Group
Xaar plc
Annual Report and Financial Statements 2022
Welcome to our 2022 Annual Report
Welcome to our 2022 Annual Report
Our vision
OUR VISION
A world where you
can print anything
you can imagine
Xaar plc
Annual Report and Financial Statements 2022
2022 at a glance
About us
We are a world leader
in the development of
digital inkjet technology.
We 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.
In addition to printheads (Xaar), we develop print systems for
product decoration (EPS) which use our inkjet technology, as well
as fluid management systems (Megnajet) which are robust, reliable,
easy to integrate. We also produce high performance digital imaging
technology (FFEI) for two main applications – inkjet printing and
digital pathology.
We put innovation and collaboration at the core of our global
partnerships, helping our customers to unleash the true power
of our technologies and open up a world of opportunities for their
business, today and into the future.
Sustainability at the heart of our business
We are investing for sustainability and long-term growth
Environment
Leading the way in environmental
sustainability for the industrial inkjet
technology sector.
People
Be employer of choice by putting our
people, their potential and wellbeing
at the heart of all we do.
Innovation
Encouraging more sustainable
approaches to design, manufacture,
technology and collaboration across
the whole product lifecycle.
Community
Actively engaging with our
communities to provide practical,
effective, lasting support that
benefits society.
What's new?
Our business units
New acquisitions
In March, Xaar completed the
acquisition of Megnajet, one of
the market leaders in the design
and manufacture of industrial
fluid management systems for
digital inkjet.
New products
In November, we launched our
revolutionary printhead – the
Xaar Aquinox – delivering
exceptional reliability, creativity,
and sustainability for printing
aqueous fluids.
New technology
We also launched aQ Power
Technology which provides a
radically new approach to how
water-based fluids are jetted reliably,
delivering a truly transformational
industrial printhead.
Printhead
Xaar
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, Textiles, Labels and Packaging as
well as 3D Printing and Additive Manufacturing.
Highlights
• Xaar Aquinox launched successfully with excellent
customer response
• New technology centre opened in Sweden;
new inkjet printing lab in China
i Read more about Printhead on page 20
Fluid Management Systems
Megnajet
Fluid management systems specialist Megnajet provides
robust, reliable, easy to integrate products so that OEMs
can get to market quickly with reduced development costs.
Highlights
• Integration into the Group completed successfully
• First phase of site improvements completed
i Read more about Megnajet on page 23
Digital Imaging
FFEI
Our digital imaging company, FFEI Ltd, focuses
on high performance digital imaging solutions – from
digital inkjet label presses to digital pathology scanners.
Highlights
• Growth in demand for printbars for label embellishments
• Life Sciences Microscan and Sierra showing strong demand
i Read more about FFEI on page 24
Product Print Systems
EPS
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 inkjet printheads.
Highlights
• New and strong leadership
• Excellent growth in sales
i Read more about EPS on page 25
Financial highlights
Contents
Our performance
£72.8m
Printhead
Product Print Systems
Digital Imaging
Ink Supply Systems
54%
27%
16%
3%
Revenue – continuing operations
Net cash (outflow)/inflow
(£16.5m)
(£16.5m)
2022
2021
Current year includes £5.3 million
outflows for business acquisitions and
2021 benefited from £9.3 million of
inflows from the sale of subsidiaries.
£5.0m
i Refer cash flow statement on
page 120
39%
Cash & Treasury Deposits
£8.5m
£8.5m
2022
2021
£25.1m
Strong closing balance sheet with
net cash including benefit of invoice
discounting facility of £0.4 million
(2021: nil)
£72.8m
2022
2021
Achieved through both strong organic
growth and new acquisitions
£72.8m
£59.3m
Gross margin – continuing operations
39%
2022
2021
34%
Increased from 34% in 2021,
benefiting from operational leverage
in the business
R&D spend
£6.7m
2022
2021
£6.7m
£5.7m
By continuing operations of £6.7
million, up £1.0 million on 2021 with
investment focused on the ImagineX
platform and product roadmap
Strategic Report
2022 at a glance
Financial highlights
Our progress in 2022
Chairman's introduction
Why invest
Business model and strategy
Xaar Aquinox
Marketplace
Strategy update
Our business units
– Printhead
– Megnajet
– FFEI
– EPS
Business performance
Sustainability Roadmap
Sustainable and responsible business
Task Force on Climate-related
Financial Disclosures (TCFD)
Greenhouse Gas Emissions statement
Key performance indicators
Risk management
Non-financial information statement
Board approval of the Strategic
and Annual Reports
Governance
Governance at a glance
Chairman's introduction to Governance
Board of Directors
Directors’ report
Section 172 statement
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
Company information and advisors
IFC
01
02
04
06
08
10
12
16
20
23
24
25
26
29
30
42
45
46
48
58
59
60
62
63
64
71
73
79
82
84
105
106
117
117
118
119
120
121
161
162
163
168
169
174
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
01
Our progress in 2022
Our business strategy for Xaar plc is to sell more printheads – by extending our
range of products to access all digital print markets, and by making it easier for
customers to use our printheads by supplying the supporting systems components.
To ensure we are successful we carefully manage how we invest resources in the business and take a proactive approach
to handling external challenges.
In November, in Shenzhen, China, Xaar
opened a state-of-the-art inkjet printing
laboratory, comprising the latest printhead
test equipment and print process
experimentation platforms. Utilising Xaar’s
printheads, fluids and fluid management
systems, the new lab focuses on providing
our customers and partners in China,
including scientific research institutions, with
a variety of services such as sample printing,
application development, printhead nozzle
status detection and waveform adjustments
for new applications. The lab also provides
a way to showcase applications and provide
technical consultations to drive a greater use
of inkjet technologies. Sectors supported
include ceramics, glass, PCB, textiles, 3D
printing, packaging and labels. A key priority
is to provide support to our customers in
China, helping them to develop more targeted
application solutions and achieve faster
innovation cycles, all whilst reducing their
R&D investment.
New markets and customers
The new products launched during 2022
open up a number of new markets for Xaar’s
printhead business including textile printing
and packaging, and have broadened our
opportunities in existing markets such as
ceramics, where there are new opportunities
to explore such as printing glazes.
We have also been working with customers
in PCB markets (legend printing in
particular, with an opportunity to explore
solder mask printing in the future) and our
Ultra High Viscosity Technology gives us
advantages for 3D printing which are of
interest to new OEMs in China.
i See pages 12 to 15 for more
information
In addition, we have added 91 new
customers this year across a broad range
of applications, most of whom are in early
stages of development, with five launching
new machines this year.
Printbars manufactured at FFEI, which use
Xaar 2002 printheads, delivered growth in
the labels embellishment market in Italy.
Extending our product range
In March we launched the Xaar Versatex
print engine which provides users who have
limited inkjet experience with the ability to
fast track the digital inkjet development and
integration process, allowing a speedy, cost
effective and agile way for manufacturers
to explore new potential applications.
The product is manufactured by FFEI and sold
under the Xaar brand. Also launched in March
was the Xaar Nitrox Elite GS3 printhead,
a small drop variant delivering improved print
uniformity and drop placement, creating
high-definition image resolutions for smoother
skin tones, gradients and colours. This product
was produced for OEMs developing print
systems for label and graphic applications,
and also functional fluid applications, such as
PCB printing.
The acquisition of Megnajet, also in March,
has given Xaar easy access to a much wider
range of fluid management systems which
make it easier for OEMs and UDIs to adopt
Xaar as a long-term development partner.
During the second half of 2022 customer
feedback guided the development of the
Roadmap for the Versatex print engine to
ensure that we develop and manufacture
according to customer requirements. In
October we released an updated inkjet
development kit which included new
components (such as bracketry) which make
it easier to use for first time developers.
In November, we launched the most
significant new printhead for around 20 years
– the Xaar Aquinox. The Aquinox is the latest
development from Xaar’s ImagineX platform,
with revolutionary aQ Power Technology which
provides a radically new approach to how
water-based fluids are jetted reliably, delivering
a truly transformational industrial printhead.
i See page 10 for a full overview
With its unique technologies, exceptional print
speeds, a high native resolution of 720dpi
and compatibility with multiple aqueous fluid
types, the Aquinox is a versatile printhead,
which is ideal for printing textiles, highly
absorbent substrates, or thick film coatings.
In addition, thanks to Xaar’s Ultra High
Viscosity Technology the Aquinox is capable
of jetting fluid viscosities of up to 100cP.
By enabling a wider colour gamut and fluids
with larger particles and more pigment for
higher opacity, colours are more vibrant and
whites and blacks stronger, ensuring the
Xaar Aquinox can bring the latest imaginative
designs and finishes to life.
02
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Reshaping R&D
Focused investment in the business
The acquisition of Megnajet (2022) and
FFEI (2021) presented an opportunity to
review our inkjet R&D capabilities across
the Group. With a rich new product and
technology roadmap, ensuring that our
inkjet Group R&D operates at high output
in an efficient and innovative manner is key.
The consequent reshaping has delivered a
new Group R&D structure of Technology,
Print Head and Print Systems. R&D within
the FFEI Life Science business unit remains
important to us, as does the R&D team
within the EPS business unit.
By enabling the sharing
of R&D best practice
and technologies across
the Group, our team
will continue to develop
best-in-class printheads
and systems to meet our
customers' needs for
today and tomorrow.
We have invested in our senior leadership
team to strengthen our capabilities and drive
strategy in Operations, HR and R&D and the
team has a proactive focus on delivering on
our profit goals which drives decision making
across the Group.
During the year we invested £10.0 million
in inventory for the Printhead business to
successfully secure materials to meet 2022
production requirements and to increase our
holding of finished goods. This enabled us to
deliver on customer demands throughout 2022
and also into 2023. We believe we are winning
business through a competitive advantage of
offering shorter lead times than our competition.
We have taken further proactive actions to adapt
product designs to accommodate alternative
components, increasing our resilience to supply
chain constraints.
We have continued to actively manage costs
and take appropriate action in response to
the significant cost inflation that is prevalent
globally. Our electricity unit costs are fixed
into H2 2023 and we have invested in raw
materials to further mitigate against rising
costs. Where possible we have passed cost
increases on to our customers through
increased sales prices.
Substantial time has been spent planning
for the upgrade of our Huntingdon facility
which started in January 2023, now reopened
and involves a significant modernisation of
our manufacturing capabilities. Benefits
will be much improved efficiency, yields and
reduced product costs in the longer term.
The investment in working capital we have
made ensured we are able to meet fully all
customer demands whilst the factory was
closed for the work to be carried out.
With the launch of our Sustainability Roadmap
in March, Xaar has committed to achieving
some key sustainability goals which will
determine the focus of our investment in
the business over the coming years. The
Roadmap was covered in the 2021 Annual
Report and Accounts, and can be found here:
ESG
Xaar plc Annual Report
and Accounts 2021
With one pillar of our Roadmap centred on
‘Community’, we announced our charity
partnership with Break in the UK and
Manchester Machines in the US. See ESG
update on pages 30 to 41. To drive the
fundraising for our chosen charities, we put
in place a cross functional team of charity
champions who have volunteered to create
and drive our fundraising activities, working
in close partnership with charities. To date,
in the last nine months the UK business has
raised almost £11,539. The Company will
match the funds raised by Xaar UK employees.
In the US, Xaar company EPS has donated
$2,500 to a 4-H club that competes in a
robotics competition. We provide additional
support such as engineering, project reviews
and internships for older students. EPS also
recently started donating food to the local
community food cupboard.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
03
Chairman’s introduction
Strong performance and good momentum
Strategic and operational
highlights
L Customer engagement accelerated
due to expanded vertically integrated
product range
L Phase 1 of operational efficiency
programme with factory re-
organisation completed on time
and on budget
L Ongoing delivery of product roadmap
with successful Aquinox product
launch
L Investment in working capital has
allowed Xaar to successfully mitigate
supply chain constraints and deliver
on customer demand
L Further operational progress made in
Engineered Printing Solutions (EPS),
delivering strong revenue growth
L Expanding business capability
and vertically integrated product
offering: acquisition of Megnajet
and successfully completed FFEI
integration
L Sustainability Roadmap embedded
in business with clear strategy to
reach ‘net zero’ by 2030
Into my third year as
Chairman, I am delighted
with the progress that
the business has made,
operationally, commercially,
and strategically.
We are well positioned in growing markets, with
a high quality leadership team, strong R&D and
manufacturing capabilities, and with technology
that differentiates us from our competitors. In
addition, strong capital discipline is enabling
continued investment in growth opportunities.
Our central focus remains on our core
competence of designing and manufacturing
world leading printheads. The continued
rebuilding and strengthening across all areas
of our business has resulted in a platform
from which we can deliver reliable business
performance and meet the requirements of
our customers.
We also have a clear focus on the value chain,
placing our customers at the centre of our
business. We offer integrated solutions in a
wide number of market sectors, enabling more
consistent financial performance. The technical
and competitive advantages of the Xaar Bulk
piezo product range has progressed well with
the launch of our latest printhead, Aquinox.
This product opens new markets to Xaar with
its water-based capability, and we were pleased
to see the product launched to plan and on
time, reaffirming the expertise and focus we
have across different teams in the Group.
The Board is delighted with the progress
that the management team has made in
re-energising the business and would also
like to thank our teams and partners worldwide
for their commitment and adaptability.
04
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Continued strategic progress
This year’s strong trading performance has
been driven by all elements of the business
and momentum continues to build. A clear
strategy is now embedded across the Group
with a focus on customer needs and a drive
to highlight the benefits delivered by adoption
of Xaar digital print technology.
This focus, along with our well-defined
product roadmap, has increased the quality and
responsiveness of the business, and meaning
we are well placed for further performance
improvements. We believe a significant opportunity
exists in market sectors and applications where
Xaar technology provides commercial and
technical performance advantages.
Operational improvements have also been
made. We have previously discussed investing
in our manufacturing facilities to improve
efficiency and lower costs, and the first phase
of this programme has now been completed.
The Huntingdon factory reorganisation was
completed in early 2023 on time and on budget.
This will enable us to operate more efficiently,
increase capacity and crucially generates
significant cost savings, especially in reducing
our energy consumption.
The acquisitions of FFEI and Megnajet have
been successfully integrated, adding capability
and broadening our product range. This has
increased our market opportunity and means
Xaar is better placed to support customers with
the integration of our printhead technology.
Our product print systems business, EPS,
has had an excellent year, with increased
customer engagement leading to significant
revenue growth, higher gross margins and
strong profitability.
Strong financial results
In what has proven to be another challenging
year for the global economy, the Group
delivered strong sales growth of 23%
(8% organic) and achieved profitability for
the year. We have taken actions to build
organisational strength and resilience, while
focusing on cost control and careful cash
management.
Additionally, there has been investment to
increase efficiency and ensure consistency
of operational performance. This will mean
the business is well placed to further deliver
on the significant opportunities ahead as
external pressures ease.
As has been the case for many businesses,
over the past year we have been faced with
unprecedented supply chain issues coupled
with rising global inflation. Through taking
proactive measures with a focus on managing
our supply chain, investing in both raw
materials and higher levels of finished goods,
we have been continually strengthening
our business resilience and maintaining
uninterrupted supply to our customers.
The continued rebuilding and strengthening across all areas
of the business has generated a strong platform for reliable
business performance.
Andrew Herbert
Chairman
We also seek to have a wider positive impact
on society by understanding and prioritising
employee needs, doing business responsibly,
and reaching out to our local communities. The
majority of our sites in the UK have moved to
100% renewable energy. We aim to switch all
contracts in the UK to renewable electricity by
the end of 2023. All printhead product packaging
is fully recyclable. Our Apprentice Programme
is well developed across the business, and we
continue to support activities promoting STEM
(Science, Technology, Engineering and Maths)
subjects amongst young people as well as
several sponsorship programmes supporting
young university students and industry
placements.
Driven by our people
The Board is delighted with the progress
made by the Group this year, in the context
of a volatile external environment for both
businesses and individuals. I would like to thank
all our employees who have worked tirelessly
to innovate, deliver for our customers, and
inspire and support each other with passion
and integrity. Xaar is a great company, and I am
excited about what we can achieve in the future.
Outlook
With strong foundations in place as a result
of the progress in our strategy over the last
three years, the Board is optimistic about the
opportunities that lie ahead for the Group and
for all our stakeholders including employees,
customers, and shareholders.
Andrew Herbert
Chairman
27 March 2023
The Printhead business made good progress
both commercially and operationally during
the year despite the ongoing impact of
COVID-19 related restrictions in China. Whilst
sales volumes have grown in the USA and
remained stable in EMEA, they declined
significantly in Asia. The Printhead business
has nevertheless performed well and
responded to these difficulties in a proactive
and controlled manner.
As I discussed in my report last year,
following challenges in market demand and
performance, a new management team was
appointed in EPS. This has led to a recovery
in performance during 2022 with a strong
order book profile and excellent results.
Revenue grew 41% (24% in local currency
USD), gross margin is back at pre-pandemic
levels and a full year profit delivered.
We are pleased with the progress made at FFEI
and Megnajet. Having only joined the Group
in July 2021 and March 2022 respectively,
the integration of each business has been
completed, and performance is in line with our
expectations.
Cash of £8.5 million and a robust balance sheet
provide a platform for further investment.
This is after investment in working capital
movements of £12.2 million as we managed
supply chain constraints and ensured
continued customer supply throughout the
factory shutdown in Q1 2023.
The Board has not declared a dividend in 2022.
We continue to believe that prioritising cash for
investment in the business will deliver more
compelling returns for shareholders in the
medium term.
Committed to sustainability
We have made significant progress on ESG
and the Group’s Sustainability Roadmap. The
Board remains committed to the business being
carbon net zero by 2030. The Sustainability
Roadmap demonstrates clear industry
leadership and establishes a firm pathway for
a more sustainable future. Decarbonisation
remains a key objective and we have started
work on Scope 3 and TCFD Climate Modelling
for all Xaar Group sites which will be completed
by early 2023.
We are passionate about delivering solutions
and products for our customers that are
cleaner and healthier. Our products are
well placed to deliver significant benefits
environmentally for our customers through
greater efficiency in power consumption and
reduction in water usage.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
0505
Why invest
1
Market opportunity
We focus on markets where we have a competitive advantage, where
we can offer a number of benefits over incumbent technologies.
• A unique recirculation technology past the back of the nozzle as well
as inside the nozzles which offers substantially better printhead
reliability and nozzle open time
• Patented technology which enables printing fluids which have a high
pigment content and high viscosity. This gives us a wider window of
opportunity because we can handle a wider range of fluids to deliver
richer, more vibrant colours, or add functionality like scratch
resistant or anti-slip surfaces, or value add embellishments and
print effects
• An open internal printhead design which produces industrial levels
of printhead reliability and consequently higher production uptime.
Sectors where we focus include Ceramics and Glass, Coding and
Marking and Direct-to-Shape, 3D and Advanced Manufacturing,
Packaging and Textiles, as well as Graphics and Labels.
2
3
4
5
Proven technology and product roadmap
with a strong value proposition
We have a product roadmap based on our new generation ImagineX
technology platform that will develop our range to offer advantages over
the competition and open new markets. Our unique technologies and
products are the leading enabler for innovation and creativity, and for
driving production efficiencies for many industries.
Experienced and focused management team
As the only leading independent printhead manufacturer we are able to
have a flexible, collaborative approach. Our experienced management
team is committed to remaining customer-centric with a focus on
Xaar’s profitable growth strategy of offering our customers a vertically
integrated solution.
A clear strategic vision
Our customer-centric business model places the OEM and UDI at the
heart of everything we do. We continue to execute on our plan to become
more vertically integrated to drive printhead sales. Our ability to supply
electronics, software, fluid management systems and print engines
alongside application support, combined with a disruptive technology,
sets us apart from our competition.
Roadmap to deliver the opportunities
Our ImagineX platform (launched September 2020) is driving our
progress, enabling the business to increase its addressable markets
whilst establishing market leading products across all our sectors.
ImagineX has already delivered significant enhancements to the current
portfolio; these include substantially improved speed and throughput
as well as high throw distance and viscosities of over 100cP at jetting
temperature. We have now launched three new printheads on this
platform (Xaar Aquinox, Xaar Nitrox and Xaar Irix). Future product
launches focus on increased robustness to improve the life of the
printhead and even higher resolutions.
6
Strong balance sheet position
We have the resources necessary to implement our strategy. This provides
the platform for security and a great foundation for future growth.
06
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
We have great technology,
great people and a large
market opportunity.
We will be successful.
John Mills
CEO
Our strategy is to sell more printheads
For this to occur we need to extend our range of products to access all digital print markets,
as well as make it easier for customers to use our printheads by supplying the supporting
systems components. To drive this we need to ensure that our customers understand what
Xaar has to offer and why it is the right choice for them.
The business model delivers
a clear value proposition
To sell more printheads,
we needed to extend our
range of products to
access all digital print
markets
Our clear business model:
sell more printheads
In parallel, we need
to make it easier for
customers to use our
printheads by supplying
the supporting systems
components
All underpinned by a very clear value proposition
for each market
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
07
07
Business model and strategy
Xaar’s business is focused
on inkjet technology, which
together with our partners
and customers, we have
been transforming for
over 30 years.
Xaar plc is structured
into business units: Xaar
Printhead, the largest
BU, focuses on printhead
technology; our other three
business units concentrate
on fluid management
systems, product print
systems and digital imaging.
Our printhead business sells our inkjet
technology in component form (the printhead,
branded Xaar) 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 work collaboratively with leading fluid
manufacturers to fully optimise the fluids
beyond a lab setting to ensure optimum print
performance in real world applications. We also
sell Xaar branded fluids to UDIs (manufactured
by our ink partners) which helps to build a
long-term relationship with our customers.
In addition, we actively partner with hardware
and software integrators as well as substrate
suppliers to deliver a robust and attractive total
solution to our customers.
In March 2022 we completed the acquisition
of Megnajet, market leader in the design and
manufacture of industrial fluid management
systems for digital inkjet. The company provides
robust, reliable, easy to integrate products
which are sold to a range of OEMs in USA,
Europe and Asia. Our digital imaging company,
FFEI Ltd, manufactures high performance
digital imaging solutions – from digital inkjet
label presses to digital pathology scanners.
Its inkjet products (print engines) use Xaar
printheads. Our product printing business,
EPS, designs and develops complete industrial
printing machines which are sold to end users.
Our business model
Xaar
designs
Xaar
manufactures
We have R&D facilities in Cambridge and Stockholm
(printhead business), and Hemel Hempstead (print systems)
and Vermont (EPS).
We invest a substantial proportion of our product revenue
in R&D to remain a world leader in inkjet technology (2022:
approximately 12%).
We continually add to our Intellectual Property (IP) portfolio,
and currently, across the Xaar Group, we have around 355
patents and patent applications. Our R&D staff totals 85 which
is approx. 20% of the total workforce (at the end of 2022).
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 Cambridgeshire, UK since the plant
opened in 2007.
EPS, our product printing business, manufactures
customised and bespoke printing solutions in Vermont, USA.
FFEI, our digital imaging business, manufactures imaging
solutions in Hertfordshire, UK. Megnajet manufactures
supply systems in Northamptonshire, UK.
Xaar
markets
Xaar offers a wide range of industrial inkjet printheads and
print systems which are designed and produced to meet the
customer-driven requirements for a range of manufacturing
applications.
Xaar
sells
Primary markets include:
• 3D Printing
• Glass Printing
• Ceramic Tile Decoration
• Graphics
• Coding & Marking
• Primary Labels
• Decorative Laminates
• Packaging
• Direct-to-Shape
• Functional Fluid
Deposition
• Product Printing
• Textiles.
Xaar’s printhead business sells direct to OEMs and UDIs
around the world through its global sales team. Xaar’s
highly skilled application engineers offer technical support
to assist OEMs and UDIs in the successful design, build,
commissioning, and ongoing maintenance of printing
systems.
We export over 95% of our printheads to customers around
the world, within the Europe, Asia and North America
regions.
Xaar company EPS sells product printing equipment, services
and consumables. The majority of sales are to US customers.
FFEI sells via three routes to market: as a full system to one
OEM, as a ready to integrate print engine via distribution,
and as a Xaar branded print engine for our UDI customers.
Megnajet sells its products directly to customers and via Xaar.
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Digital printing compared
to analogue reduces
consumption by up to:
CO2 emissions
95%
Energy consumption
55%
Water consumption
60%
Source: Xaar.
We create value for all our stakeholders
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 up to
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’. Environmental best
practice and our investment in sustainable
manufacturing and operational efficiencies
remain key areas of business focus.
Our Sustainability Roadmap, launched in
our 2021 Annual Report, continues to drive
and shape all business decisions via the
ESG Committee. The Roadmap has four key
pillars – Environmental, People, Innovation
and Community; its purpose is to drive our
ESG goals beyond the energy reduction
scope to a Group-wide activity. We continue
our focus on moving to solar energy. One
more of our buildings in Huntingdon will
be switched over to green energy in
January H1 2023, and our Megnajet facility
in Northamptonshire will move over to green
energy in September 2023 once the current
contract expires. Whilst we have more work
to do, over 99% of our UK consumption is
already green. We completed the installation
of our planned EV infrastructure, with ten
new 22 kW chargers installed across the
Huntingdon and Waterbeach facilities, joining
the 27 kW chargers that were already in
place at FFEI. We are planning to undertake
a major energy reduction project through
January and February 2023 leading to an
expected 40% reduction in electrical energy
consumed in the Huntingdon manufacturing
facility from the end of Q1 2023. This
includes the installation of LED lighting.
Planning for solar installation continues for
the Huntingdon factory and our goal is for
installation to start end of Q3 2023, assuming
successful contractual discussions.
Customers
OEMs, User Developer Integrators
and 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 skills,
capability and engagement of our people.
We want to create an environment where
everyone can come to work and share our
values and passion for developing and
manufacturing world leading technology.
We are building a culture where our
employees are passionate about what
they do, and where integrity, innovation,
creativity and collaboration are a
way of life. To foster this, we have a
cross-functional project team which is
committed to embedding our values
throughout the whole Group, looking
at ways to highlight our EPIICC values
awards and driving the Company-wide
acknowledgement of the nominated
employees. During 2022 we had 572
nominations across the Group for our
values awards.
To build up team collaboration and
provide an opportunity for employees
to socialise away from their desks, we
regularly provide a coffee van or lunch.
In addition, we have continued with
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.
We like to build long-term relationships
with all our employees by helping
them grow and develop and by making
Xaar businesses interesting places to
work as well as great companies to be
involved with. Internal promotions are
an important part of this, and in 2022 we
promoted over 32 people.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
09
A radically new approach for jetting
water-based fluids reliably
In November we launched
our new and revolutionary
industrial aqueous
compatible printhead,
the Xaar Aquinox. Built
on our ImagineX platform,
this printhead has been
developed to respond to
market requirements for
a truly reliable, robust
printhead that can print a
much wider range of inks
including high viscosity
and high pigment loading.
This is our first printhead to feature our new,
patented aQ Power Technology to deliver
enhanced reliability when printing with
water-based inks. aQ Power is a combination
of technologies, which work together to
increase lifespan and durability:
• an updated internal printhead architecture
• a new advanced material set
• a novel technique for ejecting the ink
droplets.
The Xaar Aquinox offers a radically new
approach to how water-based inks are jetted.
It also incorporates our industry-leading
TF Technology fluid recirculation and Ultra
High Viscosity capability. This means that
Aquinox can reliably jet inks at viscosities at
ten times more than a typical printhead allows.
Fluids of up to 100cP at jetting temperature
can be reliably jetted therefore overcoming
current constraints on ink formulations,
so our customers can develop and print
with the ink they want.
Xaar Aquinox
Markets
The Xaar Aquinox and our Ultra High Viscosity Technology is of interest
to OEMs developing machines for a broad range of applications, which include:
Textiles
• Being able to jet high pigment loaded inks
with high viscosities means water usage,
energy consumption and CO2 emissions
can be reduced
Packaging
• The Xaar Aquinox enables a new
generation of inks that achieve the
required colour saturation with less fluid,
allowing increased print speeds
Ceramics
• Aquinox supports printing aqueous
glaze as well as colour, providing the
opportunity for a truly digital end to
end aqueous solution.
• These benefits, combined with the long-
life span of the printhead, increase the
efficiency of end user businesses while
delivering a more sustainable solution
at a lower total cost of ownership.
• Xaar’s Ultra High Viscosity Technology
opens new possibilities for ink formulation,
improving adhesion, reducing drying time
and energy consumption whilst controlling
dot spread on even the most challenging
of substrates.
Across many markets we see Aquinox and our Ultra High Viscosity Technology breaking new ground, enabling new applications
that were previously not possible with inkjet.
10
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1111
Marketplace
Xaar’s digital inkjet technologies are transforming print
processes in a wide range of markets.
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.
Labels
Labels are used for many different applications,
including product identification, name tags,
warning and hazard identification, promotions
and as decals for product decoration. There
is a large range of substrates and inks in
this application which adds complexity 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 the 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.
Packaging
The Packaging market is a broad sector
covering flexible packaging, bottles, pouches,
sachets, food packaging and more. Most
packaging is printed using conventional
analogue methods, but digital inkjet has
the potential to revolutionise this part of the
manufacturing process. Xaar printheads for the
packaging industry facilitate cost-effective print
runs and rapid production turnaround in what
is a fast-moving industry. In addition, Xaar’s
unique Ultra High Viscosity Technology helps
customers to print bright bold colours,
ultra-thin layers for more flexibility, and
a wider range of fluids and textures.
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 was instrumental
in the growth of the digital graphics industry
around the world.
Textiles
The Textiles sector is a growing market which
covers a broad range of applications from
fashion, sports, signage and display textiles,
to home furnishings and technical textiles,
for example for automotive or medical use.
Sustainability is becoming a significant
consideration, with industry challenges which
include supply chain and raw materials
pressures and a shift away from Asia (‘near
shoring’). Other drivers for a move to digital
include desire for economic short print runs for
faster and more frequent design changes as
well as an increased demand for customisation.
Whilst Xaar is later to the market than some
competitors, the Aquinox has been developed to
fix the need for a more reliable inkjet solution. In
addition, Xaar technology offers the capability to
lay down more pigment and reduce the carrier
fluid, meaning richer, more vibrant colours can
be printed reliably and more sustainably, and
less energy is used in the drying process.
New inkjet applications
Xaar’s Ultra High Viscosity Technology enables
jetting of fluids around 100 centipoises (cP) at
jetting temperature, equating to approximately
1000cP at ambient temperature – going well
beyond average jetting capabilities of 10-12cP.
This opens up inkjet to a wider range of
applications including printing adhesives
and solder masks.
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Industrial marketsCeramic Tile DecorationThe 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. Xaar’s unrivalled 720 dpi print resolution is starting to attract the attention of tile manufacturers looking to print large slabs for kitchenware (such as table tops).Decorative LaminatesRealistic 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 is to promote 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.3D Printing3D 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 PrintingArchitectural 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 and the Xaar 2002 is the leading printhead for this market due to technology advantages. Product roadmap delivers a significant
total addressable market
We focus on a number of core market sectors where our technology offers a competitive advantage. We group these sectors together as shown here
because they require the same functionality from the printhead. This is largely driven by requirements for ink type, speed, resolution and robustness.
Ceramics and Glass
Mature market
C&M and DTS
Mature market
3D and Adv Man
Very high growth market
Packaging and Textiles
Very high growth market
WFG and Labels
Medium growth market
Market: £100m
Market: £100m
Market: £200m
Market: £100m
Market: £500m
Launching H1
2024
Xaar share:
17%
Xaar share:
14%
Xaar share:
2%
Xaar share:
<1%
Xaar share:
1%
Xaar market share opportunity
Source: Xaar’s internal market sizing model built using data from range of market reports looking at markets up to 2027 including from PIRA: The Future of Inkjet Printing to 202, Smithers: Global
Industrial Inkjet Printhead Market Insights, Forecast to 2028, Information Center: The Future of Digital Textile Printing to 2026, Smithers.
Increased number of customers
adopting Xaar technology
Our new business model, product roadmap and value proposition have already had a very positive impact on our customer engagement.
It can take several years from adoption of Xaar technology to significant revenue as you can see in the table below. Since 2019 the pipeline has grown
substantially, and future pipeline growth will be driven by us having the right products in our core markets (which you can see in the diagram above).
With the recent launch of our aqueous printhead and the next launch to help us re-enter the Graphics market, we expect to see an acceleration in the
pipeline with revenue growth following 1-3 years behind.
Increased number of customers adopting Xaar technology
Qualified interest
Bought dev kit/In development
Machine launches
Increasing visibility
of benefits of Xaar
technology driving
new leads
Whilst it takes several
years from adoption
of Xaar technology
to significant revenue,
we are starting to see
the pipeline grow
2019
8
3
2
2020
21
12
6
New aqueous product
launch gives us confidence
we will further grow
the pipeline
2021
2022
2023
43
24
12
89
106
61
5
3 projects stopped
7 delayed
63
11*
Source: Data taken from Xaar’s CRM software reports
*Projected machine launches in 2023.
Xaar plc – Annual Report and Financial Statements 2022
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13
Marketplace continued
3D printing is an important focus
for Xaar’s printhead business with
the needs of the sector supported
by our extensive product portfolio
and strong partnership approach
to working with customers.
Xaar works with OEMs in three different types
of 3D printing: Material Jetting, Binder Jet and
Powder Bed Fusion.
Material Jetting
Material jetting creates objects in a similar method to a
two dimensional inkjet printer. Liquid-based 3D material
is jetted onto a build platform using inkjet printheads.
Example: Xaar customer dp Polar manufactures
3D printing systems which use Xaar 1003 printheads
to produce parts on a continuously rotating print
platform with a build area of just under 1 square metre.
This system was designed to deliver scalability and
productivity and has been developed for the automotive,
aerospace and consumer markets.
I www.dp-polar.de
Binder jetting
The binder jetting process uses two materials; a
ceramic or metal powder-based material and a binder.
The binder is usually in liquid form and the build material
in powder form. A printhead moves horizontally along
the x and y axes of the machine and deposits alternating
layers of the build material and the binding material.
Example: Linc Solution is in the process of developing
a system for metal binding for manufacturing of
automotive parts.
I www.lincsolutions.com
The Powder Bed Fusion
Of the different types of Powder Bed Fusion, Xaar’s
involvement is with High Speed Sintering which
uses polymer powder-based 3D materials, with Xaar
printheads jetting the infra-red absorption fluid into the
powder bed, which is exposed to infra-red energy. The
printhead causes the powder to melt and fuse together.
Example: The H350 from Stratasys uses Xaar 1003
printheads within its SAF technology to reliably produce
end-use production parts with a wide spectrum of part
properties.
I To learn more visit: stratasys.com/en/3d-
printers/printer-catalog/saf/h350/
Dive deep
into 3D printing
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Why is inkjet so relevant
for 3D printing?
Inkjet technology offers some significant technical
and commercial advantages for 3D compared to the
standard manufacturing methods.
• Inkjet can be used to make parts with a range
of materials – polymers, metals and ceramics.
This means that once a manufacturer has learned
how to jet, there are a wider range of applications
they can address
• There are sustainability advantages too – you
only print the fluid you need to use. Also as it is a
contactless technology standard digital advantages
apply – less breakages and less waste. And,
it is possible to design a whole solution since
consolidating many parts into one 3D part is
possible. This saves time to market, reduces
the materials needed and saves on tooling costs
for multiple parts
• Additive manufacturing with inkjet provides the
opportunity to use a single process but has multiple
material types: materials of different properties can
be used in different areas of a product, for example
tough and flexible, (mimicking bone and cartilage).
Mixing material families (metal and plastic) is not
impossible but not usual
• Distributed manufacture: parts can be made
customised to the local market in the local market
using local market economies of scale. Key know
how/components are shipped. Everything else is
logistically optimised
• Spares can be created for obsolete equipment
from legacy drawing
• Mass customisation: similar to Ceramic tiles or
graphics, if you want one part or one million parts,
it is the same unit price and each part can be
different.
Why does Xaar have unique
advantages in this market?
• Materials: Xaar’s Ultra High Viscosity Technology
widens the range of material properties that can be
introduced because Xaar’s printheads can reliably jet
fluids with high viscosities and high particle loading.
For the end user this means that material properties
can improve, such as toughness, flexibility and
elasticity, so that, for example optically clear parts
(such as lenses) can be printed, or part breakages
can be reduced. This is a significant advantage
• Xaar’s TF Technology ensures our printheads are
extremely reliable; they self prime and their open
architecture means that blockages are minimised
• Xaar printheads have the highest nozzle open time
which means less purging at startup and therefore
less wastage of expensive 3D material.
High Laydown
High laydown enables the same technology that can
produce very detailed, high resolution models to
address low resolution, large scale models, such as
investment casting models (motor housings or large
scale framework). This increase in productivity results
in reduced build time. Where resolution is not required,
we offer the same benefits (particle and viscosity) but
with up to five times the productivity.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
15
Dive deep
into 3D printing
Strategy update
Significant strategic progress
Financial highlights
Introduction
£72.8m
Revenue – Continuing operations
in line with management expectations
(2021: £59.3 million)
39%
Gross margin – Continuing operations
increased from 34% in 2021, benefiting
from operational leverage in the business
£6.7m
R&D spend
by continuing operations of £6.7 million,
up £1.0 million on 2021 with investment
focused on the ImagineX platform and
product roadmap
(£16.5m)
Net cash outflow – Total operations
During 2022 we acquired businesses
resulting in an initial net cash outlay
of £3.5 million as well as a further
deferred payment for FFEI of £1.7
million. Additionally, we invested £5.4
million on key infrastructure and product
development and a further £9.5 million
in inventory.
2021: £5.0 million inflow – benefitting
from an inflow of £9.3 million on the
sale of Xaar 3D.
Over the last three years
the Group has been
transformed, implementing
a new strategy across
the business, with a new
commercial model shifting
our focus to very attractive
end markets; expanding
our technology capabilities;
and creating a growth
platform. This strategy
is now delivering growth
across the business, and we
are delighted the Group has
returned to full year profit.
At the same time we have also invested
significantly in expanding our product and
technology capabilities and updating our
infrastructure, strengthening our key resource –
people – and ensuring we have a robust platform
to deliver future profitable growth.
Despite the external macro challenges, we have
delivered an impressive performance in 2022
which is borne out in the financial metrics. Our
core Printhead business grew in all regions
except China which was impacted by COVID-19
restrictions for much of the year, and we have
successfully launched our new product Aquinox
with a commercial response that has exceeded
our expectations.
During the year our US product print business,
EPS, delivered its best ever result and with the
acquisition of Megnajet we now have a resilient,
diverse business well placed to meet the
significant market opportunity that exists.
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Strategic Report
Excellent strategic progress
The turnaround we have described is now at
the end of the first phase. We have established
a clear strategy and we are ready for the next
stage to achieve enduring profitable growth.
The first phase was focused on stabilising
the business and establishing a clear strategy.
Commercially this has seen the Printhead
business reduce complexity in its routes to
market by eliminating third party distributors
and selling directly to OEMs and UDIs.
Our principal objective is to sell more
printheads. We provide an integrated solution
for customers whereby they can access more
of the printing ecosystem, to include supporting
elements such as fluid management systems
and the electronics required for printing. We
help our customers take advantage of the
inkjet opportunity, demonstrating to them that
working with Xaar means a higher chance of
success by being faster to market, making our
customers’ investment more profitable.
Our strategy is working, we are delivering on
what we promised, and the future remains
exciting. With phase 1 of the business
transformation now complete, the business is
stabilised, with a strong management team,
delivering profitability and a strong platform
on which to build.
Strong revenue growth,
improved margin and
full-year profitability
We have delivered a strong performance in
2022 in line with our expectations, further
demonstrating the operational and strategic
progress across the Group. We have improved
resilience and have achieved the key milestone
of delivering an adjusted profit before tax for
the year.
Despite the global macroeconomic and
political uncertainties, we are successfully
mitigating external challenges, principally the
cost of inflation and the ongoing COVID-19
impact in China.
Revenue for the year was £72.8 million
representing growth of 23%. Organic growth,
before the impact of FFEI and Megnajet
acquisitions was 8%.
Revenue grew in the US region by 54% and in
EMEA by 20%. This demonstrates the resilience
we are developing in the business and helped
offset the decrease in revenue from Asia of
£3.8 million (32%).
Reduced revenue in China has impacted our
Ceramics sector printhead sales, however, we
are confident in returning to previous levels
of trade with our customers in the region as
COVID-19 restrictions continue to be lifted.
Our commercial and technology proposition
still remains compelling, and we have not lost
retained market share in the region.
We have seen increased customer engagement
as our printhead product range has expanded
and our ability to offer a broader solution to
customers with fluid management systems
and printbars, which is evidenced by the
increasing number of customers developing
machines with our products. Both our current
product offering and our product development
programme will help drive our success in
meeting customer demand in these fast
growing sectors.
Expansion of vertically
integrated product offering
The acquisition of FFEI in July 2021 and
Megnajet in March 2022 further widened our
product offering for our OEM and UDI (User
Developer Integrator) customers with a broader
product range including print engines for
adding effects and embellishments digitally.
FFEI has been successfully integrated and
strengthens Xaar’s capabilities and skills and
has seen the launch of a new print engine
product, the Xaar Versatex. This will accelerate
Xaar’s existing growth strategy and widen
the product portfolio further engaging UDI
customers. We have a growing pipeline with
a significant number of opportunities thanks
to our technology advantages. This platform
provides further opportunities for vertical
integration, and we will strengthen our offering
with more products in the pipeline for 2023.
Megnajet is a global leader in the manufacture
of ink supply systems. We are delighted with
the acquisition of the business which has been
successfully integrated into the Group, and we
are already benefiting from the expansion of our
product offering.
The latest product powered by our ImagineX
platform, our aqueous printhead, Aquinox,
was launched in November 2022. This is a
significant and tremendously exciting product
for the Group and enables us to compete in new
sectors, such as Packaging and Textiles, with
a product that we believe will deliver superior
performance to any currently on the market.
We have received positive feedback from
customers, evidenced by high engagement and
good sales of development kits.
EPS, our product print system business,
is performing well, delivering high quality
products to a variety of customer sectors. As we
explore further opportunities in the US, EPS can
play an increasing part in our strategy.
This approach has seen us deliver a more
vertically integrated product offering to a wider
group of customers in more market sectors.
We have been able to demonstrate the strength
of our technology in markets sectors beyond
Ceramics and continue to see strong customer
engagement in these areas where we have a
competitive advantage by enabling customers
to reduce their own development times.
Our new product, Aquinox, was launched in
November 2022. We have received excellent
feedback and significant customer engagement,
and early promising success indicators through
strong sales of development kits.
EPS has delivered an excellent performance.
Revenue increased 41%, with growth across
all its product lines, and digital inkjet sales
at the core of the success growing 54%. The
proactive decisions taken in the last two years
to strengthen the management team and
rationalise the product range are delivering
excellent results and demonstrate the
continued importance of the business.
Our recent acquisitions, FFEI and Megnajet,
are performing ahead of our initial expectations.
We are delighted with these acquisitions and
as a result we have an expanded product range
providing us real traction and opportunity in the
printbar and print engine markets, along with
Fluid Management Systems.
With this revenue growth and the strong
operational performance, we have increased
gross margins in Printhead and EPS, and
overall for the Group to 39% (2021: 34%).
While profit before tax from continuing operations
of £0.8 million includes some underlying
business unit losses (consisting of Printhead
£0.3 million loss, EPS £2.8 million profit, FFEI
£0.3 million loss and Megnajet £0.4 million
profit) we can report positive adjusted EBITDA in
each of our businesses for 2022. Group adjusted
EBITDA of £6.2 million consists of Printhead
adjusted EBITDA of £2.0 million, EPS adjusted
EBITDA of £3.1 million, FFEI adjusted EBITDA
of £0.5 million, and Megnajet adjusted EBITDA
of £0.6 million. This has enabled delivery of full
year profitability for the Group.
Investing for future growth
There has been further investment in capability
and capacity enabling us to take advantage of
the opportunities which we expect to drive our
future growth ambitions.
During the year we acquired our fluid
management system business, Megnajet,
for an initial consideration of £5.1 million.
The net cash outflow on acquisition was £3.5
million. This acquisition further strengthens
our ability to deliver to customer needs,
enhances our technology capability and
expands the vertically integrated product
offering. It is already delivering profitable
growth ahead of expectations, enabling a
quick payback on the original investment.
We have invested in inventory, holding higher
levels of both raw materials and finished
goods. This investment has been undertaken
in a controlled, proactive manner to enable
continued production of our products and
customer supply. This is a vital part of our
strategy to ensure we meet customer demand.
As supply chains improve, we can look to
reduce our raw materials holding although
we will do so in a cautious, well-managed way.
Higher levels of finished goods have enabled us
to meet customer demand whilst the factory is
closed for reorganisation and will leave us well
placed to meet any increase in market demand.
R&D investment is critical to the ongoing
success of the business, and we will continue to
invest in our R&D capabilities across the Group
to ensure our technology remains market
leading. During the year we increased R&D
investment by £1.0 million.
Our underlying positive cash generation in
the core business has also enabled us to
spend £5.4 million on maintenance and asset
improvement across the business during 2022.
Additionally, we have invested approximately
£1.2 million in our factory reorganisation project
in Q1 2023. We expect a rapid return on this
investment due to the energy savings it will
provide, coupled with increased manufacturing
efficiency.
This is the first phase of our transformation
programme which will result in modern,
efficient and more environmentally beneficial
manufacturing facilities across the business.
Significant market opportunity
We have a strong proposition across our
five key market sectors. Our digital inkjet
technologies provide compelling propositions
to transform print processes across a wide
range of applications, and the medium and
long-term opportunity for the business remains
significant. Whilst we have already grown
market share in core, mature markets such
as Ceramics and Coding & Marking, further
growth opportunities exist as our technology is
best-in-class and we have a clear competitive
advantage over our competitors.
We can capitalise on a number of sectors
which need further digitisation of printing to
secure increased market opportunities. These
opportunities are typically in areas where fluid
applications are challenging, such as Flat Panel
Display, Semiconductors, Printed Electronics and
Optics. We are well placed to succeed in these
markets as Xaar technology offers an unrivalled
method of non-contact, fluid deposition with
incredible precision, control and speed.
Other markets that already use digital printing
such as architectural glass printing and 3D
printing are tremendously exciting as our
technology has unique benefits that can give our
customers commercial advantage in reducing
costs and lead times for their products.
By providing an integrated solution for
customers whereby they can access more of
the printing ecosystem, we help our customers
take advantage of the inkjet opportunity and
working with Xaar means a higher chance
of success by being faster to market, and
therefore making our customers’ investment
more profitable. Ultimately this will help us in
our overriding strategy to sell more printheads.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
1717
Strategy update continued
Significantly improved
operational capability
We have made further progress in building
a world class leadership team, making key
appointments which will drive the business in
the next phase of our transformation. This has
strengthened our capability and experience
across the business, most notably in our
Operations, R&D, Finance and Human Resources
functions. This improved operational capability
also includes further and continued investment
in infrastructure such as IT, manufacturing,
and supply chain management. Our strong
and experienced leadership throughout the
organisation is focused on delivering a clearly
articulated strategy.
During the year we have continued to work
on ensuring our values are embedded into
our culture. This ongoing focus on our values
is important to ensure we have a supportive
culture with employees who are engaged
and empowered to succeed.
Continued commitment
to sustainability
Xaar has made significant and positive progress
to drive forward its ESG commitments across
our operations. 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
and operations.
During the year, Xaar launched its Sustainability
Roadmap to 2030 which is a principal driver
for positive change and investment within
the business. Led by our ESG Committee
and a Sustainability team which is comprised
of colleagues from across our business
operations, chaired by the Group Sustainability
Manager, we have been working hard to
achieve our goals and ambitions across all four
sustainability pillars: Environment, People,
Innovation and Community.
Environment
Decarbonisation remains a key objective
for us as we move towards our goal of net
zero operations by 2030. We are pleased to
report that we are working with an external
partner to support us with Scope 3 and TCFD
Climate Modelling. This year we have offset
our regulatory Scope 1 and 2 carbon impact,
making the Group a carbon neutral inkjet
manufacturer in 2022. We are committed to
continuing this practice on our journey to
achieve complete carbon neutrality in line
with our 2030 goal.
We set a target to source 100% of our power
from renewable sources by the end of 2023 and
excellent progress has been made. Our move
to green energy is now complete in the UK, and
we are pleased to confirm that EPS is now also
supplied with power generated from renewable
sources. We will continue to assess ways to
bring our remaining office locations in line
with green tariff power.
With the fundamental advantages our products possess, I believe
that within the next decade Xaar will be the number one supplier
of industrial inkjet printheads.
Product development and
increased capability
Overall, the market opportunity for Xaar
printheads is significant. We have a unique
roadmap of product development to ensure
we offer an increasingly vertically integrated
commercial strategy to capitalise on this
market opportunity.
The, already successful, ImagineX platform
will deliver a number of features over the
next few years which will provide significant
enhancements to the current portfolio,
including:
• substantially improved speed and
throughput (frequencies up to 150kHz,
equivalent to a threefold increase in speed
compared to current products),
• 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 and Labels,
The recently launched Aquinox is positioned to
drive our adoption in 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.
