Xaar
Annual Report 2023

Plain-text annual report

Strategic Report Governance Financial Statements Group Xaar plc Annual Report and Financial Statements 2023 1 Xaar plc Annual Report and Financial Statements 2023We are Xaar Annual Report and Financial Statements 2023 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, more productive and more sustainable. 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) mainly for inkjet printing applications. 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. ; We’ve enhanced our reporting suite for all of our stakeholders – you can find all of the relevant information on the links below: Sustainability Report 2023 i Visit our Sustainability Report: www.xaargroup.com Annual Results 2023 i Visit our website: www.xaargroup.com Our website i Visit our website: www.xaargroup.com Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Our 2023 performance Revenue – continuing operations Net cash (outflow)/inflow £70.6m 2023 2022 £(1.4)m £70.6m £72.8m 2023 2022 £(1.4)m £(16.9)m Gross margin – continuing operations Cash & treasury deposits 38% 2023 2022 R&D spend £5.6m 2023 2022 £7.1m 38% 39% 2023 2022 £7.1m £8.5m £5.6m £6.7m Our business performance £70.6m Printhead Product Print Systems Digital Imaging Ink Supply Systems 53% 31% 12% 4% Strategic Report Financial highlights Business model and strategy Why invest? Our strategy Chairman’s introduction Strategic update Business performance Key Performance Indicators Risk management Sustainable and responsible business Task Force on Climate-related Financial Disclosures (TCFDs) Greenhouse Gas Emissions statement 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 Investor information Notice of the Annual General Meeting Company information and advisors 01 02 04 05 06 08 11 14 16 26 30 33 34 35 36 38 39 40 47 49 55 59 61 72 73 80 80 81 82 83 84 118 119 120 127 128 132 01 Xaar plc Annual Report and Financial Statements 2023 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 31 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. 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. 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. Primary markets include: L 3D Printing L Advanced Manufacturing L Ceramic Tile Decoration L Coding & Marking L Decorative Laminates L Direct-to-Shape L Functional Fluid Deposition L Glass Printing L Graphics L Primary Labels L Packaging L Product Printing L Textiles. Xaar sells 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 Xaar as a Xaar branded print engine for our UDI customers. Megnajet sells its products directly to customers and via Xaar. Megnajet is a 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 – including digital inkjet label presses to digital pathology scanners. Our Business Model Xaar designs 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. We continually add to our Intellectual Property (IP) portfolio, and currently, across the Xaar Group, we have around 290 patents and patent applications. Xaar manufactures 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. 02 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements 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 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. 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. Planning for solar installation continues for the Huntingdon factory. We create value for all our stakeholders 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. 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. 03 Xaar plc Annual Report and Financial Statements 2023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. L 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 L 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 L 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. 4. 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. 2. 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. 3. 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. 6. Healthy 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. 5. 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. 04 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Our strategy Our strategy is to sell more printheads Our strategy is to sell more. 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: Our clear business model: sell more printheads To sell more printheads, we needed to extend our range of products to access all digital print markets In parallel, we need to make it easier for customers to use our printheads by supplying the supporting system components All underpinned by a very clear value proposition for each market 05 Xaar plc Annual Report and Financial Statements 2023Chairman’s introduction 2023 was a challenging year. Despite a strong start, the impact of macro-economic and geo-political factors slowed the momentum the business was building, particularly so in the fourth quarter. Global inflation and higher interest rates have led to lower demand for capital goods, and this has had an impact on our revenues. Overall financial performance in 2023 was broadly in line with the Board’s expectations but trading conditions have been relatively weak, particularly in China, an important market for the business. In the latter part of the year, it also became clear that some customers were responding to general market conditions by delaying their new product launch plans, a consequence of which is less certainty in the timing of new business for Xaar. Several customer product launches anticipated to take place at the end of 2023 and early in 2024 are now expected in mid to late 2024. This has a direct impact on Xaar revenues and will hold back growth in 2024. Despite these external challenges, good progress has been made within the business as our technology and product programme continue to deliver new capabilities and enhanced performance. Our High Viscosity technology is creating significant interest across a number of markets, and we are pleased to be developing strong partnerships with leading suppliers in sectors that represent new application areas for Xaar. Within the business the management team have responded proactively to inflationary cost pressures, streamlining internal operations, and lowering total overheads. We remain focused on our core technology and the development of strong customer partnerships as the demand for digital print capability continues to grow. Strategic Progress We believe a significant opportunity exists in market sectors and applications where Xaar technology provides commercial and technical performance advantages. There is a wide range of interest in digital print across industrial sectors, in particular those using higher viscosity fluids, and the economic benefit of doing so compared to existing analogue techniques reassures us that prospects for the business remain significant. Our technology strategy is focused on developing product functionality and attributes which customers tell us they need, and our operational and commercial strategies are designed to make doing business with Xaar straight forward and cost efficient. Our vertical integration strategy, which concentrates on developing competence beyond the printhead itself into electronics, fluid management and integration skills, is also helping us gain access to new applications and is an advantage we can offer our OEM customers to enable their swift deployment of the print system element within their products. As previously announced, we have invested in our manufacturing facilities to improve efficiency and lower costs and the first phase of this programme was completed in early 2023 on time and under budget. This has also enabled increased capacity and generated cost savings, especially in reducing our power usage. Our financial strategy is aimed at generating strong returns for stakeholders in the mid- to longer-term, while maintaining capital discipline and delivering strong cash generation to facilitate continued investment in technology, products and capability. While there is no doubt that the macro- economic challenges have slowed our progress in building revenues, we are pleased with the progress we have made across several areas of the business this year and we have a significant pipeline of opportunity to build upon in 2024 and beyond. Financial Results In a year where inflation and interest rate increases have dominated the economic landscape, the Group delivered revenue of £70.6 million and a pre-tax profit adjusted for non- recurring costs of £2.9 million, slightly ahead of the prior year. Revenues fell by 3 per cent (2022: £73 million). The full-year unadjusted loss was £2.2 million (2022: £0.8 million profit). Our balance sheet is sound and we remain cash positive with banking facilities largely undrawn. The Group has maintained higher levels of inventory over the past two years as we sought to mitigate both cost increases and disruption in the supply chain. We anticipate normalising inventory and gaining the associated positive cash benefit during 2024. The Board has not declared a dividend in 2023 as we continue to believe that prioritising cash for investment in the business will deliver more compelling returns for shareholders in the medium-term. People and ESG A highlight of the year was our successful application for accreditation as a Great Place to Work. People are at the heart of every business and in Xaar we prioritise staff safety and well being alongside performance and delivery. The Board engages with staff representatives regularly and we remain encouraged by the commitment and energy we see in action every day. On behalf of the Board, I would like to thank our entire team for their hard work and diligence. We also seek to have a wider positive impact on society by understanding and prioritising stakeholder needs, managing our business responsibly, and reaching out to our local communities. Our teams have continued to support national STEM initiatives, encouraging young people to develop an interest in technology and business. Environmental focus is also important in Xaar as we make progress towards our goal of net zero by 2030. Recently we were nominated as finalists at the Edie awards for Green Project of the Year in relation to our factory re-organisation project. In addition to in-house initiatives, our products are designed to be cleaner, more efficient and generate less waste than traditional print techniques. Our development of printheads capable of reliable performance using water-based fluids is a particular area of focus. There is a clear environmental advantage in using our products as we can print highly viscous fluids, not just water-based, which require much less drying time, thereby reducing significant energy usage as well as reduced water content. 06 Xaar plc Annual Report and Financial Statements 2023Board and Governance During the year Chris Morgan stood down from the Board and we welcomed two new non-executive Directors Richard Amos and Jacqui Sutton. Richard Amos joined in June 2023 and is the Chair of Audit Committee. Richard also sits on the Nomination and Remuneration Committees. Jacqui Sutton joined the Board in November 2023 and sits on the Audit, Nomination and Remuneration Committees. Both Richard and Jacqui bring a wealth of experience and have relevant knowledge and skills from their previous executive and non-executive roles. In February 2024, Stuart Widdowson joined the Board as a non-executive Director. Stuart is appointed as a representative of Odyssean Capital LLP where he is the Managing Partner. In a further change, Alison Littley has notified the Board of her intention to step down as a non-executive Director during 2024. Alison will stand for re-election this year but will resign from the Board once her replacement is recruited. An announcement, including arrangements for chairing the Remuneration Committee and the senior independent director role, will be made in due course. I have appreciated the support of both Alison and Chris Morgan over several years and take this opportunity to express thanks to them both for their commitment and contribution to the business. Looking Ahead Having put in place strong foundations through the development of 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. Xaar remains in a good position with unique and compelling products and a significant addressable market. External factors mean we are cautious about the short-term, but we believe the business is well positioned for growth over the medium-and long-term. We look forward with confidence. Andrew Herbert Chairman 25 March 2024 Strategic Report Governance Financial Statements 07 Xaar plc Annual Report and Financial Statements 2023 Strategic update 2023 was a year in which the Group delivered encouraging progress in key strategic areas. Introduction The Group entered 2023 having invested in inventory over the previous year to maintain customer service levels during the period of exceptional supply chain disruption in 2022, to mitigate cost inflation and to be well positioned for several customer product launches. Due to current geo-political and macro- economic conditions, OEM machine launches are taking longer than expected which had a significant impact in Q4 of 2023. Several of these launches were delayed, impacting revenue in the latter stage of the year and the start of 2024. However, we remain optimistic about the future, and we are well placed to benefit as trading conditions improve. The disappointing end to the year masked some more encouraging signs. We continue to enjoy leading positions in attractive structural growth markets. We deepened our relationships with key customers helped by our widening product range, and we have grown our customer base and maintained our market share. 