
£’000
18
(1,228)
(1,210)
(4)
Restated
Total
2019
£’000
1,604
(62,815)
(61,211)
3,914
Loss after income tax from discontinued operation
(3,664)
(6,631)
(10,295)
(56,083)
(1,214)
(57,297)
Financial StatementsXaar plc Annual Report and Financial Statements 2020
132
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
11. Discontinued operations (cont.)
Attributable to:
Owners of the Company
Non-controlling interest
Thin Film
2020
£’000
3D
2020
£’000
Total
2020
£’000
Thin Film
2019
£’000
3D
2019
£’000
Restated
Total
2019
£’000
(3,664)
–
(3,647)
(2,984)
(7,311)
(2,984)
(56,083)
–
(791)
(423)
(56,874)
(423)
(3,664)
(6,631)
(10,295)
(56,083)
(1,214)
(57,297)
The major classes of assets and liabilities of 3D classified as held for sale as at 31 December 2020 are as follows:
Assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Right of use asset
Inventory
Debtors
Cash and cash equivalents
Assets held for sale
Liabilities
Creditors
Corporate income tax
Provisions (Warranty & Restructuring)
IFRS 16 lease liability
Liabilities associated with the assets held for sale
Net assets associated with disposal group
The net cash flows incurred by Thin Film and 3D are as follows.
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow/(outflow) from financing
activities
Net decrease in cash generated from
discontinued operations
Earnings (loss) per share
Basic, loss for the year from discontinued operations
Diluted, loss for the year from discontinued operations
2020
£’000
1,041
4,649
68
440
919
737
2,120
9,974
(1,115)
(6)
(11)
(463)
(1,595)
8,379
Restated
Total
2019
£’000
(20,081)
(2,620)
Thin Film
2020
£’000
(5,058)
(25)
3D
2020
£’000
Total
2020
£’000
(6,213)
(645)
(11,271)
(670)
Thin Film
2019
£’000
(17,647)
(321)
3D
2019
£’000
(2,434)
(2,299)
–
(160)
(160)
–
5,511
5,511
(5,083)
(7,018)
(12,101)
(17,968)
778
(17,190)
2020
Pence per
share
2019 Restated
Pence per
share
(9.5p)
(9.5p)
(73.8p)
(73.8p)
Financial StatementsXaar plc Annual Report and Financial Statements 2020 12. Tax
Total tax calculation:
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 expense / (credit) for the year
133
2019
Restated
£’000
153
113
266
281
547
(1,054)
90
(964)
(417)
Notes
23
2020
£’000
159
125
284
41
325
(18)
(64)
(82)
242
The rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2019: 19%). Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
The Finance Act 2020, which was substantively enacted on 22 July 2020, did not amend the main rate of UK corporation tax, and this
remains at 19%. 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 31 December 2020 have been calculated at the rate at which the relevant balance is expected to be recovered or
settled.
Following the UK Budget on 2 March 2021, the government has announced that the main rate of corporation tax will remain unchanged
until 2023. The impacts of this budget have not been reflected in these financial statements, as they were not substantively enacted at the
year end.
The note to the cash flow statement (note 31) shows repayments of tax for £1,466,000 during the year (2019: £3,392,000).
The closing deferred tax liability at 31 December 2019 has been calculated at 19% 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 23.
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
Foreign exchange movement
Deferred tax
Arising on transactions with equity participants:
Foreign exchange movement
Total income tax recognised directly in equity
Notes
2020
£’000
2019
£’000
–
–
4
4
4
13
13
4
4
17
Financial StatementsXaar plc Annual Report and Financial Statements 2020 134
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
12. Tax (cont.)
The charge for the year can be reconciled to the profit per the income statement as follows:
Notes
(Loss) / profit before tax from continuing activities
Loss before tax from discontinuing activities
Loss before income tax
Tax on ordinary activities at standard UK rate of 19% (2019: 19.00%)
Effect of:
Expenses not deductible for tax purposes
(Non-taxable) income
Effect of different tax rates of subsidiaries operating overseas
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 expense / (credit) for the year
Income tax expense / (credit) reported in the statement of profit and loss
36
Income tax expense / (credit) attributable to discontinued operations
2020
£’000
Restated
2019
£’000
(4,322)
(10,937)
(10,105)
(61,211)
(14,427)
(2,741)
(72,148)
(13,708)
883
(171)
(15)
7
2,303
–
(24)
242
52
190
242
606
–
43
65
8,364
3,842
371
(417)
3,497
(3,914)
(417)
The expenses not deductible for tax purposes include depreciation on non-qualifying assets, share-based payments, the cessation of
operations in Sweden, certain RDEC adjustments and restructuring costs.
The effective tax rate for the year is -1.7% (2019: 0.6%).
13. Dividends
No interim or final dividend was proposed or paid for the year ended 31 December 2020 (31 December 2019: Nil).
Financial StatementsXaar plc Annual Report and Financial Statements 2020 14. 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
135
2020
£’000
2019 Restated
£’000
(11,685)
(71,308)
(4,374)
(14,434)
(7,311)
(56,874)
77,103,593
77,116,331
–
–
Weighted average number of ordinary shares for the purposes of diluted earnings per share
77,103,593
77,116,331
Basic
Diluted
Continuing operations:
Basic
Diluted
Discontinued operations:
Basic
Diluted
2020
Pence per share
2019 Restated
Pence per share
(15.2p)
(15.2p)
(5.7p)
(5.7p)
(9.5p)
(9.5p)
(92.5p)
(92.5p)
(18.7p)
(18.7p)
(73.8p)
(73.8p)
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 2020 and 2019, the diluted 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 2020, there were share options granted over 310,100 shares that would not have been included in the diluted earnings per share
calculation because they were anti-dilutive at the period end (2019: 978,915 shares that would not have been included).
The performance conditions for LTIP awards over 510,482 shares (2019: 1,733,172 shares) have not been met in the current financial period
or are not expected to be met in future financial periods, and therefore the dilutive effect of those shares has not been included in the
diluted earnings per share calculation.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 136
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
14. Earnings per share – basic and diluted (cont.)
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 and is a measure used in
establishing remuneration.
The calculation of adjusted EPS excluding share-based payment charges, exchange differences relating to intra-group transactions, other
operating income and restructuring expenses, is based on the loss on continuing operations 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
Other operating income
Tax effect of adjusting items
Adjusted (loss) / profit after tax – continuing operations
2020
£’000
2019 Restated
£’000
(4,374)
(14,434)
348
347
(77)
754
(819)
(217)
910
499
87
1,519
–
(214)
(4,038)
(11,633)
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
2020
Pence per share
2019 Restated
Pence per share
(5.2p)
(5.2p)
(15.1p)
(15.1p)
Adjusted EPS on continuing operations is considered to provide a fairer representation of the Group’s trading performance year on year.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 137
15. Goodwill
The carrying amount of goodwill at 31 December 2020 was £5,152,000 (2019: £5,333,000).