We have made strategic bolt-on acquisitions
to the Group that enable us to strengthen our
customer offering and we will continue to
adopt this approach in the future as we look to
continue increasing our capability and become
a fully integrated inkjet product provider.
The strong operational gearing that exists in
the business, which has already delivered good
margin growth, has greater capacity to support
further margin improvement in the medium
term. The business is well placed to move
into the next phase of its transformation and
to deliver sustainable profitable growth in the
medium term.
All printhead packaging is now fully recyclable
and we are working towards complete
packaging recyclability. Xaar is committed
to supporting decarbonisation of staff and
visitors’ vehicles. In early 2022 we launched
a salary sacrifice scheme, supported by the
UK government, to allow all UK staff the
ability to order electric vehicles (EV) through a
company scheme. We have also completed the
installation of EV charging infrastructure across
our sites.
People
Supporting young people and nurturing their
skills is key to our ESG strategy and for this
reason we have placed significant emphasis
on our Early Careers programme. As part of
this, Xaar’s new Apprenticeship scheme is
operational and our first intake is working
within our Logistics team. Further efforts
are underway to connect with local schools
and colleges to allow future work experience
programmes to be developed. In the UK, Xaar
supported Learning at Work Week in May, which
attracted 109 attendees across nine events and
resulted in 131 hours of learning.
We will further strengthen this approach in
2023 and plan to hold Xaar Group workshops
bringing together a cross functional group of
people with the aim of understanding what
makes Xaar an ‘employer of choice’. This will
help to inform and shape our talent attraction
and retention strategies feeding into our
wellbeing programmes.
Innovation
We are currently researching ways to
use biodegradable structural parts in the
manufacture of our products. An area of focus
is to find an alternative, more sustainable
material than Polylactic Acid (PLA) which is a
biodegradable plastic used to print the majority
of our jigs and fixtures. Our Operations team
has successfully trialled the use of recycled
PLA filaments generated from returned and
waste PLA. These are supplied in 100% plastic-
free sustainable packaging with easy to recycle
cardboard spools.
Digital inkjet printing is inherently more
sustainable compared to traditional analogue
printing with a smaller carbon footprint. It
reduces and prevents excessive waste and
uses less energy due to the ability to print short
runs or Direct-to-Shape. With TF Technology
ink recirculation, Xaar printheads are capable
of printing very viscous fluids, which in the
Textiles sector, for example, results in a
reduction in energy used in intensive drying
processes. We are passionate about continuing
further adoption and understanding of the
environmental benefits our products can bring
to customers.
18
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Outlook
We have maintained our policy of increased
investment in inventory during H2 2021 and
throughout 2022 which means we are well
placed to satisfy customer demand in 2023 and
we believe we have the supply chain resilience
to withstand most disruption. We are continuing
to invest in the business adding skills, capability
and capacity and continue to work on delivering
efficiency gains aimed at improving gross
margins and business profitability in the
medium term.
Sales volumes in the Printhead business
continue to be affected by the uncertainty in
China, which is expected to continue in the
short term as COVID cases increase. At this
stage it remains unclear when normal levels
of business will return, however we can look
forward to the medium-term future with
confidence.
There is a positive momentum in the business,
as is reflected in our 2022 results. Customer
engagement and sales orders have been
maintained in the first quarter of 2023, in
line with our expectations. As previously
communicated, we expect the Huntingdon
factory reorganisation to impact the first half,
however, given continued progress and exciting
product launches ahead, the Board remains
confident in delivering an outturn for the full
year in line with its expectations.
John Mills
Chief Executive
Officer
Ian Tichias
Chief Financial
Officer
27 March 2023
27 March 2023
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
19
Our business units
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, Textiles,
Labels and Packaging as
well as 3D Printing and
Additive Manufacturing.
Revenue segment
£39.0m
Markets
Industrial
Packaging
Graphic Arts
Royalty
54%
33%
12%
1%
The Xaar Aquinox launch
is a significant achievement
for the Company.
20
20
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
2022 update
A significant amount of time and resource
across the Printhead business has been
dedicated during 2022 to the launch of the
Xaar Aquinox, Xaar’s first bulk aqueous
printhead which represents a great
achievement for the entire Company.
The enabling technologies, grouped together
under the aQ Power Technology brand, aQ
Power, work together to increase printhead
lifespan and durability when printing water-
based fluids. Every single process in the
production line, for example, has required
some change or investigation of change
to be able to manufacture the printheads.
Investment in the launch campaign was
focused on delivering impact, targeting
three main sectors – Textiles, Packaging
and Ceramics. The commercial team used
a deep dive into the industry drivers in these
sectors, alongside market research to
determine the key players to underpin the
launch strategy and campaign messaging.
As a result we achieved over 450 sign ups
to watch the launch presentation, with early
engagement and lead generation metrics
from the launch campaign much higher
than those from previous launches.
i See page 10 for fuller information
on the Xaar Aquinox
Over the course of the year, the printhead
business has made good progress, for
example, our customer base has increased
by 91 customers, and the launch of the Xaar
Aquinox gives us access to new markets,
particularly textiles and packaging (such as
corrugated packaging), and will help us to
develop existing markets such as ceramics
(printing water based glazes).
We have also been working with customers
in PCB markets (legend printing in particular,
with an opportunity to explore solder mask
printing in the future). Our Ultra High
Viscosity Technology gives us advantages for
3D printing and we have projects ongoing
with new OEMs in China.
i See pages 12 to 15
In addition to the Aquinox, we have also
launched the Xaar Versatex print engine,
for inexperienced UDIs, and the small drop
Xaar Nitrox Elite GS3 printhead for OEMs
developing print systems for label and
graphic applications, and also functional fluid
applications, such as PCB printing.
The upgrade of our printhead manufacturing
facility in Huntingdon has also been a
major focus in the second half of the year.
Substantial time has been spent planning
for the upgrade which started in earnest in
January 2023 and will deliver modernisation
of our manufacturing capabilities as well
as improved efficiency, yields and reduced
product costs in the longer term as a result.
We have invested in working capital to
ensure we are able to meet fully all customer
demands whilst the factory is closed for the
work to be carried out.
Other developments in the Printhead
business included opening a new
Technology Centre in Sweden which
houses our Advanced Applications and
Technologies team.
Based at Campus Solna in Stockholm, and
at nearly 400 m2, it is twice the size of the
previous facility and houses a state-of-
the-art laboratory with new equipment,
offices, and meeting spaces for engineers,
scientists and visitors to work within. The
expansion provides Xaar with the ideal
environment for its continuous research
into the transformative potential of inkjet
technologies and opportunities.
Xaar’s base in Sweden has played a key role
in its R&D projects for many years, as well
as supporting customers in the development
and use of inkjet technologies. From their
new site, the team will continue to work
closely across both internal and external
projects, liaising with manufacturers, fluid
formulators and specialist printer makers
to help bring new processes to market using
Xaar’s printheads and technologies across
numerous markets.
In China, we opened a new state-of-
the-art inkjet printing laboratory in
Shenzhen, comprising the latest printhead
test equipment and print process
experimentation platforms. The focus
of the lab is to provide Xaar’s customers
and partners in China, including scientific
research institutions, a variety of services
such as sample printing, solution
development, printhead nozzle status
detection and waveform adjustments for new
applications, providing a printing solution
showcase and technical consultation for the
greater use of inkjet technologies. Sectors
supported include Ceramics, Glass, PCB,
Textiles, 3D printing, Packaging and Labels,
with inkjet printing support provided locally
to help customers develop more targeted
application solutions and achieve faster
innovation cycles, all whilst reducing their
R&D investment.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
21
21
Our business units continued
Printhead continued
The Inkjet Opportunity
The principal focus of our strategy is selling printheads.
We can do this more effectively by providing an integrated
service to our UDI and OEM customers.
Their success depends in part on
a cost effective product development
process, getting their products
successfully and quickly to market,
and maintaining product stability
throughout the product lifetime.
Customers who have less experience of
inkjet development projects, such as the User
Developer Integrators, or OEMs moving into a
new application area, are looking for a dedicated,
experienced inkjet partner for printheads, sub
systems (electronics, software and ink supply
systems) and ink, as well as for print engines
right up to fully customised solutions.
We are therefore focused on providing an
integrated solution whereby our customers
can access more of the printing ecosystem
(the supporting elements such as ink supply
systems and the electronics required for printing)
– as well as the print technology (the printheads).
This will help us to sell more printheads.
Through a combination of organic growth and
acquisitions, we now have the capability to supply
all of these components to our customers.
With the acquisitions of Megnajet and FFEI,
alongside close strategic partnerships with
electronics and ink suppliers, we have become
a one-stop shop for our customers, making
Xaar the best choice for performance and also
ease of adoption, helping to shorten OEMs'
development time.
Printheads
Electronics
& datapath
Inks
Ink supply
systems
Print
engines
Support
In Partnership
In Partnership
Group
22
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Megnajet
Based in Northamptonshire,
UK, fluid systems specialist
Megnajet provides robust,
reliable, easy to integrate
products so that OEMs can
get to market quickly with
reduced development costs.
Revenue segment
£2.5m
Revenue by region
Americas
EMEA
Japan
Other
51%
35%
6%
8%
2022 progress
Since acquisition by Xaar in March
2022, Megnajet has made good progress,
despite supply shortages for the first
half of the year. This was proactively
managed through a combination of
build prioritisation and setting
customer expectations.
We also embarked on the first phase
of the site improvements, with the focus
on the employee facilities. Phase 2 is
currently underway moving our assembly
operation into a larger space at the rear of
the facility, increasing our future capacity
and efficiency in preparation for 2023. We
recovered the backlog of work caused by
supply issues, hitting record production
volumes and revenues in Megnajet’s
11-year history.
Collaboration with the wider Xaar Group
has been key for Megnajet this year as
we aligned ourselves with Group systems,
software and methodologies.
IT infrastructure changes enabled
wider communications; operational
processes allowed for better planning,
team awareness and training; Epicor
integration has given us increased
control and structure to our business;
and centralisation of R&D within Group
allows Megnajet to focus on customer
requirements, product management and
service. We presented our first Monthly
Operations Review in April thereby aligning
with Company reporting fairly early
after acquisition, supported by regular
commercial and financial updates to track
the health of the business.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
23
Labjet Gravity is a syringe-based gravity fed fluid management system, ideal for evaluating small volumes of fluids in a laboratory environment with industrial components.HV LFR fluid management system is for wider printing applications, capable of supplying fluid for up to five individual outlets. 2022 progress
This year has seen a significant amount of
change for FFEI not least in the leadership
team, following the departure of Andy
Cook and Julian Payne, after many years
of much valued service to the company.
FFEI spent much of the year making good
progress with adopting the Xaar Group
business practices such as embracing
the Company values, the adoption of the
Tier 1 & 2 meetings which has improved
the communication across teams,
management reviews with the leadership
team, Monthly Operating Reviews and
delivering on a product sales plan to more
than double the number of units being
built and sold by the team compared to
2021. We are delighted to see that the
printbars manufactured and sold by FFEI
continue to deliver growth particularly in
the labels embellishment market in Italy.
On the Life Sciences side of the
business, the digital pathology scanner
manufactured at FFEI surpassed a
milestone of more than 12 months
of successful installations and with
demand continuing into 2023. In addition,
Microscan has shown strong demand in
2022 vs 2021, with Sierra on-boarding new
customers across the digital pathology
and AI market whilst engaging with
return business.
In October 2022 FFEI celebrated its history
with a 75th Anniversary celebration of the
inception of Crosfield Electronics. FFEI
can trace its roots back through FujiFilm,
Dupont and De La Rue to 1947 and the
formation of Crosfield Electronics. A great
day was had by all, including some past
employees, and over £900 was raised for
the Xaar charity partner, Break.
Our business units continued
FFEI
Our digital imaging
company, FFEI Ltd, based
in Hemel Hempstead,
UK, focuses on high
performance digital imaging
solutions – from digital
inkjet label presses to
digital pathology scanners.
Revenue segment
£11.6m
Markets
Inkjet
Life Sciences
52%
48%
24
24
Xaar plc – Annual Report and Financial Statements 2022
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Strategic Report
Our business units
EPS
Xaar company EPS
manufactures and sells a
range of highly customised
print systems for product
print applications, including
some using Xaar’s inkjet
printheads. Examples of
product printing include
all kinds of industrial and
promotional objects such
as medical equipment,
automotive parts, tools,
apparel, appliances, sports
equipment and toys.
Revenue segment
£19.6m
Markets
Digital
Analogue
66%
34%
2022 progress
2022 has seen great progress at EPS,
with excellent growth in sales, stronger
margins, and excellent profitability.
Under new leadership since April 2021,
EPS has this year focused on building a
new and strong leadership team.
Restructuring also took place with the
Tech Services functions being split into
three distinct groups – Production Techs,
Field Service Techs, and Applications
teams. As part of this plan, the company
is developing its team of regional service
technicians based strategically across the
US to provide better service to customers.
From August EPS added a second
production shift for the Machine Shop
and Assembly teams to keep up with our
growing production volumes, turning
around custom build projects faster to
minimise the impact of space constraints.
We have been able to significantly invest
in the business this year; we added a new
Haas CNC machine, a new digital cutter
for the plate room, and invested in our
XD70 sampling equipment, and many
systems upgrades. We’ve added a new
computer server, upgraded our Sage 100c
financial software to the 2022 version
and implemented the MS Project for our
production planning system.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
25
25
Business performance
Revenue
Revenue for the Group of £72.8 million is an
excellent performance for the year, representing
a year-on-year increase of £13.5 million (2021:
£59.3 million) of which organic growth was 8%
(£4.8 million).
This result demonstrates momentum across the
business, mitigating short-term challenges due
to the ongoing restrictions in China arising from
COVID-19. Printhead revenue was down £1.1
million year-on-year, although outside China it
increased 10%, and EPS increased revenue by
41% (24% in USD). This performance across the
business demonstrates the positive customer
engagement and trust that is being regained
across our customer base.
Group revenues were £36.6 million in the first
half of the year and £36.2 million in the second
half. This reflects the consistent performance of
EPS, which has offset the impact on Printhead
revenue of the restrictions in China in the
second half of the year.
Revenue from the Americas grew year-on-year
across the Group, rising £12.6 million (2022:
£36.2 million, 2021: £23.6 million). The increase,
driven by the recovery in EPS revenue, along
with strong growth in US printhead sales
demonstrates the wider geographic opportunity
that exists for the business.
Performance in Asia, and China in particular,
has been impacted by the ongoing COVID-19
restrictions in China, which has resulted in
revenue declining from £12.0 million in 2021
to £8.2 million. The restrictions have delayed
product development and sales for our
customers and consequently sales of printheads
for Xaar. As this region has been a key driver
for growth in Printhead in the previous two
years, the impact in the second half of 2022
has been significant. However, the work we
have done in the last two years to re-engage
Chinese Ceramics OEM customers means
they understand and are interested in our new
products and roadmap. Accordingly, we are well
placed to meet the high demand in the region as
the COVID restrictions are lifted.
Revenue in EMEA has increased from £23.7
million to £28.4 million driven by our wider
product offering through FFEI and Megnajet,
contributing to an increase for the Group of
£4.7 million (20%).
Table A – Group revenue growth
£m
Printhead
EPS
FFEI
Organic growth 2022 vs 2021
FFEI
Megnajet
Inorganic growth 2022 vs 2021
Total growth
2022
39.0
19.6
5.5
64.1
6.1
2.6
8.7
72.8
2021
40.1
13.9
5.3
59.3
–
–
–
59.3
Var %
-3%
41%
4%
8%
–
–
–
23%
Printhead revenue for the year fell by £1.1
million to £39.0 million (2021: £40.1 million).
The second half of 2022 saw revenue decrease
by 8% (£1.6 million) compared to H2 2021 (£19.9
million), following growth of £0.5 million in the
first half of the year. This is due to the impact of
customers based in China predominantly in the
Ceramics sector. Our technology offering proved
successful in a wider number of other sectors,
which has partially mitigated this decrease.
Growth in the year was achieved in 3D Printing,
Coding and Marking (C&M) and Décor sectors.
This is pleasing as it further proves our
core technology can be successful in many
applications and our customers increasingly
benefit from the advantages our technology
brings. Despite revenue in the Ceramics and
Glass sector declining £2.0 million (11%) we
have not lost market share during the year
as the fall can be attributed to the reduction
in orders received by our OEMs in China
themselves. We have been able to consistently
demonstrate our clear technology advantages
in the Chinese Ceramics market, where we have
regained trust with our customers. We have
also established a market leading position in
the Glass sector. Together with our extended
product portfolio we expect to return to growth
in this sector during 2023 as the negative
external market factors subside.
Coding and Marking (C&M) and Direct-to-
Shape (DTS) revenues have grown by £1.5
million (14%), further demonstrating our ability
to expand our market reach with a
wider product offering.
An increasingly exciting opportunity for us is the
3D printing market, and we expect this sector
to grow significantly in the future. Revenue in
3D Printing and Advanced Manufacturing (AVM)
together grew £1.5 million (62%) in 2022.
Both 3D Printing and AVM are markets where
we are well positioned to take advantage
of growth opportunities, and although
development cycles can be long, which means
extended timescales for a customer to reach full
production, the market opportunity is significant.
Wide Format Graphics (WFG) and Labels
revenue fell in the year from £6.2 million to
£4.8 million. This is an area which has also
been impacted with delays in orders, largely
COVID-19 related, and we also need further
product development.
Revenues from Packing & Textiles remain
modest. Our ability to target this sector
effectively has been somewhat limited by our
product range, although the launch of the
Aquinox printhead will start to address this.
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 £0.5 million was down year-
on-year (2021: £0.8 million).
Revenue from the EPS business increased by
£5.7 million to £19.6 million (2021: £13.9 million)
as the new commercial approach has seen
some significant customer order wins.
Growth has been achieved across all product
groups with a particularly strong performance
in the core area of digital inkjet machine sales
which have grown £4.4 million (54%). This is
particularly pleasing as it continues to be the focus
for the business in the future. Pad print machine
revenue has also risen 22% and the increased
focus on consumables and accessory sales have
also contributed to the growth as a result of the
change in commercial approach, with increased
revenue from ink, plates and parts. The order
book remains strong and we are well placed
to deliver further growth in 2023 as companies
increasingly invest in capital equipment.
Table B – Group revenue by geographic region
£m
2022 H1
2022 H2
FY 2022
FY 2021
PH EPS
FFEI Meg* Total
PH EPS FFEI Meg* Total
PH
EPS FFEI Meg* Total
PH EPS FFEI Total
Americas
Asia
EMEA
Total
5.0
4.5
11.2
20.7
9.2
–
–
9.2
2.4
0.1
3.6
6.1
0.4
–
0.2
0.6
17.0
4.6
15.0
36.6
5.8
3.0
9.5
10.1
0.2
0.1
18.3
10.4
2.4
–
3.1
5.5
0.9
0.4
0.7
2.0
19.2
3.6
13.4
36.2
10.8 19.3
0.2
0.1
7.5
20.7
4.8
0.1
6.7
39.0 19.6 11.6
1.3
0.4
0.9
2.6
36.2
8.2
28.4
72.8
7.3
11.9
20.9
13.9
–
–
40.1
13.9
2.4
0.1
2.8
5.3
23.6
12.0
23.7
59.3
* Megnajet was acquired on 2 March 2022, figures reflected in the table above are ten months of post-acquisition revenue.
26
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Gross profit
Gross profit for the year increased by £8.4
million to £28.6 million (2021: £20.2 million)
with an increase in the gross margin to 39%
(2021: 34%). This was primarily the result of an
improvement in the Printhead business unit’s
gross margin which grew from 38% to 43%,
and EPS which moved from 23% to 40%.
In Printhead we increased utilisation of the
factory as production volumes were increased
during the year resulting in better overhead
cost recovery, supporting margin gains.
There was also continued investment to
secure raw materials to reduce further supply
chain risks. Although there are indications of
easing in the global supply chain, we remain
cautious and have continued to focus on
meeting customer demand. We have increased
our working capital with inventory rising
£10.3 million (2021: £9.1 million increase in
inventory). The higher level of finished goods
will ensure continued supply to customers
during our factory reorganisation shutdown and
enable us to capitalise on any uplift in demand
across all our market sectors. This higher
level of both raw materials and finished goods
is a deliberate, prudent approach which we
believe will see us well placed toboth manage
customer requirements and further insulate
the business from external supply chain risks.
We remain focused on cost saving initiatives
which will continue to deliver efficiency gains
and support our gross margin.
Gross profit for the EPS business grew
£4.6 million in the year to £7.8 million (2020:
£3.2 million). The actions taken to refocus the
business which impacted 2021 results
(non-cash write down adjustments totalling
£0.7 million), left the business in a good
position to meet the increased market demand
for capital equipment in the US which has
driven this much improved performance.
Both FFEI and Megnajet have performed ahead
of our expectations made when we acquired the
businesses. They are strong contributors to the
performance of the Group, with FFEI delivering
gross profit of £3.5 million (at 30% gross
margin), and Megnajet £0.8 million
(gross profit of 33%).
Research & Development
spend
R&D spend of £6.7 million was up £1.0 million
on 2021 (2021: £5.7 million). This spend reflects
further investment in the ImagineX platform
which continues to be central to our long-term
growth and ongoing product roadmap. We
increased spend in FFEI to £1.2 million (2021:
£0.4 million) which enhances the support for
our vertically integrated product offering. The
total increase maintains our spend/revenue
ratio in the desired range of 8-11% and is
broadly in proportion with our revenue growth.
Table C – Printhead revenue by sector
£m
2022 H1
2022 H2
FY 2022
FY 2021
Var
Var %
Ceramics & Glass
C&M and DTS
WFG & Labels
3D Printing & AVM
Packaging & Textiles
Royalties, Commissions & Fees
9.8
6.8
1.8
1.9
0.1
0.2
7.2
5.8
3.0
2.0
0.4
–
Total
20.6
18.4
Figures (£m) and percentages (%) are subject to rounding.
Table D – EPS revenue by sector
17.0
12.6
4.8
3.9
0.5
0.2
39.0
19.0
11.1
6.2
2.4
0.8
0.6
40.1
(2.0)
1.5
(1.4)
1.5
(0.3)
(0.4)
(1.1)
(11%)
14%
(23%)
62%
(38%)
(67%)
(3%)
£m
Digital inkjet
Pad printing
Other
Total
2022 H1
2022 H2
FY 2022
FY 2021
5.7
3.3
0.2
9.2
6.7
3.4
0.3
10.4
12.4
6.7
0.5
19.6
8.0
5.5
0.4
13.9
Var
4.4
1.2
0.1
5.7
Var %
54%
22%
34%
41%
FFEI delivered a loss of £0.3 million (2021: profit
of £0.4 million).
Megnajet contributed a profit before tax of £0.4
million since acquisition on 3 March 2022.
In calculating the adjusted loss before tax we
have adjusted for gains on derivative financial
liabilities of £nil (2021: £2.9 million) and fair
value loss on financial assets of £8,000 (2021:
£1.0 million gain) alongside restructuring
costs of £0.5 million, foreign exchange gains
on intra-group loans of £0.8 million, and
share-based payments of £1.7 million with
an R&D expenditure credit of £0.4 million and
amortisation of acquired intangible assets of
£1.0 million.
The adjusted profit before tax from continuing
operations was £2.8 million, compared to £0.6
million loss in 2021. This is a significant step
forward for the business, emphasised by the
delivery of adjusted profit in the year.
The adjusted EBITDA for continuing operations
in the year was £6.2 million (2021: £3.2 million).
The Group profit for the year was £1.6 million
(2021: £14.2 million profit) all of which is
attributable to the owners of the Company,
(2021: £16.2 million profit with a £2.0 million
loss to non-controlling interests). Group profit
for the year from continuing operations was
£1.8 million (2021: £0.7 million). The total basic
earnings per share attributable to shareholders is
2.1p (2021: profit 20.9p).
Figures (£m) and percentages (%) are subject to rounding.
Operating expenses
Sales and marketing spend for the year was
£6.7 million (2021: £6.3 million). The increase
in spend of £0.4 million year-on-year reflects
the increased business size along with the
focus on sales and business development in
the Printhead business. This has seen some
increase in commercial travel expenses
although we are taking a focused, targeted
approach to managing these costs.
General and administrative expenses increased
£4.0 million from £10.1 million in 2021 to £14.1
million in 2022. The increase largely relates to
planned investment in key areas of the business
and infrastructure, including Operations, IT and
Finance, partially offset by £1.2 million related
to trading foreign exchange gains in 2022.
This largely relates to key appointments in the
senior management team and infrastructure
upgrades.
Restructuring and transaction costs of £0.5
million (2021: £1.4 million) predominantly
relate to reorganisation costs and acquisition-
related professional fees.
Profit for the year
The profit before tax from continuing
operations under IFRS was £0.8 million in 2022
(2021: £1.0 million profit). Basic earnings per
share from continuing operations was
2.3p (2021: 0.9p).
The performance of the Printhead business
moved from a £2.2 million profit in 2021 to
a £0.3 million loss in 2022. Despite a much-
improved gross margin, and a close control in
operating expenditure, the revenue reduction
and external inflationary pressures resulted in
a small loss. The EPS business moved from a
£0.9 million loss in 2021 to a £2.8 million profit
in 2022 due to the improved performance.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
27
Business performance continued
Table E – Cash flow – total operations
Operating cash flows before movements in working capital
Movement in working capital
Taxes received
Net cash (used in)/provided by investing activities
Net cash used in financing activities
Effect of foreign exchange rate changes on cash balances
Net (decrease)/increase in cash and cash equivalents
2022
£'000
6,571
(12,188)
112
(8,634)
(2,915)
549
(16,505)
2021
£'000
(2,240)
36
150
7,813
(674)
(110)
4,975
Overall, current liabilities of £20.5 million
(2021: £20.5 million) remained flat year-on-
year. A reduction in trade and other payables
of £1.1 million to £14.9 million (2021: £16
million) was offset by increases in provisions for
restructuring and warranties by £0.1 million,
an increase in current lease liabilities of £0.3
million to £1.0 million (2021: £0.7 million) and
a £0.3 million increase in contract liabilities.
The Group also arranged an invoice financing
facility in the year and as at 31 December
the balance borrowed was £0.4 million.
Non-current liabilities reduced by £2.0 million
to £10.2 million (2021: £12.2 million), which
mainly relates to lease liabilities recorded
under IFRS 16 for property which reduced by
£0.7 million to £7.8 million (2021: £8.5 million)
in the year. Additionally, further deferred
consideration payments due in 2023 have now
become current, reducing the balance of
other financial liabilities from £3.4 million
to £2.1 million.
Dividend
No dividend has been declared for 2022 as
the Board believes that prioritising cash
for continued investment in the business
will deliver more compelling returns for
shareholders in the medium term.
John Mills
Chief Executive
Officer
Ian Tichias
Chief Financial
Officer
27 March 2023
27 March 2023
Cash generation
The Group retained a healthy cash balance
of £8.5 million at the year end, representing
a decrease of £16.5 million during the year.
Operating cash flow, before working capital, was
positive by £6.6 million driven by the improved
aEBITDA across the business of £6.2 million.
As a result of the managed investment in
inventory, working capital saw an outflow of
£12.2 million, mainly due to the £9.5 million
increase in inventory.
During 2022 we purchased Megnajet for an
initial net cash outlay of £3.5 million as well
as a further deferred payment for FFEI of £1.7
million. This investment in the business is
enhancing our capabilities and supports the
strategy of selling more printheads through
offering a more vertically integrated solution to
customers. Additionally, we invested £5.4 million
on key infrastructure and product development.
The business has a clear plan and strategy
which the strong balance sheet and cash
position will support. There remain external
development opportunities which, if they can
expand our capabilities and expertise, we will
look to potentially add to the Group. We will also
continue to invest internally to ensure we have
the operational capacity and efficiency to meet
future demand, alongside investment in our
product roadmap development.
The Group maintains a strong disciplined focus
on cash, and this will continue throughout 2023.
Strong balance sheet
Non-current assets increased £5.2 million in
the year from £46.8 million to £52.0 million.
This was driven by the increase in goodwill
following the acquisition of Megnajet of £1.3
million, along with an increase in intangible
assets of£4.7 million. The recognition of
financial assets at fair value arising from
the sale of 3D assets was £11.1 million
(2021: £11.9 million). Additionally, there was
a £0.1 million reduction in property, plant and
equipment as new purchases were controlled
in with line with the Group’s cash focus and a
decrease in right-of-use assets of £0.8 million.
Current assets decreased £4.1 million from
£54.6 million in 2021 to £50.5 million. A
significant proportion of this decrease is
attributable to the decrease in cash and cash
equivalents holding of £16.5 million. The
increase in inventories of £10.3 million to
£29.1 million (2021: £18.8 million) was
associated to the managed investment in
our supply chain capability. Trade and other
receivables increased by £1.3 million to
£11.5 million (2021: £10.2 million).
28
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Sustainability Roadmap
We all need to play our part to reach our goals
Carbon
Instigate long-term insetting options for Xaar if viable
Carbon
Launch Xaar Take Back Scheme where feasible
Waste
Reduce waste in ALL manufacturing operations by 10%
(separate goal for each BU)*
Manufacturing
Taskforce to establish path to manufacture 100% recyclable printhead
2030
Net zero
2030 net zero (Group Scope 1, 2 & 3)
2028
2026
2024
Ethical
Launch printhead with biodegradable structural parts
H & S
50% reduction in Lost Time Accident Frequency Rate*
Supply chain
Establish supply hubs in Europe for Far Eastern suppliers with
a call off from there, to minimise air freight for small shipments
Product
Water
Awareness
Waste
Product
Policy
Drive reduction in
mains water use,
minimising waste,
driving reuse/recycle
and repair leakage*
Deliver awareness-
raising campaign
to educate all
employees about
our support policies
Derive Sustainability
Review for ALL
current products.
Generate
Sustainability
Scorecard for each
product, across all
Xaar Group
Achieve zero to
landfill for all Xaar
Group sites
Product
Generate industry
defacto standard for
sustainable products
Focus a Continuous
Improvement
team on cost down
and sustainable
improvements on
new and established
products
Create a policy
for DONATION
of all electronic
equipment that
cannot be re-
deployed within
the business
Transport
HR
100%
Support
100%
Wellbeing
Charity
100%
Carbon
Complete review
of product and sub-
component transport
Establish Xaar
Apprentice/Graduate
/Work Experience
programmes
Support STEM
activities with our
local communities
Establish local
Wellbeing Committee
at all Xaar Group sites
Generate charity
policy for all business
divisions
Carbon offset all
staff travel
99%
Carbon
Covert ALL Electricity
contracts to green
energy where
available
Supplier
Implement Supplier
Sustainability Policy
100%
Charity
Appoint departmental
Charity Champions
with targets, Xaar to
match funds raised
Team
100%
Carbon
100%
Establish ESG Governance
structure and form
a Sustainability team
Convert all Group manufacturing
site electricity contracts to
green energy
Carbon
100%
Ongoing Carbon Offset to achieve Net Zero
* Group targets vs 2019 baseline will be confirmed by July 2023.
2022
2020
Rewards
100%
Maintain low turnover rate
versus sector averages
Carbon
100%
Convert Huntingdon plant electricity contracts to green energy
Our Sustainability Pillars
Environment
Leading the way in
environmental sustainability
for the industrial inkjet
technology sector.
People
An employer of choice by putting
our people, their potential
and wellbeing at the heart
of all we do.
Innovation
Encouraging more sustainable
approaches to design,
manufacture, technology and
collaboration across the whole
product lifecycle.
Community
Actively engaging with our
communities to provide
practical, lasting support
that benefits society.
Xaar plc – Annual Report and Financial Statements 2022
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Strategic Report
29
29
`
Sustainable and responsible business
The Group strongly believes
that effective management
of the ESG agenda is integral
to business success.
The Group is not only compliant with all
relevant regulation and legislation but
has increasingly focused on enhancing the
working environment for our employees and
minimising the environmental impact of our
manufacturing processes.
There is internal reporting of key metrics to
ensure continuous improvement throughout
the business, and each member of staff is
expected to take individual responsibility for
their contribution and to work together to
achieve shared goals.
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 significant
impact in reducing energy consumption (by
as much as 55%), water consumption (by up
to 60%) and CO2 emissions (by up to 95%),
in addition to reducing pollution and waste
materials.
Sustainability governance
structure
Xaar benefits from a strong ESG governance
structure. Our cross-functional Sustainability
team has accountability to the Board. This
group brings together a wide range of skill
sets as well as a shared determination and
passion for a more sustainable future. This
team developed our ESG Roadmap and
continues to take a leading role in driving
internal change and progress to ensure we
meet our ambitions by the timeline we have
set ourselves.
The Roadmap has four key pillars –
Environment, People, Innovation and
Community; its purpose is to drive our ESG
goals beyond the energy reduction scope to
a broader Group wide activity. Our Roadmap
will provide an essential backbone for much
of Xaar’s future investment and activity.
Xaar is committed to reducing its impact
on the environment wherever possible,
with Senior Independent Director Alison
Littley having specific responsibility for
ESG matters.
Board and Executive Management
Alison Littley, Senior Independent Director
Define corporate strategic vision for ESG and sustainability, approving Group goals
ESG Committee
Global Operations Director, Group People Officer, Company Secretary
& Legal Counsel, Head of Marketing, External Sustainability Comms Advisor Group
Quality Systems & Sustainability Manager
Review, assess and track Roadmap and established goals
Sustainability team
Selected cross function team, meetings as required
to identify, develop and update Roadmap, with external support
Carbon Net Zero team
Energy Efficiency team
Cross functional team tasked with looking
at opportunities and executing these
Facilities and EHS site team
which drives completion of projects
30
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
`
Environment
Environmental best
practice, our investment in
sustainable manufacturing
and improving operational
efficiencies remain key areas
of business focus.
The Group fully complies with local and
national regulatory requirements in respect of
the environment relating to its use, storage,
handling and disposal of materials, chemicals,
and waste products.
Xaar maintains a Certified Environmental
Management System that meets the
requirements of ISO 14001:2015, helping us
to manage our environmental aspects and
impacts, which complements our commitment
to continual improvement. It is readily available
to view for interested parties. We carry out
environment management reviews and audit
programmes designed to measure our progress
in relation to our policy statement and objectives.
Climate change
We have escalated climate change from an
emerging risk to a principal risk as part of our
risk management process. Working with an
external partner we have investigated, and now
understand the climate risks at all Xaar sites and
our top ten critical supplier sites. Our Corporate
Risk Register has been updated with mitigation
plans based on this new understanding.
i See Risk management on pages 48 to 57
Our aspiration is to lead our industry in
environment and sustainability, in order to
minimise the impact we and our products
have on the world around us. We have set the
aspiration to be ‘Net Zero by 2030’ and to drive
sustainable growth and innovation for the zero
carbon economy.
i See Innovation on pages 38 and 39
In 2022 we started the process of assessing the
risks and opportunities of climate change to
deliver activities that improve our resilience by
either mitigating or adapting against physical
and transitional risks. We are pleased to report
that with our appointed external partner to
support us with Scope 3 and TCFD Climate
Modelling, we have now completed climate
assessments and expect to complete Scope 3
assessments by early 2023.
Our ESG Roadmap has been evaluated against the
UN Sustainable Development Goals (SDG) and we
believe we touch almost all of the SDGs through
our operations, our research and development
and our sustainability vision and have mapped and
ranked our focus to the SDGs to where we have
the greatest potential to positively contribute.
Our major contributions are to SDGs 9, 12 and 13,
however we have significant impacts on SDGs 3,
4 and 8.
In 2023 we will review our decision on making
a commitment to an external validation
methodology such as Science Based Targets
initiative, UN Global Compact, B-Corp or
Climate Disclosure Project (CDP).
Carbon/greenhouse gas emissions
A key Group activity at Xaar has been to identify
opportunities and drive continual improvement
in energy efficiencies. We have seen reductions
in non renewable energy usage and the related
greenhouse gas emissions of the Company
recorded in Scope 1 and 2 since 2015.
i See Greenhouse gas emissions
statement on page 45
In 2021 Xaar entered into a supply contract
for the supply of green electricity from a
renewable source in the UK. The target was
to achieve 100% from renewable sources in
the UK and to investigate methods to roll
this out to other subsidiaries and locations
throughout the Group.
All Group UK manufacturing locations with
the exception of the newly acquired Megnajet
facility are now supplied with certified carbon
free electricity. All UK locations, along with the
Megnajet site, are expected to move over to a
single green power contract in September 2023.
EPS, our US manufacturing site, is supplied
with power generated from renewable sources.
Energy resilience
We are very conscious that social and political
factors are impacting the energy markets. To
help mitigate the increase in energy prices
and enhance our business resilience, we are
working hard to implement projects that will
deliver a reduction in electricity demand. This
includes a major reconfiguration of our PHBU
cleanrooms in Huntingdon. This should yield a
40% electricity reduction by end of Q1 2023, and
an overall Group reduction of around 35%.
To further reduce our reliance on the Grid,
discussions have been initiated to drive the
installation of a solar array at Huntingdon
before September 2023.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
31
Sustainable and responsible business continued
Carbon offset
In our printhead business, we are extremely
proud to be a carbon neutral inkjet manufacturer,
thanks to the offset of regulatory 2020 Scope 1
& 2 carbon impacts (1,815 tCO2e). We continue
to offset our residual 2021 Scope 1 & 2 carbon
emissions (212 tCO2e) and are committed to
offsetting our Scope 1 & 2 emissions for 2022
whilst we investigate the full extent of our Scope
3 emissions, which may be added to the offset in
the future.
As outlined above, to achieve carbon neutrality
for 2021 we offset supported biomass power
generation in Brazil and solar power generation
in India.
We are pleased to confirm the appointment of
an external consultant to support us with Scope
3 and TCFD Modelling. This has helped us to
identify key hot spots for action, we have also
started a programme of Supplier engagement
on Scope 3.
Decarbonisation
A major win for our decarbonisation journey
this year has been to switch our UK pool cars
to electric. In addition we are facilitating the same
electric vehicle switch for employees through a
salary sacrifice scheme which is proving popular.
At the time of writing, ten electric vehicles (EV)
have already been delivered and eight more are
on order.
As more of our staff move to EVs, we recognise
the need to invest in charge-points infrastructure.
We now have ten chargers in place at our
printhead sites. The two charge-points available
at FFEI are under review for upgrade in 2023.
Waste
We have set out to set, measure and disclose a
zero waste to landfill target – with any waste not
recycled being sent to a waste to energy recovery
process.
Our PHBU and FFEI operations are certified zero
waste to landfill by our waste treatment partners
Veolia/Crawleys, with any non-recycled waste
being sent to waste to energy recovery.
In 2023, we will undertake a review of our other
business units to drive this goal. We are aware
that the new acquisition, Megnajet, is not a zero
to landfill site and it will be a priority to correct
this situation in 2023.
Waste diverted*
34,320 kg
Waste recycled*
21,540 kg
* These are the combined figures for Printhead and
FFEI businesses.
Plastics and packaging
Reducing plastics in our packaging was
achieved in 2022; and all secondary printhead
packaging is now fully recyclable. We removed
plastic adhesive tapes and have removed
plastic bubble wraps, replacing these with
recyclable paper alternatives. As a result,
plastic consumption has reduced by more than
1.2 tonnes since 2020.
Air
• Quality: We regularly monitor the air quality,
temperature and relative humidity levels
within the Huntingdon cleanroom facility.
All cleanroom air supplies are fitted with
HVAC filters. Xaar also remains conscious of
the need for good indoor air quality, working
hard to ensure adequate air circulation and
routine maintenance of the systems.
There are smoking areas located away from
Huntingdon building entrances.
• Emissions: Xaar has a permit issued by
Huntingdon District Council due to the
business using more than two tonnes of
solvent for surface clean down each year.
To comply with the permit any waste gases
must not exceed total VOCs per room of
75mg/Nm3. This has been audited and
confirmed via an external UKAS accredited
company. There are no reported incidents
in the last 12 months with regards to
emissions to air. There are no significant air
emissions in relation to NOx/SOx.
Printhead
water usage
Freshwater
usage (m3)
Intensity ratio
(m3/£m turnover
– excl. royalties)
Effluent and
waste water (m3)
2022
2021
2020
6,180
5,000
5,087
158
127
146
4,649
4,542
4,984
Hazardous materials
All substances handled and used by Xaar are
in accordance to the CoSHH regulations and
industry best practice, by risk assessment
and evaluation in their usage, storage and
disposal. Care is taken to look for any less
harmful alternative substances where possible
to minimise any potential impacts in their use
beforehand.
In 2023 we are going to eliminate as much as
possible of the primary printhead protection
while maintaining Electrostatic Discharge
(ESD) protection in the packing. In doing so,
we hope to remove more than 50% of the
plastic ESD packaging in 2023 and are looking
for alternatives that do not use plastic.
Biodiversity
We recognise the relationship between
biodiversity and the wellbeing and health
of our colleagues. We are looking to support
and promote local employee campaigns,
starting with the introduction of beehives on
site in Huntingdon, UK, and the distribution
of wildflower seeds to employees.
In 2023, having introduced two beehives
on site in Huntingdon, UK, we hope to offer
a training course in managing bees to a few
of our employees. We also look forward to
the production of Xaar branded honey by
summer 2023.
In the coming years, as part of the Great Place
to Work scheme, we will develop outside spaces
and garden areas for employees to actively
promote physical and mental health.
None of our sites are located in or adjacent to
protected areas.
Water
Our operations are considered as low water
usage, and we do not have any operations in
any regions with high water stress. However,
within our Huntingdon factory location we
need to be cognisant of the risk of flooding
in the North of the Cambridgeshire region
and the Fens, as well as the stress on the
chalk streams and water aquifers in the
South Cambridgeshire region. Xaar therefore
considers water management throughout all
activities of the Company and that water should
be treated in a manner that will protect it for
future generations.
We regularly monitor and record water usage
and utilise water efficient taps and cisterns.
• Emissions: Xaar has a permit to discharge
issued by Anglian Water; the effluent
discharge is checked monthly by external
consultants to ensure conformity to site
discharge levels and content and reports
show discharges are below permitted levels.
There are no reported incidents in the last 12
months with regards to emissions to water.
32
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Environmental summary
Focus, commitments and action
Progress in 2022
Offsetting:
Offset all UK regulatory Scope 1
and 2 carbon impacts
Climate risks:
Identify targets, metrics and climate risks
applicable to Xaar Group
In 2022 we completed the offset of the Scope 1 and 2 emissions of our 2021 footprint and we plan
to do the same next year.
Travel Scope 3 emissions are now being tracked monthly.
SBTi and other validation methodologies are being considered for 2023 implementation.
Climate risks have been assessed for all Xaar Group sites, and at our top ten critical
supplier locations.
i Please see Risk section on pages 53 to 54
Scope 3 GHG impacts:
Examination of Xaar Scope 3 emissions
We have undertaken an examination of Xaar Scope 3 emissions from our supply chain by
identifying key Tier 1 suppliers and their GHG emission disclosures. Travel Scope 3 emissions are
now being tracked for the Printhead business unit (PHBU).
Xaar Product Return Policy:
Assessment of opportunity for used printheads
to enable reclaim
Waste management:
Set, measure and disclose a zero waste to
landfill target
Plans are in place to offset the travel carbon impact as part of the booking process for PHBU
and Megnajet travel. We are delighted to add the option of booking train travel for business use,
thereby lowering impacts from traditional air or road travel options.
Modelling of our Scope 3 impact is underway. This will help us to identify key hot spots for action,
and we have also started a programme of supplier engagement on Scope 3.
We aim to enable responsible consumption in production and remanufacturing of products,
reduction in plastic use, reclaiming raw materials, recovery of any heavy metals, copper, lead etc.
This was identified as part of Sustainable Roadmap activities and these significant actions are
planned as part of sustainable product development and circular economy. A focused activity will
define actions in 2023.
We have set out to set, measure and disclose a zero waste to landfill target – with any waste not
recycled being sent to a waste to energy recovery process.
PHBU and FFEI operations are certified zero waste to landfill by our waste treatment partners
Veolia/Crawleys, with non-recycled waste being sent to waste to energy recovery.
In 2023, we will undertake a review of other business units to drive this goal.
Energy efficiency:
Upgrade(s) to LED lighting & reconfiguration of
cleanroom spaces
Energy reduction projects at our PHBU facility in Huntingdon include a conversion from
fluorescent tubes to LED lighting in all buildings where this is not already completed.
We expect a 70% reduction in energy associated with lighting.
Energy resilience:
Investigate solar panel installation
in Huntingdon
Greener fuel use:
Remove natural gas as an energy
and heat source
A major energy reduction project at the PHBU facility in Huntingdon is planned for January/
February 2023. This should yield a 40% electricity reduction by end of Q1 2023, and an overall
Group reduction of around 35%.
A renewable energy project to install roof mounted solar panels is expected to add resilience and
further reduce reliance on grid generated power through a planned PPA.
Discussions have been initiated with District Network Operator (DNO) and contract discussions
have started between our landlord, PPA supplier and Xaar to drive the installation of a solar array
before September 2023.
We have worked with our landlords to complete an assessment of opportunities to reduce gas
consumption for heating of our UK sites.
At FFEI, the central heating controllers have been updated to allow more efficient use of the
system to control temperature in the offices in Hemel Hempstead.
Greener transport:
Launch EV charging & incentive schemes
We have installed ten new EV chargers at our Huntingdon and Waterbeach sites. This adds to the
two charge-points already in place at FFEI.
Plastics and packaging:
Identify and eliminate non-product
based single use plastics
Our Salary Sacrifice EV scheme continues to grow in popularity – with ten EVs delivered and
eight more on order for delivery in 2023/24.
Reducing plastics in our packaging was achieved in 2022; and all secondary printhead packaging
is now fully recyclable. We removed plastic adhesive tapes and have removed plastic bubble
wraps, replacing these with recyclable paper alternatives. As a result, plastic consumption
reduced by more than 1.2 tonnes in 2022.
Focus areas for 2023
Z Drive all UK sites to a single green energy framework deal, minimising cost increases
and maximising energy flexibility.
Z Install solar at Huntingdon facility to reduce reliance on the grid.
Z Achieve 10% reduction in mains water use.
Z Plan Bee: Beekeeping training for in-house volunteers.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
33
Sustainable and responsible business continued
People
Human rights
The Group respects all
human rights and regards
those rights relating to
non-discrimination, fair
treatment and respect
for privacy to be the most
relevant and to have the
greatest potential impact
on its key stakeholder
groups of customers,
employees and suppliers.
The 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.
Xaar is committed to only supplying products
that contain conflict free materials. Suppliers
of parts containing tin, tantalum, tungsten or
gold to Xaar are sent and required to complete
an EICC- GeSI declaration providing evidence that
parts supplied do not contain minerals sourced
from areas of conflict – DRC or adjoining areas.
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, 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.
Code of Conduct
All new employees complete an induction
process that outlines the expectations of
the Company, its employees, customers and
suppliers for the way in which business is
conducted and helps to avoid situations that
might lead to adverse legal issues or damage
to our reputation.
The Group’s most important corporate policies
are incorporated into the Xaar Code of Conduct,
and should be complied with at all times:
• Anti-bribery and Corruption Policy
• Confidential Information Policy
• Corporate Criminal Offence Policy
• Data Protection Policy
• Employee Share Dealing Code
• Email and Internet Policy
• Gifts, Entertainment and Hospitality Policy
• HS&E Policy Statements
• Sanctions Policy
• Whistleblowing Policy.
Each year the Group requires all employees
to read and confirm that they understand and
comply with these policies.
i See Group policies outlined in the Non-
financial information statement on page 58
Whistleblowing
We have a Whistleblowing Policy that
encourages open and honest communication
where incidents of non-compliance are seen
in our business. Whistleblowing issues are
reported directly to management, and any
significant issues, should they arise, are
reported to the Audit Committee. In each
instance, cases are investigated in detail
and appropriate action taken.There have been
no whistleblowing incidents or reports by senior
management to the Audit Committee.
Modern slavery
The Group is committed to acting ethically and
with integrity in all our business dealings and
relationships, implementing and enforcing
effective systems and controls to ensure
modern slavery in all its forms (including
human trafficking, forced labour and child
labour) is not taking place anywhere in our
Group businesses or in any of our supply
chains. The Group has published a Group-wide
Modern Slavery Policy and a statement on
the steps taken to prevent slavery, which is
available on the Group’s website.
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Health & safety and environment
Xaar has manufacturing sites in Huntingdon,
Hemel Hempstead, Kettering and the USA,
supported by R&D laboratories in Cambridge
and Sweden, alongside head office functions in
Cambridge, 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 the 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.
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;
• real or suspected infection with HIV/AIDS;
• membership of a trade union;
UK Health & Safety reports
2022
2021
• pregnancy, maternity and paternity;
RIDDORs*
Accidents
Incidents
Near misses
0
22
11
8
0
9
11
5
* Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations.
The Group undertakes R&D activities 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. The Group has a proactive Health
and Safety System modelled on OHSAS 18001/
HSG65 in Cambridge, Huntingdon and Hemel
Hempstead.
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.