08 Strategic progress Xaar delivered a good performance in 2023. We continue to execute our strategy of delivering compelling products in each of our market segments and remain focused on the significant opportunities that will drive profitable growth. Financial Performance We have delivered performance in 2023 in line with updated management expectations, demonstrating operational and strategic progress across the Group. Revenue for the period was £70.6 million representing a decrease of 3% against 2022. This strategy is now delivering with our products, especially Aquinox, generating strong interest from both existing and new customers underlining our leadership in jetting highly viscous fluids which, alongside other advantages, provide significant sustainability benefits, as well as reducing our customers’ time to market. We have seen an increase in the number of customers adopting Xaar technology and we now have clearer visibility of their product launches. This is evidenced by the 12 new customer product launches during 2023. We expect an increase in customer product launches that incorporate Xaar’s technology during 2024, which we anticipate will drive demand for printheads. Phase 1 of our factory upgrade has been successfully completed on time and within budget, positioning us to deliver increased efficiency and capacity, whilst realising significant cost savings. Further phases of development will see increased modernisation of our manufacturing facilities leading to greater efficiencies and scale potential. These will only be undertaken when business performance and market conditions improve. We have seen continued good performance from EPS, FFEI and Megnajet, with EPS especially continuing to deliver excellent revenue and profit growth. As part of our strategic decision to consider options to withdraw from the Life Science part of FFEI, we sold non-core IP assets in the year delivering a profit of £2.0 million. The Printhead business has a clear customer- focused strategy, and we are pleased to have grown our customer base and at least maintained our market share in key sectors. The economic challenges globally, particularly rising interest rates, have directly impacted capital equipment purchases by some customers in the year, particularly so in Q4 2023. As a result of these pressures revenue for the Printhead business was down 5%. The external pressures not only impacted customers’ new product launches but also existing core markets for printheads, with the ceramics sector being particularly affected, linked to the slowdown in the global construction industry. Progress has been made in market sectors beyond Ceramics, especially the key growth area of 3D printing, and we continue to see strong customer engagement where we have a competitive advantage enabling customers’ use of high viscosity fluids. Geographically we delivered growth in Asia, when compared to the COVID-19 impacted period in 2022. This increase of £4.0 million (49%) was offset by lower revenue in the US (down £5.6 million, 15%) and EMEA (down £0.6 million, 2%). While disappointed with revenue decline in some markets, we are pleased with the broader spread of business across geographic regions and market sectors. This demonstrates the increasing resilience of the business. We have increased diversification of customers, applications and geographies as the customer pipeline continues to grow. EPS has delivered an excellent performance. Revenue increased 13%, with growth across all its product lines, and digital inkjet sales at the core of the success growing 15%. The proactive decisions taken in the last two years to strengthen the management team and rationalise the product range are delivering excellent results. FFEI and Megnajet continue to perform well. These businesses provide us with an expanded product range enabling real traction and opportunity in the printbar and print engine markets, along with fluid management systems. Our plan has been to focus on products that support our core strategy. As a result, we are considering options to withdraw from the non- core Life Sciences part of the FFEI business, and the sale of IP in this area during the year is part of this process. We delivered a one-off profit of £2.0 million through this sale which helped offset the one-off impact of Phase one of our factory re-organisation at Huntingdon completed in Q1. Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Gross margin for the Group was 38% (2022: 39%) despite inflationary cost pressures and closing the Huntingdon factory for two months to complete Phase 1 of the operational re- organisation. We have successfully protected our gross margins from input cost inflation which was evident in our supply chain in 2023. Our ability to pass on inflation increases underlines the strength of our products and our market position. Group adjusted profit before tax for 2023 was £2.9 million, an increase of £0.1 million when compared to £2.8 million in 2022. The full-year unadjusted loss was £2.2 million (2022: £0.8 million profit). Healthy balance sheet and operational investment The Group retains a healthy balance sheet and cash position. Cash at 31 December 2023 was £7.1 million, reflecting a net outflow of £1.4 million over the year. During the year we invested £2.1 million in inventory allowing the Printhead business to increase its holding of finished goods. This has been a controlled and systematic approach over the last 18 months giving confidence in our ability to deliver on customer orders. As a consequence of the unexpected reduced demand in our core markets and particularly a significant slowdown in the ceramics sector in Q4 2023, we have a higher than planned finished goods holding in the Printhead business. Whilst we have won business through the advantage of offering shorter lead times than our competition ensuring we have been able to capitalise on commercial opportunities, we continue to monitor the product mix of finished goods to ensure it is appropriate for customer demand. Consequently, we expect to reduce inventory levels during 2024 which will have a positive impact on cash generation during the year. We will maintain our disciplined approach to balance sheet management, as it remains a key priority to allow for further investment in the business focussing on operational capability. We have been disciplined in our management of cash expenditure focusing on improving operational capability and efficiencies, investing £1.5 million (2022: £2.4 million) in operational upgrades along with the factory upgrade completed in March 2023. 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 2023 we invested £5.6 million (2022: £6.7 million). In June 2023 we successfully agreed a Revolving Credit Facility (RCF) of £5.0 million with our lead bank, HSBC, which allows for accelerated investment in the business and our operational capability. Operational improvements driving greater efficiency and capacity Operational improvements have been made through investment in our manufacturing facilities to increase efficiency and lower costs. The first phase of this programme has now been completed with the Huntingdon factory re-organisation completed in early 2023 on time and under budget. This will enable us to operate more efficiently, increase capacity and yields whilst crucially generating significant cost savings, especially in reducing our energy consumption. Accordingly, this investment will deliver a rapid return and payback in less than a year. This is the first phase of our efficiency upgrade programme. The next phase of investment will result in more modern, efficient, and environmentally beneficial manufacturing facilities across the business. This will be undertaken when business performance improves, depending on business needs and volume demand. It is anticipated between £10 million and £15 million will be invested in the next phase. We continue to exercise tight control over our cost base whilst also seeking opportunities to drive performance. This includes establishing an internal project, named Hubble, which will provide focus for our key priorities and goals. This project is split into 4 key streams:- L Commercial strategic opportunities L Operational efficiency L Organisational effectiveness L Customer integration. Each project stream has an appropriate Executive sponsor and project lead. The project aims to deliver cost savings on an annual basis of £2.0 million of which £1.2 million has already been identified and implemented. The project will be delivered with no incremental investment. Significant market opportunity remains 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 we can supply our customers with the products they need to develop their printers. This means we have significant growth opportunities, incremental to printhead sales, where we can shorten our customers’ product development time to market. The medium-and long-term opportunity for the business remains significant. Whilst we already have good market share in core, mature markets such as Ceramics and Coding & Marking, our market leading technologies provide further growth opportunities in applications where our capabilities offer competitive advantage. During 2023 we have made significant progress in 3D printing, where our ability to print high viscosity fluids is transforming the industry. The 3D printing sector is experiencing a greater level of customer product launches, thereby providing greater revenue potential opportunity for our products than previously expected. Historically Xaar has almost exclusively operated in the B2B (Business to Business) area across our product ranges and applications, however there is an emerging opportunity for 3D printing in the B2C (Business to Consumer) sector where we can facilitate growth. We are partnering with established system providers for our Xaar Irix printhead to enable a new generation of full colour, inkjet-based desktop 3D printing systems that are higher resolution and more flexible than the existing technologies. We anticipate this new generation of 3D printers to be launched during 2024 and 2025. Customer engagement has increased as our printhead product range has expanded. Our ability to offer a broader solution to customers with fluid management systems and printbars has increased the number of customers developing machines with our products. During 2023 there were 12 customer product launches, and we anticipate at least a further twelve launches during 2024. 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. Working with Xaar means a higher chance of success by being faster to market and increasing return on investment. Ultimately this will help us in our overriding strategy to sell more printheads and enables the business to manage volatility better, in any given market. We are further supporting our business model with three key initiatives. Firstly, we are diversifying the geographical spread of our customer base. By targeting OEMs in Europe and US, we gain greater regional diversity and reduce our dependence on any specific region. This has resulted in growth of new development projects in those regions and will build further resilience into our business. The second initiative is to develop relationships with our end customers in a way that hasn’t been previously achieved. By engaging with end users – in partnership with our OEMs – we are expanding our market understanding. This not only strengthens the relationship with end users and direct customers but presents us with a clear picture of the decisions that drive the adoption timing of new systems with Xaar technology. 09 Xaar plc Annual Report and Financial Statements 2023Strategic update continued Significant market opportunity remains continued The transition to Xaar technology and revolutionary high viscosity inks can present technical challenges when customers integrate our printheads into a new system. To counter this we are developing our service offering to better support them, which is our third initiative. This involves focusing our resources to identify issues earlier and provide more direct support to resolve technical challenges. Additionally, we are developing a full printer solution in-house for our key markets so that we can identify and resolve issues with system integration before they create problems in the field. Product development and capability We have a unique roadmap of product development to ensure we offer an increasingly vertically integrated commercial strategy to capitalise on this market opportunity. Our Xaar 2002 printhead has double the resolution of our competitors giving the ability for very high-quality print and incorporates our key technologies which enable printing of very challenging fluids in harsh production environments. The Xaar Irix remains the flagship product in the Coding and Marking and Direct-to-Shape sectors. It delivers increased throw distance whilst maintaining print quality and along with our Xaar 50X printheads means we are maintaining our position in Coding and Marking and have several opportunities in the Direct-to- Shape market. The Aquinox printhead is positioned to drive adoption in Packaging and Textiles markets. The response to the product has been extremely positive due to its ability to print high viscosity water-based inks. This gives customers the opportunity to use less energy, with a higher throughput, and more vibrant colours. The significant benefits of high viscosity inks have also recently been independently validated by the Welsh Centre for Printing at Swansea University confirming the superiority of our technology. This was confirmed at a highly successful R&D open day held in November 2023 which was attended by customers, commercial partners and potential technology adopters. They were able to witness and participate in live demonstration of the functionality that our products offer. The day was highly successful, demonstrated by the level of interest and further enquiries we have received since. 