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 arose 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
2020
£’000
5,333
(181)
5,152
2019
£’000
5,522
(189)
5,333
Goodwill relates to the acquisition of Engineered Print Solutions in July 2016 (a company incorporated in the 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 2020
(2019: £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 expected change in sales, the discount rate used, and the growth rate used as part of the terminal
value.
A cash flow forecast was prepared for a period of five years based upon the strategic plan for the business and a terminal value
determined using a 2% growth rate in Engineered Print Solutions, based on OECD growth rates.
To evaluate the risk of impairment, the Group risk adjusted its cash flows over the five-year period to reflect the risk that the market
recovery may be slower than expected and/or that the Group does not achieve the growth objectives set out in its strategic plan. These
risk adjusted cash flows have then been used in the value-in-use calculation. The discount rate applied to the cash flow projections is
10.25% (2019: 12.1%) and reflects external third party advice on the discount rate associated with Engineered Print Solutions. This discount
rate is higher than the Group discount rate of 7.70%. The discount rate reflects the risk free rate, equity beta and local market premium
as calculated at the year-end. This has reduced year on year, based upon reductions in the risk free rate and to reflect the risk that has
already been incorporated in the cash flows. A terminal value was determined using a 2% growth rate in Engineered Print Solutions, based
on OECD growth rates.
The recoverable amount calculated on the basis set out above exceeds the carrying value of the EPS CGU by £1.5 million. Sensitivity
analysis has been completed on each key assumption (Revenue, Discount Rate and Terminal Value) for the EPS business.
The carrying amount of goodwill would exceed its recoverable amount, when compared to the risk adjusted cash flows, if:
• revenue were to decline by a further $2 million meaning revenues would not recover to pre-COVID levels until later in 2024/25; or
• the discount rate would need to increase by 0.77%; or
• the terminal value growth rate would need to fall to 0.81% (a reduction of 60%).
Financial StatementsXaar plc Annual Report and Financial Statements 2020 138
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
16. Other intangible assets
Cost
At 1 January 2019
Additions
Transfer
Exchange movements
Disposals
At 1 January 2020
Exchange movements
Assets held for sale
At 31 December 2020
Amortisation
At 1 January 2019
Charge for the year
Transfers
Disposals
Impairment
At 1 January 2020
Charge for the year
Exchange movements
Assets held for sale
At 31 December 2020
Carrying amount:
At 31 December 2020
At 31 December 2019
Capitalised
development
costs
£’000
Licences
acquired
£’000
Software
£’000
Total
£’000
41,465
2,255
17
–
–
43,737
-
(5,050)
38,687
9,128
923
26
–
28,494
38,571
587
–
(547)
38,611
76
5,166
716
-
(3)
(4)
–
709
-
(177)
532
540
14
–
–
–
554
13
–
(35)
532
–
155
3,383
90
(2)
–
(18)
3,453
(6)
(10)
45,564
2,345
12
(4)
(18)
47,899
(6)
(5,237)
3,437
42,656
3,099
87
62
(17)
–
3,231
85
(4)
(6)
12,767
1,024
88
(17)
28,494
42,356
685
(4)
(588)
3,306
42,449
131
222
207
5,543
Internally generated product development costs relate to the Platform 2, Platform 3 and Platform 4 ranges of printheads and technology.
They also include 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 in 2019 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 at total cost of £5,050,000 and amortisation
commenced over a ten-year period. Following the decision to sell the 3D business the cost, and accumulated amortisation of £547,000,
have been reclassified as part of an asset group held for sale.
Licences acquired are amortised over their estimated useful lives which is the shorter of the licence term and 20 years.. The majority of
the remaining licences belong to the 3D business and have been reclassified as part of the asset group held for sale.
The amortisation period for software is three to 15 years and for other product development costs incurred on the Group’s product
development is three to 20 years.
As at 31 December 2020 the Group had not entered into any contractual commitments for the acquisition of intangible assets.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 17. 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
139
Total
£’000
91,234
1,650
(13)
(137)
(5,102)
87,632
2,251
(793)
(69)
(492)
(2,325)
86,204
63,190
3,776
(87)
(53)
(5,156)
5,054
66,724
4,224
(689)
(34)
(275)
391
(1,284)
69,057
1,192
–
532
(41)
1
1,684
–
184
(57)
–
13,421
50
628
(29)
(25)
14,045
199
(171)
(2)
–
70,734
1,421
1,111
(46)
(5,059)
68,161
1,654
(737)
12
(492)
–
(551)
(1,766)
3,765
83
(182)
(16)
(16)
3,634
382
–
(18)
–
(6)
1,811
13,520
66,832
3,992
64
17
242
(3)
–
–
320
48
34
(14)
–
–
–
8,222
576
(480)
(1)
(18)
5
8,304
569
(21)
(2)
–
–
(65)
52,016
3,089
(293)
(47)
(5,122)
5,049
54,692
3,506
(702)
(1)
(275)
391
(1,216)
2,888
94
444
(2)
(16)
–
3,408
101
–
(17)
–
–
(3)
388
8,785
56,395
3,489
2,122
96
(2,102)
(5)
(3)
108
16
(69)
(4)
–
(2)
49
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Cost
At 1 January 2019
Additions
Transfers
Exchange movements
Disposals
At 1 January 2020
Additions
Transfer
Exchange movements
Disposals
Assets held for sale
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Transfer
Exchange movements
Disposals
Impairment
At 1 January 2020
Charge for the year
Transfer
Exchange movements
Disposals
Impairment
Assets held for sale
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
1,423
1,364
4,735
5,741
10,437
13,469
503
226
49
108
17,147
20,908
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. In 2020 the impairments of £391,000 related to the Printhead and EPS businesses with associated
assets written down to nil.
The transfer of assets out of property, plant and equipment includes assets belonging to the Printhead business that were reclassified as
held for sale. These assets had a net book value (NBV) of £104,000. As at 31 December 2020 machinery with a NBV of £43,000 remained
unsold.
Assets with a NBV of £1,041,000 (a cost value of £2,325,000 and depreciation of £1,284,000) belonging to the 3D business have been
reclassified as part of the asset group held for sale.
As at 31 December 2020 the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £218,000 (2019: £71,000).