Based on the closing headcount at 31 December
the split of employees (excluding the Non-
Executive Directors) by gender was as follows:
2022
Male/Female
2021
Male/Female
All employees
346/98
350/105
Executive Directors
Managers
Employees
2/0
39/15
2/0
39/7
305/83
307/97
A value-led culture
E P I
I C C
Everything with Passion
We care about our technology, our
products, our partners and each other.
Innovative
We always look for new, better solutions.
Integrity
We deliver on our promises.
Creative
We push the boundaries of what’s possible.
Collaborative
We work together as a team and with
our clients.
CEO pay gap ratio
The following table sets out the ratio of the
CEO’s total remuneration in respect of FY22
(taken from the single figure table on page 96)
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 2021 are also included.
2022
2021
Method
Option A Option A
25th percentile
Median pay ratio
75th percentile
61:1
40:1
28:1
16:1
11:1
7:1
i Further information is provided in the
Remuneration Committee report
on pages 101 and 102
Gender pay gap
Gender pay reporting is required for companies
with over 250 employees. Xaar is reporting as
Xaar plc, including all UK subsidiaries. The
snapshot date for Xaar’s data is 5 April 2022.
At that point Xaar had 320 relevant employees:
255 male and 65 female.
It is fundamentally important to understand that
a gender pay gap does not necessarily mean
men are paid more money for doing the same
job. At Xaar we are committed to ensuring we
pay based on merit not gender and we regularly
monitor our pay awards to ensure that we pay
the same rate for similar roles.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
35
• An Apprenticeship Programme was embedded
with four engineering apprentices joining the
programme across the Group.
The Group operates an online performance
management and appraisal system providing
opportunity for individual discussions on
training needs and career planning. This
is supported by a talent management and
succession planning process from which the
Executive Management Team assesses the
outcomes, formulates action plans and reviews
progress. Two talent Development Cohorts
have been established with individual and group
learning planned for 2023.
The Board is kept informed of the results. The
loss of key personnel is identified by the Board
as a key risk and is set out in further detail in
the principal risks and uncertainties table on
page 51. Voluntary labour turnover was 10.4%
across the Group in 2022 (2021: 5.5%).
Sustainable and responsible business continued
Gender pay gap continued
Xaar’s mean gender pay gap stands at 13.61%
(2021: 14.38%). As with many companies we
do have a gender pay gap, though our results
are consistent with other companies who
operate within the technical, manufacturing
or engineering sector.
There has been a shift across the quartiles with
more movement for female employees from
lower middle quartile to higher middle. This is
a reflection of more female employees being
promoted and appointed to senior roles.
We appreciate that improving our diversity will
improve our results, and we continue to work
on improvements over the longer term. A large
part of Xaar’s gender balance gap is due to the
challenges of recruiting women into science
and technology roles. Nevertheless we are
continuing to work on increasing our gender
balance in the following ways:
• Xaar operates in a male dominated industry
and we are working to ensure that our hiring
managers are trained to understand and
recognise gender bias. We do, however, receive
significantly fewer applications from females
for technical roles.
• Our Talent Acquisition team assists hiring
managers by giving practical advice, support
and monitoring for gender bias. We seek to
have both female and male candidates as part
of the hiring pool whenever possible and we
constantly review our processes to ensure we
are encouraging more female applicants.
• Xaar is supporting Cambridgeshire Engineers
of the Future by sponsoring local schools’
Imagineering Clubs, which is designed to
introduce children to engineering and hopes
to inspire young people and especially girls
to take up STEM subjects. A number of our
women from Engineering participate in these
endeavours.
• We support all employees to achieve
their potential with a talent management
programme and we offer flexible working
arrangements to support working parents.
Pension
The Group Personal Pension scheme is
administered by Scottish Widows. The Company
pension contribution for Directors (or cash
allowance equivalent) does not exceed the
contribution available to the majority of the
workforce, currently 6% of base salary.
All the equity assets in the Pension Portfolio
Funds now track indices, which exclude certain
stocks on environmental, social and governance
(ESG) grounds.
The funds, managed by their strategic partners
State Street Global Advisors (SSgA) and
BlackRock, track new benchmarks, which
reflect exclusions policies, aligned with Scottish
Widows' own policy introduced in 2020. The new
benchmarks are amended versions of existing
FTSE indices. They incorporate all of the stocks
in the original indices, for example the FTSE All-
Share, minus the excluded stocks.
Companies excluded from the indices include
those that are severely violating international
standards in relation to human rights, labour
rights, the environment and corruption, known
as the UN Global Compact (UNGC), controversial
weapons manufacturers and those involved in
thermal coal or oil sands.
Flexible benefits
In addition to the pension contributions,
employees are also offered a range of flexible
benefits each year, against which they can obtain
individual and family cover including income
protection and life assurance. Within the UK,
there are a number of salary sacrifice schemes
for employees including an electric vehicle
scheme for employees to lease a new electric
vehicle and a cycle to work scheme where
employees can obtain finance and discounts
on new bikes including electric options.
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.
As part of the Flexible Benefits programme,
employees have access to:
• Health Shield, a health benefit solution
offering access to discounts and re-
imbursement of healthcare costs such as
dentists, opticians, physiotherapists and
health checks.
• Fitness, employees can pay for gym
membership or gain access to gym discounts
via a website, that also offers discounts on
items such as fitness trackers, experience
days and sports clothing.
• Wellbeing via an Employee Assistance
programme, a positive preventative
programme of information, advice and
services that can help individuals deal with
events in their everyday work and personal
life, including bereavement assistance,
manager consultation and coaching, and
immediate crisis intervention, through
telephone counselling teams 24/7.
Training, development & retention
The role of Training and Development Manager
was added to the HR function in 2022 with key
enhancements to the offering including:
• An updated suite of Learning and
Development tools being developed
to ensure key skills are developed
and enhanced.
• 1,850 hours of professional development
being undertaken.
• Internal courses are developed in
conjunction with the Institute of Learning
and Management (ILM) to support key
manager development.
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Xaar plc – Annual Report and Financial Statements 2022
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People summary
Focus, commitments and action
Progress in 2022
Early years engagement
Proactive engagement with young people
We continue to support activities that promote STEM subjects amongst young people. Next year,
we plan to expand our activities to reach out to multiple schools (primary, secondary and higher
education).
Our Apprenticeship Programme in PHBU, FFEI and EPS is working well – and we can report
that we now have a Framework across the Group. We enrolled four new apprentices onto
programmes in 2022 bringing our total to 13 live apprenticeship programmes in Xaar Group.
Our graduate framework is in place, however we have no active graduate participants this year.
We have three new industry placements across the Xaar Group in 2022 from Huddersfield
University, Queen Mary University of London and Leipzig University.
We have entered into three Sponsorship Programmes, supporting an A-Level and two PhD level
individuals at Kings school, Peterborough, Oxford and Sheffield respectively.
EPIICC:
Relaunch of Xaar Values across the Group
Following the launch of our EPIICC values in 2021, these were further embedded across the
Group during 2022.
Talent attraction & retention:
Prioritising our focus on people
During the year there were 598 peer nominations for an EPIICC award with the winning
employees receiving Group-wide recognition for their commitment to living the values.
Attraction and retention remain critically important in a challenging employment market. In
2022 voluntary turnover remained low at 8.2% which resulted in relatively low levels of external
recruitment. In 2023 we will be updating our employee value proposition, refreshing our careers
website and looking at using additional channels to attract future employees. To focus on
retention, two future talent cohorts have been launched to support the development of future
leaders and managers. Throughout 2022 we have continued to engage with our employees by
running Exec Exchange sessions and Meet the NEDs sessions to ensure all employees have the
opportunity to discuss areas of the business and the strategy directly with leaders.
Wellbeing:
Supporting our employees' physical
& mental health
We continued through 2022 to embed a positive intervention programme with advice and support
available to all employees.
Health & Safety:
Ensure zero harm across our operations
New accident and near miss reporting process has been integrated into all the Xaar Group
locations.
No RIDDOR level accidents have been reported this year.
Investing in our people:
Learning, development & skills building
We supported Learning at Work Week in May 2022 through several initiatives - which were
attended by 109 of our colleagues across the nine events. This resulted in 131 hours of learning.
We have achieved 1,850 CPD (continuous professional development) hours for Xaar. Tracking of
the wider Group hours will start in 2023.
Communications:
Establishing regular dialogue with
internal stakeholders
We continue to use a wide range of channels to communicate with our internal stakeholders.
This includes:
• Xaar Connected (fortnightly)
• CEO's email update (weekly)
We plan to undertake an Employee Survey in 2023 as part of the work we are doing for the Great
Places to Work Programme.
We also communicate our sustainability and ESG progress through a regular series of blogs
(shared internally and externally). We have commissioned a Group level sustainability video
which will be completed in Q1 2023.
Equality, Diversity & Inclusion
We continue developing policies and practices in all areas of our business to ensure that our
values in this area are fully embraced.
Focus areas for 2023
Z Complete Great Place to Work Programme and roll out key actions.
Z Continue to amplify internal communications around our Roadmap.
Z Examine Xaar Group working patterns to drive a more diverse applicant pool.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
37
Sustainable and responsible business continued
Innovation
Xaar recognises that
innovation is key to
achieving many of the
sustainability goals across
all four pillars that support
our Sustainability Roadmap.
For 30 years, we’ve been
reinventing inkjet and
reimagining what’s possible
for printheads.
In 2022 we relaunched the Product Lifecycle
Management process in all parts of the Xaar
Group. It is used to develop new and innovative
print related products; this now includes Design
for Environment as part of the development
considerations. Eco-design is the systematic
application of environmental lifecycle
considerations at the product design stage.
The aim of eco-design is to avoid or minimise
significant environmental impacts at all stages
of the lifecycle of a product, from sourcing of
raw materials and purchased components,
design and manufacture, to distribution, use
and end-of-life disposal.
We are researching ways to use biodegradable
structural parts in the manufacture of our
products. An area of focus is to find an
alternative, more sustainable material than
Polylactic Acid (PLA) which is a biodegradable
plastic used to print the majority of our jigs and
fixtures. Our Operations team has successfully
trialled the use of recycled PLA filaments
generated from returned and waste PLA.
These are supplied in 100% plastic-free
sustainable packaging with easy to recycle
cardboard spools.
We are also examining the properties of Fishy
Filaments, a printing filament manufactured
from end of life fishing nets recovered from
Cornish fishery fleets.
In addition, we have high hopes that a new
material in development at Fishy Filaments
may be resistant to ink fluids, and therefore be
a candidate for manufacture of printheads.
Precautionary principle
The Company supports the precautionary
principle by avoiding materials and production
methods that pose environmental and health
risks when suitable alternatives are available.
Xaar continues to review changes in the
Restriction of Hazardous Substances Directive
(2011/65/EU). As a result we are working hard
to eliminate Substances of Very High Concern
(SVHC) from the manufacturing process.
Resource efficiency and circularity
Our products and processes are designed
in such a way that energy and raw materials
are used efficiently, and waste and residual
products are minimised over the product
lifecycles.
We have implemented a successful circular and
resource efficient approach to the recovery of
key electronic and piece parts from printheads
that do not meet our high standards. This
innovative approach, along with considerable
sourcing efforts, has enabled us to continue
production despite global shortages and has
enhanced our business resilience.
Environmental performance
The Company routinely audits, follows up and
reports on its environmental performance,
with particular emphasis on evaluating the
potential risks of present and future products
and operations.
Product quality
We issued a number of Technical Bulletins
throughout the course of 2022, advising
customers on product updates, system
improvements and product end of life
announcements. No product recalls were
initiated in 2022.
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Innovation summary
Focus, commitments and action
Progress in 2022
Sustainable supply chain:
Undertake supplier review, sustainability
policy and partnership to enhance
sustainable opportunities
In order to baseline our Supplier Scope 3 GHG emissions we have partnered with external
consultancy CO2A. Their experts will model our carbon footprint due to upstream activities. The
model is based on financial transactions but includes typical transport carbon impacts from the
countries each supplier works within.
In addition, we have started discussions with our key suppliers to validate the model and to enable
actions for what we foresee as our likely highest carbon impacting supply chain partners.
As part of all new part supply contracts we are now looking for the carbon footprint to allow a
selection on the basis of quality, cost and sustainability for all future decisions.
We have already taken the decision for some Far East suppliers to order months in advance and ship
by boat to dramatically reduce the carbon impact of transport, where previously we used air.
Sustainable materials:
Investigate & explore new opportunities
While we transition to recycled PLA for all of our jigs and fixtures the use of the current Fishy Filaments
materials is proving difficult. Development by this innovative company continues and we remain hopeful
that a new material may provide an easier option for printing jigs and fixtures, and potentially structural
printheads parts.
Critical supplier climate risks
Undertake full review of top ten suppliers
With our partner CO2A we are undertaking a climate risk analysis of each of the Group's top ten critical
supply partners. Our intent is to work with each to mitigate the perceived risk as climate temperatures
increase and the environment becomes more susceptible to extreme weather events.
Focus areas for 2023
Z Develop a generic Printhead Sustainability metric that can be used across the industry to
inform customers and allow comparisons between competitors.
Z Establish Continuous Improvement team to look at cost down and Sustainable Improvements on
New and Established products.
Z Develop a future roadmap towards a sustainable printhead.
Z Investigate rationale and business case for projects that explore participation in circular
economy of printhead reclaim and solvent recycle.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
39
Sustainable and responsible business continued
Community
Xaar is proud to play an active
role in the communities in
which it operates.
As part of our commitment to social value and
community we have an active programme of
sponsorship for projects and initiatives that
are aligned to our business values.
For example our Printhead business
sponsors an Imagineering Club within a local
primary school (Stukeley Meadows School).
Imagineering Clubs are designed to introduce
children to engineering through fun activities.
Our employees provide their time to support
these within work hours.
In June 2022 we welcomed ten pupils from
Stukeley Meadows School in Cambridgeshire
on site for a day of activities and learning. This
was not simply a great way to add value and
connect with our local community, it was a
valuable and energising way to inspire the next
generation of youngsters through STEM-based
activities (‘Science, Technology, Engineering
and Mathematics’).
Charities
At a strategy and policy level, we have updated
and published a Group Charity Policy. Moving
forward, it will help us to define how we
select and work with our charity partners.
We think this is an important part of our
ESG/Sustainability agenda and will be a
useful framework.
Xaar contributes annually to charitable causes
through three funds:
A chosen charities fund: with our three-year
affiliation to Break the chosen charities fund
in the UK has promised to match-fund up to
£20,000 raised by staff each year from April
to April.
In the US, EPS continues to support
Manchester Machine Makers, a club that is
dedicated to promotion of STEM subjects.
A Sponsorship fund: for staff and their families
engaging in charity events or team activities,
Xaar will provide up to £100 towards an
event (e.g. charity golf days, sporting events,
donations to community foodbanks) or team
sponsorship. Wherever possible the Xaar logo
should be incorporated (e.g. in a team sports
kit). There is a fixed annual budget to cover
all sites.
A Central fund: Xaar will donate monies as
appropriate to disasters and emergencies or
other local causes not covered by the other
funds. This will be at the discretion of the
executive team. In total, the Group made
charitable contributions to local and national
charities during the year totalling £2,966.
(2021: £5,060).
Charitable sponsorship
Chosen with input from our colleagues,
our charity work inspired us to enter into a
three-year partnership with the East Anglian
children’s charity ‘Break’ to help change the
lives of vulnerable young people on the edge
of care, in care and leaving care (www.break-
charity.org/charity/). We have set ourselves a
fundraising target of £20,000 – we aim to reach
this figure with the help of our internal Charity
Champions and Break.
While our fundraising activities are clear
we hope that mentoring and potentially
employment opportunities may also be offered
as a result of this longer-term union.
Volunteering
Our senior leadership team recognises the
benefits to Xaar, our employees and to the
wider community of a framework within
which volunteering can take place. Managed
well, volunteering can raise our profile
within the community and support our social
responsibility plans.
Xaar supports employees' voluntary work/
activities by providing ‘holiday matching’ of up
to two and a half days a year. We believe this
will help them get involved in their community,
support employee mental health and wellbeing
through positive activities and additionally
assist them in developing new skills and hone
existing ones.
Xaar has donated and grant matched time
off to an employee in 2022 to travel overseas
and support construction of a school/facilities
building in Africa. That employee was so
enthused by the effect of his contribution that
Xaar intends to support grant matched time off
for a follow up project in 2023.
Political donations
The Company has a longstanding global policy
against making contributions to political
parties, political committees or candidates
using Company resources (including monetary
and in-kind services), even where permitted
by law.
No political donations were made in the current
or previous year.
Taxation
We aim to manage our tax affairs in accordance
with national legislative provisions and within
the guidelines set down by the Organisation
for Economic Cooperation and Development
(OECD). Our objective is to structure our
operations tax efficiently and take advantage of
available incentives and exemptions provided by
governments for eligible capital investments,
R&D and similar expenditure.
We do not enter into any artificial tax
arrangements.
We have not received any fines or penalties
from any government tax agencies.
40
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Community summary
Focus, commitments and action
Progress in 2022
Charity partnerships:
Alignment of values & fundraising
activities
This year, we released a new Group-wide Charity Policy. This is designed to help us align our
chosen charity partnerships with our Company values. This policy clarifies our commitment to
work with organisations that support young people and vulnerable groups in society.
Our Charity Champions network is now established across the Xaar Group with several fundraising
activities completed and more planned.
In the UK, we have established a three-year partnership with East Anglia based charity Break. In
the USA, we continue to support Manchester Machine Makers.
Xaar has committed to match-fund up to £20,000 of our fundraising activities in the UK.
Volunteering:
Increase volunteering opportunities
Our Volunteering Policy has been fully rolled out across the Group. This allows a matched period
for time taken by an employee to volunteer with a recognised charity up to 2.5 days a year.
In 2022, one of our team volunteered to help build a school in Africa, and will return in 2023 to
continue this valuable work.
Supporting STEM subjects:
Working with local communities & schools
In the UK, we are working with Stukeley Meadows STEM Club. Ten of their students visited
Xaar Huntingdon for the day in 2022 to take part in tours and activities to inspire their interest
in technology-focused careers. We plan to run taster sessions in a second primary school and
support a STEM activity day in a third primary school in January 2023. We also intend to support
industry focused lessons to support the curriculum in a local secondary school in 2023.
Electronic equipment reuse:
Exploring options for redeployment for
schools & local social projects.
Xaar Group has taken delivery of our first 15 remanufactured laptops from our partner Circular
Computing. This order has avoided over 4tCO2e when compared with ordering new laptops. It
is hoped that in three years' time this will form a closed circular route with these laptops being
remanufactured and reused again.
Any waste electrical equipment that is beyond use for schools and local social projects is being
sent for precious metal recovery. We continue to review all end of life electronics for opportunities
to support schools or local projects.
Focus areas for 2023
Z Continue to increase awareness of the work of UK Charity Partner Break and provide
support for fundraising in 2023.
Z Drive quarterly site-based activities through Charity Champions network, and support Break
by promoting additional activities such as firewalks and skydiving.
Z Initiate mentoring support for Break's young people with help and engagement from
our UK staff.
Z Create a Volunteering Diary to encourage staff engagement and publish this across
UK Xaar Group.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
41
Task Force on Climate-related Financial Disclosures (TCFD)
In meeting the requirements of Listing Rule 9.8.6 R, the Board has concluded that:
We comply with the recommended disclosures across each of the provisions. See below for details.
Disclosures
Recommended disclosures
Response
A. Governance
Disclose the
organisation’s
governance around
climate-related risks
and opportunities.
B. 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.
1.
Describe the board’s oversight of
climate-related risks and opportunities.
The Xaar plc Board reviews key climate-related risks and opportunities and
oversees mitigation strategies as part of the bi-annual review of principal and
emerging risks.
2.
Describe management’s role in
assessing and managing climate-
related risks and opportunities.
3. Describe the climate-related risks
and opportunities the organisation has
identified over the short, medium, and
long term.
Alison Littley, Senior Independent Director, has specific responsibility for ESG
matters, including climate change and sustainability.
Executive management receives reports from an ESG Committee whose
members consist of senior managers across the Group.
The ESG Committee meets on a quarterly basis to assess the opportunities
and proposals developed by the Sustainability Working Group.
The Sustainability Working Group meets regularly and is driving our
roadmap whilst also receiving information from both the Carbon Net Zero
team and Energy Efficiency team.
i See governance structure on page 60
We completed climate scenario planning out to 2100 across two climate
scenarios (e.g. RCP 2.6, RCP 8.5).
The review examined all Xaar sites globally and our top ten critical supplier
sites using 12 separate climate models, in each case the RCP 8.5 model
was used to assess risks at the most extreme expected temperature rises
(4.5oC).
The report concluded physical risks are low to very low in almost all cases.
There are two Xaar sites at risk of flooding:
• Bayes Street Kettering – surface water high risk
• Fuzhou Avenue, Bao'an District Shenzhen – one metre above sea level
There are three supplier sites of ten analysed with risks:
• Site 1 IPRO PID five metres above sea level near coast
• Site 4 Fabrinet five metres above sea level protected by Bangkok
(7km inland)
• Site 5 CTS Tianjin China 0 metres above sea level near coast
Mitigations
China is expected to create one metre coastal defences to protect its major
population centres and both the Xaar and CTS sites are part of major
population centres and should be part of these coastal actions.
IPRO PID at five metres will not be affected for a long time, so there is plenty
of time to monitor actual sea level rise before making any risk judgement.
Fabrinet at five metres, and 70km inland will not be affected for a long time,
so there is plenty of time to monitor actual sea level rise before making any
risk judgement. We expect coastal defences to be put in place to protect
Bangkok which will also protect Fabrinet.
i See Risk management on pages 53 to 54
42
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Disclosures
Recommended disclosures
Response
B. Strategy continued
4. Describe the impact of climate-
related risks and opportunities on the
organisation’s businesses, strategy,
and financial planning.
In managing these financial climate-related risks our business model
would not require material change, except for increasing inventory levels
of components to account for transport delays arising from exceptional
weather events, and to consider mitigation for potential business disruption,
e.g. flood defences.
Opportunities exist in the transition to a low carbon manufacturer, by
reducing both energy usage and utilising renewable energy sources to
deliver lower costs to the business. Product development will incorporate
sustainability as a central objective, to transition manufacturing from a
linear to a circular process and to being a process to reduce, reuse and
recycle materials, all to be undertaken as part of Xaar’s overall Sustainability
Roadmap.
i See Risk management on pages 53 to 54
5. Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario.
We have undertaken a high-level review of the likely impact of 2°C and 4.5°C
global warming scenarios (see section 3 above), an independent external
climate related scenario review in 2022 to identify physical and transition
risks and opportunities in delivering carbon neutral manufacturing leading
to ‘Net Zero by 2030’. The review identified very low to low risks in most
cases with five sites identified with slightly higher risk scenarios.
i See Risk management on pages 53 to 54
C. Risk management
Disclose how
the organisation
identifies, assesses,
and manages climate-
related risks.
6. Describe the organisation’s processes
for identifying and assessing climate-
related risks.
The Group has processes in place for identifying, evaluating and managing
the principal risks, which could have an impact upon the Group’s financial
performance. Climate change has been disclosed as an emerging risk in
recent years, and has been escalated to a principal risk category in 2021.
With new inputs from an independent report the Board has considered the
potential impact of climate change that could occur in the short, medium
and longer term.
i See Risk Management on pages 53 to 54
7. Describe the organisation’s processes
for managing climate-related risks.
See above – A. Governance – Xaar has introduced a new structure to identify
climate-related risks to be reported to the Board bi-annually including
making decisions to mitigate, transfer, accept, or control those risks.
8. Describe how processes for
identifying, assessing, and managing
climate-related risks are integrated
into the organisation’s overall risk
management.
As part of the Group’s risk management, within the detailed risk register,
climate-related risks are determined alongside other principal risk areas,
e.g. manufacturing facility, inventory and supply chain risks. The assessment
is quantified via a Likelihood/Magnitude matrix to determine the overall net
risk after mitigation.
D. Metrics & Targets
9. Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process.
Disclose the metrics
and targets used to
assess and manage
relevant climate-
related risks and
opportunities where
such information is
material.
Metric updates for 2022:
• Investigate metrics and targets to be defined as part of Science Based
Targets initiative
• Continuing improvement/reduction in Scope 1 & 2 emissions along with
intensity measurement
• Scope 1 & 2 emissions are being offset to become ‘carbon neutral’
• Analysis completed to recognise and begin to action travel, commute and
upstream Scope 3 emissions
• Set, measure and disclose waste to landfill target, any waste not recycled
being sent to a waste to energy recovery process. We are aware that the
new acquisition, Megnajet, is not a zero to landfill site and it will be a
priority to correct this situation in 2023.
i See page 29 for Sustainability Roadmap
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
43
Task Force on Climate-related Financial Disclosures (TCFD) continued
Disclosures
Recommended disclosures
Response
D. Metrics & Targets continued
10. Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
11. Describe the targets used by the
organisation to manage climate-
related risks and opportunities and
performance against targets.
GHG emissions are disclosed as per the SECR requirements for
Scope 1 and Scope 2.
An initial assessment has been completed for Printhead business unit Scope
3 emissions, and a boundary developed.
We have recognised Scope 3 emissions arising from employee travel
and commuting; a model has been generated to allow an estimate of the
upstream value chain and direct interaction with suppliers to validate the
quality of this modelled data has been initiated. Downstream value chain
activities have not yet been examined, and with the initial upstream results
being approximately 100 times our own internal Scope 1 & 2 footprint we
intent to focus on upstream value chain activities for a number of years
before moving to downstream review.
i See GHG/SECR disclosure on page 45
Xaar has committed short-term targets:
• To achieve a net zero target by 2030
• 100% renewable (green) electricity at UK facilities by Sep 23
• Zero waste to landfill
• Offset of all Scope 1 & 2 Group emissions as we continue to drive
reductions in energy use.
i See page 33 for progress summary
44
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
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, fuel used in leased
Company vehicles and for the first time we have
chosen to include impacts from refrigerant
leaks (not currently required).
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.
Scope 3 emissions
Scope 3 emissions are all indirect emissions
– not included in Scope 2 – that occur in the
value chain of the reporting company, including
both upstream and downstream emissions.
Scope 3 CO2 emissions currently represent
calculated and estimated CO2 emissions from
travel and employee commuting as well as
modelled totals from our upstream emissions.
Our financial records were reviewed to extract
purchased product data which was then used
to calculate the carbon footprint of the matched
products using MRIO data from CenSA (now
University of Leeds as used by DEFRA). As the
Group’s Sustainability Roadmap progresses,
we aim to collaborate with the supply chain to
validate our upstream model data and reduce
CO2 emissions. We will continue to disclose
ongoing progress in our Annual Report.
Activities on downstream Scope 3 have not
yet been initiated, but plans are in place to
understand these in the future.
i Please refer to page 32 for actions that Xaar
is undertaking to offset its carbon emissions
Assessment parameters
Baseline year
1 January 2013 to 31 December 2013
Consolidated approach
Operational control
Boundary summary
Consistency with the
financial statements
All entities and all facilities under operational control included subject to the materiality threshold applied
The only variation is that leased properties deemed to be under operational control have been included
in Scope 1 and 2 emissions
Materiality threshold
Materiality has been set at Group level at 5%*
Assessment methodology
Greenhouse Gas Protocol and ISO 14064-1 (2006)
Intensity ratio
Emissions per £’000 turnover exc. royalties
* The total of any excluded emission sources is estimated to be less than 5% of Xaar plc’s total reported emissions.
Greenhouse gas emissions
Global energy use
UK
Non-UK
Absolute values
Scope 1
Scope 2
Scope 3
Total
KWh
%
KWh
KWh
tCO2e
tCO2e
tCO2e
tCO2e
– Scope 1 & 2 emissions of which UK tCO2e
Normalised values
Scope 1
Scope 2
Scope 3
tCO2e/£’000
tCO2e/£’000
tCO2e/£’000
Total
tCO2e/£’000
Renewable
Non-renewable
2022 Total
Renewable
Non-renewable
10,525,987
91.1%
10,292,374
233,613
1,022,484
8.9%
509,164
513,321
11,548,472
10,801,538
746,934
10,610,069
85.9%
10,205,766
404,303
1,741,835
14.1%
962,135
779,701
2021 Total
(restated)
12,351,905
11,167,901
1,184,004
–
–
–
–
–
–
–
–
–
220
21
479
720
156
302
29
658
989
220
21
479
720
156
302
29
658
989
–
–
–
–
–
–
–
–
–
98
116
150
364
198
165
198
254
617
98
116
150
364
198
165
198
254
617
* UK energy certified by EON, by Guarantees of Origin from renewable wind sources. US energy (Green Mountain) 100% carbon free, 68% renewable (balance being nuclear). Significant
site based emissions improvements since 2021. The Nottingham site (carbon impact of 35 tCO2e) was sold in 2021. A 45 tCO2e reduction as FFEI moved to a green electricity source.
Our 2022 figures show an emissions increase because we have chosen to disclose refrigerant leaks across the Group. The leaks generated a total Scope 1 impact of 124 tCO2e
(2021 0). 2021 energy figures have been updated to include gas kWh.
Historic greenhouse gas emissions
2020
2019
2018
2017
2016
2015
Scope 1 – tCO2e
Scope 2 – tCO2e
Total – tCO2e
75.0
1,741.0
108.3
2,622.8
124.8
3,128.1
147.7
4,088.0
167.0
4,432.0
162.2
4,475.2
1,816.0
2,731.1
3,252.9
4,235.7
4,599.0
4,637.4
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
45
Key performance indicators
Measuring our success
We monitor progress
against the delivery of
our strategic goals using
financial key performance
indicators (KPIs).
The Company uses a number of alternative
performance measures (APMs) in addition to
those reported in accordance with IFRS. The
Directors believe that these APMs, shown,
are important when assessing the underlying
financial and operating performance of the
Group and its divisions, providing management
with key insights and metrics in support of
the ongoing management of the Group’s
performance and cash flow. A number of these
align with KPIs and other key metrics used
in the business and therefore are considered
useful to also disclose to the users of the
financial statements.
The following APMs do not have standardised
meaning prescribed by IFRS and therefore
may not be directly comparable with similar
measures presented by other companies.
i See note 4 of the Group’s Consolidated
Financial Statements, for reconciliation
between adjusted and statutory items
2022 figures and 2021 comparative figures
are based on continuing operations (where
relevant), and are subject to rounding.
Revenue
Statutory
£72.8m
Continuing operations
Total revenue for the Group was £72.8 million, an increase of £13.5 million year-on-year
(2021: £59.3 million). Revenue increased 23% year-on-year.
Revenue by sector £m
Industrial
2022
2021
Packaging
2022
2021
Graphic Arts
£54.9m
2022
£4.7m
£40.8m
2021
£6.2m
Royalties
£12.9m
2022
£0.3m
£11.9m
2021
£0.4m
Industrial sector growth incorporates
the acquisition of Megnajet (£2.5 million),
the effect of a full year of FFEI revenue
(£6.4 million) and improvements to EPS
performance (£5.7 million).
Declines in the wide format graphics and
labels markets are behind the reduction in
the graphic arts sector. Royalties from the
single remaining licensee declined in the
year and are expected to cease in 2023.
Revenue by region £m
EMEA
2022
2021
Asia
2022
2021
Americas
2022
2021
£28.4m
£23.7m
£8.2m
£23.6m
£12.0m
£36.2m
The increased revenue in Americas is
primarily due to the continued sales
turnaround in the EPS business and a key
US printhead customer increasing stock
holding in the year.
The Asia market was significantly impacted
by the COVID-19 lockdown measures
in China, which prevented OEMs from
assembling machinery in the region.
EMEA growth was predominantly drivenby
inorganic growth related to the FFEI and
Megnajet acquisitions.
46
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Profit
Statutory
Alternative Performance Measures (APMs)
39%
Gross margin – Continuing
operations
2022
2021
39%
34%
The increase in gross profit for
the Group can be attributed to
the performance of the Printhead
business, driven by operational
leverage and cost-saving
initiatives, and the continuing
turnaround of the EPS business.
(2021: 34%).
£6.2m
Adjusted EBITDA £m
– Continuing operations
2022
£6.2m
2021 £3.2m
Adjusted EBITDA is defined as
operating profit before separately
reported items. It is one of the
Group’s KPIs and is used to
assess the trading performance
of Group businesses. It is also
used as one of the targets
against which the annual
bonuses of certain employees
are measured. Refer note 4.
£0.8m
Profit before tax £m
– Continuing operations
2022
2021
£0.8m
£1.0m
Profit before tax represents
operating profit after investment
income and finance costs (2021:
£1.0 million). Impact of COVID
reduced Printhead profitability
but offset by turnaround in EPS.
£2.8m
Adjusted profit before tax £m
– Continuing operations
Adjusted profit 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.
2022
£2.8m
2021
(£0.6m)
2.1p
Basic earnings per share (Total)
2022
2021
2.1p
20.9p
The calculation of basic EPS is
based on the weighted average
number of ordinary shares
outstanding during the period
(2021: 20.9p). See Financial
Statements – note 14 for further
information.
4.8p
Adjusted basic earnings / (loss)
per share – Continuing operations
2022
4.8p
2021
(1.0p)
Earnings per share adjusted
for the impacts of adjusting
items and share-based payment
expense. This measures the
growth and profitability of the
Group operations.
Cash
Statutory
£8.5m
Cash & treasury deposits £m
£8.5m
2022
2021
£25.1m
(£16.5m)
Net (decrease)/increase in cash
and cash equivalents £m
2022
2021
(£16.5m)
£5.0m
Alternative Performance Measures (APMs)
Cash and cash equivalents
comprise cash at bank of £8.5
million (2021: £25.1 million). £6.7m
R&D investment £m
2022
2021
£6.7m
£5.7m
(£16.3m)
Cash outflow from continuing
operations £m
2022
2021
(£16.3m)
(£ 2.3m)
During 2022 we acquired
businesses resulting in an initial
net cash outlay of £3.5 million
as well as a further deferred
payment for FFEI of £1.7 million.
Additionally, we invested £5.4
million on key infrastructure
and product development and a
further £9.5 million in inventory.
2021: £5.0 million inflow –
benefitting from an inflow of £9.3
million on the sale of Xaar 3D.
Group R&D investment
(continuing operations) excluding
capitalised costs. Reflects the
ongoing investment in Xaar’s
ImagineX platform as well as
increased investment in FFEI
(2021: £5.7 million).
Net cash outflow (including
£0.3 million benefit from invoice
discounting facility) was £16.3
million as a result of acquisition
related payments of £5.3 million
and the investments in inventory
and key product development as
explained on the left. Excluded
from this figure is a cash outflow
of £0.2 million relating to
settlements for the discontinued
Thin Film business. 2021 figure
is excluding the discontinued
operations outflows of £2.0
million and proceeds from 3D
disposal of £9.3 million.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
47
Risk management
Managing our risks
Key risk areas
The risks around our business are set out in more detail on pages 52 to 57, 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
Monitoring and adjusting
to competitive dynamics
such as pricing/promotion,
innovation, resource
investments and market
share changes.
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 that
deliver significant customer
benefit.
4. Merger and acquisition
opportunities
Seek opportunities to
expand, create synergies
and generate greater
shareholder value.
5. Coronavirus (COVID-19
and variants) – External
Tracking and adjusting to
the potential global impact
and external risks arising
from pandemic response
and impact on customers/
supply chain.
Operational
Risk owner: COO Graham Tweedale
8. Partnerships and alliances
Working with the right
companies, at the right time
on the right terms to deliver
long-term value.
6. Climate change
Identifying risks and
scenario planning of physical
and transition impact upon
operations and developing
mitigating actions.
7. Organisational capability
Having the right people in
the right roles.
9. Supply chain
11. Laws and regulations
Compliance with key laws
and regulations in all
countries Group operates in.
Optimising sourcing and
supply chain relationships
to drive performance and
minimise operational issues.
10. War in Ukraine and the
world economy
Staying resilient in the face of
challenging world economy
and a recession in the UK.
IT
Risk owner: CFO Ian Tichias & Group IT Director Graeme Smith
12. IT systems and
control environment
Strengthen IT infrastructure
and key IT systems.
Enhance and build
resilience by investing in
and implementing new IT
infrastructure or IT systems.
13. Cyber security risk
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 capital
Ability to access sufficient
capital to fund growth
opportunities.
15. Customer credit exposure
Offering credit terms
ensuring recoverability is
reasonably assured.
16. Inventory obsolescence
Holding excess inventory
levels when compared
to demand, that leads
to increased risk of
obsolescence and write-off
before consumption.
17. Exchange rates
Monitoring global economic
events and mitigating any
resulting significant exchange
rate impacts.
48
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
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.
Risk management
responsibilities
Board
Audit
Committee
Reports to
Reports to
Risk Committee
Oversees risk management processes
and procedures and monitors mitigating
actions put in place by the Group. Works
with the Audit Committee to monitor
the effectiveness of internal controls and
the audit process
Top-down review
Risk review (external/internal)
Carried out every half year
Group-wide register
Maintained and reviewed by Risk Committee
Bottom- up review
Group operating companies and
departments
Risk management strategy
and framework
To safeguard the assets of the Group
and to ensure the Group’s resources are
appropriately managed, we should have
effective processes to identify key risks and
mitigate them. This is achieved through having
appropriate policies and internal control
frameworks.
Starting from 2022, the structure and the
processes around risk management have
been formalised. A formal Risk Committee
has been created, which comprises the CEO,
CFO, COO and Director of Risk, Controls and
Audit. The Risk Committee meets twice a
year and reviews the principal risks and key
changes within the past six months.
Before each Risk Committee meeting, all
departmental risk meetings take place, where
all relevant risks are discussed, ratings re-
evaluated, and current and future mitigating
actions are considered. The risk register
updated after all these meetings is reviewed
and considered by the Risk Committee as part
of its principal risks evaluation.
This year, a risk benchmarking exercise has
also been performed to identify any key risks
not already covered in the principal risks of
the Group. FTSE 100 and FTSE 250 companies
in similar industries have been analysed and
their risks were compared against the existing
risks reported by the Group. As a result of this
exercise, the risk around laws and regulations
has been introduced as a principal risk.
Please note that this risk had already been
captured in the risk register, but was not
disclosed as a principal risk before.
Another risk which was added to principal
risks as a result of the benchmarking exercise
is the risk around the loss of key entity
personnel. Although there is an existing wider
risk referred as Organisational Capabilities,
the Risk Committee considered it necessary to
explicitly state the ‘loss of key entity personnel’
within the wider risk to acknowledge a
significant dependence of the Group on
its key leaders.
After all risks and proposals are approved by
the Risk Committee, the principal risks are
then presented to the Board and the Audit
Committee for their final review and approval.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
49
Risk management continued
Key updates since Half-year
Coronavirus (COVID-19) – Internal/
Operations – removed
As already indicated in the Half-year report, this
risk has significantly reduced due to a mature
vaccination programme in the countries Xaar
operates in, as well as well-established and
well-functioning hybrid working arrangements
which have been operating for many months by
now. We do not consider this risk to be key for
our operations any longer.
IT transformation – removed
As already indicated in the Half-year report,
the risk around IT transformation has become
very low considering we’re far advanced
in this journey. The second half of the year
demonstrated continued success and meeting
of timetables, which led us to downgrade this
risk to removal.
Cyber security – update
Cyber risks continue to be a significant area
of focus for the Group following the cyber
security incident in October 2020 (systems were
recovered without disruption to Operations and
Customer Shipments, and costs and damages
were disclosed in the Annual Report in 2021).
There have been no known incidents since 2020.
All mitigating actions to this risk are disclosed
in the relevant section of this report. The key
updates in 2022 were establishing an independent
external audit of Xaar IT Security & IT Security
Technical Controls on an annual basis and
achieving compliance with the Xaar Security
Standard (Minimum Baseline), or acceptable
alternatives, across all business units.
Additional plans for 2023 are establishing a
more comprehensive IT Security and Data
Protection training and education programme
for all employees and reviewing cyber security
insurance policy proposals with the Board
of Directors.
Laws and regulations – new risk
There is a risk that the Group may not be
compliant with existing laws and regulations
in the UK and other countries the Group
operates in. This could be manifested through
liabilities around employee accidents or
consequences of environmental damage,
breaches of export controls and customs,
lack of awareness of economic sanctions
and product liability claims.
We must continually review and update our
operations and procedures, and ensure our
colleagues are fully informed and educated
in all applicable legal requirements.
Breaching any of these laws or regulations
could have serious consequences for
the Group.
Climate change – update
The risk was introduced in 2021 and in 2022
we have conducted a formal assessment of
climate-related scenarios to identify risks
and opportunities and the potential impact
of both physical and transition risks on the
Group’s operations, strategy and financial
planning. After the analysis was performed, our
assessment of the risk for the Group is medium
to low. Physical risks are low based on the
locations where we operate and transition risks
will also remain low assuming we meet our
target of Net Zero by 2030, which will be much
sooner than most of the industry.
Risk name
Link to our risk/relevance
1. Escalation of Conflict in Europe
10. War in Ukraine and world economy
2. Critical Infrastructure Failure
9. Supply chain and
3. ESG Implementation Challenges
6. Climate change
13. Cyber security risk
4. Cloud Concentration Risk
Not applicable, mostly relevant for financial institutions
5. China Trade Tensions
5. Coronavirus (COVID-19) - External
For all those risks, we were able to identify identical risks in the principal risks
we disclose in this report.
Emerging risks
The Board periodically reviews emerging
risks, to consider and evaluate the potential
impact of newly identified risks against current
principal risks, and monitor developing issues.
The most recent report from Gartner (Q4 2022)
highlighted the Top 5 emerging risks relevant
for the UK, and these were mapped against
existing principal risks (please see below).
Compliance
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.
This also complies with FRC guidance on
risk management, internal control and
related financial and business reporting
(September 2014).
50
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Approach to risks
The first approach to
managing these risks is to
have high quality leaders
and teams within the
business functions that
proactively monitor and
adjust to risks that could
impact effectiveness.
Probability rating
The probability rating is the 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 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
Operational risk
Increase
Financial risk
IT risk
Decrease
Same
New
Virtually
certain
Probable
Possible
Unlikely
Remote
y
t
i
l
i
b
a
b
o
r
P
17
4
15
7
8
11
13
6
5
3
14
16
10
12
9
1
2
Very low
Low
Medium
High
Very high
Impact
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
51
Risk management continued
Risk and link
to business unit
Impact
Mitigation
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.
Regular, specific and detailed reviews are
held to assess current and anticipated market
requirements, including expected regulatory
changes.
These reviews include regular customer visits
between senior executives, technical experts
and R&D team members to develop a culture of
innovation that 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.
New products are thoroughly tested before launch.
Xaar’s manufacturing facilities are ISO 9001
accredited. We proactively engage with customers
for all new products to ensure all incompatibilities
are reviewed quickly using a consistent and
thorough investigation process.
Likelihood
Magnitude Change
Unlikely
Very high
Given recent acquisitions
and strategic progress,
there is a well-defined value
proposition and product
development roadmap focused
on competitive/market leading
product features. This greatly
reduces the likelihood of
emerging technology outpacing
our own development.
Unlikely
Very high
Xaar’s product development
process and roadmap setting is
now heavily anchored to end use
case customer requirements,
and together with the recent
successful launch of Aquinox
this reduces the risk further.
Possible
High
Although we endeavour to
work with beta partners at the
development stage, it is not
possible to test all application
conditions pre-launch.
This risk is foreseen to stay
at this level.
The Board reviews the Group strategy annually.
Each acquisition is thoroughly reviewed by the
Board at each stage.
Probable
Medium
Multiple acquisitions over
the past five to six years have
been a significant learning
experience, which together with a
strengthened senior team leads
to a reduced possible impact.
Whenever a potential for M&A is identified, robust
modelling of the opportunity is undertaken through
involving third party subject matter experts. The
competence and independence of the third party
involved gets assessed separately by the Board.
Professional due diligence is a required step in
any acquisition.
Senior management and the Board monitor
customer and supplier activity through regular
meetings and other sources such as industry
gatherings.
Senior management reviews any relevant M&A
activity in the market and decides on specific
actions to defend Xaar's position. The overall
landscape is constantly reviewed with assistance
from external advisors.
Market
1. Competition
Failure to continually improve may
mean that we lose market share or
have to reduce prices. Since there
are fixed factory costs, reductions
in sales volumes may substantially
reduce profit margins.
We are the only true independent
printhead company in the world and
we are competing with vertically
integrated large scale multinational
companies.
2. Failure to
identify market
requirements
Products need to meet the
changing demands of the market,
including regulatory changes.
Failure to meet future market
requirements/specifications could
impact on long-term revenue
and profit.
3. Commercialising
new products
Failure to test new products
under all relevant application
conditions could lead to unexpected
cost and loss of reputation due to
quality failures.
4. Merger and
acquisition
opportunities
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.
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Key of change
Increase
No change
Decrease
NEW
Likelihood
Magnitude Change
Virtually Certain
High
Remains very high and is one
of the key risks the Group is
going to face over the next
12-18 months, until China, a
key market for Xaar, recovers
from Coronavirus. We have
plans in place to cope with
this period, which include a
longer-term plan of expansion
into alternative regions (i.e.
Americas) and shorter-
term measures of advance
purchasing of materials and
components to protect the
supply chain.
Possible
Medium
The risk is reduced due to the
now known low impact upon
completion of scenario planning.
Risk and link
to business unit
Impact
Market continued
Mitigation
5. Coronavirus
(COVID-19) –
External
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.
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.
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.
Any slowdown in the global
economy could lead to delays
in capital investment for new
equipment that utilises Xaar
printheads.
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.
Temporary disruption to the supply
chain and further workplace
restrictions may threaten to slow
down production.
Operational
6. Climate change Climate change is not only a future
challenge. The IPCC report in
2021 was declared a “code red for
humanity”.
The IPCC, IEA & COP26 have
re-enforced the changes that are
required to re-wire the economy to
a low carbon manufacturing one
– and the climate impacts that are
expected in a range of scenarios.
The impact of climate change can
be specified as:
a) the physical risks that may impact
the assets of the business, and
cause business disruption (e.g.
flooding), and extreme weather
events that may negatively impact
the supply chain, to the increases
in temperature that will impact
human activity and the global
supply chain, at an extreme level
this could negatively impact
the global economy and cause
mass emigration from emerging
economies
b) the transition risks in managing
the shift to a low carbon economy,
and investment/expenditure
to manage the transition and
remain viable – the potential for
reputation damage should the
transition be poorly executed
or risk of ‘greenwashing’ if
announcements are not supported
by actions that are measurable.
Order books and manufacturing processes are
closely aligned with goods manufactured to
customer order.
Newly developed printheads 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.
Investigating and reporting on climate-related risks
and opportunities in adherence to internationally
accepted recommendations, such as those
published by the Financial Stability Board’s Task
Force on Climate-related Financial Disclosures
(TCFD).
The assessment of the risks associated with climate
change can also identify opportunities that arise to
help potential customers reduce their emissions
and increase efficiencies by using digital printhead
solutions.
Physical risks:
• Major incident plans are in place with specific
provisions for areas most exposed to potential
risks (flood, fires, hurricanes etc)
• Geographic spread of the business limits the
impact to our customers. Our sourcing strategy
takes into account risks associated with our
key suppliers
• We completed climate scenario planning
across two climate scenarios (e.g. RCP 2.6,
RCP 8.5), using RCP 8.5 to identify risks and
recommendations for key mitigation measures
and resilience consideration:
• The review examined ALL Xaar sites globally
and our top ten critical supplier sites using 12
separate climate models, in each case the RCP
8.5 model was used to assess risks at the most
extreme expected temperature rises (4.5°C ).
The report concluded physical risks are low to very
low in almost all cases. The remaining risk is not
material, however the actions are being developed
to address those further.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
53
Risk management continued
Risk and link
to business unit
Impact
Operational continued
6. Climate change
continued
Mitigation
Likelihood
Magnitude Change
Transition risks
• Develop Sustainability Roadmap to deliver
‘Net Zero by 2030’
• Outline metrics and targets in support of
reducing greenhouse gas emissions and
developing Science Based Targets to 1.5°C
across Scope 1, 2 & 3 emissions. Carbon
pricing presents a £1.3 million risk if no actions
were taken to reduce the supplier Scope 3
impact before 2030 (model suggests it is
around 21,000 tCO2e in 2022)
• Continue reducing carbon use to minimise
impact, and to become a low carbon
manufacturer
• Analyse Supply Chain Infrastructure Risk
Exposure
• Identify ‘spend to save’ projects that are cash
generative
• Continue GHG mitigation actions to maintain a
carbon neutral position
• Develop transparency and credibility in
‘net zero’ commitments with verifiable plans
and progress in both near-term and medium-
term action plans.
7. 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.
Our focus is to minimise the voluntary turnover of
employees, through better hiring for fit, improved
induction procedures and employee engagement
initiatives.
Operations in remote locations or
highly competitive markets make
attracting and retaining skilled
employees challenging.
We need to attract and retain the
right talent to enable achievement of
our strategic aims. Failure to do this
risks delivery and growth.
Key management personnel are
critical to success of our business.
Losing them without adequate
succession planning could have a
significant impact on the Group’s
performance.
The Group reviews remuneration to ensure that the
appropriate reward packages accompany a fulfilling
work environment.
Annual performance management reviews for the
majority of employees to identify talent and develop
key employees.