10 The already successful ImagineX platform will deliver improved features over the next few years which will provide significant enhancements to the current portfolio, including: L substantially improved speed and throughput (frequencies up to 150kHz, equivalent to a threefold increase in speed compared to current products), L increased throw distance to improve image quality on curved surfaces, L increased robustness to improve the life of the printhead and maintain image quality, L higher viscosities enabling a broader range of fluids to be printed (above 100cP), and L 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 participating. The enhancements in our product roadmap support our customers with a clear path to upgrade their products and maintain their product differentiation. Strong commitment to sustainability We continue to make progress on ESG and the Group’s Sustainability Roadmap. The Board remains committed to the business becoming carbon net zero by 2030. We are passionate about delivering solutions and products for our customers that are cleaner and better for the environment. Our products are well placed to deliver significant benefits commercially and environmentally for our customers through reductions in power consumption and water usage. 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 Ultra High Viscosity Technology and TF (ThroughFlow) 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. During 2023 we gained full accreditation for the Great Place To Work certification. This was especially pleasing as it was gained on our first application and is testament to the hard work and engagement of colleagues across the business. 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. All our UK sites have now moved to 100% renewable energy. 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 university students and industry placements. Outlook Whilst the end of 2023 was challenging, and the current external trading environment remains so, we are focused on the delivery of our strategy and taking advantage of the significant opportunities we have that will drive profitable growth. Our products continue to generate strong interest from customers, demonstrating our leadership in printing highly viscous fluids with all the performance and sustainability benefits they deliver. As previously announced in our November 2023 trading update, due to the current geo-political and macro-economic conditions, bringing some of our customer’s products to market is taking longer than expected, meaning we are cautious on precise timing. As we reduce our finished goods inventory during 2024, the lower volumes will impact our ability to recover production overhead costs. Together with the effect of increased input costs, as previously explained, our gross margin will be impacted this year. Despite this, we will continue to take decisive action to manage our costs and maximise cash generation during this slower trading period whilst preserving our sources of long-term competitive advantage. We are confident that our market position remains strong and that the Group remains well positioned to prosper as our key markets resume a trajectory of healthy long-term growth. So, despite the short-term challenge we remain hugely excited for the future of Xaar and remain confident that the unique capabilities of our printheads will drive broad adoption across all markets over the coming years. We believe the business is well positioned for growth through both new applications and share gains in new and existing markets and our expectations for the full year remain unchanged. John Mills Chief Executive Officer Ian Tichias Chief Financial Officer 25 March 2024 25 March 2024 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Revenue from Packaging and Textiles continues to be modest. Our ability to target this sector effectively has been somewhat limited by our product range, although the launch of the Aquinox printhead has started 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 has remained consistent year-on-year at £0.5 million. Revenue from the Product Print Systems business achieved another year of significant growth of £2.5 million (13%) in 2023, totalling £22.1 million (2022: £19.6 million) for the year. Growth has again been achieved across all product groups this year, predominantly in the core area of digital inkjet machine sales, which have grown by £1.9 million (15%). This is particularly welcome seeing as this is the core focus in this segment and will drive increased profitability. The anticipated full year increase in Pad Printing Machine revenue has been achieved. We see a strengthening demand pipeline due to the easing of the backlog of customers’ deferred investment in capital equipment and we are well placed to deliver further growth in 2024. The change in commercial strategy, increasing focus on consumables and accessory sales has also contributed to the revenue growth seen in this segment, with increased revenue (60%) achieved from ink, plates and parts sales. Revenue generated from customers located in EMEA regions remained largely stable year-on- year at £27.8 million (2022: £28.4 million) which is pleasing and reflects continued customer engagement across our product offering in recently entered market sectors. Whilst COVID-19 restrictions in China have now been lifted, a trailing impact on demand is still being suffered by the Group within the Printhead segment. Suppressed demand has been exacerbated by the impact of inflationary cost pressures and interest rate rises on capital equipment sales globally. These constraints on demand have translated into a £1.9 million (5%) year-on-year reduction in Printhead revenue. Growth has been achieved again this year in the 3D Printing and Advanced Manufacturing (AVM) sectors, which is pleasing as this reflects our overall customer strategy and enhanced product portfolio. The 3D printing market remains an exciting opportunity for us and is a sector we continue to expect to grow significantly in the future. Revenue from 3D Printing and AVM grew £2.5 million (64%) year-on-year. Both 3D Printing and AVM are markets where we are well positioned to take advantage of growth opportunities and although OEM machine development cycles can be long, which means extended time-scales for a customer to reach full production, the market opportunity is significant. As anticipated, revenue in the Ceramics and Glass market has reduced, due to the significant slowdown in the sector, with a fall of 9% in the year. Coding and Marking (C&M) and Direct-to-Shape (DTS) revenues declined by £1.4 million (11%) in the year. Revenue from the Wide Format Graphics (WFG) and Labels market fell 25% in the year from £4.8 million to £3.6 million. Challenges faced with customer deferrals of orders in the prior year have continued to postpone revenue recognition for the Group. Business performance Revenue Despite trading conditions becoming more challenging in the latter part of the year, the Group achieved revenue of £70.6 million, representing a marginal £2.2 million (3%) decline on 2022 revenues of £72.8 million. Group revenues were £34.5 million in the first half of the year and £36.1 million in the second half. Whilst a lack of growth is disappointing, underlying market demand remains and we have retained market share. Therefore, we are confident in the medium-term of returning to previous levels of organic growth. The pipeline of anticipated customer product launches in the coming 12 to 18 months drives this confidence. Revenue generated by the Digital Imaging operating segment totalled £8.7 million in the year (2022: £11.6 million), representing a decline of 25% compared to the prior year. In accordance with previous statements, as part of the ongoing integration this year, we have maintained focus on the core print systems activities acquired and commenced the strategic exit from the non-core Life Sciences activities that also formed part of the acquired business. This has resulted in an aggregate reduction in revenue whilst synergies are built in core activities. The year ended 31 December 2023 represents the first full year of trading in the Ink Supply Systems operating segment following the Group’s entrance into this market in Q1 2022 via the acquisition of Megnajet Limited. Whilst the Americas remains the Group’s primary geographical market representing 43% of total Group revenue (2022: 50%), revenue from the Americas experienced a decline of £5.6 million (15%) year-on-year, due to a £2.8 million reduction in printhead revenue primarily in the Coding & Marking (C&M) sector, and a £1.8 million reduction in Digital Imaging revenue. These reductions in revenue were partially offset by increased income generation from customers in Asia, with revenue increasing by £4.0 million to total £12.2 million for the year. This was driven by single-pass machine sales in Asia by EPS. Table A – Group revenue by geographic region £m FY 2023 FY 2022 Variance Variance % PH PPS DI ISS* Total PH PPS DI ISS* Total PH PPS DI ISS* Total PH PPS DI ISS* Total Americas Asia EMEA Total 8.0 19.0 3.0 8.4 0.1 20.7 37.1 22.1 3.0 0.1 5.6 8.7 0.6 0.7 1.4 2.7 30.6 12.2 27.8 70.6 10.8 7.5 20.7 19.3 0.2 0.1 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 (2.8) (0.3) (1.8) (0.7) 0.3 0.5 – – (1.1) 0.9 – 2.8 (5.6) 4.0 (0.6) (26)% (2)% (38)% (54)% (15)% 49% (2)% – 75% – (16)% 56% 12% 1400% – 72.8 (1.9) 2.5 (2.9) 0.1 (2.2) (5)% 13% (25)% 4% (3)% * Megnajet Limited was acquired on 2 March 2022 – comparative figures in the table above reflect 10 months of post-acquisition revenue. PH - Print-head DI - Digital Imaging ISS - Ink Supply Systems 11 Xaar plc Annual Report and Financial Statements 2023Business performance continued Table B – Printhead Revenue by Sector £m 2023 H1 2023 H2 FY 2023 FY 2022 Var Var % Ceramics and Glass C&M and DTS WFG and Labels 3D Printing and AVM Packaging and Textiles Royalties, Commissions and Fees 8.0 5.1 1.7 2.6 0.2 – 7.5 6.1 1.9 3.8 0.2 – Total 17.6 19.5 Figures (£m) and percentages (%) are subject to rounding. Table C – Product Print Systems Revenue by Sector 15.5 11.2 3.6 6.4 0.4 – 37.1 17.0 12.6 4.8 3.9 0.5 0.2 39.0 (1.5) (1.4) (1.2) 2.5 (0.1) (0.2) (1.9) 9% (11)% (25)% 64% (20)% (100)% (5)% £m Digital inkjet Pad printing Other Total 2023 H1 2023 H2 FY 2023 FY 2022 Var Var % 7.3 3.0 0.4 10.7 7.0 4.0 0.4 11.4 14.3 7.0 0.8 22.1 12.4 6.7 0.5 19.6 1.9 0.3 0.3 2.5 15% 4% 60% 13% Figures (£m) and percentages (%) are subject to rounding. Total adjusting items affecting the operating result were £5.3 million (2022: £2.0 million). Of the total £3.3 million year-on-year increase, £1.6 million was driven by unfavourable movements in exchange rates and fair value measurement. A further £1.0 million of this increase compared to the prior year was driven by increased spend on restructuring and efficiency upgrade programmes. Finally, a further £0.4 million increase in adjusting items resulted from the ongoing integration of previously acquired businesses. Result for the year The total reported result for the year consisted of a loss before tax of £2.4 million (2022: profit before tax of £0.8 million). All of which resulted from continuing operations and is attributable to the owners of the Group. Consequently, basic (loss)/earnings per share was (2.8)p (2022: 2.1p). After factoring in the impact of adjusting items, the Group achieved an adjusted profit before tax of £2.9 million (2022: £2.8 million). This equates to adjusted, basic earnings per share of 3.6p (2022: 4.8p). This is a pleasing result in light of the deterioration in the wider macro- economic environment and trading headwinds encountered during the year. Whilst not being measures defined under IFRS, we believe that the ‘adjusted profit before tax’ and ‘adjusted earnings per share’ measures presented, provide shareholders with a consistent presentation of the Group’s underlying, operational performance. For full details of the nature and quantum of items added back as ‘adjusting’ when calculating these alternative performance measures, please refer to Note 9 of the consolidated financial statements. Cash generation The Group continued its