18. Leases
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 140
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
18. Leases (cont.)
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
Additions
Disposals
Exchange movements
At 31 December 2019
Additions
Disposals
Assets held for sale
Exchange movements
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Disposals
Exchange movements
At 31 December 2019
Charge for the year
Disposals
Assets held for sale
Exchange movements
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
12,204
1,494
(1,692)
(28)
11,978
183
(172)
(885)
18
11,122
9,159
1,025
(1,686)
(15)
8,483
1,204
(167)
(445)
3
9,078
2,044
3,495
99
20
–
–
119
–
(36)
–
1
84
25
31
–
–
56
29
(35)
–
–
50
34
63
16
–
–
–
16
–
(16)
–
–
–
8
5
–
–
13
3
(16)
–
–
–
–
3
12,319
1,514
(1,692)
(28)
12,113
183
(224)
(885)
19
11,206
9,192
1,061
(1,686)
(15)
8,552
1,236
(218)
(445)
3
9,128
2,078
3,561
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
Additions
Accretion of interest
Payments
Exchange movement
Lease liabilities associated with assets held for sale
At 31 December
Current
Non-current
2020
£’000
3,971
183
98
(1,224)
14
(463)
2,579
1,064
1,515
2,579
2019
£’000
3,639
1,507
110
(1,274)
(11)
–
3,971
1,450
2,521
3,971
Financial StatementsXaar plc Annual Report and Financial Statements 2020 141
18. Leases (cont.)
The table below summarises the maturity profile of the Group’s lease liabilities based upon the contractual undiscounted payments as at
31 December 2020.
On demand
Less than three months
Four to twelve months
One to five years
More than five years
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
2020
£’000
–
222
645
1,945
–
2,812
2020
£’000
1,235
98
152
1,485
2019
£’000
–
292
1,250
2,530
97
4,169
2019
£’000
1,061
110
53
1,224
Interest expense on lease liabilities consists of £82,000 (2019: £97,000) reported under continuing operations and £16,000 (2019: £13,000)
relating to Xaar 3D business reported under discontinued operations.
19. Subsidiaries
A list of the investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given in note
11 to the Company’s separate financial statements.
20. Inventories
Raw materials and consumables
Work in progress
Finished goods
2020
£’000
6,356
1,687
2,312
Restated 2019
£’000
8,938
3,258
4,334
10,355
16,530
The cost of inventories recognised as an expense includes £3,895,000 (2019: £18,801,000) in respect of inventory write-downs.
Gross stock was £34,976,000 (2019: £37,465,000) with inventory provisions of £24,621,000 (2019: £20,935,000). The provision of £24,621,000
included £21,256,000 in relation to discontinued operations. Inventory for discontinued operations has been recorded at the lower of
carrying amount and fair value.
21. 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
No amounts are expected to be settled in more than 12 months.
2020
£’000
6,791
(622)
6,169
2,760
822
9,751
425
2019
£’000
14,407
(7,959)
6,448
1,634
1,027
9,109
1,788
Financial StatementsXaar plc Annual Report and Financial Statements 2020 142
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
21. Other financial assets (cont.)
Trade receivables
The average credit period taken on sales of goods is 47 days (2019: 48 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.
The maximum exposure to credit risk is the carrying amount of the financial assets as disclosed on page 129. 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 £1.1 million (2019: £7.5 million). The total due from these customers
represents 2% (2019: 15%) of the Group’s revenue.
Included in the Group’s trade receivables balance are debtors with a carrying amount of £1.8 million (2019: £2.1 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 (reversal) / losses increased
Amounts written off as uncollectible
Balance at the end of the year
2020
£’000
1,168
233
85
266
91
1,843
2020
£’000
7,959
(929)
(6,408)
622
2019
£’000
801
434
228
61
570
2,094
2019
£’000
5,178
2,781
-
7,959
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 1.0% 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 where 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. Amounts written off in the year relate to distributor balances. There is no current
enforcement activity on the remaining balance.
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
2020
£’000
19
3
–
–
–
600
622
2019
£’000
132
45
25
15
361
7,381
7,959
The Directors have considered the sensitivity of doubtful debts and a 1% increase on the ECL percentage would equate to an additional
£59,000 allowance. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 143
21. Other financial assets (cont.)
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
2020
£’000
161
2019
£’000
522
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
2020
£’000
2019
£’000
17,956
24,800
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.
22. 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).
2020
Trade and other receivables
Treasury deposits
Cash and bank balances
Trade and other payables
Derivative financial instrument
FVTPL –
designated
£’000
FVTPL –
mandatorily
measured
£’000
–
–
–
–
160
–
–
–
–
–
Financial assets
Financial liabilities
Amortised
cost
£’000
8,928
161
17,956
–
–
FVTPL –
mandatorily
measured
£’000
–
–
–
–
(2,919)
Amortised
cost
£’000
–
–
–
(9,940)
–
Total
£’000
8,928
161
17,956
(9,940)
(2,759)
Additional disclosure for lease liabilities is reported in note 18.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 144
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
22. Financial instruments (cont.)
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
–
–
–
(7,973)
–
Total
£’000
8,082
522
24,800
(7,973)
(2,996)
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 £549,000 increase
in the fair value and a £509,000
decrease. 10% increase /
(decrease) would result in
£301,000 increase in the fair
value and £286,000 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 1 January 2019 the fair value of these options was £936,000. On 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 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 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 31 December 2019. During 2020 no further issues or
settlements took place. The only movement in the year represents the revaluation of the existing option at 31 December 2020. Additional
disclosure information is provided in note 35 Non-controlling interest and note 34 Related party transactions.
Balance at 1 January 2020
Issues
Settlements
Total gains or losses – in profit or loss
Balance at 31 December 2020
2020
£’000
(2,996)
–
–
77
(2,919)
2019
£’000
(936)
(2,908)
742
106
(2,996)
Financial StatementsXaar plc Annual Report and Financial Statements 2020 145
22. Financial instruments (cont.)
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 21.
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 2020 would increase by £0.1 million or decrease by £0.1 million (2019: increase by £0.2 million or decrease by £0.1 million).
There would be no effect on equity reserves.
Foreign currency risk
The Group receives approximately 40% 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
2020
£’000
(139)
–
170
–
2019
£’000
(90)
–
110
–
2020
£’000
(420)
(582)
514
711
2019
£’000
(342)
(227)
418
276
2020
£’000
(107)
–
131
–
2019
£’000
(12)
57
15
(48)
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 2020.
i Further information can be found on page 134 (note 13).
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%.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 146
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
22. Financial instruments (cont.)
Capital risk management (cont.)
The gearing ratio (excluding IFRS 16 leases) at the year-end is as follows:
Net debt
Total equity
Gearing ratio
2020
£’000
–
56,158
0%
2019
£’000
–
70,337
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. Additional credit insurance coverage is maintained where appropriate against agreed credit terms with customers.
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 £9,940,000 (2019: £7,973,000) comprise trade creditors of £9,940,000. The trade creditors are within
current liabilities. The inherent liquidity risk of these financial liabilities is managed within the overall liquidity risk of the Group as
described above. The maturity profile of lease liabilities is set out in note 18.