Investment to build a learning organisation with
focus on culture, reward and recognition.
Succession plans are being developed to highlight
key personnel risks with mitigation plans being
developed.
Campaigns to increase performance and
development of communication between managers
and employees to ensure alignment to Company
objectives.
Possible
Medium
We have significantly increased
the strength of the senior team
to deliver the strategy, our
voluntary turnover is below
the industry average and the
analysis of our actions proves
they have been effective. So the
probability of this risk should be
reduced.
8. Partnerships
and alliances
If key partners we have alliances
with are acquired, this can change
the relationships they have with us.
The IP and Legal team focuses on the extensive
review of legal agreements and in particular IP
with such partners.
Possible
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 there will be contractual arrangements to
ensure appropriate governance and Board structure
to support the business and product development.
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Risk and link
to business unit
Impact
Operational continued
Mitigation
9. Supply chain
The Group is dependent on
retaining its key suppliers and
ensuring that deliveries are on time
and the materials supplied are of
appropriate quality.
There has been a shift from a
finished goods risk to a component
materials risk particularly where
components have a single source
of supply.
There are challenges with the
supply of some key components
that are used in production and
global logistics routes have
experienced some disruption.
Focused on monitoring and securing continuity
of supply of components necessary to maintain
production and the supply of printheads for the
following 18 months.
We conduct regular audits of our key suppliers and
in addition keep large amounts of safety inventory of
key components, which we also regularly review.
Dual sourcing for critical components is in place for
some suppliers, and there is ongoing work to extend
this to the full list of critical suppliers.
We will continue to diversify and localise our supply
chains, and investigate developing a circular
manufacturing approach by recovery of materials
from finished goods to be re-utilised in production.
Key of change
Increase
No change
Decrease
NEW
Likelihood
Magnitude Change
Unlikely
High
The risk in the last year was very
high due to global shortages in
the electronics manufacturing
sector. During the past year we
have been working with all of
our supply chain partners and
since the beginning of 2022 we
have significantly removed risks
from areas of the supply chain
through multiple methods such
as long-term supply contracts,
consignment stock and
increased inventory investment
as well as re-design on some
high risk materials.
10. War in Ukraine
and world
economy
The war in Ukraine has materially
altered the near-term outlook for
the UK and global economies and
increased uncertainty over the
path ahead. Energy prices are by
far the greatest concern for the
UK economy which also result in
further upward pressure on inflation
and a potential hit to GDP growth
over the next two years.
11. Laws and
regulations
There is a risk that the Group may
not be compliant with existing
laws and regulations in the UK and
other countries the Group operates
in. This could be manifested
through liabilities around employee
accidents or consequences of
environmental damage, breaches
of export controls and customs,
lack of awareness of economic
sanctions and product liability
claims.
We have fixed our unit electricity costs and will
continue to do so in future.
Probable
High
NEW
We have been proactive in buying materials and
components to enable continued production.
We have no direct operations in Ukraine or Russia.
We have planned a factory restructuring in 2023,
which will make the production process more
efficient, driving reductions in cost of sales.
We have secured some key long-term contracts
(both sales and procurement) and supply chains
outside of unstable countries and regions.
We have relevant certifications in respect of quality
management and environmental management with
the appropriate bodies including ISO.
Possible
Medium
NEW
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.
All contracts go through legal review before signing.
For all complex transactions relevant third party
experts are engaged to evaluate all legal risks and
adequately respond to them.
In January 2023 a new Company Secretary joined
the Group who is going to be responsible for
managing wider and higher-level legal risks.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
55
Risk management continued
Risk and link
to business unit
Impact
Mitigation
IT
12. IT systems
and control
environment
IT networks, infrastructure, and
business systems resilience is not
sufficient causing access issues for
end users.
Inability to operate effectively or
loss of operating capability.
Loss of information, incurring
financial or regulatory penalties.
Fraud committed through
manipulation of IT business
systems or data.
Investment has been made to move to a hybrid
cloud model, strengthen the resilience and security
of our IT infrastructure, rationalise and modernise
our business systems, and re-align systems with
improved operational business processes.
Developed the IT Service Delivery maturity and
increased capacity in the Group IT function.
Access to systems and data is only provided
on a ‘need-to-know’ and ’least privilege’ basis
consistent with the user’s role and requires the
appropriate authorisation.
Key business systems are being developed to
strengthen IT system controls and further reduce
the burden from manual controls.
Likelihood
Magnitude Change
Possible
High
The recent IT controls gap
analysis has identified areas for
further improvement, which we
are going to continue to work on.
13. Cyber
threat and
information
security
Malicious cyber-attack breaches IT
security potentially leading to:
A loss of IT infrastructure, business
systems, or data.
Disruption to business operations,
ranging from inability to operate
effectively to a complete loss of
operating capability.
Unauthorised access to confidential
or personal data and disclosure
externally.
Breach of information security and
data protection regulations incurring
financial penalties from regulators.
Reputational impact and potential
deterioration in customer and
supplier relationships.
Loss of Intellectual Property or
exposure of commercially sensitive
information.
Extensive resources expended in
responding and recovering.
Implemented a Multi-Factor Authentication solution
for VPN. MFA rolled out to protect key business
systems including CRM and HR.
Possible
Medium
Enterprise Backup Solution provides an immutable
copy of all key business systems and data enabling
complete systems and data recovery within an
acceptable timeframe.
Implemented a risk-based security testing approach
across IT infrastructure and systems to identify
ongoing vulnerabilities and prioritise remediation.
Included a security workstream in the IT
Transformation Programme.
Group IT Director provides an Information Security
update to the Executive on a monthly basis and to
the Board of Directors every six months.
Established Xaar Security Standards (Minimum and
Enhanced Baselines) to measure current levels of
defence and recovery and track progress.
Established a process of undertaking an
independent external audit of Xaar IT Security and IT
Security Technical Controls on an annual basis. This
started in 2022.
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Key of change
Increase
No change
Decrease
NEW
Risk and link
to business unit
Impact
Mitigation
Likelihood
Magnitude Change
Financial
14. Ability to
access
sufficient
capital
Our ability to access sufficient
capital/liquidity may restrict growth
opportunities for our organisation,
as well as the strategic plan and
vision.
Significant investment is required to
bring new products to market and
ramp up to meaningful volumes.
15. Customer
credit
exposure
The Group may offer credit terms
to its customers which at times
could be extended beyond what
are considered normal terms for
products in early stages of their
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.
16. Inventory
obsolescence
Holding excess inventory levels
when compared to demand leads to
increased risk of obsolescence and
write-off before consumption, and
working capital restrictions.
The Group has sufficient cash available for
execution and delivery of the strategy within agreed
timescales.
Unlikely
High
We secured external financing
recently which further reduces
this risk.
The Group has implemented cost reduction actions
to focus resources on key initiatives.
We work with third parties to realise the full
potential of research and development activities.
We have established partnerships with our banks
who understand our strategic plans. We have a
strong, well capitalised balance sheet.
We returned to profitability which transformed our
ability to raise less expensive financing.
We have secured an invoice facility which helps
support short-term cash management.
This risk is mitigated by strong ongoing customer
relationships.
Possible
Low
Where possible, a full credit check of all new
customers is carried out prior to trading.
Payment terms are agreed depending upon credit
assessment and review of credit history. For all
customers with higher risk, payments in advance
are requested.
Overdue receivables are closely monitored and
credit limits are managed rigorously.
Credit insurance is in place to protect against
payment default for most of the customers.
Strong customer credit controls
together with continued history
of low bad debts demonstrate
that the probability of this risk is
going down.
There are appropriate stock holding policies,
ensuring these are reviewed frequently and change
dynamically in line with market/business conditions.
Probable
High
The risk has gone up due to the
increased levels of inventory as
at the end of 2022. The inventory
levels have been increased
to minimise the effect of the
factory shutdown in 2023.
Obsolete or slow moving stock items are identified
and written off monthly.
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.
17. Exchange
rates
Global economic events and
uncertainty may cause currencies
to fluctuate and currency volatility
contributes to variations in our
sales of products and services in
impacted jurisdictions.
There is a partial natural hedge for foreign
currency movements, with sales companies and
manufacturing spread across the globe.
Probable
Medium
Cash flows are constantly reviewed and action is
taken when appropriate. FX exposure is tracked
monthly starting from September 2022.
Due to the state of the current
world economy, the impact of
this risk is higher.
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
57
Non-financial information statement
This Annual Report contains the information required to comply with the Companies, Partnerships
and Groups (and Non-Financial Reporting) Regulations 2016, as contained in sections 414CA and
414CB of the Companies Act 2006. The table below provides key references to information that,
taken together, comprises the Non-Financial Information Statement for 2022*.
Reporting
requirement
Environmental
matters
Group policies that guide our approach
• Environmental Policy statement
• Environmental Sustainability statement
• Health & Safety Policy statement
• Quality Policy statement.
Employees
• Absence Policy
• Flexible Working Policy
• Alcohol & Substance Abuse Policy
• Gender pay gap report
• Annual Leave Policy
• Gifts & Entertainment Policy
• Bullying & Harassment Policy
• Grievance Policy
• Capability Policy
• Code of Conduct
• Health & Safety Policy
• Performance Planning Policy
• COVID-19 Policy statement
• Referral & Reward Policy
• Disciplinary Policy
• Retirement Policy
• Equal Opportunities Policy
• Whistleblowing Policy
• Family Leave Policy
• Working time regulations.
IT, cyber
security & data
protection
• Confidential Information Policy
• Data Protection Policy
• Email and Internet Policy
• Mobile Phone Policy.
Social matters
• Human Rights Policy
• Charitable Donations Policy
• Employee Volunteering Policy.
Respect for
human rights
• Human Rights Policy
• Sanctions Policy
• Modern Slavery Policy
• Modern Slavery Act Compliance
Statement.
Anti-corruption
and anti-bribery
matters
• Anti-Bribery & Corruption Policy
• Gifts & Entertainment Policy
• Anti-money Laundering Policy
• Whistleblowing Policy.
• Conflict Materials Policy
• Corporate Criminal Offence Policy
• Employee Share Dealing Code
Description of the business model
Description of the principal risks in relation to the above matters, including business
relationships, products and services likely to affect those areas of risk, and how the
company manages the risks
Non-financial key performance indicators
Information and risk management,
with page references
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Section 172 statement, pages 71 to 72
i Company purpose, pages 73 to 74
i Our business model, pages 8 to 9
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Section 172 statement, pages 71 to 72
i Company purpose, pages 73 to 74
i Our business model, pages 8 to 9
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Section 172 statement, pages 71 to 72
i Company purpose, pages 73 to 74
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Our business model, pages 8 to 9
i Section 172 statement, pages 71 to 72
i Company purpose, pages 73 to 74
i Our business model, pages 8 to 9
i Risk management & principal risks, pages 48 to 57
i Sustainable and responsible business, pages 30 to 41
i Climate change, pages 53 to 54
i Sustainable and responsible business, pages 30 to 41
i Greenhouse gas report, page 45
i Key performance indicators, pages 46 to 47
* The policies listed above are available to employees via our intranet, alongside corporate policies being available on our website (https://www.xaar.com/en/about/corporate-policies/).
Compliance with our policies is monitored through the implementation of annual compliance statements, through our internal audit function, and locally by our General Managers.
58
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
Board approval of the Strategic and Annual Reports
The section 172 statement forms part of this Strategic Report – please see pages 71 to 72.
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 March 2023 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 Financial Officer
Xaar plc – Annual Report and Financial Statements 2022
Strategic Report
59
Governance at a glance
An experienced leadership team
Board composition
Governance framework
Composition
Board of Directors
The Board’s responsibility
for leading the Group towards
achievement of its purpose
is supported by a robust
governance framework.
The Board has established a corporate
governance structure with clearly defined
responsibilities, designed to safeguard and
enhance the long-term sustainable success
of Xaar, creating value and benefit for its
shareholders and other stakeholders.
Executive Director 2
Non-Executive Director 2
Chair 1
Biographies
Corporate Governance
i Read more about the Board on page 63
i Read more about Corporate
Governance on pages 73 to 78
Diversity
The Board delegates certain matters to its Principal Committees
Audit
Committee
Nomination
Committee
Remuneration
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.
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.
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.
Chris Morgan Chair
Appointed 1 April 2020
Andrew Herbert Chair
Appointed 1 April 2020
Alison Littley Chair
Appointed 1 July 2020
i Read more on page 79
i Read more on page 82
i Read more on page 84
Male 4
Female 1
Tenure
0-3 years 2
3-6 years 1
6-9 years 2
60
Xaar plc – Annual Report and Financial Statements 2022
Governance
Division of responsibilities
Highlights
Key governance activities
During 2022, the Board undertook the
following key governance activities:
L Undertook a review of the Company’s
Articles of Association and proposed
changes for approval at the 2023 AGM
L Ensured compliance with the 2018 UK
Corporate Governance Code, agreeing
actions to address any areas of
non-compliance
L Reviewed the Remuneration Policy for
approval at the 2023 AGM
i Read more on pages 73 to 78
L Conducted an internal review of Board
and Committee effectiveness and
performance during the year
Board focus areas
During 2022, the Board focused on the
following key operational and strategic
activities:
L Megnajet acquisition and integration
implementation
L Capital and equity strategy
L Investment in manufacturing efficiencies
at Huntingdon, UK Printhead ImagineX
product
L Development of the Sustainability
Roadmap
i Read more about the Sustainability
Roadmap on page 29
L IT infrastructure and roadmap
Information/cyber security
L Printhead’s ImagineX product roadmap
progress and customer engagement
L Mitigation of supply chain constraints
L Strategy progress and operational
improvements at EPS
Director
Responsibilities
Andrew Herbert
Chairman
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
Chris Morgan
Non-Executive Director
Alison Littley
Senior Independent Director
• Primary responsibility is to lead the Board to ensure
the Board functions properly to meet its obligations
and responsibilities, by facilitating efficient Board
discussion, challenge and debate
• Nomination Committee Chair.
• Leads the Executive Committee responsible for
proposing and implementing Group strategy,
and managing the operational and financial
performance of the Group
• Engages with various stakeholders of the Group,
providing feedback to the Board.
• Evaluates the financial performance of the business
in line with strategy implementation, operational
objectives, forecasts and budgets
• Ensures integrity of reported financial information,
and maintaining robust accounting systems and
internal controls.
• As an independent Non-Executive Director, provides
constructive challenge and strategic guidance to
the Board, monitors achievement of objectives and
Executive Director performance
• Audit Committee Chair.
• As the Senior Independent Director, acts as
a sounding board for the Chairman and an
intermediary for other Directors, and is available
to discuss any concerns with shareholders that
cannot be resolved through communication with the
Chairman or Executive Directors
• Remuneration Committee Chair.
Board meeting attendance
The Board held 11 scheduled Board meetings in 2022, with one additional unscheduled meeting
held to cover a specific item.
Chairman, Non-Executive and
Independent Directors
Scheduled Board
meetings attended
Additional Board
meetings attended
Andrew Herbert – Chairman
Chris Morgan – Non-Executive Director
Alison Littley – Senior Independent
Director
Executive Directors
John Mills – Chief Executive Officer
Ian Tichias – Chief Financial Officer
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Xaar plc – Annual Report and Financial Statements 2022
Governance
61
Chairman's introduction to Governance
Our focus on customers and a
product roadmap that reflects
current and potential customer
needs has increased the
quality and responsiveness
of the business, and means
we are well placed for further
performance improvement.
Andrew Herbert
Chairman
Business conduct
Xaar aspires to the highest standards of
conduct. The Code of Conduct is applied
throughout the Company and helps to
ensure that good governance extends beyond
the Boardroom. This Code, which works
alongside our values, relates to the Company’s
policies and procedures, which outline the
responsibilities of our employees and Xaar as
an employer. These policies have been devised
to protect our employees and stakeholders,
as well as the business interests of Xaar,
to ensure that we maintain high standards
both legally and ethically. The Board receives
relevant updates on how the application of the
Group’s culture and values are embedded for
colleagues and the Group’s wider stakeholders.
More details are set on pages 73 to 75.
Engagement with shareholders
We believe that communication with our
shareholders is key. In addition to the
comprehensive programme of investor
relations led by John Mills and Ian Tichias,
I proactively seek periodic engagement with
institutional investors. Both Alison Littley, the
Senior Independent Director, and I am available
to meet with shareholders as appropriate.
Our AGM also provides an important opportunity
to meet with and answer questions from
shareholders.
On behalf of the Board, I would like to thank all
of our shareholders and stakeholders for their
continued support of the Company.
Andrew Herbert
Chairman
27 March 2023
Dear Shareholder
I am pleased to introduce this year’s Corporate
Governance report for the financial year ended
31 December 2022.
The Board recognises that the way that the
Company does business is as important as
what it does. A strong governance framework
with robust supporting processes across Xaar is
a key factor in delivering sustainable business
performance, generating value for shareholders
and contributing to wider society.
A key part of the Board’s role is to provide
entrepreneurial leadership, with appropriate
oversight, challenge and support to the
management team.
Board focus and oversight
Key areas of the Board’s focus during the year
included financial stability, the acquisition and
integration of Megnajet, investment in product
development, the upgrade to our Huntingdon
manufacturing site, strengthening our senior
management team with new skills and diverse
talent, and advancing our Sustainability
Roadmap.
UK Corporate Governance Code 2018
and s.172 reporting
Our report demonstrates the way that we have
applied the principles and complied with the
provisions of the UK Corporate Governance
Code 2018 during the year and our approach to
governance in practice. Our Code compliance
statement can be found on page 73. Further
details on the way that our Directors discharged
their duties under s.172 of the Companies Act
are set out on pages 71 to 72.
Board composition
Succession planning is an important part
of our governance processes. Furthermore,
as our strategy evolves, so do the skills and
experience required for the Board to help drive
the execution of Xaar’s strategy. Further details
of the work undertaken by the Nomination
Committee during 2022 on succession planning
are on pages 82 to 83.
Board effectiveness review
An internal evaluation of the Board was
undertaken in December 2022. The findings of
the review and our progress against the actions
from 2021 can be found on page 76.
Stakeholder engagement and support
Building and nurturing strong working
relationships with our stakeholders is critical
to our success and the development of our
strategy and is intrinsic in our day to day
activities. With the lifting of the majority of the
restrictions related to the COVID-19 pandemic
in 2022, the Company has actively engaged with
its customers to deal with disruption in supplies
and inventory shortages. Further details of how
we engage with stakeholders are set out on
page 74.
62
Xaar plc – Annual Report and Financial Statements 2022
Governance
Board of Directors
Andrew Herbert
Chairman
Appointed to the Board: 2016
N
R
John Mills
Chief Executive Officer
Appointed to the Board: 2019
Ian Tichias
Chief Financial Officer
Appointed to the Board: 2020
Qualifications
• FCMA Chartered Management Accountant
Qualifications
• Ph.D Physics.
Skills and experience
• Five years as CEO at Inca Digital
• Previously CEO at DataLase and COO
at Plastic Logic
• Wealth of experience in inkjet, having started
career at Domino Printing Sciences as
Development Scientist rising to Director
of Development after four years in various
technical roles.
External appointments
• None.
• 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.
Qualifications
• ACA Institute of Chartered Accountants
in England & Wales
• BSc (Hons) Economics & Maths,
University of Leeds.
Skills and experience
• Over 20 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.
External appointments
• None.
Alison Littley
Senior Independent Director
Appointed to the Board: 2020
Chris Morgan
Non-Executive Director
Appointed to the Board: 2016
A
N
R
A
N
R
Skills and experience
• Over 25 years’ experience within international
Skills and experience
• Wealth of expertise in managing complex
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 11 years Alison has been a
Non-Executive Director (NED) of both
international PLCs and privately owned
businesses.
External appointments
• Non-Executive Director and the
Remuneration Committee Chair
at Norcros plc
• Senior Independent Director and
Remuneration Committee Chair
at musicMagpie plc.
• Non-Executive Director and Employee
Engagement and ESG Committee Chair
at Eurocell plc
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
• In depth 3D printing/additive manufacturing
experience: Chief Marketing Officer for
Stratasys from 2014 to 2015 and senior
executive roles including Senior Vice
President of Americas, at 3D Systems Inc.
from 2016 to 2018.
External appointments
• Non-Executive Director for San Diego based
additive manufacturing company, Intrepid
Automation.
Committee key
A Audit Committee
N Nomination Committee
R Remuneration
Committee
Chair
Member
Xaar plc – Annual Report and Financial Statements 2022
Governance
63
Directors’ report
Report on the affairs of the Group
The Directors present their Annual Report together with the financial statements and auditor’s
report for the year ended 31 December 2022.
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 48 to 57
Business model
Employee engagement
Strategic Report on page 8
Strategic Report on page 9
Stakeholder engagement on page 71
Directors’ Remuneration report on page 86
Equality, diversity, inclusion and human rights
Sustainable and responsible business on pages 34 to 37
Disabled employees
Supplier engagement
Sustainable and responsible business on page 35
Stakeholder engagement on page 72
Engagement with customers and other business relationships (including
community engagement)
Stakeholder engagement on page 72
Sustainable and responsible business on page 40
Greenhouse gas emissions and environmental policies
Sustainable and responsible business (TCFD) on pages 42 to 44
GHG statement on page 45
Political donations
Sustainable and responsible business on page 40
Ethics and governance, including Code of Conduct,
anti-bribery and corruption policies
Sustainable and responsible business on page 34
Corporate Governance section on page 73
Branches
In addition to the subsidiaries disclosed in note 11 of the Company’s separate financial statements on page 168, there is a branch
in Stockholm, Sweden through which research and development activities are conducted.
Dividends
No interim or final dividend was proposed or paid for the year ended 31 December 2022.
i Details on dividends are set out in note 8 on page 167
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). There is a Deferred Bonus Plan for the Executive Directors, as introduced in 2020.
• 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 75
64
Xaar plc – Annual Report and Financial Statements 2022
Governance
Capital allocation policy
The Company is committed to investing in the growth strategy of the business. This investment includes both capital investments within existing
operations as well as pursuing inorganic growth opportunities that align with the Company’s strategy, investing in capability and capacity to accelerate
our strategy and future growth. The Company’s objective is to maximise long-term shareholder returns through a disciplined deployment of capital
and resources, and it has adopted the following capital allocation policy in support of this:
• Organic growth: The Company invests in capital projects and R&D relating to ongoing and new technology development to support demand
in our chosen and target markets and product innovation;
• Inorganic growth: The Company continues to explore complementary inorganic growth and acquisition opportunities consistent with
the growth strategy and supplementary to our existing innovation and product pipeline; and
• Treatment of excess capital and shareholder distributions: The Board keeps under review the Company’s balance sheet and cash position in line
with this policy and medium-term investment requirements. The Company returns excess capital to shareholders if and when the Board considers
it appropriate by means of a dividend or a share repurchase. The Company assesses the underlying profitability and the future cash requirements of
the business at least annually, as well as the distributable reserves available, to determine the appropriateness of paying a dividend to shareholders,
and to review the appropriate policy to adopt.
At this current time, capital resources are focused on and deployed to supporting organic growth and inorganic growth. The Board keeps the
Company’s capital structure under regular review.
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 2022 AGM held on 25 May 2022, 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 2022 or 2021.
Directors and their interests
The Directors who served during the year, and subsequent to the year-end, unless otherwise stated, were as follows:
Andrew Herbert
Chairman
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
Chris Morgan
Non-Executive Director
Alison Littley
Senior Independent Director
i Brief biographical descriptions of the Directors are set out on page 63
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 2022 are as follows:
Andrew Herbert
John Mills
Ian Tichias
Chris Morgan
Alison Littley
Number of
ordinary shares of
10p each
31 December
2022
Number of
ordinary shares of
10p each
31 December
2021
100,000
125,000
50,000
–
–
100,000
125,000
50,000
–
–
There have been no changes in the Directors’ interests in shares of the Company between 31 December 2022 and 29 March 2023. 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.
Xaar plc – Annual Report and Financial Statements 2022
Governance
65
Directors’ report continued
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.
Share capital
As at 31 December 2022 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 ten shareholders (by holding) – at 31 December 2022
Schroder Investment Mgt
Odyssean Investment Trust
Aberforth Partners
Invesco OppenheimerFunds
Columbia Threadneedle Investments
Hargreaves Lansdown Asset Mgt
Interactive Investor
BMO Global Asset Mgt
A J Bell Securities
Barclays Wealth
Total
Number
of ordinary
shares held
Percentage
of issued
share capital
22,327,769
8,500,000
7,402,509
6,099,203
4,491,840
3,108,560
2,589,831
1,745,108
1,394,013
1,304,775
58,963.608
28.45%
10.83%
9.43%
7.77%
5.72%
3.96%
3.30%
2.22%
1.78%
1.66%
75.13%
During the period 31 December 2022 to 28 March 2023, the Company had been notified in accordance with Chapter 5 of the FCA’s Disclosure and
Transparency Rules of the following material interests in its share capital:
Changes in material shareholdings since 31 December 2022
Odyssean Investment Trust
Annual General Meeting
i The notice convening the Annual General Meeting is set out on pages 170 to 174
Number
of ordinary
shares held
Percentage
of issued
share capital
9,415,000
12.00%
Resolutions 1 to 8 set out in the notice of the meeting deal with the ordinary business to be transacted at the meeting. The special business to be
transacted at the meeting is set out in Resolutions 9 to 15.
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 2018 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 2018 UK
Corporate Governance Code and in keeping with the Board’s aim of following best corporate governance practice, all Directors retire at each Annual
General Meeting and offer themselves for re-election.
The Board has considered succession plans and is actively seeking to appoint a new Non-Executive Director with a view to that person succeeding
Chris Morgan as Chair of the Audit Committee. Chris is standing for re-election this year but, subject to a successful handover, has indicated his
intention to stand down from the Board by the end of 2023.
Directors’ Remuneration Policy
Resolution 9
This Resolution seeks shareholder approval for the Directors’ Remuneration Policy.
i The Directors’ Remuneration Policy can be found on pages 87 to 95 (inclusive) of the Annual Report and Financial Statements
Directors’ Remuneration report
Resolution 10
This Resolution seeks shareholder approval for the Directors’ Remuneration report.
i The Directors’ Remuneration report can be found on pages 84 to 104 (inclusive) of the Annual Report and Financial Statements
In accordance with regulations which came into force on 1 October 2013, Resolution 10 offers shareholders an advisory vote on the Directors’
Remuneration report.
66
Xaar plc – Annual Report and Financial Statements 2022
Governance
Power to issue securities
Resolutions 11, 12 and 13
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 11, 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 £2,614,874 (corresponding to
approximately one third of the issued share capital at 28 March 2023) and up to an additional aggregate nominal value of £5,229,749 (corresponding to
approximately two thirds of the issued share capital at 28 March 2023) 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 12 and 13
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.
Resolutions 12 and 13 seek authority from shareholders in line with the Pre-Emption Group’s Statement of Principles (as updated in March 2015 (the
‘2015 Statement of Principles’), and the template resolutions published by the Pre-Emption Group in May 2016.
The Board notes that the Pre-Emption Group published a revised statement of principles and template resolutions for the disapplication of pre-
emption rights in November 2022, which include increased thresholds in relation to the disapplication of pre-emption rights. At this time, the Board
considers it appropriate to follow the 2015 Statement of Principles but will continue to keep this under review.
Under Resolution 12, 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 £5,229,749 (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 £392,231 (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 13, 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 £392,231 (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 2015 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 12 and 13 are passed, the authorities will expire at the conclusion of the next Annual General Meeting of the Company, or, if earlier, the
date which is 15 months after the date of passing of the Resolutions. It is the Board’s current intention to seek renewal of such authorities at each
future Annual General Meeting of the Company.
Authority to purchase own shares
Resolution 14
It is proposed by Resolution 14, 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 10% 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 27 March 2023 (including options awarded under
LTIP which may be satisfied by subscription for new shares), was 4,763,782. This represents 6.7% 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 2022 would represent 6.1% of the reduced issued ordinary
share capital.
Xaar plc – Annual Report and Financial Statements 2022
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Directors’ report continued
Articles of Association
Resolution 15
It is proposed by Resolution 15, by Special Resolution, to adopt new articles of association. Further details of the proposed changes to the Articles of
Association are set out on page 174.
i Further details on the proposed changes to the Company’s articles of association are set out in the Notice of Annual General Meeting on
pages 170 to 174
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.
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 170 to 174.
i The notice of the Annual General Meeting is on pages 170 to 174
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 170 to 174 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.
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.
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.
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Governance
Significant interests
i Directors’ interests in the share capital of the Company are shown in the table on page 99
i Major interests (i.e. those greater than 3%) of which the Company has been notified are shown on page 66
Company share schemes
The Xaar plc ESOP Trust holds 0.9% (2021: 0.9%) 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 16 to 25 and business performance on pages 26 to 28
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 16 to 25. Notes 21 and 22 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.
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 2022 of £8.5 million. As set out in note 22, the Group has a £5 million invoice discounting
facility, of which £0.4 million was drawn as at the balance sheet date.
The Group has prepared and reviewed monthly profit and cash flow forecasts which cover a period up to 30 June 2024, the going concern period. This
base case forecast position has been compiled by considering the performance of the different businesses across the Group and each of their funding
requirements which represents the current Board approved forecasts. These forecasts reflect existing technologies and products, existing OEM
adoption, the committed order pipeline, an increasing customer install base and demand for consumables such as fluids across the customer base
and no specific risks around creditworthiness. This creates a high degree of predictability within the short-term cash flows, which have been factored
into the level of sensitivity testing and reverse stress testing performed below. As set out in note 6, there is no concentration of revenues from an
individual customer. The operational steps described in the Strategic Report also provide increased predictability over future margins, which have been
incorporated in this base case forecast. Using this base case, liquidity compliance has been assessed across the going concern period and is sufficient
to enable the Group to settle its obligations as they fall due.
To support the going concern conclusion, a sensitivity analysis has been performed which models a 10% reduction in revenue and 2% reduction in
gross margin in comparison to the base case and is below the reported FY22 actual result. The outcome of this sensitivity analysis is that the Group
maintains liquidity across the going concern period and is able to meet all forecasted obligations as they fall due. A reverse stress scenario has also
been performed to model the circumstances required to eliminate available liquidity during the going concern period. This includes reducing revenues
and reducing gross margin. This reverse stress scenario requires a reduction in revenue in excess of 25% in comparison to the base case and is below
the reported FY22 actual result, as is the assumed margin. The Directors believe the possibility of this combination of severe downsides arising to be
remote given the recurring revenue base and predictability of forecasts, and that there are numerous controllable mitigating actions such as deferring
non-committed capital expenditure and reducing performance related pay which could be taken to avoid a liquidity breach.
Should extreme downside scenarios occur, the Group has further options within their control to mitigate a cash shortfall which have not been factored
into the above forecasts and stress testing, such as staffing reductions, further delaying/stopping capital and research and development expenditure
and aligning performance related pay to actual results. The Group has also received credit pre-approval for a £5 million revolving credit facility. No
drawdowns have been assumed during the going concern period, nor are they required in the sensitivity or reverse stress scenarios described above
and as such the facility would provide additional liquidity headroom to the Group across the going concern period.
Based on the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
period to 30 June 2024. For this reason, we continue to adopt the going concern basis in preparing the financial statements.
Xaar plc – Annual Report and Financial Statements 2022
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69
Directors’ report continued
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 thorough strategic planning of all four 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 strategic review on pages 16 to 28
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 48 to 57
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 ensures that the Company
manages the risks it faces appropriately and that these are considered in all 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 those of our
customers and the probability this could lead to technological advancements that disrupt the markets that Xaar operates in.
The Board has considered plausible principal risks and the financial impacts that these could have over a three-year period were conservatively
assumed in the Group’s mid-term planning exercise. The principal risks considered were: 5. Coronavirus (COVID-19), 9. Supply chain and 10. War
in Ukraine and world economy and the further potential impacts of these were used to model a ‘severe but plausible’ scenario. The outcome of this
scenario is an 8.4% reduction in revenue over the three-year period.
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 2025.
Auditor
Ernst & Young LLP were re-appointed in 2022 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 pages 63
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
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 March 2023 and is signed on its behalf by:
John Mills
Chief Executive Officer
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Section 172 statement
The Companies Act 2006 (the ‘Act’), as amended by the Companies (Miscellaneous Reporting)
Regulations 2018, requires companies to include a ‘Section 172(1) Statement’ in the Strategic
Report describing how directors have had regard to the matters set out in Section 172 (1) (a)
to (f) of the Act when performing their duties.
Section 172 of the Act requires directors of a company to act in a way they consider, in good faith, would be 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:
1.
2.
Likely consequences of any decision in the long term,
Interests of the company’s employees,
3. Need to foster the company’s business relationships with suppliers, customers and others,
4.
Impact of the company’s operations on the community and the environment,
5. Desirability of the company maintaining a reputation for high standards of business conduct, and
6. Need to act fairly as between members of the company.
The Directors’ duties under Section 172 are embedded in all of the decisions that the Board and its Committees make, together with a range of other
factors, including alignment with our strategy and our values. Accordingly, information on how s.172 matters have been considered during the year are
detailed throughout this Annual Report.
The Board understands the importance of effectively engaging with the Company’s key stakeholders, in order to better understand their views and
interests, and the potential impact of the Directors’ decisions on them.
The Board is aware that the interests of stakeholders may not always align with each other and that it may not always be possible to provide a positive
outcome for all stakeholders from a given decision.
The Board strives to follow best corporate governance practice and has a governance framework in place that allows it to make reasoned and informed
decisions. Further information on how the Board and its Committees operate can be found in the Corporate Governance statement on pages 73 to 78
of this Annual Report.
The identification and assessment of risk is an integral part of the Board’s decision making process, particularly when it comes to considering the
longer-term consequences and the sustainability of the Company’s business model and strategy. The Group maintains a risk register, which the senior
leadership team maintain, which is presented to the Board on an annual basis.
i More details of our approach to risk management are set out on pages 48 to 57
Stakeholder engagement
The Directors have ongoing engagement with all of our key stakeholders:
• our Investors
• our People
• our Communities
• 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 the stakeholders themselves.
Shareholders
All Board decisions are made to promote the long-term success of the Group for the benefit of our shareholders.
We maintain strong relationships with shareholders, ensuring they understand our strategy, the progress and performance against key milestones
and that we understand how they view our business. We engage with our shareholders through Investor Roadshows and webinar presentations led
by the Chief Executive Officer and Chief Financial Officer, in addition to written communication from and meetings as required with the Chairman,
Committee Chairs and Executive Directors.
The Group’s brokers provide independent feedback to the Board on shareholder opinions and their views on our meetings with investors. Regular
trading updates are provided as well as the Annual Report and Interim Report.
Information provided at analysts’ meetings and financial press releases are made available on the Group’s website. We engage with investors to gain
and maintain support for our strategy, and feedback received has informed the Board’s discussions and decisions on Group strategy.
i More details of our engagement with our shareholders and the results of those engagements are set out in the Corporate Governance
statement on page 74 and Directors’ Remuneration report on page 86
Xaar plc – Annual Report and Financial Statements 2022
Governance
71
Section 172 statement continued
Employees
Our people are a highly skilled, technical, and valued workforce. They are essential to the Group’s ability to stay ahead in a fast-moving world.
Our people play a crucial role in helping us pursue our strategic goals and are core to the success of the business. We engage and support them
to achieve their full potential. There are regular internal communications from the management team and feedback from employee working and
representative groups, such as the Sustainability team, Exec Exchange and Meet the NEDs. Regular engagement with employees improves open
dialogue channels, collaboration, visibility of achievements and progress across the business, as well as transparency.
i The health and safety of our employees is of the highest importance to us. More details of our engagement with our employees
and the results of those engagements are set out in Sustainability and responsible business on page 35 and the Directors’ Remuneration
report on page 86
Community
As a Group, we have a wide-reaching indirect impact on the communities and environments we interact with and are committed to making sure that
this impact is as positive as possible.
Xaar is a responsible citizen within our communities, offering local recruitment, supporting educational institutions and the local economy. Xaar offers
a range of employment opportunities for apprentices and we work closely with educational establishments. We look to minimise our impact on the
environment. We are investing to reduce greenhouse gas emissions and have transferred electrical supply over to 100% renewable source, invested in
electric vehicle charges and installed LED lighting.
i More details of our engagement with our communities and the results of those engagements are set out in Sustainability and responsible
business on page 40
Customers
Our customers depend on us to supply high quality products in a timely manner. We also support them in the development of their next generation
products. They expect us to operate in a responsible manner maintaining the highest standard of business ethics.
The Board is regularly updated on the timeliness and quality of product deliveries to our customers as well as developments with targeted customers,
new customer wins and a sales pipeline, including how the product roadmap aligns. Our sales and engineering teams engage with our customers and
solicit feedback which is used to inform our technology roadmaps.
The key account management structure across the business encourages meaningful, consistent and ongoing engagement with OEM and UDI
customers. There are regular exchanges with our customers on their new programmes especially through engineer to engineer interactions so that
we can better understand their emerging needs.
We worked hard to ensure our factories could continue to operate and supply our customers even at the height of the pandemic.
We invested £6.7 million in R&D during 2023, focusing on those areas where we see the opportunity to support our customers’ next generation product
developments.
i More details of our engagement with our customers and the results of those engagements are set out in our business model on pages 8 to 9
and individual business unit updates on pages 20 to 25
Suppliers
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.
The supply of goods and services to our operations is critical to our overall success. We regularly review the performance of our suppliers and work
with them to implement improvement programmes.
The Group has established a comprehensive set of policies covering the areas of business ethics. We require our suppliers to operate to the same
high standards and these are set out in our Supplier Code of Conduct which they are required to adhere to. Thus ensuring high standards throughout
our Tier 1 supply chain, by measuring and auditing our key suppliers against specific criteria, including human rights (human trafficking, anti-slavery,
prohibition of child labour) and conflict minerals policies.
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Governance
Corporate Governance statement
The Board’s primary objective remains 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 as set out in the Financial Reporting Council
(FRC) 2018 UK Corporate Governance Code (‘the Code’).
The 2018 UK Corporate Governance Code is a set of principles and provisions that emphasise
the value of good corporate governance to long-term sustainable success and achievement
of wider objectives. The Code can be found on the FRC’s website at www.frc.org.uk.
Application of the main principles of the Code
The Board has considered and implemented the provisions of the Code effective 1 January 2019.
We are pleased to confirm that throughout the year ended 31 December 2022, the Company has followed the principles and provisions of the UK
Corporate Governance Code 2018, 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 governance report gives:
• Disclosure of Board discussions and the resulting actions
• A clear and honest view of progress throughout the year
• The outcome of our Board evaluation
• Our approach to ensuring long-term viability of the business
• Our approach to risk and mitigation.
Statement of compliance with the Code
Throughout the year ended 31 December 2022 the Company has followed the provisions set out in the Code and has either complied with the
provisions of the Code or explained why the provision has not been followed, as outlined below. The FRC expects companies to provide a clear and
meaningful explanation for any departures from the Code. This report on the Company’s compliance with and application of the Code has been
approved by the Board and includes this Statement, the Directors’ report on pages 64 to 70, the report of the Audit Committee (see pages 79 to 81), the
Nomination Committee report (see pages 82 to 83) and the Directors’ Remuneration report set out on pages 84 to 104.
A copy of the Code can be found on the FRC website at www.frc.org.uk.
Provision 36: The current policy on post-employment shareholdings does not comply fully with the Code, as it does not include a minimum two-year
post-employment holding. This is partially mitigated through applying the leaver provisions under the Company’s share plans. A post-employment
shareholding for future LTIP grants from 2023 onwards will be introduced as part of the new Remuneration Policy. Details are set out on pages 94 to 95.
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, Culture and Company Purpose
The Board is responsible for leading the Group, focusing primarily upon strategic and policy issues, and is responsible for ensuring the
long-term sustainable success of the Group. It is responsible for effective risk assessment and management. In performance of these duties,
the Board has regard to the interests of the Group’s key stakeholders, generating value for the shareholders and contributing to the benefit
of wider society.
In order to achieve this the Board has established a clear vision: “A world where you can print anything you can imagine”, with our mission being
“we help companies and industries be more colourful, creative and productive through our world-class technology and printheads”.
The Board has updated the core values which shape our culture and contribute to our success, which are EPIICC:
• We do Everything with Passion
• We are Innovative
• We have Integrity
• We are Creative
• We are Collaborative.
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 receives regular updates on the work being
undertaken by the senior management team to align the operations and policies of the Group with its culture and values. Other than their normal
attendance and participation in discussions at Board meetings, the Executive Directors are responsible for the day-to-day running of the Group
and the implementation of the agreed strategy.
i Refer to page 16 for the Strategy review and page 35 for Company values and culture
Xaar plc – Annual Report and Financial Statements 2022
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Corporate Governance statement continued
1. Board Leadership, Culture and Company Purpose continued
The Group has four main locations. The head office functions, R&D, marketing, human resources, legal and finance are based in Cambridge, UK.
The Group has four manufacturing facilities with offices: one in Huntingdon, UK, one in Hemel Hempstead, UK, one in Kettering, UK and the other
in Vermont, USA. The Group also has representatives in other global locations including Italy, Spain, China, Hong Kong, and Sweden.
i Refer to pages 8 to 9 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.
i Refer to page 71 for the s.172 disclosure
The key focus this year has been on returning the Group to profit while developing capability and opportunity to deliver future growth. It has been
a priority to maintain the progress made by the business in recent years during a period of macroeconomic uncertainty with inflationary pressures
in energy costs and continued challenges in the supply chain following the end of the pandemic. The Board has ensured there is a focus on our core
competence of the design and manufacture of world leading printheads. It has continued to ensure the financial position of the Company is secured
whilst also looking forward to the longer-term strategic options for the Group, including identifying potential further acquisitions that would bring
additional value and synergies. In particular, the main Board decisions during the year were:
• Continuing to invest in R&D and the product roadmap, with the launch of Aquinox in November 2022.
• Agreed the reorganisation of the factory in Huntingdon as part of the project to improve efficiency and reduce costs in manufacturing.
• Completed the acquisition of Megnajet, one of the leading designers and manufacturers of industrial ink management and supply systems for
digital inkjet, to accelerate Xaar’s growth strategy by creating a more integrated inkjet solution whereby customers can access more of the printing
ecosystem (such as ink supply systems and the electronics) from Xaar.
• Continued the strengthening of the Group’s senior management team with key appointments in operations, R&D, HR and Finance.
The Board worked closely with executive management to redefine the Group’s mission, vision and values which will underpin the Group’s evolving
culture under the executive leadership team. Further information is in the Directors’ Remuneration report on page 84 and Sustainable and responsible
business on page 30.
Engagement with shareholders
The Board and Directors seek to build on a mutual understanding of objectives between the Group and its institutional shareholders by providing the
opportunity to meet 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 84
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 2022, the majority of resolutions had less than 1% of votes cast against the
Board’s recommendation. The exception being Resolution 10 (the power to issue shares by the Directors) with 11.3% of votes cast against the Board’s
recommendation.
The Company engaged with shareholders both throughout the year and specifically in respect of resolutions where noteworthy votes were against the
Board’s recommendation, in order to better understand shareholders’ thoughts and align resolutions with the members’ views.
Feedback from brokers and financial PR
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.
Annual Report and Accounts
We review feedback from shareholders and other stakeholders and take this into consideration when drafting our Annual Report and Accounts. We
make our Annual Report and Accounts available on our website as soon as it is practicable following our final earnings release. Shareholders can
access up-to-date Company information, including video presentations, from the Investors section of the Xaar website at www.xaar.com.
Workforce engagement
The Board continued to hold employee engagement sessions which are held recurrently throughout the year with the three Non-Executive Directors
being responsible on behalf of the Board for workforce engagement. Topics discussed were wide ranging but focused mainly around the strategy and
direction of the business, acquisitions and divestments, sustainability, executive remuneration and alignment with the wider workforce, employee
training, opportunities for development, and the workings of the Board and governance, i.e. a total of six sessions in total.
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1. Board Leadership, Culture and Company Purpose continued
Conflict of interest and time commitment
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. There were deemed to be no such conflicts of interests in 2022.
The only change to Directors’ outside commitments during 2022 related to the appointment of Alison Littley as a non-executive director of Eurocell plc
on 1 July 2022.
Each Director devoted significant time to their Xaar Board responsibilities during 2022, with all Directors attending all Board meetings (see page 61).
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, 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 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 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 page 63 of the Annual Report with 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. 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 resigned as Company Secretary
on 22 October 2022 and Ian Tichias was appointed in her place on the same day. Ian Tichias resigned as Company Secretary with effect from
16 January 2023 and Julia Crane was appointed on the same day.
3. Composition, Succession and Evaluation
Board composition
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 maintained his independence, having departed Stratasys in 2015. All Non-Executive Directors complete a disclosure document
prior to appointment and submit an annual declaration.
Succession
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. When recruiting, search firms are appointed to secure a strong and diverse list of candidates.
The appointment of new Directors is led by the Nomination Committee. There were no changes to the Board during 2022.
The Committee has considered succession planning and the good progress made on building an executive management team and focusing on senior
management development during the past three years. In 2022, the Committee recommended that during 2023 the Board be broadened and that
the number of independent Non-Executive Directors be increased to four including the Chair. In making any future appointment the Nomination
Committee will consider both diversity and succession as a matter of course as it seeks to further equip the Board in its role of overseeing future
business growth and expansion.
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75
Corporate Governance statement continued
3. Composition, Succession and Evaluation continued
Diversity
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. The Company
does not apply any established measurable objectives in respect of diversity quotas (e.g. age, gender, ethnicity, disability, religion or educational and
professional background) but with reference to the Company’s Diversity Policy. More information on the Group’s gender profile is set out in the report
on Sustainable and responsible business on pages 35 to 36.
As the Company grows, the Board will keep under consideration the requirements of the Parker Review (2017) to improve the ethnic and cultural
diversity of UK boards to better reflect their employee base and communities they serve.
A Board Diversity Policy was adopted by the Directors, on the recommendation of the Nomination Committee. A copy of the policy is available on the
Company’s website.
Board evaluation
The Board conducted an internal review of the effectiveness of itself, with each Non-Executive Director, the Chairman and the Board Committees in
December 2022. A questionnaire was completed by the Directors which looked at all areas of the operation and management of the Board and its
Committees. The Chairman held discussions with each Director on the results of the evaluation. The outcome of the review was discussed by the
Nomination Committee and actions agreed by the Board. From the review and conclusions drawn, areas of improvement were identified as follows:
1.
To review the composition of the Board as part of the succession planning process specifically taking into account the skills and expertise
required as the business grows while also seeking to enhance the diversity and experience of Board members and ensure that the Remuneration
and Audit Committees are meeting the objectives of the business.
2.
To consider holding at least one Board meeting each year at a subsidiary location.
3. To increase the frequency of Board review to quarterly of the identification and management of risk across the Company.
4. To improve the evaluation and consideration of the longer-term implications of changes to strategy.
Areas of improvement identified in 2021 were addressed and actions taken and implemented during 2022 as follows:
2021 Recommendations
Action taken in 2022
Board membership diversity, skills and experience to be reviewed and an additional
NED appointment to be considered.
The Nomination Committee undertook a comprehensive
review of the composition of the Board during the year and
has commenced the process to appoint a new NED.
Improve the balance of time spent in Board meetings considering strategic as
compared to operational issues, allowing sufficient time for in depth discussion, debate
and challenge.
The Board agenda was revised in 2022 to allow more time
for discussion on strategic issues. A strategy session will
be held in 2023.
Further develop the approach to succession planning and talent management in the
business to create greater opportunity for progression and increased diversity among
the senior management and the Board.
The Nomination Committee reviewed the succession plan
for the senior management team during the year and
changes to the plan were approved.
i Further details of the activities of the Nomination Committee can be found on pages 82 to 83
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.
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 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 re-election at the 2022 AGM.
i The biographies of the Directors, set out on page 63, contain the evaluation of skills and experience beneficial to the Company so that the
Board recommends the re-election or election of each Director
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Governance
4. Audit and Risk and Internal Controls
i The role and responsibilities of the Audit Committee are set out in the Audit Committee section on pages 79 to 81
• The Audit Committee review of the effectiveness of the external audit is set out on page 81.
• The auditor Ernst and Young LLP were appointed following a tender process in July 2019, and provide no non-audit services; the Audit Committee
assessment of the auditor’s independence is disclosed on page 81.
i The Directors’ assessment of the Group’s internal control environment as required under the UK Corporate Governance Code is set out on
pages 80 to 81 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 establishing arrangements to ensure that we are 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 report on pages 79 to 80 and in note 3 to the accounts on pages 122 to 129
All of the Audit Committee members are independent Non-Executive Directors and have financial and/or related business experience due to the senior
positions they hold or have held in other listed or publicly traded companies and/or similar large organisations.
The Board has established arrangements to ensure that reports and other information published by the Group are fair, balanced and understandable.
The Strategic Report, set out on pages 1 to 59, 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.
Principal and emerging risks
As set out on page 48, the Board confirms that it has carried out a robust assessment of the principal and emerging risks facing the Company during
the year, including those that could threaten its values, reputation, business model, future performance, solvency or liquidity.
As a consequence of the risk assessment review:
• IT transformation risk, following the progress of the transformation programme, has been removed.