robust, disciplined focus on cash, ensuring the maintenance of sufficient financial resources during the year. The Group holds a healthy cash balance of £7.1 million as at 31 December 2023 (2022: £8.5 million). This represents a reduction of £1.4 million year-on-year, which has been driven by planned working capital investment. Operating cash inflows, before movements in working capital, generated during the year were £4.6 million (2022: £6.6 million). In the context of market headwinds, we continued a proportionate level of investment in operational infrastructure and product development in the year of £1.9 million (2022: £5.4 million). This included maintenance capital expenditure and the completion of the first phase of the efficiency upgrade programme (namely the Huntingdon factory reorganisation) in the first half of the year; which was delivered on time and on budget. This now enables us to operate more efficiently by increasing capacity and yields, whilst crucially generating significant cost savings, especially in the form of reduced energy consumption. Accordingly, this investment is anticipated to deliver a rapid return, with payback expected in less than a year. In June 2023, we secured a Revolving Credit Facility of £5 million with our lead bank, HSBC. Access to these funds allows for accelerated investment in the business and in our operational capability. As at 31 December 2023, no amounts were drawn under this facility. Gross profit The Group maintained a consistent gross profit margin of 38% (2022: 39%), with gross profit reducing to £26.9 million (2022: £28.6 million) in line with the reduction in revenue in the year. The margin structure across all the Group’s operating segments has remained stable year- on-year, cemented by the actions taken in prior years to deliver efficiency gains and secure raw material cost-savings to support gross margin. The impact on profitability resulting from the temporary suspension of activity at the Group’s production facility in Huntingdon (the first phase of the Group’s efficiency upgrade programme) was largely successfully mitigated by the improvements in overhead recovery gained as a consequence of the resultant increased throughput following the production facility reorganisation. Research and development expenses The Group maintained its R&D spend to revenue ratio in the desired region of 8-11% with gross, pre-tax investment in R&D totalling £5.6 million for the year (2022: £6.7 million). This underscores the Group’s continued commitment to the strategic goal of offering customers a fully vertically integrated product offering within all product sectors as set out in the Group’s product roadmap; with focus in the year having been on the ImagineX platform. We will continue to invest in our R&D capabilities across the Group to ensure our technology remains market leading. Operating expenses There has been a strong focus on the management of costs across the Group in response to broader macro-economic conditions and the headwinds faced in the trading environment in which the Group is operating. Sales and marketing spend for the year of £5.4 million represents a 19% reduction on prior years (2022: £6.7 million), demonstrating the Group’s focused, targeted approach to managing these costs. General and administrative expenses of £20.2 million were £5.7 million higher than the prior year (2022: £14.5 million). Of this increase, £3.1 million arose from adjusting items resulting from restructuring and integration activities. The remaining £2.6 million year-on-year increase in adjusted general and administrative expenses was broadly offset by the £2.2 million increase in other operating income. This was predominantly generated on disposal of the intangible assets associated with the non- core Life Sciences activities in the context of the ongoing integration of the FFEI Limited business during the year (2023 £2.2 million, 2022: £0.1 million). 12 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Dividend No dividend has been declared in respect of the year. The Board regularly reviews its capital allocation policy and believes that prioritising investment to enable profitable growth for the business is currently the most appropriate use of capital and is expected to achieve more compelling medium-term returns for shareholders. John Mills Chief Executive Officer Ian Tichias Chief Financial Officer 25 March 2024 25 March 2024 Healthy balance sheet The Group has maintained a healthy balance sheet throughout the year with a consistent net current assets position of £33.5 million (2022: £30.0 million). Non-current assets of £45.5 million decreased by £6.5 million during the year. In line with the Group’s cash focus, there was a £1.6 million reduction in property, plant and equipment as new purchases were controlled. A £2.8 million reduction in the non-current element of the contingent consideration receivable resulted from the progression of this arrangement through its ongoing term. The remaining reduction in the carrying value of non-current assets being the annual depreciation and amortisation of assets in line with their useful economic life for the business. Current assets increased by £1.3 million from £50.5 million as at 31 December 2022 to £51.8 million. Working capital balances remained broadly flat year-on-year, with the £1.9 million (7%) increase in inventory being offset by a reduction in cash and cash equivalents. The increase in current assets year-on-year predominantly results from the £1.8 million increase in the contingent consideration receivable following the re-aging of this balance based on assessments of the earn-out and milestone consideration expected to meet the conditions for payment to the Group during the year ending 31 December 2024. Non-current liabilities totalled £7.2 million, following a £3.0 million reduction year-on-year. All remaining deferred consideration payable in respect of business combinations from prior years falls due for payment during the year ending 31 December 2024, reducing the non- current deferred consideration balance by £2.0 million compared to the prior year. The balance now being £nil as at 31 December 2023. The remainder of the reduction in non-current liabilities results from changes in the average remaining lease term of the Group’s lease portfolio. Current liabilities of £18.2 million have reduced by £2.3 million compared to the prior year (2022: £20.5 million). This movement is driven by a £3.6 million reduction in trade and other payables, which is partially offset by a £1.0 million increase in amounts borrowed under the Group’s invoice discounting facility. The business has a clear plan and strategy which its healthy 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. At present, we are focusing investment internally to ensure we have the operational capacity and efficiency to meet future demand, alongside investment in our product roadmap development. 13 Xaar plc Annual Report and Financial Statements 2023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 9 of the Group’s Consolidated Financial Statements, for reconciliation between adjusted and statutory items 2022 figures and 2023 comparative figures are based on continuing operations (where relevant), and are subject to rounding. Revenue Statutory Continuing operations £m £70.6m 2023 2022 £70.6m £72.8m Total revenue for the Group was £70.6 million, a decrease of £2.2 million year-on-year (2022: £72.8 million). Revenue decreased 3.0% year- on-year. Revenue by sector Industrial £m Graphic Arts £m £55.7m 2023 2022 Packaging £11.1m 2023 2022 £3.8m £ 55.7m £54.9m 2023 2022 £m Royalties £0m £3.8m £4.7m £m £11.1m 2023 £0m £12.9m 2022 £0.3m Industrial sector revenues have been broadly maintained with reductions in printhead sales, particularly in the ceramics market, being offset by improvements in EPS and Megnajet. Declines in the packaging sector is due to a reduction in printhead sales to the coding and marking market. Revenue by region EMEA £27.8m £m Largely stable revenue in EMEA regions, reflecting continued customer engagement across our product offering in recently entered market sectors. 2023 2022 Asia £12.2m 2023 2022 Americas £30.6m 2023 2022 £8.2m £27.8m £28.4m £m £12.2m £m £30.6m £36.2m £4m revenue growth in Asia predominantly driven by single-pass machines by EPS to Japan. Revenue declines in the Americas due to a £2.8m reduction in printhead sales to the coding & market sector and lower Digital Imaging activity in the region. 14 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Alternative Performance Measures (APMs) Adjusted profit before tax – Continuing operations £m £2.9m 2023 2022 £2.9m £2.8m Adjusted basic earnings per share – Continuing operations £p 3.6p 2023 2022 3.6p 4.8p 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 9. 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. Alternative Performance Measures (APMs) R&D investment £m £5.6m 2023 2022 £5.6m £6.7m Group R&D investment exclusive of any capitalised costs. Reflects the ongoing focus on the ImagineX platform and maintains R&D spend within Xaar’s target of 8-11% ratio to revenue. Profit Statutory Gross margin - Continuing operations % 38% 2023 2022 38% 39% (Loss)/profit before tax – Continuing operations £m £(2.4)m 2023 £(2.4)m 2022 £0.8m Basic (loss)/earnings per share (Total) £p (2.8)p 2023 (2.8)p Cash Statutory 2022 2.1p Cash & treasury deposits £m £7.1m 2023 2022 £7.1m £8.5m Net (decrease)/increase in cash and cash equivalents £m (£1.4)m 2023 2022 (£1.4m) (£16.5)m Gross margin well controlled in the period, despite inflationary cost pressures, underlining the strength of the Group’s products and market position. Profit before tax represents operating profit after investment income and finance costs (2022: £0.8 million). The calculation of basic EPS is based on the weighted average number of ordinary shares outstanding during the period (2022: 2.1p). See Financial Statements – note 14 for further information. Cash and cash equivalents comprise cash at bank of £7.1 million (2022: £8.5 million). Cash outflow in the year driven by ongoing investment in the Group including £1.9 million operational infrastructure expense, £1.7m deferred consideration payments and £2.1m increase in inventories. 15 Xaar plc Annual Report and Financial Statements 2023Risk management Measuring our risks Key risk areas The risks around our business are set out in more detail on pages 19 to 25, but the key risk areas can be identified as being associated with the following: Market 1. Competition Risk owner: CEO John Mills 2. Identification of market 3. Commercialising and 4. Merger and acquisition 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 time-scale. maintaining products with cutting edge technology Creating value by generating innovative products that deliver significant customer benefit. opportunities Seek opportunities to expand, create synergies and generate greater shareholder value. Operational 5. Climate change Identifying risks and scenario planning of physical and transition impact upon operations and developing mitigating actions. 6. Organisational capability Having the right people in the right roles. IT 11. 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. Risk owner: COO Graham Tweedale 7. Partnerships and alliances Working with the right companies, at the right time on the right terms to deliver long-term value. 8. Supply chain 10. 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. 9. War in Ukraine and conflict in the Middle East Staying resilient in the face of a challenging world economy. Risk owner: CFO Ian Tichias & Group IT Director Graeme Smith 12. 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 13. Ability to access sufficient capital Ability to access sufficient capital to fund growth opportunities. Risk owner: CFO Ian Tichias 14. Customer credit exposure Offering credit terms ensuring recoverability is reasonably assured. 15. Inventory obsolescence Holding excess inventory levels when compared to demand, that leads to increased risk of obsolescence and write-off before consumption. 16. Exchange rates Monitoring global economic events and mitigating any resulting significant exchange rate impacts. 16 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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 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. Cyber security – increased 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. Risk management responsibilities Board Audit Committee Reports to Reports to Executive 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 the Company Secretary Bottom-up review Group operating companies and departments As the rate and impact of cyber attacks increase across the world, the rating for this risk has been increased. 