The Group’s policy is to invest any excess cash used in managing liquidity 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.
23. 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 2019
(Credit)/charge to income
(Credit)/charge for discontinued operations
Foreign exchange movement
At 31 December 2019
(Credit)/charge to income
(Credit)/charge for discontinued operations
Foreign exchange movement
At 31 December 2020
Accelerated tax
depreciation
£’000
Share-based
payment
£’000
Untaxed
reserves
£’000
Tax losses
£’000
5,017
(56)
(4,256)
–
705
55
(68)
–
692
(150)
110
–
–
(40)
39
–
–
(1)
148
(148)
–
–
–
–
–
–
–
(3,411)
2,829
–
–
(582)
(139)
–
–
(721)
Other
temporary
difference
£’000
(774)
220
337
4
(213)
31
–
4
(178)
Total
£’000
830
2,955
(3,919)
4
(130)
(14)
(68)
4
(208)
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:
Financial StatementsXaar plc Annual Report and Financial Statements 2020 23. Deferred tax (cont.)
Deferred tax assets
Being: Deferred tax assets from continuing operations
Being: Deferred tax assets from discontinued operations
147
2020
£’000
208
139
68
2019
£’000
130
130
–
As at 31 December 2020, the Group had unused tax losses of £75.9 million (2019: £65.8 million) available to offset against future profits.
As at 31 December 2020 the Group has an unrecognised deferred tax assets in respect of these losses totalling £14.5 million (2019: £11.2
million). These losses may be carried forward indefinitely. As at 31 December 2020, the Group has unused capital losses of £1.1 million
(2019: £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.
24. Trade and other payables
Trade payables and accruals
2020
£’000
9,940
Restated
2019
£’000
7,973
Trade payable and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit taken for
trade purchases is 18 days (2019: 27 days).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
25. Provisions
At 1 January 2019
Additional provision in the year
Utilisation of provision
At 1 January 2020
Additional / (release) provision in the year
Utilisation of provision
Release of provision
At 31 December 2020
Warranty and
commercial
agreements
£’000
Restructuring
£’000
207
206
(166)
247
71
(121)
(120)
77
292
2,641
(233)
2,700
685
(3,105)
–
280
Total
£’000
499
2,847
(399)
2,947
756
(3,226)
(120)
357
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 £685,000 have been added primarily in relation to the strategic review of the business and
redundancy programme and have been released within the year; utilisation of £3,105,000 relates to the conclusion of the 2019 and 2020
redundancy programmes. The remaining restructuring provision of £280,000 will be utilised in 2021 and relates to dilapidations.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 148
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
26. Share capital
Issued and fully paid:
78,334,296 (2019: 78,334,296) ordinary shares of 10.0p each
2020
£’000
2019
£’000
7,833
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:
Balance at 1 January and 31 December
2020
Number
2019
Number
78,334,296
78,334,296
2020
£’000
7,833
2019
£’000
7,833
The Company has one class of ordinary shares which carry no right to fixed income.
Scheme
Xaar plc 2004 Share Option Plan
Date of grant
22 November 10
1 June 11
1 May 12
Number of
shares under
option as at
31 December
2020
–
40,000
90,000
Number of
shares under
option as at
31 December
2019
10,000
40,000
90,000
130,000
140,000
Xaar plc Share Save Scheme
1 November 16
–
22,676
Xaar plc 2017 Share Save Scheme
1 November 17
1 November 18
7,010
116,596
19,351
182,295
1 December 19
937,505
1,196,152
Subscription
price per
share
211.0p
250.0p
226.5p
407.0p
344.0p
142.0p
34.0p
Xaar plc 2013 Share Incentive Plan
2 November 20
702,032
–
102.0p
17 April 13
16 April 14
14 April 16
13 April 17
1,763,143
1,397,798
6,309
8,866
11,717
5,280
32,172
8,105
11,079
16,206
8,000
43,390
0.0p
0.0p
0.0p
0.0p
Total share options outstanding at 31 December
1,925,315
1,603,864
Financial StatementsXaar plc Annual Report and Financial Statements 2020
149
26. Share capital (cont.)
Options granted under the Xaar plc 2004 Share Option Plan are ordinarily exercisable within three to ten years after the date of 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 grant.
Awards under the Xaar plc Share Incentive Plan are ordinarily exercisable between three and five years after the date of 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
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
29 April 2020
4 June 2020
1 October 2020
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
2020
Number of
shares under
option as at
31 December
2019
4,533
–
7,297
35,933
3,069
9,354
34,645
4,977
3,733
700
15,093
4,533
60,417
66,872
111,077
3,695
9,354
58,579
14,019
8,400
700
15,093
119,334
352,739
2020
Number
of shares
30,472
126,735
–
110,792
59,789
180,328
404,000
535,000
21,000
2019
Number
of shares
194,079
199,396
–
127,821
80,648
180,328
–
–
–
1,468,116
782,272
2020
£’000
29,328
–
29,328
2019
£’000
29,328
–
29,328
Financial StatementsXaar plc Annual Report and Financial Statements 2020 150
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
28. Own shares
Balance as at 1 January
Sold in the year
Balance at 31 December
2020
£’000
(2,676)
719
(1,957)
2019
£’000
(3,113)
437
(2,676)
Of this balance, £20,000 (2019: £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 £1,937,000 (2019: £2,656,000) represents the cost of 705,083 (2019: 966,410) 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 2020 was £1,421,000 (2019: £585,000).
29. Translation reserves
Balance at 1 January
Exchange differences on retranslation of net investment
Prior year correction (see note 36)
Balance at 31 December
2020
£’000
594
224
–
818
2019
£’000
817
(157)
(66)
594
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
Notes
Balance at 1 January 2019
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 as reported
Correction of error
36
Restated total equity at the beginning of the
financial year
Net loss for the year
Tax on items taken directly to equity
Own shares sold in the period
Charge to equity for equity-settled share-based
payments
Merger
reserve
£’000
1,105
–
–
–
–
1,105
–
Share-based
payments
£’000
Other
reserves
£’000
Total other
reserves
£’000
13,554
–
–
1,111
–
14,665
–
485
–
–
–
4,666
5,151
–
15,144
–
–
1,111
4,666
20,921
–
Retained
earnings
£’000
79,343
(71,051)
(437)
–
–
7,855
(257)
Total
£’000
94,487
(71,051)
(437)
1,111
4,666
28,776
(257)
1,105
14,665
5,151
20,921
7,598
28,519
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,685)
(5)
(710)
(11,685)
(5)
(710)
246
246
–
246
Balance at 31 December 2020
1,105
14,665
5,397
21,167
(4,802)
16,365
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 and includes the
change in parent equity arising from the transactions with non-controlling interest of Xaar 3D during 2019.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 31. Notes to the cash flow statement
Loss 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
Gain on re-measurement of derivative liability
Profit/(loss) on disposal of property, plant and equipment
Other gains and losses
(Increase) / decrease in provisions
Operating cash flows before movements in working capital
Decrease in inventories
(Increase) / decrease in receivables
Increase / (decrease) in payables
Cash used in operations
Income taxes received
Net cash used in operating activities
151
2020
£’000
(4,322)
(10,105)
Restated
2019
£’000
(10,937)
(61,211)
(14,427)
(72,148)
353
4,223
1,236
685
391
(454)
(72)
94
523
(77)
99
202
(2,572)
(9,796)
4,849
(1,337)
2,011
(4,273)
1,466
(2,807)
912
3,776
1,061
1,024
39,013
(2,610)
(103)
110
447
(106)
(18)
623
1,267
(26,752)
11,805
11,059
(9,332)
(13,220)
3,392
(9,828)
During the year non-cash investing activity pertains to purchase of property, plant and equipment by the Company on credit amounting to
£1,152,000 (2019: £114,000).