• The impact of the COVID-19 pandemic – Internal/Operations has been removed as a risk, following the lifting of the majority of the restrictions.
• The potential non-compliance with laws and regulations has been added as a new risk.
• Changes have been made to the impact of the risk from climate change.
• The risks from cyber security threats have been updated following improvements made in 2022.
• The impact of the war in Ukraine on the global economy has been added as a new risk.
i Descriptions of principal and emerging risks and how they are mitigated and any changes are set out on pages 52 to 57
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 49 to 51
The Board explains on pages 69 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 management 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. During 2022, the Remuneration Policy was reviewed ahead of being put to a shareholder vote
at the forthcoming AGM, and as part of this review we have considered and agreed how our ESG priorities should be reflected in the reward framework.
Further details are set out on page 84. The Remuneration Committee has not exercised any discretion in relation to remuneration outcomes in 2022.
i Details of the activities of the Remuneration Committee can be found in the Directors’ Remuneration report on pages 84 to 104.
• The alignment of executive remuneration with Company purposes and values is set out on page 87
• The award of long-term incentives and their performance conditions are set out on page 98
• How the Remuneration Committee addresses the principles set out in the UK Corporate Governance Code in respect of the Directors’
Remuneration Policy is set out on page 87
• The discretionary powers of the Remuneration Committee are on page 86
• The alignment of executive pensions with those of the workforce are on page 86
• Recovery and withdrawal provisions (malus/clawback), and the circumstances under which the provisions may apply, are on page 91.
Xaar plc – Annual Report and Financial Statements 2022
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Corporate Governance statement continued
Summary of Board meeting attendance in 2022
11 Board meetings were held in 2022, with two additional unscheduled meetings for specific items:
Name
Andrew Herbert
Alison Littley
Chris Morgan
John Mills
Ian Tichias
Board Committees
Summary of Committee membership:
Name
Andrew Herbert
Alison Littley
Chris Morgan
John Mills
Ian Tichias
Summary of Committee meeting member attendance in 2022:
Name
Andrew Herbert
Alison Littley
Chris Morgan
John Mills
Scheduled
Board meetings
Additional
meeting
11 (11)
11 (11)
11 (11)
11 (11)
11 (11)
2 (2)
2 (2)
2 (2)
2 (2)
2 (2)
Audit Committee
Remuneration
Committee
Nomination
Committee
No
Yes
Chair
No
No
Yes
Chair
Yes
No
No
Chair
Yes
Yes
Yes
No
Audit Committee1
Remuneration
Committee1
Nomination
Committee1
n/a
4 (4)
4 (4)
n/a
5 (5)
5 (5)
5 (5)
n/a
4 (4)
4 (4)
4 (4)
3 (3)
1 The Committees may invite Board Directors who are not Committee members to attend Committee meetings when the subject matter deems their presence appropriate.
2 John Mills stood down as a member of the Nomination Committee in November 2022.
Figures in brackets denote the maximum number of meetings that could have been attended.
Approval
The Board confirms the 2022 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.
The Corporate Governance statement, which incorporates the Directors’ Report, the Audit Committee report, the Nomination Committee report
and the Directors’ Remuneration report, was approved by the Board on 27 March 2023 and is signed on its behalf by:
John Mills
Chief Executive Officer
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Audit Committee
The Audit Committee (the ‘Committee’) is appointed by the Board from the Non-Executive
Directors of the Company. The Chair of the Committee is Chris Morgan.
Audit Committee composition and meetings
Chris Morgan’s 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, Audit Committee member, also brings a breadth of experience including executive
experience in complex, international business operations. Additional information on our skills and experience can be found in the Board biographies
set out on page 63.
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 78. Please see the tables on page 78 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 Ruth Logan 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 whistleblowing, 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.
The Committee shall review its terms of reference annually and may recommend to the Board any amendments. The Committee’s terms of reference
include all matters indicated by Disclosure and Transparency Rule 7.1 and the 2018 UK Corporate Governance Code. The terms of reference of the
Committee are available on written request from the Company Secretary.
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:
• Megnajet acquisition
• Impairment of goodwill, intangible assets and PPE
• Alternative performance measures.
Key areas of management judgement
The Committee has reviewed, discussed with and challenged management in respect of the approaches taken for the following areas of key accounting
judgement and estimation:
Accounting judgements
Capitalisation of development costs – note 16
The Group capitalises development expenditure as an intangible asset where the criteria under IAS 38 Intangible Assets are 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 the current year, £1.7 million of external development costs were capitalised after the initial research phase, which were incurred in 2021
and expensed in the income statement, the feasibility of the project was established and the development work commended. No internal development
costs have been capitalised since most of internal labour was minor administration with clearly trivial time incurred. There were no capitalised
development costs for the prior year.
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Audit Committee continued
Key areas of management judgement continued
Accounting judgements continued
Revenue recognition – note 5
EPS and FFEI recognise revenue on the stage of completion for some of the customer contract and performance obligations in the manufacture
of bespoke machinery and equipment as well as some of the research and development services 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 is subject to a level of uncertainty until the work in progress is finalised and the completed machinery and services
are available for final delivery and acceptance by the customer. The transaction price allocated to partially satisfied and unsatisfied obligations at
31 December 2022 is set out in note 5.
Estimation uncertainty
Contingent consideration – notes 11 and 22
In November 2021, Stratasys Solutions Limited acquired the remaining 55% of Xaar 3D Limited for an initial consideration of US$13.5 million or £9.9
million in cash and a milestone consideration and 3% earn-out consideration which are contingent on the achievement of certain milestones in respect
of the future revenue stream of Xaar 3D and should be estimated using a statistical simulation model. This contingent consideration is measured
at fair value using a Monte Carlo Simulation model and the use of a recognised third party. The Monte Carlo Simulation model uses a number of
inputs that require estimation. The key ones are the risk-adjusted discount rate and revenue volatility. The milestone consideration and 3% earn-out
consideration are calculated based on the terms of the proposed transaction and by reference to simulated revenue. This is then discounted back to
the valuation date using a discount rate over a period commensurate with the year in which payments are payable.The Group considers this model
to be appropriate, given the complex conditions associated with the milestone consideration and 3% earn-out consideration. A sensitivity analysis is
provided in note 22.
Acquisition of Megnajet Ltd and Technomation Ltd – note 36
There is a high level of judgement surrounding the valuation of goodwill and acquired intangibles for any material acquisitions and this applies to the
acquisition of Megnajet and Technomation in the year. An additional judgement was required around the classification of Technomation as an asset
purchase rather than a business purchase and was concluded as such as a result of the applied concentration test under IFRS 3:B7(A)a.Management
involved a third party valuation expert to estimate the value of the acquired intangibles and goodwill to ensure the judgements are appropriately
considered.
Impairment of goodwill and intangibles (estimation uncertainty) – notes 15 and 16
The Group tests goodwill and intangibles annually for impairment or more frequently if there are indications that goodwill might be impaired. Having
performed appropriate testing, no impairment has been identified and therefore no impairment loss has been recognised in 2022 (2021: £nil).
Management has performed sensitivity analysis on its reasonably worst case scenario for EPS, FFEI and Megnajet and it has been completed on each
key assumption in isolation. Reasonably possible change sensitivities are included in note 15.
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 121 and 122
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 and supporting assessments
• Reviewed reports from the external auditor on their work and findings
• Reviewed the effectiveness of the Group’s internal control environment.
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 52 to
57), 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
systems which mitigate potential impacts on shareholder investments and the Company’s assets. The Corporate Risk Register is reviewed and
challenged bi-annually by the Audit Committee.
The Committee having performed the annual review of the Group’s internal control processes considers the systems 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. In order to support the
growth of the business and the implementation of Company strategies, the Committee recognises the need to continue to review the adequacy and
effectiveness of our control framework.
The Committee undertakes this evaluation having:
• 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 Whistleblowing policies
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Governance
Key activities continued
Internal controls and compliance continued
• The Committee considered the revised internal audit plan which was reviewed and amended during the year. A separate risk, control and audit
function has been established headed by the Director of Risk, Control and Audit to oversee the planning and implementation of the Group’s internal
audit programme. Measures were put in place to co-source the internal audit function with an external specialist to undertake timely internal audits
for all the controls which had been formalised and implemented.
Additional attention was given to EPS considering deficiencies identified in past. Due to their prior engagement and accumulated knowledge, RSM was
hired to assist the Director of Risk, Controls & Audit with the identification of key controls and gaps for main business cycles within EPS. Whilst full
implementation and formalisation of the controls framework is still in progress, all significant deficiencies identified have been addressed.
In addition to the controls work described above, 2022 was the first full year when the new leadership of EPS was present. The finance department
of EPS has been supported and peer-reviewed by the Group finance team throughout the year and all discrepancies between Group policies and EPS
policies have been identified and brought into alignment. Management has also closely worked with EY, Group auditors, to ensure all findings from
the 2021 audit have been addressed. The improvements have been evidenced and acknowledged by the Group auditors as part of their planning and
interim procedures. In summary, we believe that all significant deficiencies have been addressed at EPS while still acknowledging continuing work is
required to formalise the wider controls framework.
In line with the provisions of the UK Corporate Governance Code 2018, the Committee monitors and reviews the effectiveness of the Company’s
internal audit function or, where there is not one during a period, considers annually whether there is a need for one. The Committee considered the
revised internal audit plan which was reviewed and amended during the year. Measures were put in place to co-source the internal audit function for
2023 with an external specialist to undertake timely internal audits for all the controls which have been formalised and implemented.
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 pages 69 and 70.
External audit
• The Audit Committee provided a forum for reporting and discussion with the Group’s external auditor in respect of the Group’s 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 19 December 2022
• The Committee agreed the fees to be paid to the external auditor relating to their services rendered for the annual audit
• 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.
External auditor
This was the third year for Ernst & Young LLP (EY) as the Company’s auditor having first been appointed in July 2019 after a competitive tender. Ruth
Logan was appointed as the senior statutory auditor during the year. 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, may 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 2 to the consolidated financial statements includes disclosure of the auditor’s remuneration during 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 2022, 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 2022 results and reported on in next year’s Annual Report.
Review of the Audit 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.
Chris Morgan
Chair of the Audit Committee
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81
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 Committee met four times during 2022. 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 on the request of any member of the Committee. Please see the tables on page 78 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 the 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 consider relevant skills, experience, knowledge and ability without gender or ethnicity bias. Succession planning is
performed and all appointments are made on merit and suitability against objective selection criteria with due consideration of, amongst other
things, the benefits of diversity, including gender and ethnicity. Details of the workforce split by gender are set out on page 35.
The Board approved a Diversity Policy in respect of its membership in February 2023. It 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 four years have demonstrated our inclusive approach, which
the Nomination Committee expects to maintain for any and all future appointments.
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 35 and 36.
Key issues and activities
In 2021 and further to implementation of a new strategy and the good progress made on building an executive management team, the Nomination
Committee recommended that the Board be strengthened and that the number of independent Non-Executive Directors be increased to four
including the Chair. The process of recruitment was commenced during 2022 but, in support of other cost actions taken elsewhere in the business,
the Committee took the decision to defer recruitment to the first quarter of 2023. This action is now in hand as the Board develops succession plans.
In making any future appointment the Nomination Committee will consider both diversity and skills mix as a matter of course as we seek to further
equip the Board in its role of overseeing future business growth and expansion.
The Committee has considered organisational development and succession planning, Board diversity, and, in association with the Remuneration
Committee, has worked alongside executive management in reviewing senior management development.
The Committee has facilitated the review of the annual performance evaluations of the Board and its Committees. For further information with
regards to the evaluation, see the Corporate Governance statement. As the Company is not a member of the FTSE 350, it is not required by the 2018
UK Corporate Governance Code to have regular externally facilitated Board evaluations, however the Committee will consider the use of an external
evaluator for future annual performance evaluations.
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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.
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 63. 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
27 March 2023
Xaar plc – Annual Report and Financial Statements 2022
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83
Directors’ Remuneration report
Statement from the Chairman of the Remuneration Committee
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’ Remuneration report for 2022, which explains the work of the Committee, how we
implemented our Remuneration Policy in 2022, our approach to our new Remuneration Policy, and how we propose to implement our Remuneration
Policy in 2023.
Following my statement, there are two sections to this Directors’ Remuneration report.
• Our proposed new Directors’ Remuneration Policy, for which shareholder approval will be sought at the 2023 AGM. Our current Directors’
Remuneration Policy was approved at the 2020 AGM and in line with the usual timetable shareholders will be asked to approve a new policy at the
forthcoming AGM.
• The Annual Report on Remuneration sets out how we implemented in 2022 the Directors’ Remuneration Policy which was approved at the 2020
AGM. The Annual Report on Remuneration will be the subject of an advisory shareholder vote at the 2023 AGM.
Remuneration in the context of our business performance and our approach to wider workforce
remuneration
During the year we have continued to ensure our approach to remuneration is aligned to our strategy and supports the delivery of long-term
sustainable performance, to benefit all stakeholders.
Under the leadership of the CEO and CFO, we are making strong progress on our journey to transform the Group, in line with our growth strategy of
exploiting the fundamental strength of our bulk piezo inkjet technology. The business is re-energised following a restructuring, rebranding and a new
business model, all of which are now delivering results.
We have continued to deliver a strong performance, which despite challenging market conditions, demonstrates the success of our strategy and
underlying strength of the business. By way of context, our strong performance includes the following:
• the continued successful implementation of the new strategy with the expansion of a new commercial model and our technological offering to better
serve our target markets delivering growth
• Delivery of a solid performance in the year with strong revenue growth, improved margin and a return to profitability
• The mitigation of external challenges including supply chain issues and inflationary pressures
• The successful launch of new products including Aquinox which has demonstrated great interest from customers
• Significant investment in the Company’s infrastructure and manufacturing base to drive operational efficiencies and reduce energy costs
• As part of our continued commitment to sustainability, the launch of the Sustainability Roadmap to 2030
• The acquisition and integration into the Group of the Megnajet businesses
• For 2023, we have implemented a tiered pay increase from 1 January 2023 for UK employees ranging from an 8% base salary increase for the most
junior employees cascading to 3% for the senior employees
• This ensures that our UK starting base salary rate for production operatives will be above the new National Living Wage which is effective April 2023
• We made a £500 cost of living payment paid in January to all employees (excluding executive team members)
• We have retained an additional budget to address any further inflationary pressures and any further in year increases excluding new and
replacement roles and previously agreed promotions.
This performance is a testament to the proactive management and leadership of our CEO, CFO and Board and the commitment of all our people.
The above represents a combined overall budgeted increase for 2023 of circa. 7% (of which 5.39% denotes the UK base salary increase effective
1 January 2023 and £500 cost of living payment). We believe this to be the most equitable and sustainable approach to supporting our team through the
current period. As a responsible business, we continue to support our people with the challenges they’re facing as a result of the cost-of-living crisis.
Annual bonus and LTIP outturns for the year ended 31 December 2022
2022 Annual bonus
For the financial year ended 31 December 2022, 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 (70%) and cash flow
improvement (30%).
Reflecting the strong business performance the annual bonus outcomes for the CEO and CFO were 39.51% of maximum (49% of salary and 40% of
salary respectively). Full details of the targets and performance achieved can be found on page 97. In line with our Remuneration Policy, 30% of the
bonus earned will be deferred in shares and subject to a two-year deferral period, with the balance delivered in cash.
Long-Term Incentive Plan (LTIP) awards vesting in respect of 2022
The following awards granted to the CEO and CFO vest in respect of performance periods ending in the 2022 financial year. These awards are therefore
included in the single figure of remuneration details on page 96.
• When the CEO, John Mills, joined the business in 2019, he was granted an LTIP award over 180,328 shares on 3 October 2019. This was a joining
award made at the first opportunity following his start date in August, having joined the Board on 26 September 2019. This award was based 50%
on adjusted basic EPS for the year ended 31 December 2022 and 50% based on Company’s total shareholder return (TSR) relative to the total
shareholder return of the companies constituting the FTSE Small Cap Index over the performance period October 2019 to October 2022. Adjusted
EPS for the year ended 31 December 2022 was 4.8p therefore this element of the award vested at 97%. Xaar’s relative TSR over the performance
period was above upper quartile therefore the TSR element vested in full. One third of the vested award can be exercised immediately with one
third exercisable from 3 October 2023 and one third from 3 October 2024.
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Governance
Annual bonus and LTIP outturns for the year ended 31 December 2022 continued
Long-Term Incentive Plan (LTIP) awards vesting in respect of 2022 continued
• Ian Tichias joined the Group as CFO on 1 March 2020. As detailed in the 2020 Remuneration report, he was granted an LTIP award over 50,000
shares on 29 April 2020 to compensate for options forfeited when he left his previous employer. This award was subject to the Company achieving
a positive adjusted profit before tax for the year ended 31 December 2022. Adjusted profit before tax for the year ended 31 December 2022 was
£2,822,000 therefore this award vested in full. The award can be exercised in full from 29 April 2023.
• As detailed in the 2020 Remuneration report, John Mills and Ian Tichias were also granted 2020 LTIP awards over a fixed number of shares: 365,000
shares and 170,000 shares respectively on 4 June 2020. The 2020 LTIP grants were based 60% on Adjusted EPS for the year ending 31 December
2022 and 40% on relative TSR performance against the companies in the FTSE SmallCap Index measured over the three-year performance period
to 31 December 2022. The maximum EPS target was exceeded and Xaar’s relative TSR over the performance period was above upper quartile
therefore these awards vested in full. In line with the UK Corporate Governance Code, there is a further two-year holding period following the end of
the performance period therefore vested awards cannot be exercised until 4 June 2025.
When considering the outturns the Committee has taken a holistic view, including in relation to the employee and wider stakeholder experience, in
addition to performance relative to the targets and objectives set. The Committee believes that the outcomes are an appropriate reflection of wider
performance and the Committee has not exercised any discretion in relation to remuneration outcomes.
LTIP awards granted in 2022
The 2022 LTIP awards were granted at 150% of base salary for the CEO and 100% of salary for the CFO. 2022 LTIP awards are 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 2024. Full details of
the targets are set out on page 97. Each award will be subject to a further two-year holding period following the end of the performance period.
Directors’ Remuneration Policy
The Committee conducted a thorough review during the year of the Directors’ Remuneration Policy which was last approved by shareholders in 2020
with over 99% of votes in favour. As part of the review of the Policy, we consulted with our major shareholders and voting agencies, having regard to
feedback received when finalising our proposals. The Committee concluded that the Policy approved by shareholders in 2020 remains largely fit for
purpose, supports the strategy of the Group and is aligned with stakeholder interests, and takes into account the requirements of the 2018 Code as far
as they relate to remuneration. Therefore, the new Policy only introduces minor changes to the Policy approved in 2020, which are proposed so that the
new Policy has sufficient flexibility for the next three-year lifecycle. The full new Policy is set out on pages 85 to 91. The principal changes compared to
the Policy approved in 2020 are as follows.
Post-employment shareholding requirement New policy
Rationale
Maximum annual bonus
• 125% of salary for the CEO
• 100% of salary for any other Executive Director
No change for the CEO.
Maximum annual bonus opportunity for any other
Executive Director is increased to 110% of salary.
Maximum LTIP
• CEO – 365,000 shares (150% of salary maximum)
• Any other Executive Director – 170,000 shares
(100% of salary maximum).
The fixed share limits are removed.
There is no change to the 150% of salary
maximum for the CEO.
The maximum for any other Executive Director
is increased to 125% of salary.
Policy approved in 2020
Under the current Policy, our approach to post-
employment shareholding requirements is to apply
the ‘leaver’ provisions in our share plans.
For the first year after cessation, Executive
Directors must retain such of their relevant
shares as have a value equal to 200% of salary,
reducing to 100% of salary in the second year.
Relevant shares are those acquired from LTIP and
deferred bonus awards granted from 1 January
2023 onwards. The ‘leaver’ provisions will continue
to apply to vested and unvested awards.
Implementation of the Policy in 2023
A summary of our approach to pay increases for the wider workforce for 2023 is set out above.
The current incentive opportunities for the
Chief Financial Officer (CFO) are positioned at
the lower end of the market when compared
to the FTSE SmallCap. Given the CFO’s role
in supporting the strong performance of
the business, the Committee considers it
appropriate to introduce this headroom in
the new Policy.
For 2023, the additional headroom in the
Policy will not be used such that the CFO’s
maximum annual bonus and LTIP award
will each be at the level of 100% of salary.
The flexibility introduced with the headroom
will enable the Committee to grant higher
maximum incentive opportunities if strong
business and personal performance continues
over the three-year life of the new Policy.
We have enhanced the approach having
regard to developing market practice. We
consider that this ‘tapered’ approach is a
fair balance taking into account the size of
the business and the size of LTIP awards
that are granted.
In last year’s report we set out our proposed approach to the Executive Directors’ salaries with effect from 1 January 2023, being the second part of
a phased two-stage approach to their salary increases. The Committee considered those originally proposed increases in the context of the strong
performance of the Company and the Executive Directors as well as the actions being taken to support the wider workforce, as referred to above.
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Directors’ Remuneration report continued
Implementation of the Policy in 2023 continued
The Committee believes that it is appropriate to recognise our continued strong performance and ambitions in the future, including our return to
sustained profitable growth, by implementing the increases as proposed. Therefore, in line with that proposal, the base salaries for the CEO and CFO
have been increased as set out below with effect from 1 January 2023. The increases move the CEO and CFO’s base salaries towards the mid-point of
the market competitive range.
CEO – John Mills
CFO – Ian Tichias
Salary effective from 1 January 2022
Salary effective from 1 January 2023
£360,000
£240,000
£390,000
£260,000
No other changes are proposed to the Executive Directors’ package for 2023.
• Pension/cash in lieu – in line with wider workforce (currently 6% of salary)
• Maximum annual bonus for 2023 is 125% of salary for the CEO and 100% for the CFO. 50% of the maximum bonus can be earned for on-target
performance. 30% of any bonus will be deferred in shares and subject to a two-year deferral period. The balance is delivered in cash. Further
information in relation to the performance measures is set out on page 97
• Long-term incentive maximum 150% of salary for the CEO and 100% of salary for the CFO. LTIP awards vest after three years subject to the
achievement of appropriately stretching performance conditions. A further two-year holding period applies in line with the UK Code. Further
information in relation to the performance measures is set out on page 97
• The Committee retains discretion to override formulaic outcomes if these do not reflect underlying Company performance or other circumstances
as determined by the Committee. As part of this assessment the Committee will take into account progress against Xaar’s Sustainability Roadmap
that will push Xaar towards its Net Zero by 2030 goal and our wider ESG commitments.
Looking ahead – key focus areas for the Committee for 2023
During the course of 2023 we will concentrate on the implementation of the new Remuneration Policy and we will consider the extent to which we
should enhance the focus on ESG targets in the reward framework.
Board Chair and Non-Executive Directors
Board Chair
In last year’s Directors’ Remuneration report, we explained that the Board Chair’s fee was reduced to £90,000 with effect from 1 January 2020,
reflecting the smaller scale and profitability of the business at that time. As we explained last year, we were mindful that the strong performance
delivered has required a significant time commitment and contribution from the whole Board and that the successful turnaround of the business
has been achieved with a very effective, albeit smaller, Board. Therefore, and as set out last year, consistent with the approach being adopted for the
Executive Directors, and reflecting both the time commitment and contribution of the Chairman, the Committee agreed to increase the Chairman’s
fee on a phased basis. The first stage of the increase to £120,000 took effect from 1 January 2022. We explained last year that subject to the continued
performance of the Company, including a return to sustained profitable growth, the second stage of the increase to £130,000 would apply with effect
from 1 January 2023. The Committee has confirmed this increase will apply.
Non-Executive Directors
Under delegated authority from the Board, the Executive Directors and the Chair have reviewed fees for the other Non-Executive Directors. The
outcome was that the base fee of £47,500 for the Non-Executive Directors’ fees is broadly market competitive (positioned around the mid-point). The
base fee will be increased by 3%, in line with the lowest rate of increase for the wider workforce for 2023, to £48,925. The additional fee in respect of
acting as a Committee Chair or Senior Independent Director will not be increased, remaining at £7,500 and £3,000 respectively.
Employee engagement
As explained in the Annual Report last year, our workforce engagement sessions are held at least three times a year. These include regular business
forums with Non-Executive Directors and senior management update calls to all employees. These have provided an upward channel for views,
comments and debate, as well as an opportunity to provide positive feedback on the Group’s focus on the wellbeing and health and safety of our
employees. The Committee also took into account the pay policies across the Group and themes from our workforce engagement activities as part of
the development of the new Remuneration Policy.
Shareholder engagement
The Committee consulted with major shareholders and the main proxy voting advisory agencies to outline the proposed changes to the Remuneration
Policy and our remuneration proposals for 2023 and invited their feedback. Our major shareholders who provided feedback were very supportive of the
proposals and welcomed the Committee’s explanation of our approach to supporting our people with the challenges they are facing as a result of the
cost-of-living crisis.
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 2002 was appropriate, taking into
account Group and personal performance and the experience of shareholders and employees. On behalf of the Board, I would like to thank you, our
shareholders, for your engagement, and I hope that we will continue to receive your support at the forthcoming AGM on 31 May 2023.
Alison Littley
Chairman of the Remuneration Committee
27 March 2023
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Directors’ Remuneration Policy
Our approach to the new Directors’ Remuneration Policy
Introduction
The proposed new Directors’ Remuneration Policy is set out below. In the statement from the Committee Chair on pages 102 to 103, the approach to
the determination of the new Policy is addressed, along with a summary of the principal changes compared to the Policy approved in 2020.
In determining the new Policy, the Committee had regard to the following key principles.
• 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 our assessment of what is competitive and appropriate according to the
size and complexity of the business, the calibre and experience of individuals in each role, internal consistency and the Company’s ability to pay
• A significant element of the total package rewards near and longer-term achievements that are clearly linked to performance and Company strategy.
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, including in
relation to the formulation of the new Policy for which shareholder approval will be sought at
the 2023 Annual General Meeting.
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.
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 new Policy are
clearly set out in the new Policy on page 85.
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
Alignment with culture
Incentive schemes should drive behaviours
consistent with the Company’s purpose, values and
strategy.
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.
This part of the report sets out the Company’s Directors’ Remuneration Policy, for which approval will be sought at the 2023 AGM. The Policy is determined
by the Remuneration Committee (the ‘Committee’). The Directors’ Remuneration Policy is not audited.
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Directors’ Remuneration report continued
Policy table for Executive Directors
The table below describes 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.
Whilst there is no maximum, increases will normally be within or below the range of salary increases awarded
(in percentage of salary terms) to other employees in the Group. However, higher increases may be awarded in
appropriate circumstances, such as:
• on promotion or in the event of an increase in scope of the role or the individual’s responsibilities;
• where an individual has been appointed to the Board at a salary set at a level that is lower than the Committee’s
view of a market salary to allow for growth in the role, in which case larger increases may be awarded to move
salary positioning to a market level as the individual gains experience;
• change in size and/or complexity of the Group; and/or
• significant market movement.
Such increases may be implemented over such time period as the Committee deems appropriate.
The base salaries effective as at 1 January 2023 are shown on page 86.
Performance measures
Not applicable.
Benefits
Objective
Operation
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.
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 Committee approval, the
allowance may be paid in cash rather than utilised to purchase benefits.
The SIP and SAYE are tax qualifying 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 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 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 Committee may review and amend this rate
as appropriate.
Individuals have the choice to invest all or part of this amount in their pension scheme, in addition to the benefits
outlined in the ‘Retirement benefits’ section of this table.
SAYE and SIP limits as permitted in accordance with the relevant tax legislation.
Performance measures
Not applicable.
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Policy table for Executive Directors continued
Retirement benefits
Objective
Operation
Provide market competitive post-employment benefits to recruit and retain Directors of the calibre required for the
business.
Executive Directors are eligible to participate in the defined contribution pension scheme (or such other pension
plan as may be deemed appropriate).
In appropriate circumstances, Executive Directors may take a salary supplement instead of some or all of the
contributions into a pension plan.
Opportunity
6% of base salary subject to any increase to reflect increases in the pension opportunity for the wider workforce.
Performance measures
Not applicable.
Annual bonus
Objective
Operation
Rewards performance against annual targets which support the strategic direction of the Company.
Targets are set annually and any pay-out is determined by the Committee after the period-end, based on
performance against those targets. The 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 Committee’s
assessment of overall business performance or be inappropriate in the context of circumstances that were
unexpected or unforeseen at the start of the bonus year, or in the event of other circumstances determined by the
Committee.
30% of any bonus will ordinarily be deferred in shares and subject to a two-year deferral period with the balance
delivered in cash. However, if the amount to be deferred would be below £5,000, the Committee has discretion to
pay the whole amount of the bonus in cash.
On the exercise of a deferred bonus award, the Committee has the discretion to decide that Executives can receive
additional shares to reflect the dividends paid or payable on the award shares over the period ending on vesting of
the award. This amount may assume the reinvestment of dividends (on such basis as the Committee determines).
Opportunity
Overall maximum annual bonus is 125% of salary for the Chief Executive Officer and 110% for any other Executive
Director.
For 2023, the annual bonus opportunity for the CFO will be capped at 100% of salary.
Performance measures
Stretching performance targets are set each year reflecting the business priorities that underpin Group strategy.
Performance may be based on operational targets (which may be financial or strategic measures) and/or individual
objectives. The majority of the annual bonus opportunity will be based on financial measures.
Subject to the Committee’s discretion to override formulaic outturns, for financial measures, normally up to 20%
of the maximum for any financial element is earned for threshold performance, normally rising to up to 50% of the
maximum for any financial element for on target performance and 100% of the maximum for the financial element
for maximum performance.
Subject to the Committee’s discretion to override formulaic outturns, vesting of the bonus in respect of strategic
measures or individual objectives will be between 0% and 100% based on the Committee’s assessment of the
extent to which the relevant metric or objective has been met.
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Directors’ Remuneration report continued
Policy table for Executive Directors continued
Long-Term Incentive Plan continued
Objective
Drive and reward the achievement of longer-term objectives aligned closely to shareholders’ interests.
Operation
Support longer-term sustainable profitability.
Provide alignment with shareholders’ interests.
Support retention and promote share ownership.
LTIP awards take the form of performance shares (zero priced share options) which vest subject to satisfaction of
performance conditions, ordinarily assessed over a period of three years. Following the end of the performance
period, there is a further two-year holding period which may be operated on the basis that either (1) the Executive
Director can acquire shares following the end of the performance period but that other than as regards sales to
cover tax, may not sell shares until the end of the holding period; or (2) the Executive Director may not acquire
shares until the end of the holding period.
On the vesting/exercise of an LTIP award, the Committee has the discretion to decide that Executives can receive
additional shares to reflect the dividends paid or payable on vested shares between the date of grant and the date
on which the vested shares can first be acquired.
The Committee has discretion to vary the vesting outturn should any formulaic output not produce a fair result for
either the Executive Director or the Company, taking account of the Committee’s assessment of overall business
performance or be inappropriate in the context of circumstances that were unexpected or unforeseen at grant, or
in the event of other circumstances determined by the Committee.
The 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 tax qualifying 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 a tax qualifying option for the part of the award up to the applicable limit in the tax legislation with a non-
qualifying option for the balance and a ‘linked award’ to fund the exercise price of the tax qualifying option, or as a
tax qualifying 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 tax-qualifying 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.
Opportunity
The maximum award in respect of any year will be:
• as regards the Chief Executive Officer, an award over shares with a value of 150% of salary; and
• as regards any other Executive Director an award over shares with a value of 125% of salary.
For 2023, the LTIP award for the CFO will be capped at 100% of salary.
These limits do not include the value of shares subject to any tax-qualifying option granted as part of an LTIP award.
Performance measures
Performance will be based on operational targets (which may be financial or strategic measures). Ordinarily at
least 75% of the LTIP will be based on financial measures.
Subject to the Committee’s discretion to override formulaic outturns, up to 25% of the maximum for any element is
earned for threshold performance.
Shareholding guideline
In-service guideline
To align the interests of Executive Directors with those of shareholders, the Committee has adopted formal shareholding guidelines in accordance with
which Executive Directors are required to build and maintain a shareholding with a value of at least 2x salary. Executive Directors are required to retain
half of the after tax number of shares they acquire pursuant to the LTIP or deferred bonus until this level of holding is achieved.
Post-employment requirement
The Committee has adopted a post-employment shareholding requirement. Shares are subject to this requirement only if they are acquired from share
plan awards (LTIPs and deferred bonus awards) granted after 1 January 2023.
Following employment, an Executive Director must retain:
• for the first year after employment, such of their shares which are subject to the post-employment requirement as have a value for these purposes
equal to the shareholding guideline that applies during employment; and
• for the second year after employment, such of those shares as have a value for these purposes equal to 50% of the shareholding guideline that
applies during employment
• or in either case and if fewer, all of those shares.
The Committee retains discretion to vary the application of the in-service guidelines and/or the post-employment requirement in exceptional
circumstances.
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Malus, clawback and underpin provisions
The Committee has the right to:
• Reduce any LTIP awards which have not yet vested or annual bonus opportunity (i.e. a malus provision); and
• Recover any vested LTIP awards, paid cash bonuses or deferred bonus awards (i.e. a clawback provision).
Malus and clawback provisions may be applied in the event of: (1) a material misstatement of the Company’s financial results; (2) a material loss for
the Company, any Group member or a relevant business unit; (3) reputational damage to the Company, any Group member or a relevant business
unit; (4) corporate failure in any Group member or a relevant business unit; (5) serious misconduct on the part of the participant; and (6) an error in
assessing any performance condition.
Clawback may ordinarily be applied until the second anniversary of vesting in the case of an LTIP award, until the normal vesting date in the case of a
deferred bonus award and until the second anniversary of payment in the case of a cash bonus.
Operation of share plans
The 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 Committee would only settle an Executive Directors’ award in cash in appropriate circumstances, such as where there is a
regulatory restriction on the delivery of shares, or in respect of any tax liability arising in respect of an award.
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 Committee taking into account the relevant performance conditions (and
the Committee may vary the weightings of the applicable performance measures) and, unless the Committee determines otherwise, the extent of vesting
so determined shall be reduced to reflect the proportion of the vesting period that has elapsed;
• vested awards under the LTIP which remain subject to a holding period will be released to the extent they vested;
• deferred bonus awards will vest in full;
• SAYE and SIP awards will vest to the extent determined in accordance with the rules of the relevant plan, to the same extent as for all other participants.
Chairman and Non-Executive Directors
The table below sets out an overview of the remuneration of Non-Executive Directors:
Alignment with strategy/purpose
Approach of the Company
Chairman and Non-Executive
Directors’ fees
Provide an appropriate reward to
attract and retain Directors of the
calibre required for the business.
The remuneration of the Chairman of the Board is set by the Committee. Fees are set at a level which
reflects the skills, knowledge, and experience of the individual, whilst taking into account appropriate
market data.
The 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. Fees include a
base fee plus additional fees for holding the Chairmanship of a Board Committee or the office of
Senior Independent Director. Additional fees may be paid to reflect additional roles and/or time
commitments.
The fees may be paid wholly or partly in cash or Company shares. Overall fees paid to Directors will
remain within any applicable limit as referred to in our Articles of Association.
Non-Executive Directors do not participate in any incentive scheme.
Directors may be eligible to receive benefits such as the use of secretarial support, travel costs or
other benefits that may be appropriate. Reimbursed expenses may include a gross-up to reflect any
tax or social security due in respect of the reimbursement.
Explanation of performance metrics chosen
Performance measures for the LTIP and annual bonus are selected to reflect the Group’s strategy. Stretching performance targets are set each year
by the Committee taking into account a number of different factors.
Annual Bonus
For 2023 the measures will be based on profit and cash generated from operations. This incentivises Executive Directors to focus on delivering the key
financial goals of the Company. These targets therefore ensure that the interests of the Executive Directors are aligned with those of the shareholders.
LTIP
For 2023, LTIP performance measures will be based on EPS and TSR, which are considered to be the key measure of success of the execution of our
long-term strategy.
The Committee retains the discretion to adjust the performance targets and measures for the annual bonus and/or the LTIP where it considers it
appropriate to do so (for example, to reflect changes in the structure of the business and to assess performance on a fair and consistent basis from
year to year).
Xaar plc – Annual Report and Financial Statements 2022
Governance
91
Directors’ Remuneration report continued
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 a tax qualifying SAYE and invites all employees to participate, therefore encouraging wider workforce share ownership.
Illustrations of application of Remuneration Policy
The charts set out below give an illustration of the Remuneration Policy, in line with the policy above and include base salary, pension, benefits and
incentives in four different scenarios. The charts provide an illustration of the proportion of total remuneration made up of each component of the
policy and the value of each component.
For these purposes:
• base salary reflects the salary at 1 January 2023. Bonus is based on those salaries;
• benefits are calculated as 5% of that salary for each of the Chief Executive Officer and Chief Financial Officer;
• pension is calculated as 6% of that salary for each of the Chief Executive Officer and Chief Financial Officer; and
• variable pay assumes a bonus opportunity of 125% of salary for the Chief Executive Officer and 100% of salary for the Chief Financial Officer and an
LTIP award of 150% of salary for the Chief Executive Officer and 100% of salary for the Chief Financial Officer, with vesting as set out below.
Four scenarios have been illustrated for each Executive Director
Minimum performance
• Salary, benefits and pension as set out above
• No bonus pay-out
• No vesting under the LTIP.
Performance at mid point
• Salary, benefits and pension as set out above
• 62.5% of salary pay-out under the annual bonus for the CEO, 50% for the CFO
• 50% of shares vesting under the LTIP (75% of salary for the CEO, 50% of salary for the CFO).
Maximum performance
• Salary, benefits and pension as set out above
• 125% of salary pay-out under the annual bonus for the CEO, 100% for the CFO
• 100% of shares vesting under the LTIP (150% of salary for the CEO, 100% of salary for the CFO).
Maximum performance plus
share appreciation (50%)
• Salary, benefits and pension as set out above
• 125% of salary pay-out under the annual bonus for the CEO, 100% for the CFO
• 100% of shares vesting under the LTIP (150% of salary for the CEO, 100% of salary for the CFO), and an
assumed 50% increase in the share price for the purposes of the LTIP element.
John Mills
Ian Tichias
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
2,000
1,800
1,600
)
0
0
0
1,400
£
(
n
o
1,200
i
t
a
r
e
1,000
n
u
m
800
e
r
600
400
200
0
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
a
t
o
T
l
£1,798k
£1,798k
£1,505k
£1,505k
£969k
£969k
39%
39%
39%
39%
£433k
£433k
30%
30%
25%
25%
32%
32%
27%
27%
100%
100%
45%
45%
29%
29%
24%
24%
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
2,000
1,800
1,600
)
0
0
0
1,400
£
(
n
o
1,200
i
t
a
r
e
1,000
n
u
m
800
e
r
600
400
200
0
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
a
t
o
T
l
£289k
£289k
100%
100%
£549k
£549k
24%
24%
52%
24%
24%
52%
£809k
£809k
32%
32%
32%
32%
36%
36%
£939k
£939k
42%
42%
28%
28%
30%
30%
Minimum
performance
Minimum
performance
Performance
at mid-point
Performance
at mid-point
Maximum
performance
Maximum
performance
Maximum
Maximum
performance
performance
plus share
plus share
appreciation (50%)
appreciation (50%)
Minimum
performance
Minimum
performance
Performance
at mid-point
Performance
at mid-point
Maximum
performance
Maximum
performance
Maximum
Maximum
performance
performance
plus share
plus share
appreciation (50%)
appreciation (50%)
Base salary, benefits and pension
Base salary, benefits and pension
Annual bonus
Annual bonus
LTIP award
LTIP award
Base salary, benefits and pension
Base salary, benefits and pension
Annual bonus
Annual bonus
LTIP award
LTIP award
92
Xaar plc – Annual Report and Financial Statements 2022
Governance
Approach to recruitment remuneration
When appointing a new Executive Director, whether with an internal or external candidate, the Committee will typically seek to use the policy detailed
in the table on pages 88 to 90 to determine the Executive Director’s ongoing remuneration package.
To facilitate the appointment of candidates of the appropriate calibre required to implement the Group’s strategy, the Committee also retains the
discretion to include any other remuneration component or award which is outside the policy. The Committee will not use this discretion to make a
non-performance related incentive payment (for example, a ‘golden hello’). In determining appropriate remuneration, the Committee will take into
consideration all relevant factors (including the quantum and nature of remuneration) to ensure that the arrangements are in the best interests of the
Company and its shareholders. This may, for example, include (but is not limited to) the following circumstances:
• An interim appointment being made to fill an Executive Director role on a short-term basis
• Exceptional circumstances require that the Chairman or a Non-Executive Director takes on an Executive function on a short-term basis
• An Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for that year
as there would not be sufficient time to assess performance. The quantum in respect of the months employed during the year may be transferred
to the subsequent year so that reward is provided on a fair and appropriate basis
• The Executive received benefits at his previous employer which the Committee considers it appropriate to offer
• If the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation, travel and
subsistence payments. Any such payments will be at the discretion of the Committee.
The Committee may also alter the performance measures, performance period, vesting period and holding period of the annual bonus or long-term
incentive, subject to the rules of the scheme, if the Committee determines that the circumstances of the recruitment merit such alteration. The
rationale will be clearly explained.
In determining appropriate remuneration arrangements on hiring a new Executive Director, the Committee will take into account relevant factors such
as the calibre of the individual, local market practice, the existing remuneration arrangements for other Executives and the business circumstances.
It will seek to ensure that arrangements are in the best interests of both the Company and its shareholders and not seek to pay more than is appropriate.
The Committee may make an award or payment to ‘buy-out’ remuneration arrangements forfeited on leaving a previous employer. In doing so the
Committee will take account of relevant factors regarding the forfeited arrangements which may include the form of any forfeited awards (e.g. cash
or shares), any performance conditions attached to these awards (and the likelihood of meeting those conditions), and the time over which they would
have vested. It will generally seek to structure buy-out awards and payments on a comparable basis to remuneration arrangements forfeited. These
awards or payments are excluded from the maximum level of variable pay referred to below; however, the Committee’s intention is that the value
awarded or paid would be no higher than the expected value of the forfeited arrangements.
Appropriate costs and support will be covered if the recruitment requires the relocation of the individual. All buy-out awards and payments will
normally be liable to forfeiture or ‘clawback’ on early departure. For Executive Directors, early departure is typically defined as being within the first
two years of employment although the Committee has the ability to amend this definition in appropriate circumstances.
The maximum level of variable pay which may be awarded to new Executive Directors, excluding buy-out arrangements, would normally be in line with
the maximum level of variable pay that may be awarded under the annual bonus plan and LTIP, but in any event the Committee would not make awards
of variable pay in respect of any year above:
• In the case of the CEO – a bonus of 125% of salary and an LTIP award of 150% of salary; and
• In the case of any other Executive Director – a bonus of 125% of salary and an LTIP award of 125% of salary.
The Committee may determine that such awards will be forfeited if performance or continued employment conditions are not met and it is deemed
appropriate to do so.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, and subject to
the limits referred to above, in order to facilitate the awards mentioned above, the Committee may rely on exemption 9.4.2. of the Listing Rules which
allows for the grant of awards to facilitate, in exceptional circumstances, the recruitment of a Director.
Where a position is fulfilled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue
according to the original terms.
Fees payable to a newly-appointed Chairman or Non-Executive Director will be in line with the fee policy in place at the time of appointment.
Xaar plc – Annual Report and Financial Statements 2022
Governance
93
Directors’ Remuneration report continued
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
Date of
contract
31 May 2019
26 November 2019
Date of
appointment
1 August 2019
1 March 2020
Notice from
the Company
12 months
12 months
Notice
from Director
12 months
12 months
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.
Date of letter of appointment1
Date of appointment
Andrew Herbert
Alison Littley
Chris Morgan
15 April 2016
22 April 2020
2 December 2015
1 June 2016
1 May 2020
4 January 2016
1 The dates above refer to the dates of the latest service agreements for each of the Non-Executive Directors.
Remaining term of
contract on 31 December 2022
29 months
76 months
24 months
All Directors offer themselves for annual re-election at each AGM in accordance with the UK Corporate Governance Code 2018.
Letters of appointment are available for inspection at the registered office address of the Company.
Payments for loss of office
The principles on which the determination of payments for loss of office will be approached is set out below. Where the Committee retains
discretion, as outlined below, it will be used to provide flexibility in certain situations, taking into account the particular circumstance of the
Director’s departure.
Notice period on termination by
employing company
12 months. The Committee has the discretion to determine what proportion of the notice period will
be utilised in active service.
Termination payment
Leaver provisions
Payments in lieu of notice are limited to no more than one year’s salary plus benefits in kind (including
company car or car allowance and private health insurance) and pension contributions (which may
include salary supplements).
Benefits provided in connection with termination of employment may also include, but are not limited
to, outplacement and legal fees and payments in respect of accrued but untaken holiday.
Reason for cessation
Calculation of vesting/payment
Timing
Annual bonus
Termination with cause.
No bonus paid.
Not applicable.
Resignation.
Redundancy, disability,
illness, injury, death
or any other reason
as determined by the
Committee.
No bonus is paid unless the Committee in its
absolute discretion (and on a case-by-case
basis) determines otherwise. Any bonus
paid will typically be pro-rated to reflect time
served in the performance period.
Typically bonus amounts will be determined
by reference to the applicable performance
targets, pro-rated for time served in the
performance period.
If a bonus is paid, it is paid at the usual time
including with deferral applied in accordance with
the Company’s usual arrangements.
The bonus will normally be paid at the usual time
including with deferral applied in accordance with
the Company’s usual arrangements.
The Committee retains discretion to pay the bonus
early (and to assess performance accordingly) and
to pay the full bonus in cash in compassionate
circumstances.
Termination with cause.
Shares forfeited.
Not applicable.
All other reasons.
Award retained.
Ordinarily, the deferred bonus shares will vest
following the end of the originally anticipated
deferral period.
The Committee has discretion to permit early vesting.
Deferred
bonus shares
94
Xaar plc – Annual Report and Financial Statements 2022
Governance
Leaver provisions continued
Reason for cessation
Calculation of vesting/payment
Timing
LTIP
Termination with cause.
Lapse.
Not applicable.
Resignation before
vesting.
Normally lapse but with Committee discretion
to determine otherwise; if the award continues,
its vesting will be subject to the satisfaction of
the applicable performance condition and a
pro-rata reduction to reflect the proportion of
period worked during the vesting period. The
Committee can decide not to pro rate.
If an award is retained, it will vest at the usual time
and the post-vesting holding period will continue
to apply.
Redundancy, disability,
illness, injury, death
or any other reason
as determined by the
Committee.
Performance condition applies (with early
assessment if applicable) and vesting then
pro-rated to proportion of period worked
during vesting period. The Committee can
decide not to pro rate.
The award will ordinarily vest at the usual time. The
post-vesting holding period will continue to apply
other than in the case of death, ill-health, injury
or disability, when it will cease to apply unless the
Committee decides otherwise.
Leaving during the
holding period.
If employment is terminated for cause, the
award is forfeit. If employment terminates
in any other circumstances, the award is
retained to the extent vested.
The Committee retains discretion to vest the
award before the usual vesting date (and to assess
performance accordingly) and/or to disapply the
post-vesting holding period in circumstances
where the default would be for it to apply.
The post-vesting holding period will continue to
apply unless the Committee determines otherwise
(other than in the case of death, ill-health, injury
or disability, when it will cease to apply unless the
Committee decides otherwise).
SIP and SAYE
Governed by the plan rules which reflect the applicable legislation and which cover certain leaver provisions.
Non-Executive Directors
Under the terms of their engagement, the notice period to be given by the Non-Executive Directors on the Company is six months and the Company
is obliged to give the same length of notice. Discretion is retained to terminate with or without due notice or paying any payment in lieu of notice
dependent on what is considered to be in the best interests of the Company in the particular circumstances.
Statement of consideration of employment conditions elsewhere in the Company
Salary, benefits and performance related reward provided to employees is taken into account when setting policy for Executive Directors’ remuneration
(although employees are not formally consulted in relation to the setting of the policy). This includes consideration of:
• Salary increases for the general employee population
• Company-wide benefit (including pension) offerings
• Overall spend and participation levels in the annual bonus and LTIP
• Relevant ad-hoc information.
Existing contractual arrangements
The Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with
the policy set out above where the terms of the payment were agreed:
(i) before the policy came into effect (provided that, in the case of any payments agreed on or after 14 May 2014 they are in line with any applicable
shareholder approved Directors’ Remuneration Policy in force at the time they were agreed or were otherwise approved by shareholders), or
(ii) at a time when the relevant individual was not a Director of the Company (or other person to whom the Policy set out above applies) and, in the
opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company (or such other person).
For these purposes ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms
of the payment are ‘agreed’ at the time the award is granted.
Statement of consideration of shareholder views
In the interests of ensuring ongoing and transparent dialogue with shareholders, the Committee consulted major shareholders over its base salaries
and proposed new three-year policy outlined in this report.
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 2022.
The information provided in this part of the Directors’ Remuneration report is subject to audit.