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. For all those risks, we were able to identify identical risks in the principal risks we disclose in this report. These also comply with the FRC guidance on risk management, internal controls and related risk financial and business reporting. Emerging Risks The Board periodically reviews emerging risks, to consider and evaluate the potential impact of newly identified risks against current principal risks. On review, it was determined that these emerging risks were appropriately captured by the Group’s existing principal risks, or risks or were not significant enough to be deemed a new principal risk. As part of the annual risk review, the Board therefore concluded that no significant emerging risks have been identified in 2023. During the year, the structure and the processes around risk management have been revised and simplified. The Executive Committee oversees risk management as part of its decision-making process. It reviews the principal risks and key changes in the previous 6 months twice a year. 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 is updated after these meetings and is reviewed and considered by the Executive Committee as part of their principal risks’ evaluation. After all risks and proposals are approved by Executive Committee, the principal risks are then presented to the Board and the Audit Committee for their final review and approval. Key updates since 2023 Interim Results Laws and regulations – reduced Changes have been made to review the process to ensure that the Group complies with existing laws and regulations. The level of this risk has consequently been reduced. However, 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. War in Ukraine and the conflict in the Middle East – increased and revised The impact on the world economy and geo- political environment of the continued war in Ukraine and the escalation of the conflict in the Middle East has been assessed. Whilst energy costs have stabilised in Europe, the fragile political situation remains concerning. In the Middle East, further instability has resulted in some disruptions to shipping and order uncertainty. Actions have been taken to reduce energy consumption, diversify markets and ensure that the shipping of customer products and raw material supplies continues without disruption. Supply Chain –increased As outlined above, the situation in the Middle East has resulted in some disruptions to shipping routes in the Red Sea. Consequently, this risk has been increased. Mitigating actions are in place in respect of shipping and appropriate inventory levels. 17 Xaar plc Annual Report and Financial Statements 2023Risk management continued 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. 18 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Risk and link to business unit Impact Mitigation Likelihood Magnitude Change 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. 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. Unlikely Very High – no change 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. 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. Unlikely Very High – no change 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. New products are thoroughly tested before launch. Possible 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. High – no change 19 Xaar plc Annual Report and Financial Statements 2023Risk management continued Risk and link to business unit Impact Market continued 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. Mitigation Likelihood Magnitude Change The Board reviews the Group strategy annually. Each acquisition is thoroughly reviewed by the Board at each stage. Probable Medium – no change 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. 20 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Risk and link to business unit Impact Mitigation Likelihood Magnitude Change Operational 5. Climate change Possible Medium – no 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. 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, as set out in the TCFD disclosure. Physical risks: L Major incident plans are in place with specific provisions for areas most exposed to potential risks (flood, fires, hurricanes etc.) L Geographic spread of the business limits the impact to our customers. Our sourcing strategy takes into account risks associated with our key suppliers L 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 L The review examined ALL Xaar sites globally and our top 10 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. Transition risks L Develop Sustainability Roadmap to deliver ‘Net Zero by 2030’ L 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 £1.3m 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) L Continue reducing carbon use to minimise impact, and to become a low-carbon manufacturer L Analyse Supply Chain Infrastructure Risk Exposure L Identify ‘spend to save’ projects that are cash generative L Continue GHG mitigation actions to maintain a carbon neutral position L Develop transparency and credibility in ‘net zero’ commitments with verifiable plans and progress in both near-term and medium-term action plans. 21 Xaar plc Annual Report and Financial Statements 2023Risk management continued Risk and link to business unit Impact Operational continued Mitigation Likelihood Magnitude Change 6. Organisational capability Our people remain key to our business. Ensuring the right people are in the right roles is critical to our future success and growth. Our focus is to minimise the voluntary turnover of employees, through better hiring for fit, improved induction procedures and employee engagement initiatives. Possible Medium – no change 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. 7. 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 – no change 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. 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. Unlikely High – increased 8. 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. 22 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Risk and link to business unit Impact Operational continued 9. War in Ukraine and conflict the Middle East 10. Laws and regulations The war in Ukraine continues to impact the near-term outlook for the UK and global economies and increased uncertainty over the path ahead. Although energy prices have stabilised in 2023, they continue to be a concern for the UK economy which also result in further upward pressure on inflation and a potential hit to GDP growth. The conflict between Israel and Hamas has further de-stabilised the Middle East and disruptions to shipping in the Red Sea may impact the supply chain. 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. Mitigation Likelihood Magnitude Change We have fixed our unit electricity costs and will continue to do so in future. Probable High – increased & revised We have been proactive in buying materials and components to enable continued production. We have no direct operations in Ukraine, Russia and the Middle East. We completed 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 – reduced 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. 23 Xaar plc Annual Report and Financial Statements 2023Likelihood Magnitude Change Possible High – no change 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. Implemented a Multi-Factor Authentication solution for VPN. MFA rolled out to protect key business systems including CRM and HR. Possible Medium – increased 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. Risk management continued Risk and link to business unit Impact Mitigation IT 11. IT systems and control environment 12. Cyber threat and information security 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. 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. 24 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Risk and link to business unit Impact Mitigation Likelihood Magnitude Change Financial 13. 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. 14. 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. 15. 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 time- scales. Unlikely High – no change 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 and a RCF which helps support short-term cash management. This risk is mitigated by strong ongoing customer relationships. Possible Low – no change 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. There are appropriate stock holding policies, ensuring these are reviewed frequently and change dynamically in line with market/business conditions. Probable High – no change 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. 16. 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 – no change Cash flows are constantly reviewed and action is taken when appropriate. FX exposure is tracked monthly. 25 Xaar plc Annual Report and Financial Statements 2023Sustainable and responsible business The Board believes that the effective management of the ESG agenda is integral to business success. The Group is not only compliant with all relevant regulations 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. Our digital technologies are being designed with the environment in mind – and are to be inherently more environmentally friendly and less impactful on the environment and natural resources 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. For the first time this year, the Group has published a full Sustainability Report which is available on our website. This report contains full details of our sustainability programme, including progress against the Company’s Sustainability Roadmap to 2030 and reports on the progress against each of our sustainability pillars. Consequently, the disclosure on ESG matters in this 2023 annual report has been reduced and will provide a higher-level summary of our ESG initiatives, in accordance with regulatory requirements. Sustainability Governance Structure Xaar benefits from a strong ESG governance structure. Our cross-functional Continuous Improvement 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 Sustainability Roadmap to 2030 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 is available in the online Sustainability Report. Our 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 provides an essential backbone for much of Xaar’s future investment and activity. Xaar is committed to reducing its impact on the environment wherever possible. The Senior Independent Director, Alison Littley, has specific Board responsibility for ESG matters. The Company has established an ESG Committee which consists of senior management team representatives from operations, legal, HR, R&D, Communications and our specialist ESG advisors. It meets quarterly and makes twice yearly reports to the Board. The Directors are given monthly updates by the Chief Operating Officer on ESG initiatives and compliance. Environment The Group fully complies with local and national regulatory requirements in respect of the environment relating to the 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 environmental management reviews and audit programmes designed to measure our progress in relation to our policy statement and objectives. Our Sustainability Roadmap has been evaluated against the UN’s Sustainable Development Goals. Xaar has identified 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. The Greenhouse gas emissions statement is available on page 33. All Group UK manufacturing locations are now supplied with certified carbon free electricity and moved over to a single green power contract in 2023. EPS, our US manufacturing site, is supplied with power generated from renewable sources. To help mitigate the increase in energy prices and enhance our business resilience, we have completed the major reconfiguration of our PHBU cleanrooms in Huntingdon, UK. This has reduced electricity usage by 40% at Huntingdon and produced an overall Group reduction of around 35%. To further reduce reliance on the National Grid, we are investigating the installation of a solar array in Huntington. In our printhead business, we are 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 2022 Scope 1 & 2 carbon emissions (212 tCO2e) and are committed to offsetting our Scope 1 & 2 emissions for 2023 whilst we investigate the full extent of our Scope 3 emissions, which may be added to the offset in the future. As part of our decarbonisation programme, our UK pool car is electric and a salary sacrifice scheme is available for our employees to lease electric cars. We now have 10 chargers in place at our printhead sites and two at FFEI. 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, 5,184 kg of waste was diverted and 1,414 kg of waste was recycled (Printhead and FFEI businesses). Reducing plastics in our packaging has been achieved; 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. We recognise the relationship between biodiversity and the wellbeing and health of our colleagues. We are actively looking to support supporting and promoting local employee campaigns, starting with the introduction of beehives on site in Huntingdon, UK, and the distribution of wildflower seeds to employees. We produced our first Xaar branded honey in summer 2023 which was sold to employees to raise money for charity. None of our sites are located in or adjacent to protected areas. 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. Xaar has a permit to discharge water issued by Anglian Water. 26 Xaar plc Annual Report and Financial Statements 2023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. 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. 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. 