From the consolidated cash flow statement net cash (including treasury deposits) generated from continuing operations (excluding
proceeds from transactions with non-controlling interest) amounted to £7,073,000 (2019: £8,405,000).
Further information of cash flows from discontinued operations can be found in note 11.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 152
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
32. 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
1,603,864
702,032
(349,323)
(31,258)
1,925,315
162,172
2020
Weighted
average
exercise
price (£)
0.72
1.02
0.94
0.22
0.79
1.87
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
The weighted average share price at the date of exercise for share options exercised during the period was £1.10 (2019: £0.86). The options
outstanding at 31 December 2020 had a weighted average remaining contractual life of three and a half years (2019: three years). In 2020,
options were granted on 2 November. The aggregate of the estimated fair values of the options granted on those dates is £0.525 million.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 32. Share-based payments (cont.)
Equity-settled share option scheme (cont.)
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
153
2020
2019
£1.28
£1.02
74%
3.5 years
(0.05)%
0.00%
£0.43
£0.34
61%
3 years
0.60%
0.00%
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 and 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.
(7) From 2020, Adjusted Profit before tax ('aPBT') over the performance period 100% of the awards will vest if the threshold target is
achieved, below threshold target 0% will vest. The threshold target is achieving an adjusted profit before tax measured over the
three-year performance period to 31 December 2022.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020
154
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
32. Share-based payments (cont.)
Long-Term Incentive Plan (cont.)
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
2020
2019
1,135,011
963,000
(275,618)
(234,943)
2,080,009
829,149
(1,615,254)
(158,893)
1,587,450
1,135,011
149,806
255,948
The weighted average share price at the date of exercise for awards exercised during the period was £0.58 (2019: £0.72). The options
outstanding at 31 December 2020 had a weighted average remaining contractual life of nine and a half years (2019: seven years). In 2020,
Performance Share Awards were made in April, June and October. The aggregate of the estimated fair values of grants made on those dates
is £0.44 million. 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.
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
2020
2019
£0.48
nil
74%
3 years
(0.05)%
0.00%
£0.96
£nil
44%
3 years
0.76%
0.00%
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
2020
2019
£0.44
nil
72%
3 years
0.04%
0.00%
£0.79
£nil
56%
4 years
0.83%
0.00%
The Group recognised total expenses of £246,000 and £1,111,000 related to all equity-settled share-based payment transactions in 2020
and 2019, respectively.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 155
33. 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 2020 was £740,000 (2019: £951,000). As at
31 December 2020 contributions of £89,000 (2019: £94,000) due in respect of the current reporting period had not been paid over to
the schemes.
34. 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 to 45%, the shareholding determines that they are a related party to Xaar plc.
• 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 holds 55% of the enlarged issued share capital of Xaar 3D, and SSYS holds 45% of the enlarged
issued share capital of Xaar 3D.
In addition, in 2019 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. This Call Option is subject to a negotiation for amendment to exercise.
Additional disclosure on the transaction is included in note 22 – Financial instruments, and note 35 – Non-controlling Interest.
During 2020 there were both product sales between Xaar and SSYS, and related party transactions associated with the “go-to-market”
functions where SSYS employees have been seconded to Xaar 3D Limited and the costs recharged:
- Sales between Xaar and SSYS in 2020 £636,078 (o/s at year end £237,783)
- Purchases between SSYS and Xaar £2,620 (o/s at year end £nil)
- Employees seconded to Xaar from SSYS £219,201 (accrued at year end)
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’.
i Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration
report on pages 87 to 89.
Short-term employee benefits
Post-employment benefits
Share-based payments
2020
£’000
1,040
29
183
1,252
2019
£’000
947
53
90
1,090
Financial StatementsXaar plc Annual Report and Financial Statements 2020
156
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
35. 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 intra-group eliminations.
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 22.
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 (2020: 45% / 2019: 45%)
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 outflow from operating activities
Net cash outflow from investing activities
Net cash (outflow) / inflow from financing activities
Net cash (outflow) / inflow
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 total comprehensive expense for year
Balance at 31 December
2020
£’000
3,770
6,198
(1,233)
(356)
8,379
3,771
2020
£’000
734
(7,366)
(6,632)
(3,648)
(2,984)
2019
£’000
10,057
6,909
(1,432)
(558)
14,976
6,739
2019
£’000
18
(1,219)
(1,201)
(778)
(423)
(6,632)
(1,201)
(3,648)
(2,968)
(778)
(458)
(6,616)
(1,236)
2020
£’000
(6,213)
(645)
(160)
(7,018)
2020
£’000
6,739
–
–
(2,968)
3,771
2019
£’000
(2,434)
(2,299)
5,511
778
2019
£’000
2,028
(2)
5,171
(458)
6,739
Financial StatementsXaar plc Annual Report and Financial Statements 2020 157
36. Prior period restatement
The financial statements include a prior year restatement in relation to the release of untaxed reserves of £623,000 in XaarJet AB in 2019.
This reserve is a Swedish-IFRS GAAP difference and both balance sheet and income statement impacts should have been eliminated
on consolidation. The accounting for these untaxed reserves should have no impact on the consolidated Group financial statements as
the untaxed reserves are not carried on the Group balance sheet, in accordance with IFRS. However, in 2019 an entry was incorrectly
recorded which resulted in a credit of £623,000 to the income statement, with a corresponding reduction to other payables and accruals.
A correcting entry has been recorded in these financial statements, as a prior year adjustment to eliminate these entries from the 2019
balance sheet and income statement with a corresponding increase in exceptional costs in 2019 of £623,000 and associated translation
reserve impact of £66,000.