Xaar plc – Annual Report and Financial Statements 2022
Governance
95
Directors’ Remuneration report continued
Single figure table
The aggregate remuneration provided to Directors who have served as Directors in the year ended 31 December 2022 is set out below, along with the
aggregate remuneration provided to such Directors for the financial year ended 31 December 2021.
Year ended 31 December 2022
Executive
John Mills
Ian Tichias
Non-Executive
Andrew Herbert (Chairman)
Alison Littley
Chris Morgan
Year ended 31 December 2021
Salary/fees(a)
£’000
Benefits(b)
£’000
Bonus(c)
£’000
Long-term
incentives(f)
£’000
Pension(f)
£’000
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
360
240
120
58
55
31
24
–
–
–
178
95
–
–
–
988
405
–
–
–
22
14
–
–
–
1,579
778
120
58
55
413
278
120
58
55
1,166
500
–
–
–
Salary/fees(a)
£’000
Benefits(b)
£’000
Bonus(c)
£’000
Reduction(d)
£’000
Long-term
incentives(f)
£’000
Pension(f)
£’000
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive
John Mills
Ian Tichias
Non-Executive
Andrew Herbert (Chairman)
Alison Littley
Chris Morgan
315
221
92
50
50
28
23
–
–
–
103
58
–
–
–
(11)
(5)
–
–
–
–
7
–
–
–
19
13
–
–
–
454
317
92
50
50
362
257
92
50
50
92
60
–
–
–
The figures in the single figure table above are derived from the following:
(a) Salary/fees
(b) Benefits
(c) Bonus
(d) Reduction
The amount of base salary/fees received in the year.
This is the taxable value of benefits and the flexible benefits allowance received in the year. This includes
any relocation allowance claimed in 2021.
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.
In line with the reporting regulations, the reduction of the bonus reported for the year ended 31 December 2020 is
included in the 2021 single figure table, as described in the 2021 Directors’ Remuneration report.
(e) Long-term incentives
The value of LTIP awards vesting is in respect of performance periods which ended in the relevant year. The value of
SAYE options granted is based on the fair value of the options/shares at grant.
(f) Pension
The value of the employer contribution to the defined contribution pension plan in the UK (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 increased to £360,000 from 1 January 2022 and the CFO’s salary was increased to £240,000 from 1 January 2022.
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.
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.
96
Xaar plc – Annual Report and Financial Statements 2022
Governance
Individual elements of remuneration continued
Annual bonus
For the financial year ended 31 December 2022, 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 pre bonus (70%) and cash flow
improvement (30%).
Adjusted Group PBT (pre bonus)
Cash flow from operations
Overall outturn
Threshold
(0% of
maximum vests)
Target
(50% of
maximum vests)
Maximum
(100% vesting)
1,652
3,570
3,073
6,344
5,951
9,119
Weighting
70%
30%
100%
Actual
3,443
(5,438)
% of maximum
vesting
56.44%
0%
39.51%
The bonus outturns for 2022 are detailed in the table below.
John Mills
Ian Tichias
% of maximum
opportunity
vesting
39.51%
39.51%
% of salary
49%
40%
Total
£178k
£95k
Cash
£124k
£66k
Deferred
shares*
£53k
£28k
* 30% of the bonus earned will be deferred in shares and subject to a two-year deferral period with the balance delivered in cash.
Long-term incentives vesting in respect of 2022
As explained in the statement from the Chairman of the Committee, joining awards granted to John Mills and Ian Tichias in 2019 and 2020 respectively and 2020
LTIP awards each vested by reference to performance over the period ending 31 December 2022. In line with the applicable regulations, the estimated vesting
value of those awards is included in the 2022 single total figure of remuneration. Details of the performance measures, the outturns against them, and the basis
of the calculation of the values included in the single total figure of remuneration are set out below.
When considering the outturns the Committee has taken a holistic view, including in relation to the employee and wider stakeholder experience, in
addition to performance relative to the targets and objectives set. The Committee believes that the outcomes are an appropriate reflection of wider
performance and the Committee has not exercised any discretion in relation to remuneration outcomes. In particular, the Committee considered the
current share price relative to the share prices when the awards were granted and took into account the quantum of the awards granted (including that
the 2020 LTIP grants were capped as fixed numbers of shares with face values equating to circa 72% of salary and 48% of salary for the CEO and CFO
respectively). The Committee noted the growth in the share price over the relevant periods reflected the strong performance of the business and could
not be considered to be delivering a ‘windfall gain’.
Award
John Mills’
joining award
Performance
condition1
TSR (50%
weighting)1
EPS (50%
weighting)
Ian Tichias’
joining award
Adjusted PBT
(100% weighting)
2020 LTIP
award
TSR (40%
weighting)
EPS (60%
weighting)
Threshold
vesting (25%)
Maximum
vesting
Performance
outturn
Vesting
percentage
Shares
under award
Median
Upper quartile
2022 adjusted basic
EPS more than 0
pence
2022 adjusted basic EPS
5 pence
Above upper
quartile
4.8 pence
97%
100%
90,164
N/A
Median
Positive adjusted profit
before tax for the year
ended 31 December 2022.
Upper quartile
Pass
100%
Above upper
quartile
100%
2022 adjusted basic
EPS more than 0.1
pence
2022 adjusted basic EPS
2.4 pence
4.8 pence
100%
Vested
shares
90,164
87,459
50,000
146,000
(John Mills)
68,000
(Ian Tichias)
219,000
(John Mills)
102,000
(Ian Tichias)
90,164
50,000
146,000
(John Mills)
68,000 (Ian
Tichias)
219,000
(John Mills)
102,000 (Ian
Tichias)
1 Total shareholder return relative to the TSR of the companies constituting the FTSE SmallCap Index over the three-year performance period – October 2019 to October 2022 in the case
of John Mills’ joining award and 1 January 2020 to 31 December 2022 in the case of the 2020 LTIP award.
2 Due to a typographical error, in the 2019 Directors’ Remuneration report, the performance period for this award was wrongly stated to be 1 January 2019 – 31 December 2021. The
correct performance condition and performance period is summarised above.
Xaar plc – Annual Report and Financial Statements 2022
Governance
97
Directors’ Remuneration report continued
Individual elements of remuneration continued
Long-term incentives vesting in respect of 2022 continued
In the 2022 single total figure of remuneration, the value of these awards is calculated as follows.
Award
Vested shares
Value of vested shares1
Value of vested shares
attributable to share price
at grant of award2
Value of vested shares
attributable to growth
in shares price3
John Mills’ joining award
Ian Tichias’ joining award
John Mills’ 2020 LTIP award
Ian Tichias’ 2020 LTIP award
177,623
50,000
365,000
170,000
£323,273
£91,000
£664,300
£309,400
£80,286
£20,500
£215,350
£100,300
£242,988
£70,500
£448,950
£209,100
1 In accordance with the applicable regulations, this is calculated by reference to the average share price over October, November and December 2022 being £1.82.
2 T his is calculated by reference to the share price at the date of grant being £0.452 in the case of John Mills’ joining award, £0.41 in the case of Ian Tichias’ joining award, and £0.59 in the case
of the 2020 LTIP award.
3 This is calculated by reference to the difference between the price at the date of grant and the average share price over October, November and December 2022.
Long-term incentives and deferred bonuses awarded during the financial year
The table below outlines awards made under the LTIP to Executive Directors in 2022:
6 April 2022
John Mills
Award basis
Performance
Share Plan
awards
Deferred
Bonus Plan
Performance
condition
EPS & TSR
Number
of shares
207,932
Face value
of the award
£’000
Vesting
at threshold
Performance
period
540
25% of award
–
11,944
31
6 April 2022
Ian Tichias Performance
Share Plan
awards
EPS & TSR
92,414
240
25% of award
Vesting date
March 2025
(2024 Results)
March
2024 (2023
Results)
March 2025
(2024 Results)
1 January
2022 to 31
December
2024
N/A
1 January
2022 to 31
December
2024
Deferred
Bonus Plan
–
6,689
17
N/A
March 2024
(2023 Results)
1 The share price used to calculate the face value of the Performance Share Plan award and the Deferred Bonus Plan share award granted on 6 April 2022 was £2.597 being the closing average
share price on the five business date preceding the grant award date.
The 2022 LTIP grants were based on Cumulative Adjusted EPS performance for the three-year performance period commencing with the 2022
financial year (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 commencing with the 2022 financial year. In line with the UK Corporate Governance Code, there is a further two-year
holding period following the end of the performance period.
The Deferred Bonus Plan award is a grant calculated as 30% of the 2021 bonus earned.
Given the turnaround position of the Company, the Board considers the EPS performance targets for the LTIP awards granted in 2022 to be
commercially sensitive information at this time but, as in past years, will fully disclose the exact measurements retrospectively. The portion of the
awards based on TSR will vest subject to the satisfaction of the following performance conditions.
Company’s TSR performance relative to the comparator group
Portion of the TSR element that vests
Median
25%
Between median and upper quartile
Pro-rata between 25% and 100%
Upper quartile
100%
98
Xaar plc – Annual Report and Financial Statements 2022
Governance
Long-term incentives and deferred bonuses awarded during the financial year continued
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
Shareholding
guidelines
Current
shareholdings
(% of salary)
Type Owned outright
Vested
Unvested
Subject to
performance
conditions
Not subject to
performance
conditions
Total as at
31 December
2022
200% of salary
77%
Shares
125,000
1,212,225
Ian Tichias
200% of salary
48%
Shares
50,000
LTIP options
DBP and
SAYE options
Non-Executive Directors
Andrew Herbert
Alison Littley
Chris Morgan
LTIP options
DBP and
SAYE options
Shares
Shares
Shares
100,000
–
–
1,046,738
449,371
40,487
32,270
531,641
100,000
–
–
Shares that count towards the guideline are those owned outright and the net of tax shares subject to DBP awards (the vesting of which is not subject
to the satisfaction of any further performance condition). The shares are valued at closing price on 31 December 2022 (£1.94) with the percentage of
salary determined by reference to salaries at 31 December 2022 (CEO £360,000 and CFO £240,000).
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 2022
and 28 March 2023. Andrew Herbert holds no options in Xaar plc. Chris Morgan and Alison Littley hold no shares or options in Xaar plc.
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.
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
As at
31 December
2022
Share price
at date
of grant
Grant date
Earliest date
of exercise
Expiry date
Name
John Mills
Ian Tichias
As at
1 January
2022
180,328
365,000
293,478
–
–
–
–
207,932
838,806
207,932
50,000
170,000
136,957
–
–
–
–
92,414
356,957
92,414
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
180,328
365,000
293,478
207,932
4 October 2019
4 June 2020
14 October 2021
6 April 2022
£0.452
£0.59
£1.61
£2.70
4 October 2029
4 October 2022
4 June 2025
4 June 2030
March 2026* 14 October 2031
6 April 2032
March 2027*
1,046,738
50,000
170,000
136,957
92,414
449,371
29 April 2020
4 June 2020
14 October 2021
6 April 2022
£0.41
£0.59
£1.61
£2.70
29 April 2023
4 June 2025
March 2026*
March 2027*
29 April 2030
4 June 2030
14 October 2031
6 April 2032
* The options vest on the dealing day following the announcement by the Company of its annual results or, if later, the date on which the Remuneration Committee determines whether the
performance condition and any other condition has been satisfied (in whole or in part), and are exercisable two years after this date.
Xaar plc – Annual Report and Financial Statements 2022
Governance
99
Directors’ Remuneration report continued
DBP
The outstanding awards granted to each Executive Director of the Company under the Xaar 2020 Deferred Bonus Plan are as follows. All options under
the DBP are nil-cost options such that no exercise price is payable.
Name
John Mills
Ian Tichias
As at
1 January
2022
23,249
–
Granted
during
the year
–
11,944
23,249
11,944
10,849
–
10,849
–
6,689
6,689
Exercised
during the
year
Lapsed
during the
year
As at 31
December
2022
Share price
at date of
grant
Earliest date of
exercise
Grant date
Expiry date
–
–
–
–
–
–
–
–
–
–
–
–
23,249
11,944
35,193
10,849
6,689
17,538
14 October 2021
6 April 2022
£1.61
£2.70
March 2023* 14 October 2031
6 April 2032
March 2024*
14 October 2021
6 April 2022
£1.61
£2.70
March 2023* 14 October 2031
6 April 2032
March 2024*
* The options vest on the dealing day following the announcement by the Company of its annual results.
All employee share plan
The Executive Directors may participate in the Company’s all employee share plan, the Xaar plc SAYE Scheme (SAYE Scheme), 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. Options and awards 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
2022
Granted
during
the year
Lapsed
during
the year
Exercised
during
the year
As at 31
December
2022
Grant date
Exercise
price
Earliest date
of exercise
Expiry date
5,294
5,294
5,294
5,581
–
10,875
–
–
–
3,857
3,857
–
–
–
–
-
–
–
–
–
–
-
–
5,294 2 November 2020
£1.02 1 December 2023
2 May 2024
5,294
5,294 2 November 2020
5,581 4 November 2021
£1.02 1 December 2023
£1.29 1 December 2024
2 May 2024
4 May 2025
3,857 3 November 2022
£1.40 1 December 2025
3 May 2025
14,732
3 May 2025
Payments for loss of office and payments to past Directors made during the year
No payments for loss of office or payments to past Directors were made in 2022.
450.00
The information provided in this part of the Directors’ Remuneration report is not subject to audit.
400.00
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.
300.00
300.00
350.00
350.00
400.00
400.00
400.00
450.00
300.00
250.00
200.00
450.00
450.00
350.00
Total shareholder return
)
£
(
0
0
1
o
t
d
e
s
a
b
e
r
e
u
a
V
l
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
)
£
(
0
0
1
o
t
d
e
s
a
b
e
r
e
u
a
V
l
)
)
£
£
(
(
0
0
0
0
1
1
o
o
t
t
d
d
e
e
s
s
a
a
b
b
e
e
r
r
e
e
u
u
a
a
V
V
l
l
250.00
250.00
200.00
200.00
150.00
150.00
100.00
100.00
50.00
50.00
0.00
0.00
)
£
(
0
0
1
o
t
d
e
s
a
b
e
r
e
u
a
V
l
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
150.00
100.00
50.00
0.00
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-12
Dec-12
Dec-13
Dec-13
Dec-14
Dec-14
Dec-15
Dec-15
Dec-16
Dec-16
Dec-17
Dec-17
Dec-18
Dec-18
Dec-19
Dec-19
Dec-20
Dec-20
Dec-21
Dec-21
Dec-22
Dec-22
Xaar
FTSE Small Cap
FTSE TechMARK All Share
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Xaar
Xaar
FTSE Small Cap
FTSE Small Cap
FTSE TechMARK All Share
FTSE TechMARK All Share
Xaar
FTSE Small Cap
FTSE TechMARK All Share
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Source: Datastream (Thomson Reuters).
Xaar
This graph shows the value, by 31 December 2022, of £100 invested in Xaar on 31 December 2012, compared with the value of £100 invested in the
FTSE TechMARK All Share and FTSE SmallCap Indices on the same date on a yearly basis. The other points plotted are the values at intervening
financial year-ends.
FTSE Small Cap
FTSE TechMARK All Share
100
Xaar plc – Annual Report and Financial Statements 2022
Governance
Payments for loss of office and payments to past Directors made during the year continued
Total shareholder return continued
The table below shows details of the total remuneration, annual bonus (as a percentage of maximum opportunity) and LTIP vesting percentage for the
Chief Executive Officer over the last ten financial years.
Year ended 31 December 2022
Year ended 31 December 2021
Year ended 31 December 2020
Year ended 31 December 2019 – John Mills1
Year ended 31 December 2019 – Doug Edwards2
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
Total
remuneration
Annual bonus
as a %
of maximum
opportunity
LTIP as a %
of maximum
opportunity
1,579
454
511
122
357
502
594
429
571
562
1,379
39.51%
26.26%
43.27%
0%
0%
12%
0%
12.5%
48%
0%
83%
99.50%
n/a
n/a
0%
0%
0%
50%
0%
0%
100%
100%
1 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.
2 Doug Edwards was CEO from 1 January until 10 October 2019, and John Mills was CEO from 11 October to 31 December 2019.
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 2021 and the year ended 31 December 2022, and the average percentage change
in the same remuneration over the same period in respect of the employees of Xaar plc on a full-time equivalent basis. For the purposes of the table
below, and in line with the regulations, the comparator employee group average employee within the UK is the employees of Xaar plc. This comparator
group was chosen because it is the most relevant sub-set of employees and can be used consistently.
Salary/fees
Benefits
Bonus
Year
2022
2021-2022
% increase
2020-2021
% increase
2019-2020
% increase
2021
2022
2021-2022
% increase
2020-2021
% increase
2019-2020
% increase
2021
2022
2021
2021-2022
% increase
2020-2021
% increase
2019-2020
% increase
John Mills
360,000
315,000
Ian Tichias
240,000
220,500
Andrew Herbert 120,000
92,250
Alison Littley
58,000
50,125
Chris Morgan
55,000
50,125
14%
9%
30%
16%
10%
5%
5%
–
–
30,648
28,000
24,020
23,000
15%
70%
3.9%
3.9%
–
10%
–
–
–
9%
4%
–
–
–
4%
-36%
–
–
–
– 177,773 103,399
–
94,800
57,903
70%
–
10%
–
–
–
72%
64%
–
–
–
-36%
-21%
-24%
–
–
–
–
–
–
–
Comparator
employee group
87,550
60,000
46%
11.2%
2.5% 13,354
2,250
494%
10%
2.5% 10,376
4,163
149%
5.8%
n/a
1 Average employee – Full-time equivalent median employee of Xaar plc. Benefits calculated as the cost of benefits provided by Xaar to all employees at no cost to each employee (life cover etc)
plus 5% flexible benefits allowance for Executive Directors, and 3% flexible benefits allowance for comparator employee and any car allowance where applicable Previous years have been
restated on this basis. In previous years, the benefits referred to here have included pension. In accordance with the regulations pension is no longer included and the percentage changes for
previous years have been updated to reflect this and to ensure that the basis of the calculation is consistent year on year.
2 Owing to the restructuring noted in the Chairman’s letter, during 2022 a significant proportion of the roles historically employed by Xaar plc, which were typically junior roles, were transferred
to subsidiaries of Xaar plc. At the same point a number of senior roles within these subsidiaries (where these roles were typically aligned to Group activities) were transferred to Xaar plc. This
has resulted in a fundamental change in the employees employed by Xaar plc, which is demonstrated by the comparator employee information shown for 2022.
CEO pay ratio
The following table sets out the ratio of the CEO’s total remuneration in respect of FY22 (taken from the single figure table on page 96), 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 2020 are also included.
Year
2022
2021
2020
2019
Method
25th percentile Median pay ratio
75th percentile
Option A
Option A
Option A
Option A
61:1
16:1
15:1
17:1
40:1
11:1
11:1
12:1
28:1
7:1
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.
Xaar plc – Annual Report and Financial Statements 2022
Governance
101
Directors’ Remuneration report continued
CEO pay ratio continued
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 2021 and 2022 and the salary component of that remuneration. The change in the CEO pay ratio is largely driven by the end of the performance
period for two separate LTIP awards held by the CEO. Owing to his tenure this is the first period when LTIP awards have been recognised as part of the
CEO pay ratio. In addition this was also impacted by Printhead performance for 2022 which did not reach the required threshold for any bonus payment
to be made for this business area.
Year
2022
2021
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)
£1,579k
(£360k)
£454k
(£315k)
£511k
(£300k)
£479k
(£338k)
£26k
(£24k)
£28k
(£24k)
£33k
(£29k)
£28k
(£26k)
£39k
(£34k)
£43k
(£34k)
£46k
(£34k)
£39k
(£33k)
£56k
(£51k)
£62k
(£55k)
£64k
(£50k)
£57k
(£52k)
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 2022.
Dividends paid to shareholders
Group-wide expenditure on pay for all employees (note 9)
2022
£’000
–
28,274
2021
£’000
–
24,660
Change %
0%
14.6%
Implementation of Directors’ Remuneration Policy for the financial year commencing
1 January 2023
Information on how the Company intends to implement the Policy for the financial year commencing 1 January 2023 is set out in the statement from
the Chairman of the Remuneration Committee and is summarised below.
Basic salary and fees
Details of the Executive Directors’ salary arrangements and the Chairman and Non-Executive Directors’ fee arrangements for 2023 are set out in the
statement from the Chairman of the Committee.
Annual bonus
The maximum opportunity for the CEO and CFO will be unchanged at 125% and 100% of base salary respectively for 2023. The performance metrics
for the bonus for 2023 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. As part of this assessment, the Committee will take into account progress against Xaar’s Sustainability
Roadmap that will push Xaar towards its Net Zero by 2030 goal and our wider ESG commitments.
The Board considers the Group profit and cash targets for 2022 to be matters that are commercially sensitive and should therefore remain confidential
to the Company. They provide 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.
102
Xaar plc – Annual Report and Financial Statements 2022
Governance
Long-term incentives
The maximum LTIP award in 2023 will be capped at 150% of base salary for the CEO and 100% of salary for the CFO. 2022 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 (excluding investment trust and financial service companies)
(40% of the award).
Cumulative Adjusted EPS and relative TSR performance will be measured over a three-year performance period to 31 December 2024 with a further
two-year holding period following the end of the performance period.
As for 2022, given the turnaround position of the Company, the Board considers the EPS performance targets for the LTIP awards to be granted in 2023
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 TSR performance condition will be the same as for the awards granted in 2022, as set out on page 97.
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 78 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 2022 were Andrew
Herbert and Chris Morgan. All members of the Remuneration Committee are considered independent within the meaning of the UK Corporate
Governance Code 2018.
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 2022 are shown below:
Remuneration Committee’s key activities in 2022
Executive Directors’ and senior
management remuneration
Share incentive plans
Undertook a consultation on the proposed Directors’ Remuneration Policy
Review eligibility for LTIP awards
Approve grant of LTIP awards
Approve grant of SAYE awards
Governance
Wider workforce
Consider and approve the Annual Report 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
Xaar plc – Annual Report and Financial Statements 2022
Governance
103
Directors’ Remuneration report continued
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 £36,100. 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
2022 at the 2022 AGM and in respect of the resolution to approve the Directors’ Remuneration Policy at the 2020 AGM.
Number of votes
Resolution 9 – Directors’ Remuneration report for the year ended 31 December 2021
Resolution 13 at the 2020 AGM – Directors’ Remuneration Policy
Approval
This report was approved by the Board on 27 March 2023 and signed on its behalf by:
For (including)
discretion)
55,726,493
(97.5%)
50,592,544
(99.41%)
Against
Withheld
1,450,136
(2.5%)
299,077
(0.59%)
2,776
21,445
Alison Littley
Chairman of the Remuneration Committee
104
Xaar plc – Annual Report and Financial Statements 2022
Governance
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the Financial Statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required
to prepare the Group financial statements in accordance with UK adopted International Accounting Standards 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.
i The Directors of Xaar plc are listed on page 63
This responsibility statement was approved by the Board of Directors and is signed on its behalf by:
John Mills
Chief Executive Officer
27 March 2023
Xaar plc – Annual Report and Financial Statements 2022
Governance
105
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 2022 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with UK adopted International Accounting Standards (UK IAS);
• 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 2022
comprise:
Group
Parent company
Statement of financial position as at 31 December 2022
Balance sheet as at 31 December 2022
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 statement of cash flows 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 UK adopted
international accounting standards. 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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the group and parent 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.
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.
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Financial Statements
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 walked through the process undertaken by management to perform the going concern assessment, including any impacts of the
macroeconomic environment 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 June 2024;
• We challenged the key assumptions underpinning the Group’s forecasts. This has been performed by:
Checking the arithmetical and logical accuracy of management’s model;
Reconciling opening cash to the audited position as at 31 December 2022;
Testing the historical forecasting accuracy of the Group by comparing actual revenue and operating profit to forecast for the previous four years;
Challenging the revenue and margin forecasts compared to the recurring revenues and margins generated in 2022;
Understood and challenged the factors leading to the fluctuations in the monthly cashflow analysis, compared these fluctuations to the order
book. We performed sensitivity analysis to determine the impact on liquidity of not achieving these monthly forecasts;
Tested the credit ratings and other indicators of credit worthiness of key customers to determine the robustness of cash inflows; and
Confirmed the consistency of the forecasts with other areas of the audit including the impairment assessment.
• We compared 2023 year to date trading performance to management’s going concern forecast by obtaining the latest available management
accounts to challenge and identify any issues with current trading and cashflows;
• We reviewed the terms and conditions of the existing debt facilities to establish their availability across the going concern period. We have also
reviewed the terms of the revolving credit facility that has received credit preapproval subsequent to the year end along with the associated
covenants and other conditions which must be complied with to maintain that availability;
• We considered the impact of Xaar’s climate commitments on the cash flow forecasts;
• We performed sensitivity analysis to determine the impact of reasonably possible fluctuations in key assumptions on the Group’s available liquidity
and covenant compliance for the credit approved revolving credit facility;
• 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 challenged the mitigating actions such as reducing non-essential capital
expenditure and performance related pay, assessing whether they were within management’s control and whether they were supported by the
actual mitigation achieved in response to recent economic crises such as COVID-19. We considered whether the combination of changes to key
assumptions that would lead to the Group’s liquidity being eliminated within the period assessed were plausible or remote; and
• We assessed the appropriateness of the Group’s disclosures concerning the going concern basis of preparation.
We observed that the Group reported a profit before tax for the year ended 31 December 2022 of £0.8m (2021: £1.0m profit). This includes an increase
in revenue from continuing operations from £59.3m for the year ended 31 December 2021 to £72.8m for the year ended 31 December 2022. The reverse
stress testing performed by management demonstrates revenue would need to reduce by more than 25% compared to the base case for the cash
and cash equivalents to be fully consumed over the going concern period and would require both revenues and margins to be below the current year
actuals. This is considered remote by management 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.
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 for a period to 30 June 2024.
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 one further component.
• The components where we performed full or specific audit procedures accounted for 96% of Revenue,
85% of Adjusted Profit Before Tax and 77% of Total Assets.
Key audit matters
• Revenue recognition
• Impairment of non-current assets
• Contingent consideration (3D)
• Acquisition accounting (Megnajet and Technomation)
Materiality
• Overall group materiality of £364k which represents 0.5% of revenue.
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Independent auditor’s report continued
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, the potential impact of climate change
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 12 reporting components of the Group, we selected 5 components covering entities within the UK and US,
which represent the principal business units within the Group.
Of the 5 components selected, we performed an audit of the complete financial information of 4 components (“full scope components”) which were
selected based on their size or risk characteristics. For the remaining 1 component (“specific scope component”), 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 96% (2021: 100%) of the Group’s Revenue, 77% (2021: 89%) of the
Group’s Adjusted Profit Before Tax and 85% (2021: 100%) of the Group’s Total assets. For the current year, the full scope components contributed
96% (2021: 82%) of the Group’s Revenue, 77% (2021: 73 loss%) of the Group’s Adjusted Profit Before Tax and 73% (2021: 78%) of the Group’s Total
assets. The specific scope component contributed 0% (2021: 18%) of the Group’s Revenue, 0% (2021: 16%) of the Group’s Adjusted Profit Before Tax
and 11% (2021: 22%) 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 7 components together represent 4% of the Group’s revenue. 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
Due to the level of revenue recognised in the current year FFEI has been included as a full scope entity, whereas in the prior year this was treated as a
specific scope component only given the entity was only part of the Group for part of the year in 2021 (due to the timing of its acquisition by the Group).
Following the acquisition of Megnajet Limited during the year, this was included as a review scope component in the 2022 audit.
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Climate change
Stakeholders are increasingly interested in how climate change will impact Xaar plc. The Group has determined that the most significant future
impacts from climate change on their operations will be from risks of flooding at Group and supplier sites. These are explained on pages 42 to 44 in the
Task Force on Climate related Financial Disclosures and on pages 48 to 57 in the principal risks and uncertainties. The Group have also explained their
climate commitments on pages 29 to 41. All of these disclosures form part of the “Other information,” rather than the audited financial statements.
Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on
“Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material
impact on its financial statements.
The Group has explained in its Risk Management Report how they have considered the impact of climate on the Group.
Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s assessment of the
impact of climate risk, physical and transition and their climate commitments. As part of this evaluation, we performed our own risk assessment to
determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit.
We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures.
Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter.
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Financial Statements
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Revenue recognition (£72.8 million –
continuing operations, 2021: £59.3 million
– continuing operations)
Refer to the Audit Committee Report (page 79);
Accounting policies (page 121); and Note 5 of the
Consolidated Financial Statements (page 131]
We consider there to be a risk in relation to the
manipulation by central management of the
amount of revenue recorded through manual
journal entries.
Management reward and incentive schemes
are based on achieving profit targets which
may also place pressure on management to
manipulate revenue recognition.
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 54% of the group’s revenue, we used
data analytics to analyse the whole population
of transactions from invoicing to cash journals,
including adjustments to arrive at revenue
recognised in the year.
Where the journal postings did not follow our
expectation, we investigated and assessed the
integrity of these entries and tested a sample to
assess their validity by agreeing the transactions
back to source documentation.
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.
We performed tests of detail for a sample of revenue
transactions to confirm the transactions had been
appropriately recorded in the income statement in
accordance with IFRS 15 and corroborated that control
of the products had been transferred to the customer by:
Key observations communicated
to the Audit Committee
Revenue was recognised in accordance
with the Group’s accounting policies
and we identified no evidence of
management override in respect of
inappropriate manual journals recorded
in revenue.
In respect of the revenue recognised
over time we identified the IFRS 15
criteria were fulfilled for each item
selected and the stage of completion
was appropriately reflected within the
accounting entries.
In the product print segment (EPS) and Digital
Imaging (FFEI’s) R&D revenue, 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.
• analysing the contract and/or 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 validate originating
documentation.
We performed full and specific scope audit
procedures over this risk area in 3 components
which covered 96% of the revenue from continuing
operations.
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Independent auditor’s report continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Revenue recognition (£72.8 million –
continuing operations, 2021: £59.3 million
– continuing operations) continued
Revenue recognised over time
For a sample of revenue transactions, we
reviewed the respective sales contract to
determine whether the contract met the
criteria in IFRS 15 for being revenue recognised
over time.
For the sampled transactions, we evaluated
judgements and estimates 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.
To further assess the stage of completion at
year end we also physically inspected a sample
of work in progress projects within the EPS
business and reviewed the impact of post
year-end changes on labour hour and cost
estimates.
Where the criteria for over time recognition
were not met, we confirmed management has
recognised revenue at a point in time, when
the relevant performance obligation has been
satisfied.
We performed full scope audit procedures over
this risk area covering 100% of the risk amount.
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Financial Statements
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 15 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
Impairment of non-current assets (£40.0
million, 2021: £34.5m)
Refer to the Audit Committee Report (page 79);
Accounting policies (page 121); and Note 15 of the
Consolidated Financial Statements (page 140)
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.
In particular the Group has goodwill of £7.2
million attributed to EPS (£5.8m), FFEI (£0.7m)
and Megnajet (£0.7m).
We have designated impairment as a key audit
matter for EPS given the limited headroom in
the impairment testing model in prior year.
For FFEI and Megnajet, given they are recent
acquisitions with limited track record of
performance within the Xaar Group to date we
have also designated impairment of goodwill
for these CGUs as a key audit matter for the
2022 audit.
We examined management’s impairment
assessment methodology and model 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.
We also assessed the identified CGUs for
appropriateness. We also re-performed
the calculations in the model to test the
mathematical integrity.
We assessed the 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 the
order backlog/pipeline, using observable
market data to validate the addressable
market 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 FFEI
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.
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111
Key observations communicated
to the Audit Committee
The methodology used by management to
establish the fair value of the contingent
consideration is appropriate and the resulting
valuation based upon key inputs is within our
independently established range.
Independent auditor’s report continued
Risk
Our response to the risk
We have used EY internal valuation specialists
to review the methodology and reasonableness
of key assumptions used within Management’s
Monte Carlo Simulation.
We have engaged a separate EY internal
specialist to assess the discount rates
assumed within the Monte Carlo Simulation,
by obtaining the underlying data used in the
calculation and benchmarking it against an EY
range derived from comparable organisations
and market data.
We have assessed the consistency of the
forecasts with the strategic plans for the Xaar
3D and impact of COVID-19 through validating
the forecast with Stratasys management.
Given the contingent consideration is held at
fair value, we have performed these procedures
at both the date of disposal and at year end and
recalculated the fair value movement recorded
in the income statement.
We have audited the related disclosures with
reference to the requirements of UK IAS
and confirmed they are consistent with the
specialist’s valuation report.
Contingent consideration (3D) (£11.6
million, 2021: £11.9 million)
Refer to the Audit Committee Report (page 79);
Accounting policies (page 121); and Note 22 of the
Consolidated Financial Statements (page 147)
Stratasys Solutions Limited acquired the
remaining 55% equity stake held by Xaar 3D
Holdings Limited in Xaar 3D on 6 October
2021. The consideration included £9.3m paid
in cash and a further amount of up to up to
$21.2m which is contingent on the achievement
of certain milestones and a 3% earn-out
consideration in respect of the future revenues
of Xaar 3D.
The Group recorded a financial asset of £10.9m
on the date of the transaction which was
remeasured to £11.6m at 31 December 2022
(£11.9m at 31 December 2021) in respect of
the contingent consideration. The estimation of
the fair value of this consideration is complex
and relies on significant unobservable inputs.
The Group engaged an external specialist
to estimate the fair value of the contingent
consideration.
For this valuation, management’s external
specialist used a Monte Carlo Simulation
model given the complex conditions associated
with the contingent consideration.
As at 31 December 2022 the Group has
recorded a financial asset of £11.6m with the
movement from the prior year due to an earn
out payment received of £0.2m.
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Financial Statements
Key observations communicated
to the Audit Committee
We concluded that the transaction was
properly accounted for in accordance with
IFRS 3, and the fair value adjustments and
Purchase Price Allocation were appropriate.
The relevant tax considerations have been
recorded and disclosed appropriately in the
financial statements.
Risk
Our response to the risk
Acquisition accounting (Megnajet and
Technomation)
Refer to the Audit Committee Report (page 79);
Accounting policies (page 121); and Note 36 of the
Consolidated Financial Statements (page 159)
Megnajet Limited was acquired in March 2022
for £2.5m. (£2.3m million cash consideration
with the remaining £0.2m to be paid out as a
deferred consideration over three years).
The acquisition price of Technomation Limited
which was acquired in March 2022 was
£3,038,000.
Management have up to 12 months from the
date of acquisition to finalise the acquisition
accounting in accordance with IFRS 3 –
Business Combinations. Our risk focus is
around:
• Classification and measurement of deferred
consideration and conditions attached
• Fair value estimation for acquired intangibles
• Opening balance sheet testing
• Transition from FRS 102 to UK adopted
international accounting standards
• Resulting updates to tax and deferred
balances
We have reviewed the sale and purchase
agreement and due diligence report to
determine the completeness of the identified
acquired assets and liabilities.
We have reviewed the journals posted to
transition the opening balances from FRS
102 to UK IAS. We have also performed a
walkthrough of the significant processes to
determine any further areas that require
consideration in terms of GAAP transition
adjustments that were not previously
considered by Management.
We have reviewed management’s accounting
paper and reporting received from
management’s specialist in relation to the fair
value of intangible assets and useful economic
life assigned as part of the Purchase Price
Allocations.
We reviewed the sale and purchase agreement
for Technomation Limited, audited the
net assets of the entity and compared the
separately identifiable balances to the total
consideration paid. This demonstrated that the
assets were concentrated within a single asset
and the optional IFRS 3 concentration test was
appropriately applied by management.
We have engaged our EY internal valuation
specialists to review the methodology and key
assumptions in respect of the Purchase Price
Allocation.
We have engaged our EY internal tax specialists
to assess the tax methodology and rates
applied by management when calculating the
associated deferred tax adjustments arising
from the acquisition accounting.
We have audited the disclosures within the
annual report and accounts in relation to the
business combination and resulting changes.
In the prior year, our auditor’s report included a key audit matter in relation to inventory provisioning within the EPS business. In the current year, this
no longer represents a key audit matter given the steps management have taken to remediate the previously reported significant control deficiencies.
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113
Independent auditor’s report continued
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 £364k (2021: £300k), which is 0.5% (2021: 0.5%) of Group revenue. We believe that revenue provides us
with the most appropriate basis given it is the main KPI for the Group, and given the Group’s recent history of losses.
We determined materiality for the Parent Company to be £364k (2021: £300k), which we capped at the Group materiality.
During the course of our audit, we reassessed initial materiality and updated for 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% (2021: 50%) of our planning materiality, namely £182k (2021: £150k). 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 £68k to £130k (2021: £30k to £112k).
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 £18k (2021: £15k), 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. 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 this gives rise to 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.
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.
114
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
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
• a Corporate Governance Statement has not been prepared by the company.
Corporate Governance Statement
We have reviewed 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 by the Listing Rules.
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 69;
• 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 69;
• Directors’ statement on whether they have a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set
out on page 69;
• Directors’ statement on fair, balanced and understandable set out on page 78;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 50;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 49; and
• The section describing the work of the audit committee set out on page 79.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 105, 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 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 company or to cease operations, or have no realistic alternative but to do so.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
115
Independent auditor’s report continued
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.
• 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 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, audit committee, 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.
Other matters we are required to address
• Following the recommendation from the audit committee, we were appointed by the company on 28 June 2022 to audit the financial statements for
the year ending 31 December 2022 and subsequent financial periods.
• The period of total uninterrupted engagement including previous renewals and reappointments is 4 years, covering the years ending 31 December 2019
to 31 December 2022.
• 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.
Ruth Logan
Senior statutory auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
27 March 2023
116
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Consolidated income statement
for the year ended 31 December 2022
Revenue
Cost of sales
Gross profit
Other income
Research and development expenses
Research and development expenditure credit
Sales and marketing expenses
General and administrative expenses
(Impairment)/impairment reversals on financial assets
Restructuring and transaction expenses
Fair value (loss)/gain on financial assets at FVTPL
Gain on derivative financial liabilities
Operating profit
Investment income
Finance costs
Profit before tax
Income tax credit/(expense)
Profit for the year from continuing operations
(Loss)/profit from discontinued operations after tax
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
Earnings per share – Total
Basic
Diluted
Earnings per share – Continuing operations
Basic
Diluted
There were no dividends paid during the current and preceding year.
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Profit for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on retranslation of net investment
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Notes
5
7
22
22
10
10
12
11
35
14
14
14
14
Notes
29
35
2022
£’000
72,782
(44,138)
28,644
139
(6,718)
379
(6,669)
(14,050)
(28)
(450)
(8)
–
1,239
38
(453)
824
967
1,791
(159)
1,632
1,632
–
1,632
2.1p
2.0p
2.3p
2.2p
2021
£’000
59,254
(39,064)
20,190
–
(5,706)
270
(6,342)
(10,070)
388
(1,404)
987
2,919
1,232
4
(242)
994
(299)
695
13,533
14,228
16,219
(1,991)
14,228
20.9p
20.6p
0.9p
0.9p
2022
£’000
1,632
617
617
2021
£’000
14,228
143
143
2,249
14,371
2,249
–
2,249
16,366
(1,995)
14,371
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
117
Consolidated statement of financial position
as at 31 December 2022
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use asset
Financial asset at fair value through profit or loss
Deferred tax asset
Other non-current assets
Current assets
Inventories
Trade and other receivables
Current tax asset
Financial asset at fair value through profit or loss
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions
Contract liabilities
Borrowings and financial liabilities
Lease liabilities
Net current assets
Non-current liabilities
Deferred tax liabilities
Lease liabilities
Provisions
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to owners of the parent company
Share capital
Share premium
Own shares
Translation reserve
Other reserves
Retained earnings
Total equity
Notes
15
16
17
18
22
23
21
20
21
21
22
21
24
25
5
22
18
23
18
25
24
26
27
28
29
30
30
2022
£’000
7,163
8,681
16,104
8,068
11,089
726
136
51,967
29,148
11,527
735
517
8,546
50,473
Restated
2021
£’000
5,894
4,043
16,226
8,829
11,850
–
–
46,842
18,839
10,161
531
–
25,051
54,582
102,440
101,424
(14,862)
(405)
(3,799)
(379)
(1,032)
(20,477)
29,996
–
(7,800)
(300)
(2,094)
(10,194)
(30,671)
71,769
7,844
29,427
(775)
1,628
23,379
10,266
71,769
(15,971)
(264)
(3,541)
–
(692)
(20,468)
34,114
(1)
(8,499)
(300)
(3,354)
(12,154)
(32,622)
68,802
7,844
29,427
(1,923)
1,011
21,820
10,623
68,802
The financial statements of Xaar plc, registered number 3320972, were approved by the Board of Directors and authorised for issue
on 27 March 2023. They were signed on its behalf by:
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
118
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Consolidated statement of changes in equity
as at 31 December 2022
Balance at 1 January 2021 (as restated)
7,833
29,328
(1,957)
864
21,167
(5,564)
51,671
3,771
55,442
Share
capital
£’000
Share
premium
£’000
Own
shares
£’000
Translation
reserves
£’000
Other
reserves
£’000
Retained
earnings
£’000
Notes
Non-
controlling
interest
£’000
Total
£’000
Total
equity
£’000
Profit/(loss) for the year
Tax on items taken directly to equity
Exchange differences on retranslation
of net investment
Total comprehensive loss
for the year as reported
Own shares sold in the period
Share option exercises
Credit to equity for equity-settled share-
based payments
Derecognition of non-controlling interest
Balance at 31 December 2021
Profit 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 purchased in the period
Own shares sold in the period
Share option exercises and settlements
Credit to equity for equity-settled share-
based payments
Balance attributable to owners of the
parent company at 31 December 2022
28
32
35
28
28
30
32
16,219
–
16,219
–
(1,991)
–
14,228
–
–
147
(4)
143
–
–
–
–
–
11
–
–
–
–
–
–
–
99
–
–
–
–
–
–
34
–
–
–
–
–
147
147
–
–
–
–
–
–
–
–
–
–
16,219
–
(32)
16,366
34
78
(1,995)
–
–
653
–
–
–
653
–
–
(1,776)
7,844
29,427
(1,923)
1,011
21,820
10,623
68,802
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,000)
2,148
–
–
–
617
617
–
–
–
–
–
–
–
–
–
–
1,632
–
1,632
–
–
617
1,632
–
–
(1,989)
2,249
(1,000)
2,148
(1,989)
–
–
1,559
–
1,559
7,844
29,427
(775)
1,628
23,379
10,266
71,769
–
–
–
–
–
–
–
–
–
–
14,371
34
78
653
(1,776)
68,802
1,632
–
617
2,249
(1,000)
2,148
(1,989)
1,559
71,769
The nature of retained earnings and other reserves in equity is described in note 30.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
119
Consolidated cash flow statement
for the year ended 31 December 2022
Profit before tax from continuing operations
(Loss)/profit before tax from discontinued operations
Total Profit/(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
Unrealised foreign exchange gains
Gain on remeasurement of derivative liability
Payment of cash settled share-based payments
Fair value loss/(gain) on financial assets at FVTPL
Loss on disposal of property, plant and equipment
Profit on disposal of investment in subsidiary
Increase/(decrease) in provisions
Operating cash flows before movements in working capital
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash utilised by operations
Net Income taxes received
Net cash used in operating activities
Investing activities
Investment income
Treasury deposits (deposited)/withdrawn
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchases of Intangible assets
Cash earn-out received from financial assets at FVTPL
Proceeds from disposal of investment in subsidiary
Cash attributable to subsidiary sold
Acquisition of subsidiary (Megnajet) net of cash acquired (2021:acquisition of FFEI)
Asset acquisition (Technomation), net of cash acquired
Net cash (used in)/provided by investing activities
Financing activities
Proceeds from sale of own shares
Payment for own shares acquired
Payment of lease liabilities and interest
Net inflows from invoice discounting facility
Other interest paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rate changes on cash balances
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
11
32
17
18
16
17
22
22
25
22
28
31
31
31
2022
£’000
824
(159)
665
1,748
2,654
1,071
1,067
147
(379)
(38)
453
(797)
–
(249)
8
80
–
141
6,571
(9,462)
(812)
(1,914)
(5,617)
112
(5,505)
38
–
(2,456)
17
(2,933)
236
–
–
(1,202)
(2,334)
(8,634)
408
(1,000)
(914)
346
(22)
(2,915)
(17,054)
549
25,051
8,546
2021
£’000
994
13,503
14,497
758
3,318
871
475
–
(582)
(4)
252
(23)
(2,919)
–
(987)
77
(17,899)
(74)
(2,240)
(7,964)
(1,525)
9,525
(2,204)
150
(2,054)
13
161
(1,876)
209
(38)
–
9,272
(96)
168
–
7,813
150
–
(824)
–
–
(674)
5,085
(110)
20,076
25,051
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 callable deposits with a notice period of three months or less. The carrying amount of these assets is approximately equal to
their fair value.
120
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Notes to the consolidated financial statements
for the year ended 31 December 2022
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 are set out in the Strategic Report on pages 4 to 59.
i The Strategic Report can be found on pages 4 to 59
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 16, 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 the current year £1.7 million of external development costs were capitalised and no internal development costs were capitalised.
There were no capitalised development costs for the prior year. The technical feasibility criteria is only typically achieved at the end of a project for most
of internal projects. During a printhead product development programme many sub-systems are evaluated in parallel and all of these systems carry
their own risk.
Significant estimates – The preparation of financial statements in accordance with UK-adopted international accounting standards (IFRS) 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.
Climate change is a global challenge and an emerging risk to business, people and the environment across the world. We have a role to play in limiting
warming by improving our energy management, reducing our carbon emissions and by helping our customers and suppliers do the same. Growing
awareness of climate change will provide the impetus for business growth as we provide products, services and solutions that increase efficiency and
reduce customers' energy use and carbon emissions.
Our plans allow for the upgrade, modification and improvements to our assets, to enable us to achieve our climate change strategy. We do not
envisage any specific impact to the useful economic life of assets as a result of these changes.
Based on the results of the recent formal climate-related scenario planning , the climate risk for the Group has been assessed to be medium to low.
Assuming we meet our target of becoming Net Zero by 2030, which is significantly sooner than most of the industry, the risk will be downgraded to low.
So at this point of assessment, in our view climate change does not create any further key sources of estimation uncertainty. For further detail see the
Risk management and Sustainability sections of the Strategic Report.
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:
Contingent consideration (estimation uncertainty) – notes 11 and 12
In November 2021, Stratasys Solutions Limited acquired the remaining 55% of Xaar 3D Limited for an initial consideration of US$13.5 million or £9.9
million in cash and a milestone consideration and 3% earn-out consideration which are contingent on the achievement of certain milestones in respect
of the future revenue stream of Xaar 3D and should be estimated using a statistical simulation model. This contingent consideration is measured at
fair value using a Monte Carlo Simulation model and the use of a recognised third party.
The Monte Carlo Simulation model uses a number of inputs that require estimation. The key ones are the risk-adjusted discount rate and revenue volatility.
The milestone consideration and 3% earn-out consideration are calculated based on the terms of the proposed transaction and by reference to simulated
revenue. This is then discounted back to the valuation date using a discount rate over a period commensurate with the year in which payments are payable.
The Group considers this model to be appropriate, given the complex conditions associated with the milestone consideration and 3% earn-out consideration
A sensitivity analysis is provided in note 22.
Impairment of goodwill and intangibles (estimation uncertainty) – notes 15 and 16
The Group tests goodwill and intangibles annually for impairment or more frequently if there are indications that goodwill might be impaired. Having
performed appropriate testing, no impairment has been identified and therefore no impairment loss has been recognised in 2022 (2021: £nil). Management
has performed sensitivity analysis on its reasonably worst case scenario for EPS, FFEI and Megnajet and it has been completed on each key assumption in
isolation. Reasonably possible change sensitivities are included in note 15.
Revenue recognition – note 5
Engineered Printing Solutions and FFEI recognise revenue on the stage of completion for some of the customer contract and performance obligations in the
manufacture of bespoke machinery and equipment as well as some of the research and development services 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 is subject to a level of uncertainty until the work in progress is finalised and the completed machinery and services are available for
final delivery and acceptance by the customer.
The transaction price allocated to partially satisfied and unsatisfied obligations at 31 December 2022 is set out in note 5.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
121
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
2. Key sources of estimation uncertainty and critical accounting judgements continued
Acquisition of Megnajet Ltd and Technomation Ltd – note 36
There is a high level of judgement surrounding the valuation of goodwill and acquired intangibles for any material acquisitions and this applies to the
acquisition of Megnajet and Technomation in the year. An additional judgement was required around the classification of Technomation as an asset
purchase rather than a business purchase and it was concluded as such as a result of the applied concentration test under IFRS 3:B7(A)a.
Management involved a third party valuation expert to estimate the value of the acquired intangibles and goodwill to ensure the judgements are
appropriately considered.
3. Significant accounting policies
Basis of accounting
The Group financial statements have been prepared in accordance with UK adopted International Accounting Standards (IAS). 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 Xaar plc (“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.
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 loss of control of
a subsidiary results in the recognition of a gain or loss on the sale of the interest sold and the derecognition of all assets, liabilities and any retained
non-controlling interest.
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 16 to 25. Notes 21 and 22 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. 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 2022 of £8.5 million. As set out in note 22, the Group has a £5 million invoice discounting facility, of
which £0.4 million was drawn as at 31 December 2022.