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. People 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. Strategic Report Governance Financial Statements Printhead water usage Freshwater usage (m3) Intensity ratio (m3/£m turnover – excl. royalties) Effluent and waste water (m3) UK health & safety incidents RIDDORs* Accidents Incidents Near misses 2023 5,184 73 1,741 2023 0 14 35 10 2022 6,180 158 4,649 2022 0 9 11 5 * Reporting of Injuries, Diseases and Dangerous Occurrences Regulations. 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. 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: L Anti-bribery and Corruption Policy L Confidential Information Policy L Corporate Criminal Offence Policy L Data Protection Policy L Employee Share Dealing Code L Email and Internet Policy L Gifts, Entertainment and Hospitality Policy L HS&E Policy Statements L Sanctions Policy L Whistleblowing Policy. 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 was one whistleblowing incident reported in the year to a member of the senior management team. The report was investigated and reported to the Audit Committee. Action was taken to resolve the issue with the agreement of the Directors. 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. 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. 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. 27 Xaar plc Annual Report and Financial Statements 2023Sustainable and responsible business continued People continued 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. 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 expected 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: L race, colour, nationality (including citizenship), ethnic or national origins; L gender, gender reassignment, sexual orientation, marital or civil partnership status; L religious or political beliefs or affiliations; L disability, impairment or age; L real or suspected infection with HIV/AIDS; L membership of a trade union; L pregnancy, maternity and paternity; and that they should not be disadvantaged by unjust or unfair conditions or requirements. The Group aims to ensure that applications for employment from people with disabilities, and other under-represented groups, are given full and fair consideration and that such people are given the same training, development and job opportunities as other employees. Every effort is also made to retrain and support employees who suffer from disabilities during their employment, including the provision of flexible working to assist their re-entry into the workplace. 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 both business line individual performance and Group business targets and, in the UK, all employee have the opportunity to participate in an HMRC approved Share Save Scheme. The CEO pay gap ratio is set out on page 69 of the Director's Remuneration report. 28 Employee Gender Analysis (excluding non-executive directors) All employees Executive Directors Managers Employees 2023 Male/Female 2022 Male/Female 315/93 2/0 39/16 274/77 346/98 2/0 39/15 305/83 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 2023. At that point Xaar had 341 relevant employees: 266 male and 75 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’s mean gender pay gap stands at 14.19% (2022: 13.61%). 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 upper lower middle quartile to higher middle. This is a reflection of more female employees being promoted and appointed to senior roles. Improving our diversity will improve our results, and we will 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. 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. 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. The equity assets in the Pension Portfolio Funds largely track indices, which exclude certain stocks on environmental, social and governance (ESG) grounds. The equity allocation of the Scottish Widows default pension portfolio is managed in partnership with State Street Global Advisors (SSgA) and BlackRock. A proportion of the equity allocation is currently invested in the climate transition fund developed with BlackRock and Scottish Widows has set targets by 2030 to halve the carbon footprint of their investments and 2050 to target net zero across all their investments. All the Equity funds in the pension portfolio investments are managed by State Street and BlackRock. The fixed interest fund by BlackRock and Aberdeen. Property, emerging market debt and climate transition fund by BlackRock. Schroders oversee the cash part of pre-retirement funds. The default investment has a lifestyling approach to manage risk as members approach their selected retirement age and the scheme offers investment flexibility and choice for employees. Xaar provides a broad range benefits which are relevant to each locality, these may include such items as individual medical cover, income protection and life assurance, Employee assistance programmes, wellbeing initiatives, health shield. Within the UK, there are a number of salary sacrifice schemes for Xaar 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 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 initiatives weeks, step challenges, weekly Yoga sessions, qualified mental health first-aiders and other activities to encourage and promote a healthier workforce. The Group has a training and development programme which offers a suite of Learning and Development tools to ensure key skills are developed and enhanced. An Apprenticeship Programme is embedded in the Group. Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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. The Group operates an online performance management and appraisal system providing an 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. 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 22. Voluntary labour turnover was 12.32% across the Group in 2023 (2022: 10.4%). Innovation Xaar recognises that innovation is key to achieving many of the sustainability goals across all four pillars that support our Sustainability Roadmap. For over 30 years, we’ve been reinventing inkjet and reimagining what’s possible for printheads. Our Product Lifecycle Management process has been adopted in all parts of the Xaar Group. It is used to develop new and innovative print-related products; which 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. 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). We are working hard to eliminate Substances of Very High Concern (SVHC) from the manufacturing process. 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. 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. We issued a number of Technical Bulletins throughout the course of 2023, advising customers on product updates, system improvements and product end-of-life announcements. No product recalls were initiated in 2023. 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. Full details of community initiatives undertaken in 2023 are set in the 2023 Sustainability Report, available on the Company’s website. At a strategy and policy level, we published a Group Charity Policy. It helps us to define how we select and work with our charity partners. This is an important part of our ESG/ Sustainability agenda. Xaar contributes annually to charitable causes through in accordance with this policy. In total, the Group made charitable contributions to local and national charities during the year totalling £24,550 (2022: £2,966). We have established 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 employment opportunities may be offered as a result of this longer-term union. 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 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. 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. 29 Xaar plc Annual Report and Financial Statements 2023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 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. We have an ESG Committee which is accountable to the Board and reports twice a year on progress. The ESG Committee meets on a quarterly basis to assess the opportunities and proposals developed by the Continuous Improvement/Cost Savings Initiative team and Energy Steering Group. A key function of this committee is to review progress against the Roadmap and to identify areas for future focus and projects. i See governance structure on page 36 and in our Sustainable and Responsible Business report on page 26 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: L Bayes Street Kettering – surface water high risk L Fuzhou Avenue, Bao'an District Shenzhen – one metre above sea level. There are three supplier sites of the 10 analysed with risks: L Site 1 IPRO PID five metres above sea level near coast. L Site 4 Fabrinet five metres above sea level protected by Bangkok (7km inland) L 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 16 to 25 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. 30 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Disclosures Recommended disclosures Response B. Strategy continued 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 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 16 to 25 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), and 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 16 to 25 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 16 to 25 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 2023: L Continue to comply with ESOS Phase 3. Our Energy Steering Group is tasked with finding additional energy reduction savings L Scope 3 travel emissions are to continue to be offset, Scope 1 & 2 emissions are being offset to become ‘carbon neutral’ L Following analysis to identify opportunities to reduce our upstream/ downstream Scope 3 emissions, we are actively working on internal and external change and engagement to drive achieve our Net Zero aims L A key focus for 2024 is to achieve our Roadmap target of Zero waste to landfill across our UK sites L We continue to investigate the viability of integrating on-site renewables at our UK operations. 31 Xaar plc Annual Report and Financial Statements 2023Task Force on Climate-related Financial Disclosures (TCFD) continued Disclosures Recommended disclosures Response D. Metrics & Targets continued Disclose the metrics and targets used to assess and manage relevant climate- related risks and opportunities where such information is material continued. 10. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. 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. 11. Describe the targets used by the organisation to manage climate- related risks and opportunities and performance against targets. As a global business, we recognise the impact that our employee travel requirements have on our Scope 3 emissions. To mitigate this, we are currently offsetting all travel-related activities, using hybrid and/or electric vehicles for hire cars where possible and working towards a Group travel policy. We understand that our upstream and downstream Scope 3 emissions are much greater than our Scope 3 employee travel emissions. A key undertaking in 2024 is to calculate our full Group Scope 3 emissions, backdated to our 2019 baseline. Moving forward, we aim to capture and report upstream and downstream Scope 3 data across the Group. i See GHG/SECR disclosure on page 33 Xaar has committed short-term targets: L Zero waste to landfill for all UK sites by the end of 2024 L To reduce energy usage across all UK sites by at least 15% against 2022 L Offset of all Scope 3 travel emissions as we continue to drive a reduction in this L Committed to doing a detailed materiality assessment in 2024 which will help steer our ESG decision-making going forward L Finalise the supplier sustainability policy to green our supply chain. 32 Xaar plc Annual Report and Financial Statements 2023Greenhouse Gas Emissions statement Strategic Report Governance Financial Statements 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. 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. The Company vehicle fleet is now fully electric so there is no fuel consumption for that. 