Furthermore there was the reversal of an adjustment on intercompany sales which had been made in 2019 in error. The goods had been
sold externally by the year end. The adjustment impacts cost of sales (£278,000), general and administrative expenses (£88,000) and
inventory (£366,000).
In addition, as required under IFRS the financial statements have been restated to present the assets, liabilities and net income from
discontinued operations associated with the planned and ongoing sale of 3D business unit as single lines in the comparative period, which
is consistent with the current year presentation (further information and other required disclosures can be found in note 11).
The following tables summarise the impact of the prior year restatement on the financial statements of the Group for year ended 31
December 2019:
Consolidated income statement
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 on derivative liabilities
Operating loss
Investment income
Finance costs for leases
(Loss) / profit before tax
Income tax (expense) / credit
(Loss) / profit for the year from continuing operations
Loss for the year from discontinued operations
(Loss) / profit for the year
Attributable to (Restated):
Owners of the Company
Non-controlling interests
As reported
2019
£’000
Untaxed
reserve
£’000
Note
Inventory
£’000
22
10
18
12
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)
(71,474)
(71,051)
(423)
(71,474)
–
–
–
–
–
–
–
–
(623)
–
(623)
–
–
(623)
–
(623)
–
(623)
(623)
–
(623)
–
277
277
–
–
–
89
–
–
–
366
–
–
366
–
366
–
366
366
–
366
3D
£’000
(18)
69
51
421
(231)
306
882
–
–
(193)
1,236
(38)
13
1,211
4
1,215
(1,215)
Restated
2019
£’000
49,379
(37,089)
12,290
(3,081)
29
(8,104)
(7,718)
(2,715)
(1,519)
(87)
(10,905)
65
(97)
(10,937)
(3,497)
(14,434)
(57,297)
–
(71,731)
–
–
–
(71,308)
(423)
(71,731)
Earnings per share from continuing operations (Restated)
Basic
Diluted
(19.4p)
(19.4p)
(0.8p)
(0.8p)
0.5p
0.5p
1.0p
1.0p
(18.7p)
(18.7p)
Financial StatementsXaar plc Annual Report and Financial Statements 2020 158
Notes to the consolidated financial statements (cont.)
for the year ended 31 December 2020
36. Prior period restatement (cont.)
Consolidated statement of comprehensive income
Loss for the year
Exchange differences on retranslation of net investment
Other comprehensive (loss) / income for the year
Total comprehensive income for the year
Attributable to (Restated):
Owners of the Company
Non-controlling interests
Consolidated statement of financial position
Current assets
Inventories
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Translation reserve
Retained earnings
Total equity
31-Dec-19
as previously
reported
£’000
(71,474)
(192)
(192)
(71,666)
(71,208)
(458)
(71,666)
31-Dec-19
as previously
reported
£’000
16,164
87,858
(7,284)
(17,198)
70,660
660
7,855
70,660
Untaxed reserve
£’000
Inventory
£’000
31-Dec-19
restated
£’000
Untaxed reserve
£’000
Inventory
£’000
(623)
(66)
(66)
(689)
(689)
–
(689)
–
–
(689)
(689)
(689)
(66)
(623)
(689)
366
(71,731)
–
–
(258)
(258)
366
(71,989)
366
–
366
366
366
–
–
(71,531)
(458)
(71,989)
31-Dec-19
restated
£’000
16,530
88,224
(7,973)
(17,887)
366
70,337
–
366
366
594
7,598
70,337
37. Non-adjusting post balance sheet event – 3D Call Option
In the year ended 31 December 2020, the Company invested approximately £7.0 million cash in Xaar 3D. Due to delays caused by the
impact of the COVID-19 pandemic on the development of Xaar 3D products, the Directors believe there was a risk that the Xaar 3D
programme may take longer than anticipated when it entered into the original Call Option with Stratasys, and subsequently the Company
would be required to commit additional funds to Xaar 3D. With further investment anticipated, the Xaar Board has considered all options
for the future financing and ownership structure of Xaar 3D, and accordingly has held detailed discussions to sell the remaining stake
in Xaar 3D. Terms are still to be finalised and may potentially differ to those of the Call Option originally agreed in 2019.
The terms of any final agreement will be subject to Xaar shareholder approval.
Such an arrangement would provide Xaar 3D with the best opportunity to complete the commercialisation of the HSS product range in the
shortest time, would lead to an immediate injection of cash and will enable Xaar to focus on its core business (see Strategy update on page 11).
38. Subsidiary audit exemption
The following companies are exempt from the requirements relating to the audit of individual accounts for the year ended 31 December
2020 by virtue of section 479A of the companies act 2006: XaarJet Limited (03320972), XaarJet (Overseas) Limited (03375961), Xaar
Technology Limited (02469592), Xaar Digital Limited (03588121), Xaar Trustee Limited (03025096), Xaar 3D Holdings Limited (11425540),
Xaar 3D Limited (11389105).
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Company balance sheet
as at 31 December 2020
Fixed assets
Right of use asset
Investments
Current assets
Debtors
Cash at bank and in hand
Total assets
Creditors: amounts falling due within one year
Trade and other payables
Lease liabilities
Provisions
Net current assets
Total assets less current liabilities
Lease 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
159
Notes
2020
£’000
2019
£’000
3
4
5
6
3
7
3
9
9
9
9
9
39
82,055
82,094
5,572
7,051
12,623
94,717
(9,280)
(16)
–
(9,296)
3,327
85,421
(19)
–
32,893
32,893
50,159
4,201
54,360
87,253
(8,646)
–
(119)
(8,765)
45,595
78,488
–
85,402
78,488
7,833
29,328
36,723
(1,937)
3,520
9,935
85,402
7,833
29,328
36,561
(2,656)
3,440
3,982
78,488
Xaar plc reported a profit for the financial year ended 31 December 2020 of £6,663,000 (2019: loss of £1,512,000).
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 financial statements of Xaar plc, registered number 3320972, were approved by the Board of Directors and authorised for issue on
27 April 2021. They were signed on its behalf by:
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
Financial StatementsXaar plc Annual Report and Financial Statements 2020 160
Company statement of changes in equity
for the year ended 31 December 2020
At 1 January 2019
Loss for the financial year
Total comprehensive income
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
Profit 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
4
10
4
10
Called up
share capital
£’000
Notes
Share
premium
account
£’000
29,328
–
–
–
–
–
–
Other
reserves
£’000
35,729
–
–
–
–
832
–
Own
shares
£’000
Share-based
payments
£’000
Profit and
loss account
£’000
(3,093)
–
3,160
–
5,966
(1,512)
Total
£’000
78,923
(1,512)
–
437
–
–
–
–
–
–
–
280
(1,512)
(1,512)
–
(472)
–
–
437
(472)
832
280
7,833
–
–
–
–
–
–
7,833
29,328
36,561
(2,656)
3,440
3,982
78,488
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
162
–
–
–
719
–
–
–
–
–
–
–
–
6,663
6,663
6,663
6,663
–
(710)
–
719
(710)
162
80
–
80
At 31 December 2020
7,833
29,328
36,723
(1,937)
3,520
9,935
85,402
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Notes to the Company financial statements
for the year ended 31 December 2020
161
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 8 to 31. Notes 21 and 22 to the consolidated financial statements 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, the Directors have assessed the Company’s forecasts
and cash flow projections for the next 12 months, which have undergone reverse stress tests by significantly reducing revenue across the
period, and identified cost mitigations. For this reason, we continue to adopt the going concern basis in preparing the financial statements.