The Group has prepared and reviewed monthly profit and cash flow forecasts which cover a period up to 30 June 2024, the going concern period. This
base case forecast position has been compiled by considering the performance of the different businesses across the Group and each of their funding
requirements which represents the current Board approved forecasts. These forecasts reflect existing technologies and products, existing OEM
adoption, the committed order pipeline, an increasing customer install base and demand for consumables such as fluids across the customer base
and no specific risks around creditworthiness. This creates a high degree of predictability within the short-term cash flows, which have been factored
in to the level of sensitivity testing and reverse stress testing performed below. As set out in note 6, there is no concentration of revenues from an
individual customer. The operational steps described in the Strategic Report also provide increased predictability over future margins, which have been
incorporated in this base case forecast. Using this base case, liquidity compliance has been assessed across the going concern period and is sufficient
to enable the Group to settle its obligations as they fall due.
To support the going concern conclusion, a sensitivity analysis has been performed which models a 10% reduction in revenue and 2% reduction in
gross margin in comparison to the base case and is below the reported FY22 actual result. The outcome of this sensitivity analysis is that the Group
maintains liquidity across the going concern period and is able to meet all forecasted obligations as they fall due. A reverse stress scenario has also
been performed to model the circumstances required to eliminate available liquidity during the going concern period. This includes reducing revenues
and reducing gross margin. This reverse stress scenario requires a reduction in revenue in excess of 25% in comparison to the base case and is below
the reported FY22 actual result, as is the assumed margin. The Directors believe the possibility of this combination of severe downsides arising to be
remote given the recurring revenue base and predictability of forecasts, and that there are numerous controllable mitigating actions such as deferring
non-committed capital expenditure and reducing performance related pay which could be taken to avoid a liquidity breach.
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Financial Statements
3. Significant accounting policies continued
Going concern continued
Should extreme downside scenarios occur, the Group has further options within its control to mitigate a cash shortfall which have not been factored
into the above forecasts and stress testing, such as staffing reductions, further delaying/stopping capital and research and development expenditure
and aligning performance related pay to actual results. The Group has also received credit pre-approval for a £5 million revolving credit facility. No
drawdowns have been assumed during the going concern period, nor are they required in the sensitivity or reverse stress scenarios described above
and as such the facility would provide additional liquidity headroom to the Group across the going concern period.
Based on the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
period to 30 June 2024. 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, adjusted EBITDA, and adjusted basic and
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 are not reflective of the underlying performance 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, gain on derivative financial instruments, restructuring
and transaction expenses, the research and development expenditure credit, fair value gains on financial assets and amortisation of acquired
intangible assets. See note 4 for further detail.
Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment, and allow for variation transactions that can occur
e.g. due to volatility in share prices in respect of share-based payment charges, or the significant impact of restructuring and transaction expenses.
Non-recurring items are identified and adjusted for by virtue of their size or nature.
Share-based payment charges are excluded from the calculation of adjusted profit/(loss) before tax as these represent a non-cash accounting charge
which represent long-term incentives designed for long-term employee retention. Share-based payment charges are not included in the analysis
of segment performance used by the Chief Operating Decision Maker and their add-back is consistent with metrics used by a number of other
companies in the technology sector, therefore this treatment remains appropriate.
Fair value gains and losses on financial assets at fair value through profit and loss are excluded from the calculation of adjusted profit/(loss) before tax
as these represent a non-cash movement in accounting estimates related to divestment contingent consideration.
The movements are driven by external factors and not influenced by the Group. Fair value gains and losses on financial assets at fair value through
profit and loss bear no relation to the Group’s underlying ongoing operational performance, and are not included in the analysis of segment
performance used by the Chief Operating Decision Maker.
Amortisation of acquired intangibles is excluded from the calculation of adjusted profit/(loss) before tax as these charges are the result of acquisition
accounting, and whilst revenue recognised in the income statement benefits from the underlying intangibles that have been acquired, the amortisation
costs bear no relation to the Group’s underlying ongoing operational performance. In addition, amortisation of acquired intangibles is not included in
the analysis of segment performance used by the Chief Operating Decision Maker.
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.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method in accordance with IFRS 3.
Goodwill
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the sum of consideration transferred,
the amount of any non-controlling interests in the acquiree over the net of the acquisition-date fair values of the identifiable assets, liabilities and
contingent liabilities recognised. If after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement.
Goodwill 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.
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Financial Statements
123
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
3. Significant accounting policies continued
Revenue recognition
Overall policy
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.
2.
Identifying the contract with a customer;
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 streams
Revenue arises from a number of sources but mainly “product sales”:
• the manufacture and sale of printheads
• engineered printing solutions and
• digital imaging devices
The Group also provides consulting and research and development services (“commissions and services”), and licenses intellectual property to third
parties as part of royalty-based revenue (“licensee royalties”).
Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
Identification of performance obligations
When the Group enters into an agreement with a customer, goods and services deliverable under the contract are identified as separate performance
obligations (“obligations”) to the extent that the customer can benefit from the goods or services on their own and that the separate goods and services
are considered distinct from other goods and services in the agreement. Where individual goods and services do not meet the criteria to be identified
as separate obligations they are aggregated with other goods and/or services in the agreement until a separate obligation is identified.
Typically each of the revenue streams listed above qualify as separate performance obligations, with consideration allocated accordingly. However, for
certain of the Digital Imaging and Product Print Systems contracts, the performance obligations are not distinct, for example where the services are
essential for the customer to be able to benefit from the product sale.
Timing of revenue recognition
Revenue is recognised in accordance with IFRS 15 when control has been transferred to the customer. For product sales, 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); this can arise in the Product Print Systems and Digital Imaging segments for example where the asset produced does not have an
alternative use and the Group has an enforceable right to payment for performance completed to date. An input methodology (based on estimated
labour hours or costs) is used as this depicts the performance conditions when recognising revenue over time. Where this is the case, the performance
obligations are typically not distinct as set out above. Payments for revenue recognised over time are typically in instalments whereas point in time
revenue is typically invoiced in arrears.
Commissions and services revenue is recognised over time where the customer simultaneously receives and consumes the benefits of the Group’s
performance obligations. Where this is not the case, revenue is recognised at a point in time. Payments for this revenue stream are typically in arrears.
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 the Group’s related intellectual property installed in equipment developed by original equipment manufacturers (OEMs).
Further details of payment terms are provided in note 21.
Receivables
A receivable is recognised when the performance obligations are satisfied (e.g. upon shipment for product sales, 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 is required to be presented separately in the income statement.
Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates
(its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are
expressed in Sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.
Exchange differences arising on the settlement of monetary assets and liabilities, and on the retranslation of monetary assets and liabilities, are
included in the income statement for the period.
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Financial Statements
3. Significant accounting policies continued
Foreign currencies continued
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 monthly average exchange
rates for the period which are an approximation of actual rates.
Exchange differences arising on the translation of the net investment in foreign operations are recognised in other comprehensive income and 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.
Restructuring costs
Restructuring cost refers to the one-time expenses or infrequent expenses which are incurred by the Group 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 Group.
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. 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 (taxable temporary differences only) 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 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 charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income or
directly in equity, in which case the deferred tax is also dealt with in other comprehensive income or directly in equity respectively.
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.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
125
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
3. Significant accounting policies continued
Property, plant and equipment continued
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: 3 to 20 years
• Furniture, fittings and equipment: 3 to 20 years
• Buildings: Up to 40 years
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.
Spare parts are capitalised within property, plant and equipment where it is expected that future economic benefits will flow to the entity and the cost
can be measured reliably. This typically relates to critical spares, which must be maintained for business continuity. Depreciation of these assets
commences both when the assets are bought and when they are put in use. The former has longer useful life of six years to account for the ‘idle’ time
whilst the latter is shorter useful life of three years which is an approximation for the average useful life of a part in use.
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.
An internally generated intangible asset arising from the Group’s development is recognised only if the conditions of IAS 38 paragraph 57 are met.
Internally generated intangible assets are amortised on a straight-line basis over 3 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.
Acquired intangible assets as a result of business combinations are capitalised and amortised on a straight-line basis over their estimated useful lives.
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.
• Capitalised development costs – Patents over the life of the patent; Development costs based on the project life
• Licences acquired shorter of the licence term and 20 years
• Software – three to fifteen years with IT equipment being three years and infrastructure up to fifteen years
• Customer relationships - six to eight years
• Brands - ten years
• Technology-based patents - six years
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 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.
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Financial Statements
3. Significant accounting policies continued
Leases continued
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 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 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.
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.
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.
Contract asset/contract liability
A contract asset is recognised when revenue recognised in respect of a customer contract exceeds amounts received or receivable from the customer. This
situation arises when the recognition of revenue over time to date is greater than amounts invoiced to the customer and invoicing is conditional on further
performance. The carrying amount is reduced by allowances for expected credit losses under IFRS 9.
When there is an unconditional entitlement, generally when invoices are raised, the contract asset values are reclassified to trade receivables.
Contract liabilities comprise the Group’s obligation to transfer goods or services to a customer for which the Group has received payment from the customer in
advance of revenue recognition. This situation arises when the customer is invoiced in advance and the revenue recognised over time is lower than the amounts
invoiced to the customer.
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.
Recognition of 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.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
127
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
3. Significant accounting policies continued
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 and contract assets are recognised using a
lifetime ECL approach.
For financial assets carried at amortised cost, the amount of the impairment is the difference 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.
The decision as to whether a transfer qualifies for derecognition is made by applying a combination of risks and rewards and control tests. The risks
and rewards tests seek to establish whether, having transferred a financial asset, the entity continues to be exposed to the risks of ownership of that
asset and/or continues to enjoy the benefits that it generates. The control tests are designed with a view to understanding which entity controls the
asset (i.e. which entity can direct how the benefits of that asset are realised).
Inherent in the IFRS 9 derecognition model is the notion of ‘stickiness’, i.e. it is more difficult to remove an asset from an entity’s statement of financial
position than it is to recognise that asset in the first place. Derecognition cannot be achieved by merely transferring the legal title to a financial asset
to another party. The substance of the arrangement must be assessed in order to determine whether an entity has transferred the economic exposure
associated with the rights inherent in the asset (i.e. its risks and rewards) and, in some cases, control of those rights. 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).
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.
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.
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 an original 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.
The Group has entered into an invoice discounting arrangement. See note 22.
128
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
3. Significant accounting policies continued
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. Provisions for leased property
dilapidation are recognised at the commencement of the lease using the Group’s best estimate to settle the obligation at the end of the lease term.
Share-based payments
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. The fair value of all other equity-settled share-based payments is measured using the Black-Scholes
pricing model. The expected life used in these models has been adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated
recognition of the expenses that would have arisen over the remainder of the original vesting period.
Own shares
Own shares are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s
own shares.
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.
Non-current asset (or disposal group) is classified as held for sale only when two conditions are met:
• the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales
of such assets (or disposal groups);
• and its sale is highly probable
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 are shown in the discontinued operations note 11.
New and amended standards and interpretations
The Group adopted the following amendments to standards and interpretations, which are effective for the first time this year:
• Annual improvements to IFRS standards 2018–2020
• Amendment to IFRS 3 – Business Combinations
• Amendments to IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
• Amendments to IAS 16 – Property, Plant and Equipment
The amendments have not had a material impact on the reported results.
International Accounting Standards in issue but not yet effective
The Group intends to adopt new and amended standards and interpretations, if applicable, when they become effective. The amended standards and
interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are not expected to have an impact
on the Group’s reported financial position or performance.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
129
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
4. Reconciliation of adjusted financial measures
Profit before tax from continuing operations
Share-based payment charges
Exchange differences on intra-group transactions
Gain on derivative financial liabilities
Restructuring and transaction expenses
Research and development expenditure credit
Fair value gain on financial assets at fair value through profit or loss
Amortisation of acquired intangible assets
Adjusted profit/(loss) before tax from continuing operations
Interest income
Finance costs
Depreciation of property, plant and equipment
Amortisation of intangible assets (other than acquired intangibles)
Loss on asset disposal
Impairment of assets
Adjusted EBITDA from continuing operations
Note
9
22
22
16
10
17
16
17
2022
£’000
824
1,748
(811)
–
450
(379)
8
982
2,822
(38)
453
2,654
85
80
147
6,203
2021
£’000
994
758
95
(2,919)
1,404
(270)
(987)
354
(571)
(4)
242
3,318
121
77
–
3,183
EBITDA is calculated as statutory operating profit before depreciation (other than that arising from IFRS 16 accounting), 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 £1,559,000 (2021: £653,000) and the debit relating to National Insurance on
the outstanding potential share option gains of £189,000 (2021: £105,000).
Exchange differences relating to the United States and Swedish operations represent exchange gains or losses recorded in the consolidated income
statement as a result of intra-group transactions in the United States and Sweden. These costs were included in general and administrative expenses
in the consolidated income statement.
Gain on derivative financial instruments relates to gains made on call option contracts which were exercised in 2021. These amounts are included on
the consolidated income statement under gain on derivative financial liabilities.
Restructuring and transaction expenses of £450,000 (2021: £1,404,000) relate to costs incurred and provisions made in relation to acquisition
transactions of £194,000 (2021: £961,000) and reorganisation costs. The calculated impact of the restructuring and transaction expenses at the
corporation tax rate of 19% would be £32,000 based on the expenses included that would be treated as tax deductible (2021: £52,000). The cash paid
related to restructuring and investment expenses is £792,000 (2021: £992,000).
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 £198,000 received during the year were in relation
to the Xaar RDEC claim which related to the claim for year ended 31 December 2020. In 2021 £219,000 was received in relation to the FFEI RDEC and
R&D claim which related to their financial year 1 April 2020 to 31 March 2021.
The fair value loss of £8,000 (2021: £987,000 gain) on financial assets at fair value through profit and loss relates to the sale of Xaar 3D Limited. The
net consideration includes contingent consideration that is valued and reported at fair value. The fair value movement is recognised in the income
statement as fair value loss on financial assets at fair value through profit and loss. Further details are included in notes 11 and 22.
The amortisation of acquired intangible assets relates to the acquisition of FFEI Limited in 2021 and the acquisition of Megnajet Limited and
Technomation Limited in 2022. These include software, patents and customer relationships for FFEI which are being amortised over six years and IP,
brand and customer relationships for Megnajet and Technomation which are being amortised over eight to ten years. These costs were included in
general and administrative expenses in the consolidated income statement.
130
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
4. Reconciliation of adjusted financial measures continued
Basic earnings per share from continuing operations
Share-based payment charges
Exchange differences on intra-group transactions
Gain on derivative financial liabilities
Restructuring and transaction expenses
Research and development credit
Fair value gain on financial assets at FVTPL
Amortisation of acquired intangible assets
Tax effect of adjusting items
Note
14
Adjusted basic earnings/(loss) per share from continuing operations
14
2022
Pence per share
2021
Pence per share
2.3p
2.3p
(1.1p)
–
0.6p
(0.5p)
–
1.3p
(0.1p)
4.8p
0.9p
1.0p
0.1p
(3.8p)
1.8p
–
(1.3p)
0.5p
(0.2p)
(1.0p)
This reconciliation is provided to align with how the Board measures and monitors the business at an underlying level, and is a measure used in
establishing remuneration.
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.
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 does not have an alternative use and the Group has an enforceable right to
payment for performance completed to date. An input methodology (based on estimated labour hours or costs) is used as this depicts the performance
conditions when recognising revenue over time.
2022
Continuing operations
Printhead
Product Print Systems
Digital Imaging
Ink Supply Systems
2021
Continuing operations
Printhead
Product Print Systems
Digital Imaging
Product sales
£’000
Commissions &
services
£’000
Licensee
royalties
£’000
38,318
19,056
8,809
2,483
68,666
675
568
2,824
–
4,067
49
–
–
–
49
Product sales
£’000
Commissions &
services
£’000
Licensee
royalties
£’000
39,186
13,487
3,773
56,446
678
413
1,477
2,568
240
–
–
240
Total
£’000
39,042
19,624
11,633
2,483
72,782
Total
£’000
40,104
13,900
5,250
59,254
Product Print Systems and Digital Imaging have contracts with customers where the performance obligations are partially unsatisfied at 31 December
2022. The transaction price allocated to partially satisfied and unsatisfied performance obligations at 31 December 2022 is as set out below. The
transaction price allocated to partially satisfied performance obligations has 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
2022
£’000
5,464
6,437
2021
£’000
4,569
6,060
11,901
10,629
Management expects that £6,310,000 of the partially unsatisfied performance obligations at 31 December 2022 will be recognised in 2023 with the
remaining £127,000 in future periods (2021: £5,809,000 recognised in 2022, £251,000 in future periods).
During the year contract assets have increased by £181,000 from £1,319,000 in 2021 (restated) to £1,500,000 in 2022. Contract liabilities have increased
by £258,000 from £3,541,000 in 2021 (restated) to £3,799,000 in 2022. Both of these movements are primarily due to the completion of Product Print
Systems contracts. All contract liabilities are expected to be realised within the next year.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
131
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
5. Revenue continued
At a point in time
Over time
Total revenue
Within one year
In between one and five years
Total transaction price for partially completed contracts
Asset/liability table
Trade and other receivables
Contract assets
Contract liabilities
2022
£’000
67,318
5,464
72,782
2022
£’000
6,310
127
6,437
2022
£’000
7,321
1,500
(3,799)
2021
£’000
54,685
4,569
59,254
2021
£’000
5,809
251
6,060
2021
£’000
Restated
5,192
1,319
(3,541)
The contract assets represent revenue recognised in the consolidated income statement, but not yet invoiced.
6. Business and geographical segments
For management reporting purposes, the Group’s operations are analysed according to the four operating segments of ‘Printhead’, ‘Product Print
Systems’, ‘Digital Imaging’ and 'Ink Supply Systems'. These four 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.
Digital Imaging was added in the second half of 2021 as a result of the acquisition of FFEI and Ink Supply Systems was added in the first half of 2022
as a result of the acquisition of Megnajet on 2 March 2022.
Segment information for continuing operations is presented below:
Year ended 31 December 2022
Revenue
Total segment revenue
Result
Adjusted (loss)/gain from continuing operations before tax
Share-based payment charges
Exchange differences relating to intra-group transactions
Restructuring and transaction expenses
Gain on derivative financial liabilities
Research and development expenditure credit
Fair value gain on financial assets at FVTPL
Amortisation of acquired intangible assets
Profit/(loss) before tax from continuing operations
Printhead
£’000
Product Print
Systems
£’000
Digital
Imaging
£’000
Ink Supply
Systems
£’000
Unallocated
£’000
Consolidated
£’000
39,042
19,624
11,633
2,483
–
72,782
(754)
–
811
(429)
–
83
(8)
–
(297)
2,756
–
–
–
–
–
–
–
2,756
198
–
–
–
–
296
–
(775)
(281)
622
–
–
(21)
–
–
–
(207)
–
(1,748)
–
–
–
–
–
–
394
(1,748)
2,822
(1,748)
811
(450)
–
379
(8)
(982)
824
Unallocated corporate expense relates to administrative activities which cannot be directly attributed to any of the principal product groups, consisting
of share-based payment charges include the IFRS 2 charge for the year and the charge relating to National Insurance on the outstanding potential
share options.
132
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
6. Business and geographical segments continued
Year ended 31 December 2021
Revenue
Total segment revenue
Result
Adjusted (loss)/gain from continuing operations before tax
Share-based payment charges
Exchange differences relating to intra-group transactions
Restructuring and transaction expenses
Gain on derivative financial liabilities
Research and development expenditure credit
Fair value gain on financial assets at FVTPL
Amortisation of acquired intangible assets
Profit/(loss) before tax from continuing operations
Printhead
£’000
Product Print
Systems
£’000
Digital
Imaging
£’000
Ink Supply
Systems
£’000
Unallocated
£’000
Consolidated
£’000
40,104
13,900
5,250
(526)
–
(95)
(1,288)
2,919
227
987
–
2,224
(766)
–
–
(116)
–
–
–
–
(882)
721
–
–
–
–
43
–
(354)
410
–
–
–
–
–
–
–
–
–
–
–
59,254
–
(758)
–
–
–
–
–
–
(758)
(571)
(758)
(95)
(1,404)
2,919
270
987
(354)
994
In addition to the external revenue reported by operating segments, the Printhead segment made £1,399,000 (2021: £1,092,000) of intercompany sales,
the Product Print Systems segment made nil (2021: £312,000) of intercompany sales and the Ink Supply Systems segment made £538,000 (2021: nil)
of intercompany sales.
Segment assets – Continuing operations
Printhead
Product Print Systems
Digital Imaging
Ink Supply Systems
Total assets
2022
£’000
67,089
16,920
15,035
3,397
2021
£’000
73,247
16,793
13,900
–
102,441
103,940
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 2022
Notes
Depreciation and amortisation
Impairment of PPE
Share-based payment charges
Capital expenditure (PPE)
8
9
17
Year ended 31 December 2021
Depreciation and amortisation
Impairment of PPE
Share-based payment charges
Capital expenditure (PPE)
Printhead
£’000
3,265
147
–
1,639
Notes
8
9
17
Product
Print
Systems
£’000
244
–
–
231
Printhead
£’000
3,844
–
–
2,153
Digital Imaging
£’000
Ink Supply
Systems
£’000
Unallocated
£’000
Consolidated
£’000
1,260
–
–
673
Product
Print
Systems
£’000
290
–
–
160
23
–
–
119
–
–
1,748
–
4,792
147
1,748
2,662
Digital Imaging
£’000
Unallocated
£’000
Consolidated
£’000
530
–
–
127
–
–
758
–
4,664
–
758
2,440
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
133
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
6. Business and geographical segments continued
Revenues from major products and services – Continuing operations
Printhead
Product Print Systems
Digital Imaging
Ink Supply Systems
Consolidated revenue (excluding investment income)
2022
£’000
39,042
19,624
11,633
2,483
72,782
2021
£’000
40,104
13,900
5,250
–
59,254
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
are detailed below:
EMEA
Asia
– China
– Japan
– Other
The Americas (predominantly USA)
Revenues are attributed to geographical areas on the basis of the customer’s operating location.
Revenue attributed to the UK was £2,680,000 (2021: £3,733,000).
EMEA
Asia
The Americas (predominantly USA)
Revenue from external customers
Continuing operations
2022
£’000
28,418
6,748
396
1,045
36,175
72,782
2022
£’000
31,353
213
8,450
40,016
2021
£’000
23,730
10,562
575
828
23,559
59,254
Non-current assets
2021
£’000
27,784
90
7,657
35,531
Non-current assets being Goodwill, Other intangible assets, Property, plant and equipment and Right-of-use assets as these 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.
Revenue from the top five customers represents 29% of revenues (2021: 28%).
7. Other income
The only other income is 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.
During the year FFEI received a grant of £139,276 from the UKRI Future Leaders Fellowships scheme. The purpose of this grant is to increase
throughput, quality and validity of imaging data for Biomedical AI. The full £139,276 was recognised and received in the year.
Xaar plc and its UK based subsidiaries decided not to take part in any of the government support schemes arising from the COVID-19 crisis in current,
prior nor preceding years.
134
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
8. Profit/(loss) for the year
Profit for continuing operations in the year has been arrived at after charging/(crediting):
Research and development expenses*
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 other intangible assets (included in general and administrative expenses)
Loss on disposal of property, plant and equipment
Cost of inventories recognised as expense
Impairment (losses)/gains on financial assets
Net gain on foreign exchange
Total fees payable to the Company’s auditor and its associates
2022
£’000
6,718
(379)
2,654
1,071
–
1,067
80
42,184
46
(1,152)
779
2021
£’000
5,706
(227)
3,318
871
77
398
77
36,227
( 388)
(158)
651
* Total spend on research and development in 2022, including capitalised and amortised development costs included in note 16, was £8,375,000 (2021: £5,706,000).
Auditor’s remuneration
Fees payable to the Company’s auditor
– Group and Company audit
– Prior year overrun
Total audit fees
– Interim review
Total non-audit fees
Total fees payable for the continuing operations
Total audit fees payable for the discontinued operations
Total fees payable to the Company's auditor and its associates
2022
£’000
2021
£’000
695
–
695
84
84
779
–
779
493
120
613
38
38
651
38
689
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 73 to 78 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
2022
Number
2021
Number
85
49
235
66
435
2022
£’000
22,560
2,400
1,303
1,748
28,011
86
46
222
53
407
2021
£’000
20,958
2,014
930
758
24,660
Notes
32
Share-based payment charges comprise the IFRS 2 charge for the year £1,559,000 (2021: £653,000) and a charge relating to National Insurance on the
outstanding potential share option gains £189,000 (2021: £105,000).
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
135
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
10. Interest receivable & payable
Investment income
Interest receivable on cash and bank balances, and treasury deposits
38
38
4
4
There was no accrued interest receivable at year end (2021: £1,000). Cash interest received at year end was £39,000 (2021: £13,000).
Group
£’000
2022
Total £’000
Group
£’000
2021
Total £’000
Finance Costs
Interest on invoice securitisation/discounting
Interest on leases
Other interest costs
Notes
22
18
2022
£’000
33
242
178
453
2021
£’000
–
144
98
242
Interest on invoice securitisation/discounting is charged daily on amounts drawn at a rate equivalent to the appropriate base rate + 1.75% p.a.
Interest on leases is calculated at an effective interest rate depending upon the initial gross valuation of the lease and discounted repayment terms to
calculate an Internal Rate of Return (IRR) required to achieve a nil value at the end of the lease term. Each lease is considered in isolation, a range of
discount rates and interest rates are applicable between 2.0% and 4.0%.
11. Discontinued operations
The Thin Film business which was discontinued in 2019 incurred costs in 2021 and 2022 which mainly related to supplier and customer liabilities and
inventory for last time buy sales. All liabilities have now been settled and we maintain an amount of inventory that is fully provided and not likely to be
sold.
During the year ended 31 December 2021, the Xaar 3D business completed its divestment. Xaar received net cash of £9,272,000 and as specified in
the sale agreement, additional cash consideration of up to $21,250,000. At the time of sale, the fair value of the consideration was determined to be
£10,863,000. It was recognised as a financial asset at fair value through profit or loss. Further detail is disclosed in note 36.
During the year, Xaar received earn-out income amounting to €289,000 (£236,000). At year end, the fair value was re-estimated to be £11,606,000
(2021: £11,850,000). The loss of £8,000 (2021: £987,000 gain) is presented in the income statement as fair value gain on financial assets at fair value
through profit or loss. The results of Xaar 3D business for the period ended 1 November 2021 are included in the discontinued operations in the income
statement for the year ended 31 December 2021.
The results of Thin Film and 3D related activities for the year are shown below:
Revenue
Expenses
Loss before income tax
Income tax credit
Net loss before gain on sale
Gain on sale of investment in subsidiary
(Loss)/profit after income tax from discontinued operations
Thin Film
2022
£’000
3D
2022
£’000
–
(159)
(159)
–
(159)
–
(159)
–
–
–
–
–
–
–
Total
2022
£’000
–
(159)
(159)
–
(159)
–
(159)
Thin Film
2021
£’000
384
(623)
(239)
–
(239)
3D
2021
£’000
2,918
(7,075)
(4,157)
30
(4,127)
Total
2021
£’000
3,302
(7,698)
(4,396)
30
(4,366)
–
17,899
17,899
(239)
13,772
13,533
The 2021 gain on sale of investment in subsidiary was not subject to income tax because it falls under the Substantial Shareholding Exemptions (SSE) Rule.
136
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
11. Discontinued operations continued
The 2021 £7,075,000 expenses in 3D are net of £297,000 that relates to service charge received from the Group undertaking which has to be eliminated
in the Group’s consolidated income statement.
Attributable to:
Owners of the Company
Non-controlling interest
The net cash flows incurred by Thin Film and 3D are as follows.
Net cash (outflow)/inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net cash (used)/generated from discontinued operations
Thin Film
2022
£’000
3D
2022
£’000
Total
2022
£’000
Thin Film
2021
£’000
3D
2021
£’000
Total
2021
£’000
(159)
–
(159)
–
–
–
Thin Film
2022
£’000
3D
2022
£’000
(150)
–
–
(150)
–
–
–
–
(159)
–
(159)
Total
2022
£’000
(150)
–
–
(150)
(239)
–
(239)
15,763
(1,991)
15,524
(1,991)
13,772
13,533
Thin Film
2021
£’000
103
–
–
103
3D
2021
£’000
(1,792)
(122)
(98)
(2,012)
Total
2021
£’000
(1,689)
(122)
(98)
(1,909)
(Loss)/earnings per share
(Loss)/earnings for the year from discontinued operations
Diluted (loss)/earnings for the year from discontinued operations
2022
Pence per
share
2021
Pence per
share
(0.2p)
(0.2p)
20.0p
19.7p
The sale of the Xaar 3D business is summarised below. The total consideration received includes the initial cash consideration and contingent
consideration less transaction costs that are directly attributable to the sale. The carrying amount of the net assets sold represents 55% of the Xaar
shareholding to 3D adjusted by an intra-company markup that relates to inventory.
Consideration received or receivable:
Cash
Fair value of contingent consideration
Less: Transaction costs
Total disposal consideration
Carrying amount of net assets sold
Gain on sale of investment in subsidiary
2021
£’000
9,272
10,863
(246)
19,889
(1,990)
17,899
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
137
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
12. Tax
Total tax calculation:
Current tax – UK
Current tax – overseas
Amounts under provided in previous years
Total current income tax (credit)/charge
Deferred tax – origination and reversal
Adjustment in respect of prior years
Total deferred tax credit
Total tax (credit)/charge for the year
Notes
2022
£’000
(269)
87
(182)
96
(86)
(881)
–
(881)
(967)
2021
£’000
100
15
115
71
186
45
38
83
269
The rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2021: 19%). Taxation for other jurisdictions is calculated at the
rates prevailing in the respective jurisdictions.
The Finance Act 2021, which was substantively enacted on 10 June 2021, amended the main rate of corporation tax to 25% from 1 April 2023. 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 2022
have been calculated at the rate at which the relevant balance is expected to be recovered or settled.
The cash flow statement shows repayments of tax for £113,000 during the year (2021: £150,000). The £113,000 is broken down as £199,000 for the
RDEC claim received and £86,000 net income taxes paid (primarily in the US).
In the year ending 31 December 2022, the eligible UK companies in the Group are claiming R&D tax relief and RDEC for paid for development.
The closing deferred tax asset at 31 December 2022 is entirely related to the USA tax losses and has been calculated using the US tax rates at which
the deferred tax asset is expected to be reversed in future periods. Details on deferred tax assets and liabilities are disclosed in note 23.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax from continuing activities
(Loss)/profit before tax from discontinued activities
Profit before income tax
Tax on ordinary activities at standard UK rate of 19% (2021: 19%)
Effect of:
Expenses not deductible for tax purposes
(Non-taxable) income
R&D SME credit
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
Previously unrecognised amounts now recognised
Derecognition of previously recognised deferred tax balances
Prior year adjustments
Losses surrendered for tax credit
Foreign exchange on translation of balances
Total tax (credit)/expense for the year
Income tax (credit)/expense reported in the statement of profit and loss
Income tax credit attributable to discontinued operations
Notes
2022
£’000
824
(159)
665
126
878
(1,521)
(285)
6
3
541
(1,060)
–
82
374
(111)
(967)
(967)
–
(967)
2021
£’000
994
13,503
14,497
2,754
398
(4,021)
(171)
(135)
–
1,195
–
141
108
–
–
269
299
(30)
269
The expenses not deductible for tax purposes mainly relate to depreciation on non-qualifying assets, R&D SME expenditure and share-based payments.
The effective tax rate for the year is -145.4%. Without recognising the previously unrecognised US tax losses, this would have been 14.0% (2021: 1.9%).
13. Dividends
No interim or final dividend was proposed or paid during the current and preceding year.
138
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
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 profit/(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
2022
£’000
2021
£’000
1,632
1,791
(159)
16,219
695
15,524
77,549,264
77,528,064
4,085,096
1,261,215
Weighted average number of ordinary shares for the purposes of diluted earnings per share
81,634,360
78,789,279
Basic
Diluted
Continuing operations:
Basic
Diluted
Discontinued operations:
Basic
Diluted
2022
Pence per share
2021
Pence per share
2.1p
2.0p
2.3p
2.2p
(0.2p)
(0.2p)
20.9p
20.6p
0.9p
0.9p
20.0p
19.7p
Potential ordinary shares are treated as dilutive if their conversion to ordinary shares would decrease earnings per share or increase loss per share.
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 2022, there were share options granted over 276,547 shares that had not been included in the diluted earnings per share calculation because they
were anti-dilutive at the year end (2021: 107,490 shares that would not have been included).
The performance conditions for LTIP awards over 172,492 shares (2021: 1,510,685 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.
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 the items listed below, 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
Shared-based payment charges
Exchange difference relating to intra-group transactions
Gain on derivative financial instruments
Restructuring and transaction expenses
Research and development credit
Fair value gain on financial assets at FVTPL
Amortisation of acquired intangible assets
Tax effect of adjusting items
Adjusted profit/(loss) after tax – continuing operations
Tax effect of adjusting items is calculated at current corporation tax rate (19%) less any disallowed tax items.
2022
£’000
1,791
1,748
(811)
–
450
(379)
8
982
(100)
3,689
2021
£’000
695
758
95
(2,919)
1,404
–
(987)
354
(179)
(779)
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
139
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
14. Earnings per share – basic and diluted continued
Adjusted earnings per share continued
The tax credit effect in the adjusted basic earnings per share reflects the fact that the FV gain/loss on financial assets at FVTPL and transaction costs
were non-deductible. R&D tax credits are not taxable. In addition, deferred tax assets are largely unrecognised in respect of share-based payments.
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
2022
Pence per share
2021
Pence per share
4.8p
4.5p
(1.0p)
(1.0p)
15. Goodwill
The carrying amount of goodwill at 31 December 2022 was £7,163,000 (2021: £5,894,000).
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that
business combination. Goodwill occurred from the acquisition of Engineered Print Solutions (EPS) in July 2016, FFEI Limited in July 2021 and Megnajet
Limited in March 2022.
Balance at the beginning of the year
Addition – acquisition of Megnajet Limited (2021: FFEI Limited)
Foreign currency translation
Balance at the end of the year
2022
£’000
5,894
661
608
7,163
2021
£’000
5,152
689
53
5,894
As part of the reportable segments, goodwill amounting to £5,813,000 is attributed to Product Print Systems (2021: £5,205,000), £689,000 to Digital
Imaging (2021: £689,000) and £661,000 to Ink Delivery Systems (2021: nil). These are all single CGUs.
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 during the current and preceding year.
The goodwill balance has been tested for annual impairment on the following basis:
• the carrying value of goodwill has been assessed by reference to value in use, which has been estimated using cash flow forecasts. The basis
of these forecasts is the Board approved budget for the next year and management reviewed three-year plans, which have been extrapolated
to a five-year view for each CGU, taking into consideration any expected inflationary pressures. Margins are broadly consistent with historic
performance and revenues assumed take into account past experience and are reflective of a conservative view of Xaar's core strategy;
• discount rates range between 18.2 % and 14.5%, reflecting third party specialist advice, and have been determined by taking into account
geographies, size of business and industry risk factors;
• long-term growth rates of 1% (2021: 1%) for UK based CGUs and 1.4% (2021: 1.4%) for those in the US (being Product Print Systems only) were used
based on OECD growth rate.
The outcomes of the impairment assessments conducted are dependent on estimates which have been subject to sensitivity analyses before a
conclusion on impairment was made. It is management's view that the key assumptions are revenue growth, gross margin % and discount rate. Any
reasonably possible change to these sensitivities that could result in an impairment charge have been disclosed below:
Engineered Print Solutions (Product Print Systems) goodwill impairment review
Using a discount rate of 14.5% (2021: 13.7%) the recoverable amount calculated exceeds the carrying value of the CGU by $12.1 million (£10.1 million,
2021: £10.0 million). The carrying amount of goodwill would exceed its recoverable amount, when compared to the risk adjusted cash flows, if:
• forecast compound annual revenue growth over the five-year period were to decline from a forecast of 3.9% to 0.3%, representing a movement in
revenue from $24.2 million in 2022 to $24.6 million in 2027, assuming no mitigating actions were taken.
• there was a reduction in assumed direct gross margin from 39% to 34%.
Digital Imaging goodwill impairment review
Using a discount rate of 18.2% (June 2022: 11.4%) the recoverable amount calculated exceeds the carrying value of the CGU by £5.1 million
(£7.2 million, June 2022). No reasonably possible changes to assumptions that could result in an impairment charge have been identified.
Ink Delivery Systems goodwill impairment review
• Using a discount rate of 15.6% the recoverable amount calculated exceeds the carrying value of the CGU by £4.1 million. No reasonably possible
changes to assumptions that could result in an impairment have been identified.
140
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
16. Other intangible assets
Cost
At 1 January 2021
Additions
Transfers
Exchange movements
At 1 January 2022
Additions
Acquisitions
Transfers
Exchange movements
Disposals
At 31 December 2022
Amortisation
At 1 January 2021
Charge for the year
Transfers
At 1 January 2022
Charge for the year
Exchange movements
Disposals
At 31 December 2022
Carrying amount:
At 31 December 2022
At 31 December 2021
Capitalised
development
costs
£’000
Licences
acquired
£’000
Software
£’000
Technology-
based
intangible
asset
£’000
Brands
£'000
Customer
relationships
£’000
38,687
–
–
–
38,687
1,657
–
222
–
–
40,566
38,611
77
(1)
38,687
–
–
–
38,687
532
–
–
–
532
1,100
–
–
–
–
1,632
532
–
–
532
38
–
–
570
1,879
1,062
–
–
3,437
124
(80)
2
3,483
33
–
–
12
(14)
3,514
3,306
44
(16)
3,334
46
12
(14)
3,378
136
149
–
3,044
–
–
3,044
–
1,990
–
–
–
5,034
–
254
–
254
715
–
–
969
4,065
2,790
–
–
–
–
–
–
281
–
–
–
281
–
–
–
-
23
–
–
23
258
–
–
1,204
–
–
1,204
–
422
–
–
–
1,626
–
100
–
100
245
–
–
345
1,281
1,104
Total
£’000
42,656
4,372
(80)
2
46,950
2,790
2,693
222
12
(14)
52,653
42,449
475
(17)
42,907
1,067
12
(14)
43,972
8,681
4,043
In 2022, Xaar acquired additional intangible assets in relation to the acquisition of Megnajet Limited.
Further details on the acquisition are in note 36.
Development costs of £1,657,000 were capitalised during the year. These were externally generated costs relating to the development of a new
generation printhead platform. These assets were in the course of construction at the reporting date and consequently not amortised during the year.
On completion, it is anticipated that these assets will have a useful economic life of up to 20 years.
The licences acquired during the year of £1,100,000 are being amortised over a period of between 13 and 15 years.
Amortisation periods are in line with the accounting policy in note 3.
Amortisation is recorded in administrative expenses of the consolidated accounts.
At 31 December 2022 the Group had entered into contractual commitments of £358,000 (2021: nil) for the acquisition of intangible assets.
All intangible assets are tested annually for impairment. The assessment of the intangibles in Megnajet, EPS and FFEI was determined using a
discounted cash flow model and no impairment was identified.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
141
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
17. Property, plant and equipment
Cost
At 1 January 2021
Additions
Acquisitions
Transfers
Exchange movements
Disposals
At 1 January 2022
Additions
Acquisitions
Transfers
Exchange movements
Disposals
At 31 December 2022
Depreciation
At 1 January 2021
Charge for the year
Transfers
Exchange movements
Disposals
At 1 January 2022
Charge for the year
Transfers
Exchange movements
Disposals
Impairment
At 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
Land and
buildings
£’000
Leasehold
property
£’000
Plant and
machinery
£’000
Furniture,
fittings and
equipment
£’000
1,811
31
–
65
19
–
1,926
14
–
–
225
–
13,520
693
7
(35)
–
(505)
13,680
217
1
–
4
–
66.881
1,259
14
1,095
15
(1,012)
68,252
1,506
50
(222)
286
(931)
3,992
457
71
(64)
6
(15)
4,447
925
2
–
73
(255)
Total
£’000
86,204
2,440
92
1,061
40
(1,532)
88,305
2,662
53
(222)
588
(1,186)
2,165
13,902
68,941
5,192
90,200
388
24
39
4
–
455
61
–
48
–
–
564
1,601
1,471
8,785
584
(54)
–
(353)
8,962
586
–
1
–
–
9,549
4,353
4,718
56,395
2,522
1,081
2
(915)
59,085
1,614
–
201
(833)
147
3,489
188
(90)
5
(15)
3,577
393
–
53
(254)
–
69,057
3,318
976
11
(1,283)
72,079
2,654
–
303
(1,087)
147
60,214
3,769
74,096
8,727
9,167
1,423
870
16,104
16,226
The impairment during the year is £147,000 (2021: nil). The impairment relates to Printhead machinery no longer in use.
Included within the plant and machinery assets is £651,000 assets in the course of construction (2021: £283,000).
As at 31 December 2022 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£923,000 (2021: £1,330,000).
142
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
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.
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.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year:
Buildings
£’000
Equipment
£’000
Vehicles
£’000
Total
£’000
Cost
At 1 January 2021
Additions (restated)
Acquisitions
Disposals
Exchange movements
At 31 December 2021 (restated)
Additions
Exchange movements
At 31 December 2022
Depreciation
At 1 January 2021
Charge for the year
Disposals
Exchange movements
At 31 December 2021
Charge for the year
Disposals
Exchange movements
At 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021 (restated)
Please refer to note 37 for prior year restatement.
11,122
4,534
3,057
(6,341)
4
12,376
246
17
12,639
9,078
853
(6,341)
–
3,590
1,046
(14)
19
4,641
7,998
8,786
84
11
16
(14)
–
97
28
–
125
50
18
(14)
–
54
21
–
–
75
50
43
–
–
–
–
–
–
24
–
24
–
–
–
–
–
4
–
–
4
20
–
11,206
4,545
3,073
(6,355)
4
12,473
298
17
12,788
9,128
871
(6,355)
–
3,644
1,071
(14)
19
4,720
8,068
8,829
Of the £4,545,000 additions in the prior year, £2,733,000 represented the lease renewal of the Huntingdon main site.
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 (2021 restated)
Accretion of interest
Payments
Exchange movement
At 31 December (2021 restated)
Current
Non-current
Please refer to note 37 for prior year restatement.
2022
£’000
9,191
323
242
(914)
(10)
8,832
1,032
7,800
8,832
Restated
2021
£’000
2,579
7,195
144
(726)
(1)
9,191
692
8,499
9,191
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
143
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
18. Leases continued
The table below summarises the maturity profile of the Group’s lease liabilities based upon the contractual undiscounted payments as at
31 December 2022.
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
Expense relating to short-term leases (included in administrative expenses)
Total amount recognised in profit or loss
2022
£’000
–
291
872
5,057
3,620
9,840
2022
£’000
1,071
242
59
1,372
2021
£’000
–
196
759
5,047
4,538
10,540
2021
£’000
871
144
375
1,390
Interest expense on lease liabilities consists of £242,000 (2021: £144,000) reported under continuing operations and nil in 2022 (2021: £9,000) relating to
Xaar 3D business reported under discontinued operations.
Cash outflows in respect of right-of-use assets consisted of £914,000 (2021: £726,000) financing and £59,000 (2021: £375,000) operating cash flows.
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
2022
£’000
11,804
3,516
13,828
29,148
2021
£’000
5,619
8,605
4,615
18,839
The cost of inventories recognised as an expense includes a charge of £335,000 (2021: £1,189,000) in respect of inventory write-downs.
Gross stock was £37,973,000 (2021: £28,410,000) with inventory provisions of £8,826,000 (2021: £9,571,000). The provision included £6,143,000
(2021:£6,289,000) in relation to discontinued operations, all of which are fully written down. A significant proportion of this increase in inventory is
attributable to the managed investment in our supply chain capability.
There is no specific impact on the valuation of the Company’s inventories arising from climate related matters. Estimates are based upon the most
reliable evidence available at the time the estimates are made.
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
Contract assets (2021 restated)
Other debtors
Prepayments
Current tax asset
144
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
2022
£’000
7,446
(125)
7,321
1,500
1,291
1,415
11,527
735
2021
£’000
5,336
(144)
5,192
1,319
2,211
1,439
10,161
531
21. Other financial assets continued
Trade receivables
The average credit period taken on sales of goods is 37 days (2021: 32 days). No interest is charged on the receivables for the period agreed in the
Requirements Contract or, if not specified or applicable, the first 30 days from the date of the invoice. Thereafter, the Group reserves the right to charge
interest at a daily rate from 1.5% to the greater of 4.0% 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 in the liquidity section of note 22. 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, seven customers each represented greater
than 5% of the total receivables balance, totalling £2,857,000 (2021: £2,100,000). The total due from these customers represents 4% (2021: 4%) of the
Group’s revenue.
Included in the Group’s trade receivables balance are debtors with a carrying amount of £1,700,000 (2021: £1,444,000) which are past due at the
reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered
recoverable.
Ageing of past due but not impaired receivables:
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
Exchange difference
Amounts written off as uncollectible
Balance at the end of the year
2022
£’000
831
417
398
55
(1)
2021
£’000
885
150
264
81
64
1,700
1,444
2022
£’000
144
46
4
(69)
125
2021
£’000
622
(388)
0
(90)
144
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 debtor, general economic conditions of the industry in which the debtor operates 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% for receivables aged 60 days or less, 5% for receivables aged between 61 and 90 days and 15% for 91 and 120 days. A loss allowance of 25% is
applied for receivables aged over 120 days. The loss allowance calculation excludes receivables with a specific provision. 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.
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
2022
£’000
3
1
–
8
46
67
125
2021
£’000
2
2
–
–
–
140
144
The Directors have considered the sensitivity of doubtful debts and a 1% increase on the ECL percentage would equate to an additional £70,000
allowance (2021: £51,000). The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Contract assets
Contract assets consist of a small number of contracts relating to the design and production of bespoke machines or R&D services. Since there is
regular contact with all those customers for project management purposes, with robust milestone payments, there is no generic risk in relation to
any of those balances. The only time when expected credit loss provision would be in place is where we become aware of a risk of those customers
becoming exposed to risk of bankruptcy. We were not aware of any such cases at year end so no such provision is in place.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
145
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
21. Other financial assets continued
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
2022
£’000
8,546
2021
£’000
25,051
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.
Non-current assets
Non-current assets
22. Financial instruments
Fair value measurements
The following table combines information about:
2022
£’000
136
2021
£’000
–
• 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).
2022
Financial asset at FVTPL (Level 3) (note 11)
Trade and other receivables (note 21)
Cash and bank balances (note 21)
Trade and other payables (note 24)
Borrowings and invoice discounting
Lease liabilities (note 18)
Other financial liabilities due after one year (note 24)
Additional disclosure for lease liabilities is reported in note 18.
2021 (Restated)
Financial asset at FVTPL (note 11)
Trade and other receivables (note 21)
Cash and bank balances (note 21)
Trade and other payables (note 24)
Borrowings and invoice discounting
Lease liabilities (note 18)
Other financial liabilities due after one year (note 24)
Financial assets
Financial liabilities
FVTPL –
designated
£’000
FVTPL –
mandatorily
measured
£’000
Amortised
cost
£’000
FVTPL –
mandatorily
measured
£’000
–
–
–
–
–
–
–
11,606
–
–
–
–
–
–
–
10,114
8,546
–
–
–
–
–
–
–
–
–
–
–
Amortised
cost
£’000
–
–
–
(14,862)
(379)
(8,832)
(2,094)
Financial assets
Financial liabilities
FVTPL –
designated
£’000
FVTPL –
mandatorily
measured
£’000
Amortised
cost
£’000
FVTPL –
mandatorily
measured
£’000
–
–
–
–
–
–
–
11,850
–
–
–
–
–
–
–
8,722
25,051
–
–
–
–
–
–
–
–
–
–
–
Amortised
cost
£’000
–
–
–
(15,971)
–
(9,191)
(3,354)
Total
£’000
11,606
10,114
8,546
(14,862)
(379)
(8,832)
(2,094)
Total
£’000
11,850
8,722
25,051
(15,971)
–
(9,191)
(3,354)
The fair value of cash, trade and other receivables/payables and other financial liabilities is deemed to equal book value.
146
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
22. Financial instruments continued
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 values 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)
Relationship and sensitivity of
unobservable inputs to fair value
Financial asset at fair
value through profit or loss
(Level 3)
Monte Carlo Simulation model.
Revenue volatility
The following variables were taken into
consideration: revenue projections and
discount rate.
(20% based on a median of
comparable companies)
Risk-adjusted discount rate.
(10%)
The milestone consideration and 3%
earn-out consideration are calculated
based on the terms of the proposed
transaction and by reference to
simulated revenue. This is then
discounted back to the valuation date
using a discount rate over a period
commensurate with the year in which
payments are payable.
10% increase/(decrease) in
revenue volatility would result in
£7,000 and £11,000 decreases
respectively.
1% increase/(decrease) in
discount rate would result in
£12,000 decrease and £14,000
increase in fair value respectively.