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 the Group’s Sustainability Roadmap progresses, we aim to collaborate with the supply chain via a materiality assessment and supply chain audits to validate our upstream model data and reduce CO2 emissions. We will continue to disclose ongoing progress in our ESG Report. Activities on downstream Scope 3 have not yet been initiated, but we aim to understand and report on these in the future and to drive reductions across our full Scope 3 CO2 emissions. i Please refer to pages 26 to 27 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 All entities and all facilities under operational control included subject to the materiality threshold applied Consistency with the financial statements The only variation is that leased properties deemed to be under operational control have been included in Scope 1 and 2 emissions Materiality threshold Materiality has been set at Group level at 5%* Assessment methodology Greenhouse Gas Protocol and ISO 14064-1 (2018) 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 Total tCO2e/£’000 tCO2e/£’000 tCO2e/£’000 tCO2e/£’000 Renewable 8,428,119 97.9% 8,104,416 325,703 Non- renewable 2023 Total Renewable 181,006 2.1% 171,456 9,550 8,609,125 8,273,872 335,253 10,525,987 91.1% 10,292,374 233,613 Non- renewable 1,022,484 8.9% 509,164 513,321 2022 Total 11,548,472 10,801,538 746,934 – – – – – – – – – 169 26 166 361 80 239 37 234 510 169 26 166 361 80 239 37 237 510 – – – – – – – – – 220 21 479 720 156 302 29 658 989 220 21 479 720 156 302 29 658 989 * UK energy certified by Bryt, by Guarantees of Origin from renewable sources. US energy (Green Mountain) 100% carbon free, 68% renewable (balance being nuclear). Significant site-based emissions improvements since 2022 including the Cleanroom Efficiency Shutdown project which decreased the Huntingdon site energy use. The Dallas site (carbon e in 2022) was sold in 2023 contributing to the decrease in non-UK non-renewable energy use. Figures show a reduction in Scope 3 emissions due to our com- impact of 69 tCO 2 e from refrigerant leaks in Scope 1 across the Group. e). Our figures include a total of 3.43 tCO mitment to offsetting all PHBU & MegnaJet travel (485 tCO 2 2 Historic greenhouse gas emissions Scope 1 – tCO2e Scope 2 – tCO2e Total – tCO2e 2021 177 116 293 2020 75.0 1,741.0 2019 108.3 2,622.8 2018 124.8 3,128.1 2017 147.7 4,088.0 2016 167.0 4,432.0 2015 162.2 4,475.2 1,816.0 2,731.1 3,252.9 4,235.7 4,599.0 4,637.4 33 Xaar plc Annual Report and Financial Statements 2023 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 2023*. Reporting requirement Environmental matters Employees Group policies that guide our approach L Environmental Policy Statement L Environmental Sustainability statement L Health & Safety Policy statement L Quality Policy statement. L Absence Policy L Alcohol & Substance Abuse Policy L Annual Leave Policy L Bullying & Harassment Policy L Capability Policy L Code of Conduct L Disciplinary Policy L Equal Opportunities Policy L Family Leave Policy L Flexible Working Policy L Gender pay gap report L Gifts & Entertainment Policy L Grievance Policy L Health & Safety Policy L Performance Planning Policy L Referral & Reward Policy L Retirement Policy L Whistleblowing Policy L Working time regulations IT, cyber security & data protection Social matters Respect for human rights Anti-corruption and anti-bribery matters L Confidential Information Policy L Data Protection Policy L Email and Internet Policy L Mobile Phone Policy. L Human Rights Policy L Charitable Donations Policy L Employee Volunteering Policy. L Human Rights Policy L Sanctions Policy L Modern Slavery Policy L Modern Slavery Act Compliance Statement. L Anti-Bribery & Corruption Policy L Anti-money Laundering Policy L Conflict Materials Policy L Corporate Criminal Offence Policy L Employee Share Dealing code L Gifts & Entertainment Policy L Whistleblowing Policy. Information and risk management, with page references i Risk management & principal risks, pages 16 to 25 i Sustainable and responsible business, pages 26 to 33 i Section 172 statement, pages 47 to 48 i Company Purpose, contents page i Our business model, page 2 i Risk management & principal risks, pages 16 to 25 i Sustainable and Responsible business, pages 26 to 33 i Section 172 statement, pages 47 to 48 i Company Purpose, contents page i Our business model, page 2 i Risk management & principal risks, pages 16 to 25 i Sustainable and responsible business, pages 26 to 33 i Risk management & principal risks, pages 16 to 25 i Sustainable and responsible business, pages 26 to 33 i Section 172 statement, pages 47 to 48 i Company Purpose, contents page i Risk management & principal risks, pages 16 to 25 i Sustainable and responsible business, pages 26 to 33 i Our business model, page 2 i Section 172 statement, pages 47 to 48 i Company Purpose, contents page Description of the business model i Our business model, page 2 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 i Risk management & principal risks, pages 16 to 25 i Sustainable and responsible business, pages 26 to 33 i Climate change, page 21 i Sustainable and responsible business, pages 26 to 33 i Greenhouse gas report, page 33 i Key Performance Indicators, pages 14 to 15 * The policies listed above are available to employees via our intranet, alongside corporate policies being available on our website. Compliance with our policies is monitored through the implementation of annual compliance statements, through our internal audit function, and locally by our General Managers. 34 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Board approval of the Strategic and Annual Reports The section 172 statement forms part of this Strategic Report – please see pages 47 to 48. 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 25 March 2024 and is signed on its behalf by: Andrew Herbert Chairman John Mills Chief Executive Officer Richard Amos Non-Executive Director Alison Littley Senior Independent Director Ian Tichias Chief Financial Officer Jacqueline Sutton Non-Executive Director Stuart Widdowson Non-Executive Director 35 Xaar plc Annual Report and Financial Statements 2023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. Biographies Corporate Governance i Read more about the Board on page 39 i Read more about Corporate Governance on pages 49 to 54 The Board delegates certain matters to its Principal Committees Audit Committee The Audit Committee is responsible for monitoring and reviewing the integrity of the financial reporting process, including the appropriateness and effectiveness of the Internal Controls and Risk Management procedures of the Group. Nomination Committee The Nomination Committee is responsible for reviewing the size, structure and composition of the Board and providing advice to the Board on Board and senior management appointments and succession planning, monitoring of the composition of the Board and its Committees. Remuneration Committee The Remuneration Committee is responsible for the development and implementation of the Group’s remuneration framework and policies for Directors including all incentives and bonuses. Richard Amos Chair Appointed 1 June 2023 Andrew Herbert Chair Appointed 1 April 2020 Alison Littley Chair Appointed 1 July 2020 i Read more on page i Read more on page i Read more on page 55 59 61 Executive Director 2 Non-Executive Director 4 Chair 1 Diversity Male 5 Female 2 Tenure 0-3 years 4 3-6 years 2 6-9 years 1 36 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Division of responsibilities Highlights Director Responsibilities Andrew Herbert Chairman John Mills Chief Executive Officer Ian Tichias Chief Financial Officer Richard Amos, Jacqueline Sutton, Stuart Widdowson Non-Executive Directors Alison Littley Senior Independent Director L 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. L Chair of the Nomination Committee. L Leads the Executive Committee responsible for proposing and implementing Group strategy, and managing the operational and financial performance of the Group. L Engages with various stakeholders of the Group, providing feedback to the Board. L Evaluates the financial performance of the business in line with strategy implementation, operational objectives, forecasts and budgets. L Ensures integrity of reported financial information, and maintaining robust accounting systems and internal controls. L As Non-Executive Directors, provides constructive challenge and strategic guidance to the Board, monitors achievement of objectives and Executive Director performance. L Richard Amos is Chair of the Audit Committee. L 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. L Chair of the Remuneration Committee. Key governance activities During 2023, the Board undertook the following key governance activities: L Recruitment of two new non-executive directors, including the Chairman of the Audit Committee L Appointment of a new external auditor L Ensured compliance with the UK Corporate Governance Code 2018 L Conducted an internal review of Board and Committee effectiveness and performance during the year. i Read more on pages 49 to 54 Board focus areas During 2023, the Board focused on the following key operational and strategic activities: L Capital and equity strategy L Undertook a strategy review L Investment in manufacturing efficiencies at Huntingdon L Review of the Group’s ESG activities L Regular monitoring of cyber security L Investor and customer engagement L Cost control measures L Operational improvements. Board meeting attendance The Board held 11 scheduled Board meetings in 2023, with one additional unscheduled meeting held to cover specific items. Chairman, Non-Executive and Independent Directors Andrew Herbert – Chairman Richard Amos – Independent Non-Executive Director (appointed 1 June 2023) Chris Morgan – Independent Non-Executive Director (resigned 30 November 2023) Alison Littley – Senior Independent Director & Independent Non-Executive Director Jacqueline Sutton – Independent Non-Executive Director (appointed 1 November 2023) Stuart Widdowson – Non-Executive Director (appointed 27 February 2024) Executive Directors John Mills – Chief Executive Officer Ian Tichias – Chief Financial Officer Scheduled Board meetings attended Additional Board meetings attended 100% 100% 100% 100% 100% N/A 100% 100% 100% 100% 100% 100% N/A N/A 100% 100% 37 Xaar plc Annual Report and Financial Statements 2023Chairman’s introduction to Governance Dear Shareholder I am pleased to introduce this year’s Corporate Governance report for the financial year ended 31 December 2023. Board effectiveness review An internal evaluation of the Board was undertaken in January 2024. The findings of the review and our progress against the actions from 2022 can be found on page 52. The Board recognises 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, investment in product development, the upgrade to our Huntingdon manufacturing site, recruitment of new Non-Executive Directors, and sustainability initiatives. 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 pages 49 to 54. Further details on the way that our Directors discharged their duties under s.172 of the Companies Act are set out on pages 47 to 48. 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 2023 on succession planning are on pages 59 to 60. Richard Amos joined the Board on 1 June 2023 as a Non-Executive Director to replace Chris Morgan who stepped down on 30 November 2023 as Chair of the Audit Committee. Jacqueline Sutton was appointed as a Non- Executive Director on 1 November 2023. More information on the search process is set out in the report of the Nomination Committee on pages 59 to 60. Stuart Widdowson was appointed as a Non-Executive Director on 27 February 2024 representing Odyssean Capital LLP, a shareholder in the Company. More information is set out on pages 59 to 60. Stakeholder engagement and support building 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. Further details of how we engage with stakeholders are set out on page 47 to 48. 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 47 to 48. 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 are 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 25 March 2024 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. The changes to the Board during the year has laid a strong foundation for the future. Andrew Herbert Chairman 38 Xaar plc Annual Report and Financial Statements 2023 Board of Directors Andrew Herbert Chairman Appointed to the Board: 2016 Alison Littley Senior Independent Director Appointed to the Board: 2020 N R A N R Qualifications L FCMA Chartered Management Accountant L BA (Hons) in Business Studies. Skills and experience L 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 L 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 L Previously held a number of line director roles in Finance, Operations, Planning and Business Development. External appointments L Non-Executive Chairman of Midwich Group plc. John Mills Chief Executive Officer Appointed to the Board: 2019 Qualifications L Ph.D Physics. Skills and experience L Five years as CEO at Inca Digital L Previously CEO at DataLase and COO at Plastic Logic L 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 L None. Skills and experience L Over 26 years’ experience within international blue chip organisations, including multinational manufacturing, supply chain and marketing services roles L 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 L For the past 11 years Alison has been a Non-Executive Director (NED) of both international PLCs and privately owned businesses. External appointments L Non-Executive Director and the Remuneration Committee Chair at Norcros plc L Non-Executive Director and Employee Engagement and ESG Committee Chair at Eurocell plc. Richard Amos Non-Executive Director Appointed to the Board: 2023 A N R Qualifications L ACA Institute of Chartered Accountants in England & Wales L MA in Engineering. Skills and experience L Has over 30 years’ experience, having started his career at EY in 1988 L From 2000 to 2020, was an executive on the boards of five companies listed on the London Stock Exchange L Most recently as Chief Financial Officer of Wilmington plc, Chief Financial Officer of Plant Impact plc and Group Finance Director of Anite plc. Strategic Report Governance Financial Statements Committee Key Chair Member External appointments L Non-Executive Director at Thruvision Group plc, where he serves as the Senior Independent Director, Chair of