Please refer to Directors' report on pages 64 and 65 for going concern.
Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment and include 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 relief 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. Profit/(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 2020 was 32 (2019: 31). Staff costs amounted to £1.9 million (2019: £1.9 million). Information
about the remuneration of Directors is provided in the audited part of the Directors’ Remuneration report on page 87. For the remuneration
of key management personnel of the Company see note 34 Related party transactions of the consolidated financial statements.
i The Directors’ Remuneration report can be found on page 87.
The audit fee for the audit of the Company’s financial statements in 2020 was £20,000 (2019: £20,000).
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 162
Notes to the Company financial statements (cont.)
for the year ended 31 December 2020
3. Leases
Cost
At 1 January 2020
Additions
Exchange movements
At 31 December 2020
Depreciation
At 1 January 2020
Charge for the year
Exchange movements
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
Building
£’000
–
45
(1)
44
–
(6)
1
(5)
39
–
Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements
during the period:
At 1 January
Additions
Payments
Exchange movement
At 31 December
Current
Non-current
2020
£’000
–
45
(9)
(1)
35
16
19
35
The table below summarises the maturity profile of the Group’s financial liabilities based upon the contractual undiscounted payments
for the year.
On demand
Less than three months
Four to 12 months
One to five years
More than five years
The following are the amounts recognised in profit or loss:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Total amount recognised in profit or loss
2020
£’000
–
–
17
19
–
36
2020
£’000
6
–
6
Financial StatementsXaar plc Annual Report and Financial Statements 2020
4. Fixed asset investments
Subsidiary undertakings held at cost
At beginning of the year
Additions in the year
Capital contributions arising from share-based payments
At end of the year
163
2020
£’000
2019
£’000
32,893
49,000
162
82,055
32,062
–
831
32,893
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
As described in note 5, an exercise was performed in the year to simplify the intra-group position. This resulted in a capital contribution of
£49,000,000, which has been included as an additional investment in the table above.
5. Debtors
Amounts receivable within one year
Amounts owed by Group undertakings
Amounts receivable after more than one year
Deferred tax asset (see below)
2020
£’000
2019
£’000
5,572
50,159
–
–
5,572
50,159
Amounts owed by Group undertakings are trading balances and interest is not charged.
During 2020 an exercise took place to simplify the intra-group position and historic trading balances, with certain Group debtors being
waived which has been accounted for as a capital contribution.
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
2020
£’000
–
–
–
–
–
–
–
2019
£’000
44
(4)
40
4
(44)
–
–
For additional disclosures relating to current and deferred taxation, see notes 12 and 23 to the consolidated financial statements.
Financial StatementsXaar plc Annual Report and Financial Statements 2020
164
Notes to the Company financial statements (cont.)
for the year ended 31 December 2020
6. Creditors
Amounts falling due within one year
Amounts owed to Group undertakings
Accruals
2020
£’000
9,124
156
9,280
Amounts owed to Group undertakings are trading balances under normal commercial terms and interest is not charged.
7. Provisions
At 1 January
Additional provision in the year
Utilisation of provision
Release of provision
At 31 December
2020
£’000
119
–
(119)
–
–
2019
£’000
8,593
53
8,646
2019
£’000
78
119
–
(78)
119
Provision movements relate to restructuring costs arising in Xaar plc. Further details of provisions are provided in note 25 to the
consolidated financial statements.
8. Dividends
There were no dividends declared or paid during the current and preceding year.
9. Share capital and share premium account
Full details of movements in share capital, share premium account, other reserves, own shares and the share option payment reserve are
given in notes 26, 27, 28 and 30 to the consolidated financial statements.
10. 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 32 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 £0.53 (2019: £1.32). The options
outstanding at 31 December 2020 had a weighted average remaining contractual life of two and a half years (2019: three years), and a
range of exercise prices between 0 pence and 344 pence (2019: 0 pence and 403 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 32 to the consolidated financial statements.
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 32 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 £0.45 (2019: £0.73). The awards
outstanding at 31 December 2020 had a weighted average remaining contractual life of nine years (2019: nine years). All awards have
a £nil exercise price.
Financial StatementsXaar plc Annual Report and Financial Statements 2020
165
Proportion
of ordinary
share capital
held by the
Company
100%
100%
100%
100%
Country
of incorporation
Address of
registered office
Principal
activity
Issued and fully
paid up share
capital
11. Subsidiary undertakings
The following entities are the subsidiary undertakings of the Company:
Name
Xaar Technology
Limited
XaarJet Limited
England & Wales
England & Wales
Science Park, Cambridge,
CB4 0XR
Science Park, Cambridge,
CB4 0XR
England & Wales
XaarJet (Overseas)
Limited
Xaar Trustee
Limited1
Xaar Digital Limited England & Wales
England & Wales
Xaar 3D Holdings
Limited
Xaar 3D Limited2
England & Wales
England & Wales
Xaar 3D ApS3
Denmark
Xaar Group AB (in
liquidation)4
Sweden
Sweden
XaarJet AB (in
liquidation)4
Xaar US Holdings
Inc.
Engineered Printing
Solutions5
Xaar Americas Inc.5 USA
USA
USA
China
Xaar Inkjet
Technology
(Shenzhen) Company
Limited6
Science Park, Cambridge,
CB4 0XR
Science Park, Cambridge,
CB4 0XR
Science Park, Cambridge,
CB4 0XR
Science Park, Cambridge,
CB4 0XR
Science Park, Cambridge,
CB4 0XR
c/o Bygning OBV 028, Otto Busses
Vej 7,1. sal., 2450 Kobenhavn SV,
Denmark
Science Park, Cambridge,
CB4 0XR
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
Room 409, Floor 4, Building 13,
Fuhai Industrial Zone, Fuzhou
Avenue, Shenzhen, China
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
100 ordinary £1 shares
100%
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
Sales and marketing
-
100%
55%
55%
100%
100%
100%
100%
100%
-
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 Xaar Group AB and XaarJet AB, companies incorporated in Sweden were liquidated on EGM on 21 December 2020.