Reconciliation of Level 3 fair value measurements of financial instruments
On 1 November 2021, the sale of Xaar 3D Limited to Stratasys was completed and Xaar received net cash of £9,272,000 and contingent consideration
of £10,863,000 with a fair value of £11,850,000 as at 31 December 2021. The contingent consideration was recognised as financial asset at fair value
through profit or loss. During the year, Xaar received earn-out income amounting to £236,000. The fair value of the contingent consideration as at
31 December 2022 is £11,606,000 with a fair value movement of £8,000.
Balance at 1 January
Recognition of contingent consideration
Earn out received
Fair value (loss)/unrealised gain on financial assets at FVTPL
Balance at 31 December
Current asset
Non-current asset
2022
£’000
11.850
–
(236)
(8)
11,606
517
11,089
11,606
2021
£’000
–
10,863
–
987
11,850
–
11,850
11,850
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.
Short-term borrowings
Short-term borrowings include an advance against customer invoices assigned to a third party as part of an invoice discounting arrangement.
At the reporting date the carrying values of the customer invoices assigned and the associated liabilities were:
Invoice discounting facility
Gross invoice value assigned
Advance drawn
Net position
2022
£’000
2,851
(379)
2,472
2021
£’000
–
–
–
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
147
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
22. Financial instruments continued
Short-term borrowings continued
Interest on the invoice discounting facility is charged daily when the facility is in an overdrawn position at a rate equivalent to the Bank of England base
rate +1.75% p.a. There is an annual service fee of £25,000 charged monthly, and a one-off arrangement fee to open the facility of £10,000. No interest is
payable on the unutilised element of the facility.
The facility limit is £5 million and operates for a minimum of 12 months from inception (September 2022). The facility can be cancelled with a three
month notice period. There are no covenants attached to the invoice discounting facility.
Eligible debts in GBP and USD denomination are legally assigned to the facility provider as or soon after they are raised. The facility makes available
90% of the debts to Xaar Jet Limited, subject to certain monetary funding limits and concentration percentages by customer. XaarJet Limited remain
responsible for collecting the debts as the collection agent for the finance provider and the remittances are made into an account held for the benefit
of the finance provider, the balance of which is held as a liability in XaarJet Limited. Receipts from debtors in full generally have the effect of increasing
the available facility.
No fair value adjustments are deemed necessary for these amounts; however, the receivables are subject to an allowance for doubtful debt (see note 21).
The invoice discounting facility is secured with fixed rate charges over purchased debts and a floating charge over the assets of Xaar Jet Ltd.
It remains the entity’s responsibility to appropriately insure, manage and recover the debts assigned under the terms of the arrangement, and the
transferred assets are subject to recourse at any time. This means the Group retained substantially all the risks and rewards and the control over the
assets, thus derecognition criteria of accounts receivable were not met.
Interest rate risk
The Group’s borrowing facilities, including its invoice discounting facilities, are linked to Bank of England base rate for GBP values, and Federal Bank
Base rate for USD values. An increase in these benchmarks would impact the Group’s cost of borrowing which, in turn, would affect the Group’s
financial performance.
If interest rates had been 1% higher/reduced by 1%, and all other variables were held constant, the Group’s profit for the year ended 31 December 2022
would decrease by £4,000 or increase by £4,000 based on the invoice discounting facility balance at the year end. There would be no effect on equity
reserves.
2022
2021
Fixed rate
financial
liabilities
Floating rate
financial
liabilities
Interest free
financial
liabilities
Fixed rate
financial
liabilities
Floating rate
financial
liabilities
interest free
financial
liabilities
Leases (2021 restated)
Invoice discounting facility
Other liabilities
(8,832)
–
–
(8,832)
–
(379)
–
(379)
–
–
(16,956)
Total
(8,832)
(379)
(16,956)
–
–
(19,325)
Total
(9,191)
–
(19,325)
(9,191)
–
–
(9,191)
–
–
–
–
(16,956)
(26,167)
(19,325)
(28,516)
Foreign currency risk
The Group receives approximately 41% of its revenues in US Dollars and 6% 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.
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 intercompany balances within the Group where the denomination of the balance is in a currency other than the functional currency of the
debtor or the creditor. A positive number below indicates an increase in profit or equity.
Euro currency impact
US Dollar currency impact
Swedish Krona currency impact
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Effect of a 10% increase in relevant exchange rate on:
Profit or loss
Equity
Effect of a 10% decrease in relevant exchange rate on:
Profit or loss
Equity
(63)
(63)
77
77
(96)
(96)
117
117
(1,489)
(1,489)
1,819
1,819
(1,126)
(1,126)
1,376
1,376
46
46
(57)
(57)
67
67
(82)
(82)
148
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
22. Financial instruments continued
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 2022.
i Further information can be found on page 138 (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%. The gearing ratio (excluding IFRS 16 leases)
at the year-end is as follows:
Borrowings excluding leases
Total equity
Gearing ratio
The Group is not subject to externally imposed capital requirements.
2022
£’000
379
71,769
1%
2021
£’000
–
68,802
0%
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 and insuring the suppliers, 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 £14,854,000 (2021: £15,971,000) comprise trade creditors. 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 only other non-current financial liabilities are in relation to deferred consideration for the two acquisitions
(FFEI and Megnajet) which will be fully settled in 2024.
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.
2022
Trade and other payables
Invoice discounting
Deferred consideration
Lease liabilities
In three months or less, or on demand
Four to twelve months
One to five years
More than five years
10,459
2,757
–
–
13,216
379
–
–
–
379
–
1,733
2,133
–
3,866
291
872
5,057
3,620
9,840
2021
Trade and other payables
Invoice discounting
Deferred consideration
Lease liabilities
In three months or less, or on demand
Four to twelve months
One to five years
More than five years
12,099
2,283
–
–
14,382
–
–
–
–
–
–
1,733
3,467
–
5,200
196
759
5,047
4,538
10,540
Total
11,129
5,362
7,190
3,620
27,301
Total
12,295
4,775
8,514
4,538
30,122
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
149
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
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 2021
(Credit)/charge to income
(Credit)/charge for discontinued operations
Acquisitions
Disposals
Foreign exchange movement
At 31 December 2021*
(Credit)/charge to income
Acquisitions
At 31 December 2022
Accelerated tax
depreciation
£’000
Share-based
payment
£’000
Intangible assets
£’000
Tax losses
£’000
692
(13)
(58)
–
(450)
–
171
206
–
377
(1)
–
–
–
–
–
(1)
–
(1)
–
(64)
–
989
–
–
925
(142)
170
953
(721)
235
(38)
(989)
419
–
(1,094)
(834)
–
(1,928)
Other
temporary
difference
£’000
(178)
(20)
–
–
195
3
–
(127)
–
(127)
Total
£’000
(208)
138
(96)
–
164
3
1
(897)
170
(726)
* Prior year included a misclassification disclosure which resulted in both the accelerated tax depreciation and the tax losses being overstated by £925k at 31 December 2021. There
is no impact on the total deferred tax. Prior year also included a misclassification of items shown in the (Credit)/charge to income line that should have been shown through the
Disposals line.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial
reporting purposes.
Deferred tax liabilities
Deferred tax (assets)
Being: Deferred tax (assets)/liabilities from continuing operations
Being: Deferred tax (assets)/liabilities from discontinued operations
2022
£’000
–
(726)
(726)
–
2021
£’000
1
–
1
–
As at 31 December 2022, the Group had unused tax losses of £119.925,000 (2021: £117,015,000) available to offset against future profits. As at
31 December 2022, in addition to the deferred tax asset recognised on losses in the table above, the Group has an unrecognised deferred tax asset
in respect of these losses totalling £28,100,000 (2021: £28,200,000). These losses may be carried forward indefinitely.
Whilst the Board believes in the long-term potential and profitability of the Printhead business unit, the forecast taxable losses over the next couple of
years mean that the UK tax losses will not be utilised in the short term. Therefore, no deferred tax asset has been recognised relating to UK losses for
2022. However, due to the forecasted taxable profits for the EPS business unit, a deferred tax asset in relation to brought forward US losses has been
fully recognised resulting in a tax credit for the period, and is expected to be used over 2023 and 2024. USD 1,900,000 of US tax losses were utilised in
2022 with USD 4,200,000 carried forward.
As at 31 December 2022, the Group has unused capital losses of £1,100,000 (2021: £1,100,000) 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.
The impact of climate change has been considered in the forecast and valuation of future taxable profits and no impacts were noted.
150
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
24. Trade and other payables
Current liabilities
Trade payables and accruals
Other financial liabilities
Non-current liabilities
Other financial liabilities
2022
£’000
13,216
1,646
14,862
2021
£’000
Restated
14,382
1,589
15,971
2,094
3,354
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit taken for trade
purchases is 36 days (2021: 28 days).
Contract liabilities are now shown separately on the balance sheet.
The other financial liabilities represent the deferred consideration in relation to the acquisitions of FFEI Ltd, Megnajet Limited and Technomation
Limited, split between the current portion due in 2023 (£1,646,000) and non-current portion.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
25. Provisions
At 1 January 2021
Additional/(release) provision in the year
Acquisition
Utilisation of provision
Release of provision
At 1 January 2022
Additional/(release) provision in the year
Utilisation of provision
Release of provision
At 31 December 2022
Warranty
£’000
Restructuring
£’000
Provision for
dilapidation
£’000
77
253
–
(18)
(59)
253
225
(166)
–
312
280
11
–
(280)
–
11
93
(11)
–
93
–
250
50
–
–
300
–
–
–
300
Total
£’000
357
514
50
(298)
(59)
564
318
(177)
–
705
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 £93,000 have been added primarily in relation to redundancy which will be utilised in 2023; the utilisation of the
£280,000 in 2021 related to the relocation of HQ to Waterbeach.
Non-current provisions relate to provisions for dilapidation which form part of right-of-use assets and are depreciated over the lease term. Further
details on leases are in note 18.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
151
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
26. Share capital
Issued and fully paid:
78,446,230 (2021: 78,446,230) ordinary shares of 10.0p each
The movement during the year on the Company’s issued and fully paid shares was as follows:
2022
£’000
2021
£’000
7,844
7,844
Balance at 1 January
Exercise of share options
Balance at 31 December
The Company has one class of ordinary shares which carry no right to fixed income.
2022
Number
2021
Number
78,446,230
–
78,334,296
111,934
78,446,230
78,446,230
2022
£’000
7,844
–
7,844
2021
£’000
7,833
11
7,844
Scheme
Xaar plc 2004 Share Option Plan
Xaar plc 2017 Share Save Scheme
Xaar plc 2013 Share Incentive Plan
Date of grant
1 May 12
1 November 17
1 November 18
1 December 19
2 November 20
4 November 21
3 November 22
17 April 13
16 April 14
14 April 16
13 April 17
Number of
shares under
option as at
31 December
2022
Number of
shares under
option as at
31 December
2021
–
–
–
–
145,893
644,544
606,961
508,529
90,000
90,000
–
34,975
893,038
681,104
632,995
–
1,905,927
2,242,112
–
–
–
–
–
4,332
4,749
6,766
3,952
19,799
Subscription
price per
share
226.5p
344.0p
142.0p
34.0p
102.0p
129.0p
140.0p
0.0p
0.0p
0.0p
0.0p
Total share options outstanding at 31 December
1,905,927
2,351,911
Options under the Xaar plc Share Save Scheme are ordinarily exercisable between 36 and 42 months 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:
Number of
shares under
option as at
31 December
2022
Number of
shares under
option as at
31 December
2021
–
25,096
2,536
15,733
4,662
–
700
–
48,727
5,229
30,179
2,536
17,733
4,977
3,733
700
15,093
80,180
Date of grant
1 May 2012
2 April 2015
28 September 2015
1 April 2016
11 May 2016
27 June 2016
6 September 2016
1 December 2016
All awards under this scheme are exercisable within three to ten years after the date of grant.
152
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
26. Share capital continued
Long-Term Incentive Plan continued
Performance Share Awards have been made under the Xaar plc 2017 Long-Term Incentive Plan as follows:
Date of grant
16 May 2017
2 April 2019
30 April 2019
4 October 2019
29 April 2020
4 June 2020
1 October 2020
14 October 2021
6 April 2022
14 Dec 2022
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
28. Own shares
Balance as at 1 January
Purchased in the year
Sold in the year
Balance at 31 December
2022
Number
of shares
12,202
–
–
180,328
368,333
535,000
21,000
937,528
702,006
204,317
2021
Number
of shares
18,804
104,292
59,789
59,789
180,328
394,000
535,000
21,000
986,272
–
–
2,960,714
2,299,485
2022
£’000
29,427
–
29,427
2021
£’000
29,328
99
29,427
2022
£’000
(1,923)
(1,000)
2,148
(775)
2021
£’000
(1,957)
–
34
(1,923)
Of this balance, £20,000 (2021: £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 £755,000 (2021: £1,903,000) represents the cost of 307,410 (2021: 692,575) 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.
During the year the ESOP purchased 474,971 shares (2021: nil) and sold 860,136 shares to satisfy exercised options in the year (2021: 12,508).
The market value of own shares at 31 December 2022 was £773,000 (2021: £1,427,000).
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
153
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
29. Translation reserves
Balance at 1 January
Exchange differences on retranslation of net investment
Balance at 31 December
2022
£’000
1,011
617
1,628
2021
£’000
864
147
1,011
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
Merger
reserve
£’000
Share-based
payments
£’000
Other
reserves
£’000
Total other
reserves
£’000
Retained
earnings
£’000
Notes
Total
£’000
Balance at 1 January 2021
1,105
14,911
5,151
21,167
(5,564)
15,603
Net profit for the year
Share option exercises
Charge to equity for equity-settled share-based
payments
Balance at 31 December 2021
Net profit for the year
Cash-settled share-based payments
Share options exercises
Charge to equity for equity-settled share-based
payments
32
–
–
–
1,105
–
–
–
–
–
653
15,564
–
–
–
–
–
–
5,151
–
–
–
–
–
653
21,820
–
–
–
16,219
(32)
–
10,623
1,632
(249)
(1,740)
16,219
(32)
653
32,443
1,632
(249)
(1,740)
32
–
1,559
–
1,559
–
1,559
Balance at 31 December 2022
1,105
17,123
5,151
23,379
10,266
33,645
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.
31. Reconciliation of liabilities arising from financing activities
Lease liabilities (2021 restated)
Deferred consideration
Invoice discounting facility
Other interest incurred and paid
Lease liabilities (restated)
Deferred consideration
Other interest incurred and paid
2021
Cash flows
Additions
Discontinued
operations
Interest
9,191
4,943
–
–
14,134
(914)
(1,733)
346
(22)
(2,323)
323
374
–
–
697
–
–
–
–
–
242
156
33
22
453
2020
Cash flows
Additions
Discontinued
operations
Interest
2,579
–
–
2,579
(824)
–
(13)
(837)
7,195
4,858
–
12,053
98
–
–
98
144
85
13
242
Foreign
exchange
movement
(10)
–
–
–
(10)
Foreign
exchange
movement
(1)
–
–
(1)
2022
8,832
3,740
379
–
12,951
2021
9,191
4,943
–
14,134
154
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
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.
Xaar plc 2004 Share Option Plan from 2011 onwards: The last remaining options either lapsed or were exercised during the year-ended 31 December 2022.
The Xaar 2017 Share Save Schemes provide 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 provided an opportunity for all UK employees to buy shares from their pre-tax remuneration up to the limit permitted
by the relevant tax legislation and were awarded additional shares for free on a matching basis. The last remaining options granted under the scheme
were exercised during the year-ended 31 December 2022.
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 the beginning of the 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
2022
Weighted
average
exercise
price (£)
0.88
1.40
1.49
0.49
1.16
0.34
Number
of share
options
2,351,911
508,529
(105,267)
(849,246)
1,905,927
145,893
Number
of share
options
1,925,315
632,995
(104,614)
(101,785)
2,351,911
144,774
2021
Weighted
average
exercise
price (£)
0.79
1.29
1.59
1.08
0.88
1.75
The weighted average share price at the date of exercise for share options exercised during the period was £2.05 (2021: £1.64). The options outstanding
at 31 December 2022 had a weighted average remaining contractual life of two years (2021: two years). In 2022, options were granted on 3 November.
The aggregate of the estimated fair values of the options granted on those dates is £559,000. In 2021, options were granted on 4 November. The
aggregate of the estimated fair values of the options granted on those dates is £561,000.
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
2022
2021
£1.81
£1.40
78%
3.25 years
3.12%
0.00%
£1.61
£1.29
73%
3.25 years
0.69%
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.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
155
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
32. Share-based payments continued
Long-Term Incentive Plan
The Company’s Long-Term Incentive Plan is open to all employees of the Group.
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.
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.
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 the start of the year
Granted during the year
Lapsed during the year
Cash settled during the year
Exercised during the year
Awards outstanding at the end of the year
Exercisable at the end of the year
2022
2021
2,379,665
941,240
(190,043)
(84,700)
(36,721)
1,587,450
986,272
(161,535)
–
(32,522)
3,009,441
2,379,665
60,929
98,984
During the year ended 31 December 2022 the Remuneration Committee used its discretion to settle 84,700 awards that vested in the year in cash at
their market value as at 31 March 2022 of £249,000 (2021: none).
The weighted average share price at the date of exercise for awards exercised during the period was £2.03 (2020: £1.67). The options outstanding at
31 December 2022 had a weighted average remaining contractual life of eight years (2021: nine years). In 2022, Performance Share Awards were
made in April and December. The aggregate of the estimated fair values of the grants made during the year is £1,763,000. In 2021, Performance Share
Awards were made in October. The aggregate of the estimated fair values of grants made on that date is £1,457,000.
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
2022
2021
£2.54
£nil
77%
3.41 years
1.87%
0.00%
£1.77
£nil
81%
2.44 years
0.67%
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
2022
2021
£2.46
£nil
75%
3.61 years
2.04%
0.00%
£1.77
£nil
90%
2.44 years
0.55%
0.00%
156
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
32. Share-based payments continued
Deferred Bonus Plan
Under the Group's Deferred Bonus Plan, executives receive 70% of the participant's bonus achieved in cash and 30% in the form of rights to deferred
shares of Xaar plc. These awards are subject only to service conditions, i.e. the requirement for recipients of awards to remain in employment with
the Company over the vesting period. In 2022, the awards were granted in April and were in respect of participants’ bonus for the Company's financial
year which ended on 31 December 2021 and will vest on the dealing day following the announcement by the Company of its annual results for 2023
(assumed 24 March 2024) or, if later, the date on which the Committee determines. In 2021, the awards were granted in October in respect of the
participants’ bonus for the Company's financial year which ended on 31 December 2020 and will vest on the dealing day following the announcement
by the Company of its annual results for 2022 (assumed 24 March 2023) or, if later, the date on which the Committee determines.
The executives do not receive any dividends and are not entitled to vote in relation to the deferred shares during the vesting period. If an executive
ceases to be employed by the Group within this period, the rights will be forfeited, except in limited circumstances that are approved by the Board
on a case-by-case basis.
The following table shows the deferred shares granted and outstanding at the beginning and end of the reporting period.
Awards outstanding at the start ofthe year
Granted during the year
Lapsed during the year
Exercised during the year
Awards outstanding at the end of the year
2022
34,098
18,633
–
–
52,731
2021
–
34,098
–
–
34,098
The options outstanding at 31 December 2022 had a weighted average remaining contractual life of seven months (2021: one year and three months).
The aggregate of the estimated fair value of grant made in 2022 was £50,000 and the estimated fair value of the grant made in 2021 was £60,000.
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
2022
2021
£2.70
£nil
77%
1.25 years
1.87%
0.00%
£1.77
£nil
81%
1.25 years
0.67%
0.00%
The Group recognised total expenses of £1,559,000 and £653,000 related to all equity-settled share-based payment transactions in 2022 and 2021,
respectively. A charge relating to National Insurance on the outstanding potential share option gains of £189,000 was recorded in 2022 (2021: £105,000).
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 all of the Group's retirement benefit schemes during 2022 was £1,303,000 (2021: £930,000).
As at 31 December 2022 contributions of £165,000 (2022: £102,000) due in respect of the current reporting period had not been paid over to the schemes.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
157
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
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.
There were no other transactions during the year with related parties who are not members of the Group.
Remuneration of Directors
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 84 to 104
Remuneration of Directors
Short-term employee benefits
Post-employment benefits
Share-based payments
2022
£’000
1,080
36
494
1,610
2021
£’000
924
32
168
1,124
35. Non-controlling interest
Following the completion of the sale of Xaar 3D Limited to Stratasys during the year ended 31 December 2021, there are no non-controlling interests to
report as at 31 December 2021 nor 31 December 2022.
On 1 November 2021, Stratasys exercised the call option and acquired the remaining 55% shareholding of Xaar 3D Limited. Xaar received $13.5 million
as initial consideration and with the 3% revised earn-out and the earn-out payments allow Xaar to receive up to $34.75 million.
The 2021 income statement and the movement in cash flow as at and up to the date of sale (1 November 2021) are as follows:
Xaar 3D Limited
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 from financing activities
Net cash outflow
Non-controlling interest equity
Balance at 1 January
Share of total comprehensive expense for year
Derecognition of non-controlling interest
Balance at 31 December
158
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
2021
£’000
2,918
(7,342)
(4,424)
(2,433)
(1,991)
(4,424)
(2,433)
(1,995)
(4,428)
2021
£’000
(1,792)
(122)
(98)
(2,012)
2021
£’000
3,771
(1,995)
(1,776)
–
36. Business combination
On 2 March 2022, Xaar completed the acquisition of 100% of the share capital of Megnajet Ltd and Technomation Ltd. The companies trade together
under the name of Megnajet, and design and manufacture industrial ink management and supply systems for digital inkjet. The acquisitions will
accelerate the Company’s growth strategy by creating a more integrated inkjet solution whereby customers can access more of the printing ecosystem
(such as ink supply systems and the electronics) from Xaar.
Technomation Ltd was acquired for its Intellectual Property and know-how. The acquisition has been accounted for as an asset acquisition using
the optional concentration test within IFRS 3. The purchase price of £3,038,000, which includes £187,000 deferred consideration, was allocated to its
Intellectual Property amounting £1,990,000 (being the purchase price net of £517,000 cash balance and £531,000 balance relating to working capital
consisting of £816,000 receivables, £130,000 corporation tax creditor and £155,000 VAT creditor). Megnajet Ltd was accounted for as a business
combination and the details of the net assets acquired, goodwill and purchase consideration are as follows:
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash
Trade & other receivables
Corporate tax payable
Inventories
Property, plant and equipment
Intangible assets
Trade & other payables
Deferred Tax liability
Total net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred consideration
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalents acquired
Total net cash outflow arising on acquisition
Fair value
£’000
1,067
487
(27)
503
53
703
(821)
(170)
1,795
661
2,456
£’000
2,269
187
2,456
£’000
(2,269)
1,067
(1,202)
The fair value of acquired receivables is £250,000. The gross contractual amount for trade receivables due is £252,000, with a loss allowance of £2,000
recognised on acquisition. Other receivables relate to VAT amounting to £237,000.
The goodwill of £661,000 arising from the acquisition represents those characteristics and valuable attributes of the acquired business that cannot
be quantified and attributed to separately identifiable assets in accounting terms. This goodwill is underpinned by a number of elements, the most
significant of which is the well established, skilled and assembled workforce and potential new customer relationships and contracts which enable
Megnajet to accelerate the development of ink management and supply systems through the shared expertise, technologies and resources across
the Group. None of the goodwill recognised is expected to be deductible for income tax purposes.
The fair value of the intangible assets attributed to the acquisition of the business relates to customer relationships (£422,000) and brand (£281,000).
These have an estimated useful life of eight and ten years respectively.
In addition to the cash consideration, deferred consideration shall be paid in the second year anniversary from the date of acquisition. The
undiscounted amount of all future payments that the Company is required to make under the deferred consideration arrangement is £200,000.
Acquisition related costs which are included in administrative expenses in the consolidated income statement for the period ended 31 December 2022
amounted to £193,000.
The acquired business contributed revenues of £2,483,000 and net profit of £758,000 to the Group for the period from 2 March 2022 to 31 December
2022. If the acquisition had occurred on 1 January 2022, consolidated pro-forma revenue and profit for the period ended 31 December 2022 would have
been £3,038,000 and £832,000 respectively. These amounts have been calculated using the subsidiary’s results and adjusting them for differences
in the accounting policies between the Group and the subsidiary; and the additional depreciation and amortisation that would have been charged
assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2022, together with the
consequential tax effects.
During the prior year, on 11 July 2021, Xaar acquired 100% of the issued share capital of FFEI Limited for a total consideration of £8,762,000,
comprising £3,907,000 in initial cash and deferred consideration of £4,855,000 (which is £5,200,000 discounted using 3.49% discount rate). Net assets
acquired totalled £8,073,000, and goodwill of £689,000 arose on the acquisition. The fair value of the intangible assets attributed to the acquisition
related to patents and software (£3,044,000) and customer relationships (£1,204,000) with an estimated useful life of six years. Net cash flow arising on
the acquisition was an inflow of £168,000, being cash equivalents acquired of £4,075,000 minus the cash consideration paid. The deferred consideration
is payable in three annual instalments, of which one instalment was paid during the year ended 31 December 2022 (£1,733,000). Acquisition costs
included in the consolidated income statement for the prior year amounted to £618,000.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
159
Notes to the consolidated financial statements continued
for the year ended 31 December 2022
37. Restatement of prior period
The financial statements include prior period restatements in relation to leases and contract assets and liabilities.
Right-of-use asset and lease liabilities were both overstated by £539,000 due to an error in recording the renewal on one lease with no impact on net
assets, cash flows or profit for the period. Since 2022 additional finance reviews have been introduced for all legal contracts. With the current control
introduced in 2022, we believe the likelihood of such errors is substantially reduced.
Additionally, the EPS division had not been netting contract assets and liabilities and both balances were shown gross in the prior period. This error
was identified by management in the current year and was corrected resulting in changes in processes and systems to ensure correct accounting is
in place going forward. The respective adjustment for the prior year amounted to $2,672,000 (£1,977,000) with no impact on net assets, cash flows or
profit for the period.
The following tables summarise the impact of the prior period restatement on the financial statements of the Group for the period ended
31 December 2021:
Consolidated statement of financial position
Non-current assets
Right-of-use asset
Current assets
Trade and other receivables
Total assets
Current liabilities
Contract liabilities
Lease liabilities
Total liabilities
Net assets
2021
as reported
£’000
IFRS 16 lease
correction
£'000
Contract assets
/liabilities
correction
£’000
2021
restated
£’000
9,368
(539)
–
8,829
12,138
103,940
(5,518)
(1,231)
(35,138)
68,802
–
(539)
–
539
539
–
(1,977)
(1,977)
10,161
101,424
1,977
–
(3,541)
(692)
1,977
(32,622)
–
68,802
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 2022 by virtue
of section 479A of the Companies Act 2006: XaarJet Limited (03375961), XaarJet (Overseas) Limited (04312431), Xaar Technology Limited (02469592),
Xaar Digital Limited (03588121), Xaar Trustee Limited (03025096), Xaar 3D Holdings Limited (11425540), FFEI Limited (03244452) and Megnajet Limited
(07160441).
160
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Company balance sheet
as at 31 December 2022
Fixed assets
Tangible fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total assets
Creditors: amounts falling due within one year
Trade and other payables
Lease liabilities
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Lease liabilities
Other financial liabilities
Provisions for liabilities
Total 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
Notes
2022
£’000
2021
£’000
Restated
1,059
92,893
93,952
8,803
9,979
18,782
112,734
942
99,282
100,224
1,619
517
2,136
102,360
(17,793)
(23,977)
(113)
(17,906)
(15,770)
84,454
(689)
(2,094)
(2,783)
(250)
(3,033)
(85)
(24,062)
(5,280)
88,672
(776)
(3,354)
(4,130)
(250)
(4,380)
81,421
84,292
7,844
29,427
38,003
(755)
4,443
2,459
81,421
7,844
29,427
37,108
(1,903)
3,780
8,036
84,292
3
4
5
6
3
3
7
9
9
9
9
9
Xaar plc reported a loss for the financial year ended 31 December 2022 of £3,588,000 (2021: loss of £1,867,000).
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 March 2023. They were signed on its behalf by:
John Mills
Chief Executive Officer
Ian Tichias
Chief Financial Officer
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
161
Company statement of changes in equity
for the year ended 31 December 2022
At 1 January 2021
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
Credit to equity for equity-settled
share-based payments
At 31 December 2021
Loss for the financial year
Total comprehensive expense
for the period
Own shares purchased in the period
Own shares sold in the period
Share option exercises
Cash settlement of share options
Capital contribution for share-based
payments
Credit to equity for equity-settled
share-based payments
4
10
4
10
Called up
share capital
£’000
Notes
Share
premium
account
£’000
29,328
–
Other
reserves
£’000
36,723
–
–
–
99
–
–
–
–
–
385
–
7,833
–
–
–
11
–
–
Own
shares
£’000
Share-based
payments
£’000
Profit and
loss account
£’000
(1,937)
–
3,520
–
9,935
(1,867)
(1,867)
–
(32)
–
–
–
–
–
Total
£’000
85,402
(1,867)
(1,867)
34
78
385
260
–
260
–
34
–
–
–
7,844
29,427
37,108
(1,903)
3,780
8,036
84,292
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
895
–
–
(1,000)
2,148
–
–
–
–
–
–
–
–
–
–
(3,588)
(3,588)
–
–
(1,740)
(249)
–
(3,588)
(3,588)
(1,000)
2,148
(1,740)
(249)
895
–
–
663
–
663
At 31 December 2022
7,844
29,427
38,003
(755)
4,443
2,459
81,421
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.
162
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Notes to the Company financial statements
for the year ended 31 December 2022
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 IFRSs issued but
not effective, share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets,
presentation of a cash flow statement, fair value, key management 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 recorded as an increase to investments as a capital contribution.
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 16 to 25. Notes 21 and 22 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
period to 30 June 2024, which have undergone reverse stress tests, 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 the Directors’ report on page 69 for going concern and note 3 to the consolidated financial statements for more detail.
Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment and includes capital contributions arising from share-based
payments. Each year, the Company carries out impairment tests of its investments which require estimates to be made of the value in use of its CGUs
and groups of CGUs. The value in use calculations are dependent on estimates of future cash flows, long-term growth rates and appropriate discount
rates to be applied to future cash flows.
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. As the merger relief arose from transactions before the introduction of FRS 101, the
transaction has utilised grandfathering relief rather than recalculating and presenting under appropriate FRS 101 treatment.
Leases
The Company assesses whether a contract is or contains a lease, at the inception of the contract. The Company 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 Company 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 lease are consumed. Please refer to page 143, note 18 and page 126, note 3 to the consolidated financial statements
for more detail.
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 2022 was 27 (2021: 31). Staff costs amounted to £4,688,060 (2021: £2,652,000) including share-based
payments. Information about the remuneration of Directors is provided in the audited part of the Directors’ Remuneration report on page 84. 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 84
The audit fee for the audit of the Company’s financial statements in 2022 was £20,000 (2021: £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.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
163
Notes to the Company financial statements continued
for the year ended 31 December 2022
3. Tangible fixed assets
Cost
At 1 January 2022
Additions
Transfer to subsidiary
At 31 December 2022
Depreciation
At 1 January 2022
Charge for the year
Transfer to subsidiary
At 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
Right-of-use
asset – building
£’000
1,166
–
–
1,166
(107)
(117)
–
(224)
942
1,059
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
Accretion of interest
Payments
Transfer to subsidiary
At 31 December
Current
Non-current
2022
£’000
862
–
17
(77)
–
802
113
689
802
The table below summarises the maturity profile of the Company’s lease 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
164
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
2022
£’000
–
26
77
400
342
845
2022
£’000
117
17
134
2021
£’000
35
896
17
(51)
(35)
862
85
776
861
2021
£’000
–
26
77
384
460
947
2021
£’000
107
17
124
4. Investments
Subsidiary undertakings held at cost
At the beginning of the year
Additions in the year
Impairment
Capital contributions arising from share-based payments
At the end of the year
2022
£’000
92,893
5,494
–
895
99,282
In March 2022 Xaar plc acquired Megnajet Ltd for a total consideration of £2,455,942 and Technomation Ltd for a consideration of £3,038,000.
The impairment charge in the prior year was a result of intercompany dividends.
The Directors believe that the carrying value of the investments is at least equal to the recoverable amount.
5. Debtors
Amounts receivable within one year
Amounts owed by Group undertakings
Trade debtors
Prepayments and accrued income
Other debtors
Amounts owed by Group undertakings are trading balances and interest is not charged and is payable on demand.
6. Creditors
Amounts falling due within one year
Amounts owed to Group undertakings
Other payables and accruals
Other financial liabilities
Amounts falling due after one year
Other financial liabilities
2022
£’000
1,384
–
208
27
1,619
2022
£’000
13,869
2,278
1,646
17,793
2022
£’000
2,094
2021
£’000
82,055
12,453
(2,000)
385
92,893
2021
£’000
8,638
90
–
75
8,803
2021
£’000
21,811
577
1,589
23,977
2021
£’000
3,354
Amounts owed to Group undertakings are trading balances under normal commercial terms and interest is not charged and is payable on demand.
The other financial liabilities represent the deferred consideration in relation to the acquisition of FFEI Limited, Megnajet Limited and Technomation
Limited; split between the current due in 2023 (£1,646,000) and non-current portion. Further details are in note 24 to the consolidated financial
statements.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
165
Notes to the Company financial statements continued
for the year ended 31 December 2022
7. Provisions
Current
At 1 January
Additional provision in the year
Utilisation of provision
At 31 December
Non-current
Provision for dilapidation
2022
£’000
2021
£’000
–
–
–
–
250
250
–
44
(44)
–
250
250
Current provision movements relate to restructuring costs arising in Xaar plc. Non-current provisions relate to provision for dilapidation of Xaar
Waterbeach office which form part of right-of-use assets and are depreciated over the lease term.
8. Dividends
There were no dividends declared or paid during the current and preceding year. There are no dividends expected to be declared on the 2022
financial results.
Dividends were received during the year as follows:
• Xaar Digital Ltd £1,700,000 (2021: nil)
• Xaar US Holdings Inc £1,885,003 (2021: nil)
9. Share capital and share premium account
Full details of movements in share capital, share premium account, own shares, other reserves and the share option payment reserve are
given in notes 26, 27 and 30 to the consolidated financial statements.
10. Share-based payments
Equity-settled share option scheme
The Company operates a number of equity-settled share-based payment schemes for its employees and the employees of its subsidiaries. The
share-based payment charge in relation to the Company’s employees is recognised in profit or loss and the share-based payments reserve, whilst
the share-based payment charge in relation to the employees of the Company’s subsidiaries is recognised as capital contribution to the subsidiary
with the corresponding increase in other reserves. Details of the share-based payment schemes are included in note 32 to the consolidated
financial statements.
For the year ended 31 December 2022, the share-based payment charge in relation to the Company’s employees was £663,000 (2021: £260,000)
and £895,000 (2021: £385,000) was recognised as a capital contribution to subsidiaries.
166
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
11. Subsidiary undertakings
The subsidiary undertakings of the Company are listed below: all companies are directly owned by the Company except where indicated otherwise.
Country
of incorporation
Address of
registered office
Principal
activity
Issued and fully
paid up share
capital
Proportion
of ordinary
share capital
held by the
Company
England & Wales Cambridge Research Park,
Research and development 4,445,322 ordinary
100%
Waterbeach, Cambridge, CB25 9PE
£1 shares
Name
Xaar Technology
Limited
XaarJet Limited
England & Wales Cambridge Research Park,
Waterbeach, Cambridge, CB25 9PE
XaarJet (Overseas)
Limited
England & Wales Cambridge Research Park,
Waterbeach, Cambridge, CB25 9PE
Manufacturing, research
and development and sales
and marketing
Sales and marketing
2 ordinary £1 shares
100%
1 ordinary £1 share
100%
Xaar Trustee
Limited1
England & Wales Cambridge Research Park,
Trustee
2 ordinary £1 shares
100%
Waterbeach, Cambridge, CB25 9PE
Xaar Digital Limited
England & Wales Cambridge Research Park,
Treasury
100 ordinary £1 shares
100%
Waterbeach, Cambridge, CB25 9PE
Xaar 3D Holdings
Limited
England & Wales Cambridge Research Park,
Holding company
Waterbeach, Cambridge, CB25 9PE
1,100 ordinary shares of
£0.01 each
Xaar US Holdings
Inc.
USA
1209 Orange Street, Wilmington,
New Castle County, Delaware, USA
Holding company
10,000 shares of common
stock $1 each
Engineered Printing
Solutions2
USA
Xaar Americas Inc.2 USA
China
Xaar Inkjet
Technology
(Shenzhen) Company
Limited
201 Tennis Way, East Dorset,
VT 05253, USA
Manufacturing, sales and
marketing
200 shares of common
stock $1 each
1000 Post and Paddock, Suite 405,
Grand Prairie, TX 75050, USA
Sales and marketing
10,000 shares of
common stock US$1 each
Room 409, Floor 4, Building 13,
Fuhai Industrial Zone, Fuzhou
Avenue, Shenzhen, China
Sales and marketing
30 ordinary shares of
£10,000 each
FFEI Limited
England & Wales Cambridge Research Park,
Waterbeach, Cambridge, CB25 9PE
Manufacturing, sales and
marketing
100,000 ordinary £1
shares
100%
100%
100%
100%
100%
100%
Megnajet Ltd3
England & Wales Cambridge Research Park,
Waterbeach, Cambridge, CB25 9PE
Manufacturing, sales and
marketing
1 ordinary £1 share
100%
Technomation Ltd3
England & Wales Cambridge Research Park,
Research and development 100 ordinary £1 shares
100%
Waterbeach, Cambridge, CB25 9PE
1 Xaar Trustee Limited shares are held by Xaar Technology Limited.
2 Xaar Americas Inc and Engineering Printing Solutions shares are held by Xaar US Holdings Inc.
3 Megnajet Ltd and Technomation Ltd were acquired by Xaar plc on 2 March 2022. See note 36 to the consolidated financial statements for more detail.
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
167
Five year record
Summarised consolidated results
Results
Revenue
Gross profit
Adjusted profit/(loss) before tax (note 4)
Adjusted profit/(loss) after tax (note 14)
Adjusted diluted earnings per share (note 14)
Statutory profit before tax
Basic earnings per share
Diluted earnings per share
Dividends pence per share
Assets employed
Net cash2
2022
Continuing
operations
£’000
2021
Continuing
operations
£’000
2020
Continuing
operations
£’000
2019
Continuing
1
operations
£’000
2018
Continuing
operations
£’000
72,782
28,644
2,822
3,689
4.5p
824
2.3p
2.2p
–
59,254
20,190
(571)
(779)
(1.0p)
994
0.9p
0.9p
–
47,984
13,010
(3,911)
(4,038)
(5.2p)
(4,322)
(5.7p)
(5.7p)
–
49,379
12,290
(7,952)
(11,632)
(15.1p)
(10,937)
(19.4p)
(19.4p)
–
60,468
29,496
4,523
6,930
10.0p
280
3.6p
3.6p
1.0p
8,546
25,051
18,117
25,322
27,946
1 In the transition to IFRS 15 & 16, the Group used the modified approach and the impact on prior years was adjusted through retained earnings. Comparatives were not restated.
2 Net cash is made up of cash and cash equivalents and treasury deposits less assets held for sale.
168
Xaar plc – Annual Report and Financial Statements 2022
Financial Statements
Notice of the Annual General Meeting
Notice is hereby given that the twenty-sixth Annual General Meeting (AGM) of Xaar plc (the
‘Company’) will be held at Xaar plc, 1 Hurricane Close, Ermine Business Park, Huntingdon,
Cambridgeshire, PE29 6XX on Wednesday 31 May 2023 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 2022, 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 John 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..
Special business
To consider and, if thought fit, pass the following Resolutions which will be proposed in the case of Resolutions 9, 10 and 11 as Ordinary Resolutions
and in the case of Resolutions 12 to 15 as Special Resolutions:
9. THAT the Directors’ Remuneration Policy, the full text of which is contained in the Directors’ Remuneration report for the year ended
31 December 2022 and which is set out in pages 87 to 95 of the Annual Report, which will take effect at the conclusion of this meeting,
be approved.
10. THAT the Directors’ Remuneration report (excluding the Directors’ Remuneration Policy which is set out on pages 87 to 95 of the Annual Report)
for the year ended 31 December 2022 be approved.
11. 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 £2,614,874 (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 £5,229,749 (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.
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 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.
Xaar plc – Annual Report and Financial Statements 2022
Governance
169
Notice of the Annual General Meeting continued
Special business continued
12. THAT, subject to the passing of Resolution 11, 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 11, 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 (a) of this Resolution) to any person up to an
aggregate nominal amount of £392,231.
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.
13. THAT, subject to the passing of Resolution 11, the Directors of the Company be authorised in addition to any authority granted under
Resolution 12 to allot equity securities (as defined in section 560 of the Act) for cash under the authority conferred by Resolution 11 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 £392,231; 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.
14. 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 7,844,623 (representing 10% 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.
15. THAT, with effect from the conclusion of the meeting, the articles of association produced to the meeting and, for the purposes of
identification, initialled by the Chairman be adopted as the articles of association of the Company in substitution for, and to the exclusion of,
the Company’s existing articles of association including the relevant provisions of the memorandum of association that would otherwise be
treated as provisions of the articles of association under section 28 of the Companies Act 2006.
By order of the Board
Julia Crane
Company Secretary
27 March 2023
170
Xaar plc – Annual Report and Financial Statements 2022
Governance
Notes
1.
A member entitled to attend 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 shareholderenquiries@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. Link Group 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 26 May 2023 (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 26 May 2023 (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 page 63 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.
9. A corporation that is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a
shareholder provided that they do not do so in relation to the same shares.
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 Euroclear UK & International Ltd’s (‘Euroclear’) 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 9:30am on 26 May 2023. 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 Euroclear 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 7am on 29 March 2023, the Company’s issued share capital comprised 78,446,230 ordinary shares of 10 pence each. Each ordinary share
carries the right to one vote at a general meeting of the Company, and, therefore, the total number of voting rights in the Company as at 7am on
28 March 2023 is 78,446,230.
Xaar plc – Annual Report and Financial Statements 2022
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171
Notice of the Annual General Meeting continued
Notes continued
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.
18. Under section 338 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section, may, subject to
conditions, require the Company to give to shareholders notice of a resolution which may properly be moved and is intended to be moved at that
meeting.
19. Under section 338A of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section may, subject to
conditions, require the Company to include in the business to be dealt with at the meeting a matter (other than a proposed resolution) which may
properly be included in the business.
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Governance
Appendix 1 – Explanatory note to the principal changes
to the Company’s Articles of Association
It is consistent with good corporate governance to review the Company’s articles of association on a regular basis. Accordingly, the Company’s articles
of association (the ‘Current Articles’) have been reviewed with a view to updating provisions to reflect current practice and to include flexibility with
regard to virtual or hybrid meetings. As a result of this review, it is considered appropriate to propose to the Company’s shareholders that a new set
of articles of association (the “New Articles”) be adopted.
An explanation of the main changes between the proposed New Articles and the Current Articles is set out below.
Some other changes being proposed which are of a minor, technical or clarifying nature. They have been included to reflect current market practice and
to update the articles as a result of the ongoing evolution of the Companies Act 2006 (“CA 2006”) and/or the Uncertificated Securities Regulations 2001.
A copy of the Current Articles marked to show the changes, and of the proposed New Articles, are available on the Company’s website at www.xaar.com/en
and the National Storage Mechanism of the FCA at https://data.fca.org.uk/#/nsm/nationalstoragemechanism, and will be made available for inspection
at the Company’s registered office at 3950 Cambridge Research Park, Waterbeach, Cambridge, England, CB25 9PE during normal business hours
until the conclusion of the Annual General Meeting, and at the place of the Annual General Meeting from at least 15 minutes prior to the Annual
General Meeting until its conclusion.
Electronic conduct of meetings
In view of the changes to the arrangements for holding general meetings which were caused by the response to the COVID-19 pandemic and the
expectation of many shareholders that such flexible arrangements will be continued, the New Articles explicitly permit hybrid general meetings.
Such general meetings can be held and arranged by the Board of Directors of the Company both at a physical location and electronically. Hybrid
general meetings will give shareholders the option to attend the meeting either in person or virtually. Appropriate amendments have also been made
throughout the New Articles to allow related matters, such as the lodging of proxy instructions, to be done electronically as well.
Electronic notices
Similarly, the New Articles provide explicitly for the provision of notices by electronic means (for example by means of posting on the Company’s
website). This would allow the Company to send notices in a way which is both cheaper and more sustainable.
Allotment (Amended Article 4)
In order to allot shares, the Directors must be granted authority either by the articles of association or by shareholders in general meeting. The
authority can only be granted for a specified period (not exceeding five years). Therefore, a disadvantage of including such an authority in the articles
is that the authorising provision will become redundant after the specified period has expired, but it will remain within the articles regardless. For
this reason, many companies prefer to confer authority by passing an ordinary resolution at their annual general meeting. Up to now, the Current
Articles had included an authorising provision but it has long been redundant (as it is replaced at each AGM by a new authority). The New Articles do
not include an authorising provision. Instead, the provisions relating to allotment in the New Articles have been simplified and a resolution to grant the
Directors the authority to allot shares will continue to be proposed at each AGM, in line with market practice.
Power to postpone (New Article 50a)
The New Articles contain a new power for the Directors to postpone a general meeting after the notice is issued but before the meeting is convened if
they consider it impracticable or unreasonable to hold a general meeting on the date and time specified in the notice. This avoids the need to adjourn
a general meeting, giving the Board additional flexibility to respond to any unexpected events which might make it impracticable to hold a general
meeting on a given date.
Retirement of Directors (Amended Article 75)
The Current Articles require Directors to retire by rotation based on a calculation so that circa one third of the Directors retire each year. In keeping
with best corporate governance standards and the Company’s current practice, the New Articles require all the Directors to retire from office at each
AGM and to stand for re-election.
Directors’ fees (Amended Article 86)
The limit on aggregate fees for Non-Executive Directors has been increased to £400,000. The current limit on the aggregate fees for Non-Executive
Directors, approved at the AGM held on 18 May 2016, is £300,000. The Board believes that additional headroom and flexibility is required in view of
succession planning and ensuring that the Company is able to remain competitive and attract talented individuals.
Borrowing powers (Amended Article 102)
The borrowing limit is currently set at three times adjusted capital and reserves (as defined in the Current Articles). If the Company were to exceed this
limit, it would require, in advance, an ordinary resolution from the requisite majority of the shareholders in general meeting. To bring this limit in line
with best practice and the recommendations from guidance issued by institutional investor groups, the New Articles include a lower limit of two times
adjusted capital and reserves; any borrowing in excess of this limit would require the sanction of an ordinary resolution.
Indemnity & insurance (Amended Article 142)
The indemnity provision in the Current Articles has been updated in the New Articles with a provision which allows the Company to indemnify its
officers and former officers to the full extent allowed by the CA 2006. The article has also been amended in order to clarify that it is not intended to
authorise the Company to grant an indemnity which is broader than what is allowed by the CA 2006. The insurance provision has been simplified
such that the Company can purchase insurance for its Directors to the fullest extent allowed by law. These changes will bring the articles in line with
standard market practice for D&O indemnity and insurance provision.
Xaar plc – Annual Report and Financial Statements 2022
Governance
173
Company information and advisors
Registered office
3950 Cambridge Research Park
Waterbeach
Cambridge CB25 9PE
Brokers
Investec
30 Gresham Street
London, EC2V 7QP
Registered number
3320972
Company Secretary
Julia Crane
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
Principal 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, £1.2 billion
is lost to investment fraud, with
the average victim losing around
£20,000. What is more, it is
estimated that only 10% of the
people that become victims of
investment fraud actually report it.
Investment scams are
becoming ever more sophisticated
– designed to look like genuine
investments, they are increasingly
difficult to spot. They are targeted
at those most at risk, typically
people in retirement who are
actively seeking an investment
opportunity.
Protect yourself:
1. Reject cold calls
If you have been cold called
with an offer to buy or sell
shares, it is likely to be a
high-risk investment or scam.
You should treat the call with
extreme caution. The safest
thing to do is hang up. If
you are offered unsolicited
investment advice, discounted
shares, a premium price
for shares you own, or free
company or research reports,
you should get the name of
the person and organisation
contacting you and take these
steps before handing over
any money.
2. Check the firm on the
Financial Services Register at
www.fca.org.uk/register The
Financial Services Register
is a public record of all the
firms and individuals in the
financial services industry that
are regulated by the FCA. Use
the details on the Financial
Services Register to contact
the firm.
Link Group, the Company’s registrar, has launched a shareholder app: LinkVote+.
It is free to download and use and gives shareholders the ability to access
their records at any time and attend virtual AGMs.
The app also allows users to submit a proxy appointment quickly and easily online
rather than through the post.
The app is available to download on the Apple App Store and Google Play.
174
Xaar plc – Annual Report and Financial Statements 2022
Governance
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
Design and Production
www.carrkamasa.co.uk
Xaar plc
3950 Cambridge Research Park
Waterbeach
Cambridge
CB25 9PE