5 Xaar Americas Inc and Engineering Printing Solutions are held by Xaar US Holdings Inc.
6 Xaar Inkjet Technology (Shenzhen) was granted a trading licence and legally incorporated in China in December 2020 but no share capital was in issue at year end.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 166
Five year record
Summarised consolidated results
Results
Revenue
Gross profit
Adjusted (loss)/profit before tax (note 4)
Adjusted (loss)/profit after tax (note 14)
Adjusted diluted earnings per share (note 4)
Dividends pence per share
Assets employed
Net cash*
2020
Continuing
Operations
£’000
2019 Restated
Continuing
Operations
£’000
2018
£’000
2017
£’000
2016
£’000
47,984
13,010
(3,911)
(4,038)
(5.2p)
–
49,379
12,290
(7,952)
(11,632)
(15.1p)
–
60,468
29,496
4,523
6,930
10.0p
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
18,117
25,322
27,946
44,697
49,321
* Net cash is made up of cash and cash equivalents, treasury deposits less borrowings and assets held for sale.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 Notice of the Annual General Meeting
167
COVID-19 statement
The health and wellbeing of our colleagues, shareholders and the wider community in which our Company operates is a priority for us.
The Directors have carefully considered the impact on the meeting of the constantly evolving COVID-19 situation and the UK Government’s
restrictions and guidance on, amongst other things, public gatherings and social distancing. As at the date of publication of the notice of
the Annual General Meeting, it is anticipated that this year’s AGM will be held as a closed meeting. Accordingly, save for the Chairman
of the Meeting and such other persons as the Chairman of the Meeting may decide should be admitted for the purposes of forming a
quorum, shareholder attendance in person at the AGM will not be permitted.
The Company will continue to closely monitor the developing impact of COVID-19 and the latest legislation and guidance issued by the UK
Government. If circumstances evolve such that the Directors consider that, within safety constraints and in accordance with government
guidance, arrangements regarding attendance at the Annual General Meeting can change, the Company will notify shareholders as soon
as reasonably practicable of any such changes via a Regulatory Information Service and on our website. We encourage shareholders to
monitor the Company’s website and regulatory news services for any updates in relation to this year’s AGM.
Given the uncertainty around whether shareholders will be able to attend the AGM, we strongly recommend that shareholders exercise
their votes by submitting their proxy as set out in the Notice of Meeting. This will ensure that your vote will be counted if attendance at the
meeting is restricted (which is likely to be the case due to the ongoing COVID-19 restrictions). All shareholders are strongly recommended
to vote electronically at www.signalshares.com as your vote will automatically be counted. In addition, should a shareholder have a question
that they would have raised at the meeting, we ask that they send it by email to investor.relations@xaar.com before 5.00 pm on 8 June 2021.
Answers to the questions will be published on our corporate website (www.xaar.com) after the AGM.
Notice is hereby given that the twenty-fourth Annual General Meeting (‘AGM’) of Xaar plc (the ‘Company’) will be held at Xaar plc, Unit 5
Enterprise, 3950 Cambridge Research Park, Beach Drive, Waterbeach, Cambridge, CB25 9PE on Wednesday 16 June 2021 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 2020, 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 Alison Littley be re-elected as a director of the company.
9. THAT the Directors’ remuneration report (excluding the Directors’ remuneration policy which is set out on pages 78 to 94 of the Annual
Report) for the year ended 31 December 2020 be approved.
Special business
To consider and, if thought fit, pass the following Resolutions which will be proposed in the case of Resolution 10 as an Ordinary Resolution
and in the case of Resolutions 11 to 13 as Special Resolutions:
10. 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
Financial StatementsXaar plc Annual Report and Financial Statements 2020 168
Notice of the Annual General Meeting (cont.)
Special business (cont.)
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.
11. THAT, subject to the passing of Resolution 10, 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:
(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 10, 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.
12. THAT, subject to the passing of Resolution 10, the directors of the Company be authorised in addition to any authority granted under
Resolution 11 to allot equity securities (as defined in section 560 of the Act) for cash under the authority conferred by Resolution
10 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.
13. 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 shares 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 higher of the price of
the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out;
(d) 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
{e) 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.
By order of the Board
Camila Cottage
Company Secretary
27 April 2021
Financial StatementsXaar plc Annual Report and Financial Statements 2020
169
Notes
1.
A member entitled at the meeting may appoint one or more proxies to exercise all or any of the member’s rights, to speak at the
meeting. A proxy need not be a member of the Company. If a member appoints more than one proxy, 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 you need help with voting online, or require a paper proxy form, please contact our Registrar, Link Group by email
at enquiries@linkgroup.co.uk , or you may call Link on 0371 664 0391. Calls are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged at the applicable international rate. We are open between 09:00 – 17:30,
Monday to Friday excluding public holidays in England and Wales.
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
Group, PXS 1, Central Square, 29 Wellington Street, Leeds LS1 4DL. If a paper form of proxy is requested from the registrar, it should
be completed and returned to Link Group, PXS 1, Central Square, 29 Wellington Street, Leeds LS1 4DL 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.
5.
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 14 June 2021 (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 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
14 June 2021 (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 vote at the meeting.
6. Copies of Directors’ service agreements, the terms of appointment of Non-Executive Directors, and the register of Directors’ interests
kept by the Company under section 808 of the Companies Act 2006 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 56 and 57 of the Annual Report
and Accounts.
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.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 170
Notice of the Annual General Meeting (cont.)
Notes (cont.)
9.
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 has not
appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated,
from those corporate representatives, 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.
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 14 June 2021. 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 27 April 2021, 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 73,923 ordinary shares and, therefore, the total number of voting rights in the Company as at 7.00am on 27
April 2021 is 78,260,373.
15. Any member 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. A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.xaar.com.
Financial StatementsXaar plc Annual Report and Financial Statements 2020 171
Advisors
Registered office
316 Science Park
Cambridge CB4 0XR
Registered number
3320972
Company Secretary
Camila Cottage
Brokers
Investec
30 Gresham Street
London, EC2V 7QP
Registered auditor
Ernst & Young LLP
Cambridge Business Park
Cowley Rd
Cambridge CB4 0WZ
Solicitors
Mills & Reeve LLP
Botanic House
100 Hills Road
Cambridge CB2 1PH
Bankers
HSBC Bank plc
63-64 St Andrews Street
Cambridge CB2 3BZ
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
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.
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.
2.
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.
i Find out more at
www.fca.org.uk/scamsmart
Financial StatementsXaar plc Annual Report and Financial Statements 2020
Xaar plc
316 Cambridge Science Park
Milton Road
Cambridge
Cambridgeshire
CB4 0XR