the Audit and Nomination Committees and is a member of the of the Remuneration Committee L the Non-Executive Chairman of Skillcast Group plc where he also serves as a member of the Audit and Remuneration Committees. Ian Tichias Chief Financial Officer Appointed to the Board: 2020 Qualifications L ACA Institute of Chartered Accountants in England & Wales L BSc (Hons) Economics & Maths, University of Leeds. Skills and experience L Over 21 years’ experience in senior financial roles L Previously, Ibstock plc Group Finance Director and Deputy CFO, with direct responsibility for the Group’s Clay division business L 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 L Proven track record of delivering business focused finance operations that drive efficiency and commercial performance beyond finance. External appointments L None. Jacqueline Sutton MBE Non-Executive Director Appointed to the Board: 2023 A N R Qualifications L BA (Hons) Russian and German L Postgraduate Diploma in International Marketing. A Audit Committee N Nomination Committee R Remuneration Committee Skills and experience L From 2008 to 2021, had several senior leadership roles in Rolls-Royce plc’s largest division (Civil Aerospace). Most recently, Jacqueline was Chief Customer Officer of Civil Aerospace, Rolls-Royce Group L Prior to joining Rolls-Royce, Jacqueline held senior management roles with GE Aviation Systems (formerly Smiths Aerospace). External appointments L Non-executive director of Farnborough International and the Women in Aviation & Aerospace Charter L Senior Adviser to Newton Europe L a Trustee of the Council of St John’s College, Durham University. Stuart Widdowson Non-Executive Director Appointed to the Board: 2024 Qualifications L BA (Hons) Business Economics L Investment Management Certificate. Skills and experience L Managing Partner of Odyssean Capital, which he founded in 2017 L Prior to founding Odyssean he was a Director and fund manager at GVQ Investment Management. In 2009, he became lead fund manager of Strategic Equity Capital plc L From 2009 until 2017, Stuart was the lead fund manager of Strategic Equity Capital plc L Stuart began his career as a strategy consultant undertaking commercial due diligence and strategy projects for private equity and corporate clients, before working for HgCapital, a leading private equity investor. External appointments L Managing Partner of Odyssean Capital LLP. 39 Xaar plc Annual Report and Financial Statements 2023 Directors’ report Report on the affairs of the Group The Directors present their Annual Report together with the financial statements for the year ended 31 December 2023. 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 16 to 25 Business model Employee engagement Strategic Report on pages 2 to 3 Strategic Report on page 3 Stakeholder engagement on pages 47 to 48 Directors’ Remuneration report on pages 61 to 71 Equality, diversity, inclusion and human rights Sustainable and responsible business on pages 27 to 28 Disabled employees Supplier engagement Sustainable and responsible business on page 28 Stakeholder engagement on page 48 Engagement with customers and other business relationships (including community engagement) Stakeholder engagement on page 48 Sustainable and responsible business on page 29 Greenhouse gas emissions and environmental policies Sustainable and responsible business (TCFD) on pages 30 to 32 GHG statement on page 33 Political donations Sustainable and responsible business on page 29 Ethics and governance, including Code of Conduct, anti-bribery and corruption policies Sustainable and responsible business on page 27 Corporate Governance section on pages 49 to 54 Branches In addition to the subsidiaries disclosed in note C6 of the Company’s separate financial statements on page 124, 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 2023. No interim or final dividends were paid for the year ended 31 December 2022. i Details on dividends are set out in note 15 on page 98 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 28. 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 and shares held by Xaar Trustee Limited, 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. L Details of the shareholding held in trust by Xaar Trustee Limited and held by the Xaar plc ESOP trust are provided in note 28. These have voting rights exercised by the Trustees L Details of other share-based payment schemes are set out in note 31 L 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 37 40 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements 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: L 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; L 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 L 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 22 and 30. At the 2023 AGM held on 31 May 2023, 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 2023 or 2022. 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 Richard Amos Non-Executive Director (appointed 1 June 2023) Chris Morgan Non-Executive Director (resigned 30 November 2023) Alison Littley Senior Independent Director Jacqueline Sutton Non-Executive Director (appointed 1 November 2023) Stuart Widdowson Non-Executive Director (appointed 27 February 2024) i Brief biographical descriptions of the Directors are set out on page 39 41 Xaar plc Annual Report and Financial Statements 2023Directors’ report continued Shareholdings in the Company The interests of the Directors in the shares of the Company and its subsidiaries (all of which are beneficial) as at 31 December 2023 are as follows: Andrew Herbert John Mills Ian Tichias Richard Amos Alison Littley Jacqueline Sutton Stuart Widdowson (appointed 27 February 2024) Number of ordinary shares of 10p each 31 December 2023 or date of appointment Number of ordinary shares of 10p each 31 December 2022 100,000 125,000 50,000 – – – 25,000 100,000 125,000 50,000 – – – – There have been no changes in the Directors’ interests in shares of the Company between 31 December 2023 and 26 March 2024. 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. These shares are held in trust until the end of the deferral period. 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 2023 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 2023 Schroder Investment Mgt Odyssean Investment Trust Columbia Threadneedle Investments (London) Aberforth Partners Hargreaves Lansdown Asset Mgt Columbia Threadneedle Investments (ex BMO Global Asset Mgt) Charles Stanley Interactive Investor Cobia Capital Mgt BlackRock Investment Mgt – Index Total Number of ordinary shares held Percentage of issued share capital 20,525,938 12,050,000 8,811,839 7,937,509 2,363,108 2,151,589 2,142,275 2,006,487 1,822,573 1,239,406 61,050,724 25.91% 15.21% 11.12% 10.02% 2.98% 2.72% 2.70% 2.53% 2.30% 1.56% 77.06% During the period 31 December 2023 to 25 March 2024, 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 2023 Odyssean Investment Trust Schroder Investment Management Annual General Meeting i The notice convening the Annual General Meeting is set out on pages 128 to 131 Number of ordinary shares held Percentage of issued share capital 13,175,000 17,380,955 16.63% 21.93% Resolutions 1 to 10 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 11 to 14. Annual Report Resolution 1 The Board presents its Annual Report and the Financial Statements for the year ended 31 December 2023 to the Meeting. 42 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Auditors Resolutions 2 and 3 The Board proposes that PKF Littlejohn LLP is appointed as the Auditor of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company and that the Audit Committee is authorised to agree the remuneration of the Auditor. Re-election of Directors Resolutions 4 to 9 The Articles of Association provide that all Directors should be subject to re-election by their shareholders every year. In accordance with this provision 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. Alison Littley has notified the Board of her intention to step down as a Non-Executive Director during 2024. Mrs Littley will stand for re-election at the forthcoming AGM but will resign from the Board once her replacement is recruited. Directors’ Remuneration report Resolution 11 This Resolution seeks shareholder approval for the Directors’ Remuneration report. i The Directors’ Remuneration report can be found on pages 61 to 71 (inclusive) of the Annual Report and Financial Statements In accordance with regulations which came into force on 1 October 2013, Resolution 11 offers shareholders an advisory vote on the Directors’ Remuneration report. Power to issue securities Resolutions 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 12, 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 £2,642,008.50 (corresponding to approximately one-third of the issued share capital at 25 March 2024) and up to an additional aggregate nominal value of £5,284,017.10 (corresponding to approximately two-thirds of the issued share capital at 25 March 2024) in the case of allotments only in connection with a fully pre-emptive rights issue. The Directors may consider using the authority 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 Resolution 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. Resolution 13 seek authority from shareholders from within the guidelines set by the Pre-Emption Group. Under Resolution 13, 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 £5,284,017.10 (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 £792,602.50 (representing 10% of the issued share capital of the Company). If Resolution 13 is 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. 43 Xaar plc Annual Report and Financial Statements 2023Directors’ report continued Authority to purchase own shares continued Resolution 14 continued The total number of ordinary shares under option, which remain unexercised and outstanding as at 25 March 2024 (including options awarded under LTIP which may be satisfied by subscription for new shares), was 4,859,167. This represents 6.3% 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 2023 would represent 7.33% of the reduced issued ordinary share capital. 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 0371 664 0391. (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 0391. 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 28. Details of ordinary shares held in trust owned by the Company can be found in note 28. The total cost of the research and development expenditure is set out on page 12 of the Strategy Report and in note 7. Employees are provided with regular updates by the senior management team on the Company’s performance and its wider market through online briefings and meetings with the CEO and CFO. Further details on the Company’s employee benefits are set out on page 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 128 to 129. i The notice of the Annual General Meeting is on pages 128 to 131 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 128 to 131 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: L 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 L 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 re-appointment 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. 44 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Significant interests i Directors’ interests in the share capital of the Company are shown in the table on page 42 i Major interests (i.e. those greater than 3%) of which the Company has been notified are shown on page 42 Company share schemes The Xaar plc ESOP Trust holds 0.29% (2022: 0.9%) of the issued share capital of the Company in trust for the benefit of employees of the Group and their dependants. Xaar Trustee Limited holds 0.03% (2022: 0.03%). 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 The consolidated financial statements are prepared on a going concern basis. Having considered the Group’s forecast financial performance and cash flows, and after making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for at least one year from the date that these consolidated financial statements are signed. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group were unable to continue as a going concern. When making their assessment, the Directors have considered the impacts on profitability of margin constraints prompted by inflationary cost pressures. Furthermore, the impacts on revenue generation and profitability resulting from wider market disruption in certain customer and supplier markets and jurisdictions have been factored into forecast and sensitivity scenarios. A reverse stress test has been performed to model the circumstances required to eliminate available liquidity during the going concern period, this includes reducing revenues. This reverse stress scenario would require a reduction in Printhead segment revenue in excess of 23% in comparison to the base case, which would be below the actual reported result for the year ended 31 December 2023. 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 new revenue streams secured from products launched by OEMs in the second half of 2023 or due to be launched in 2024. In the unlikely event of such a scenario materialising, the Group has a range of mitigating actions, focused on reducing the Group’s cost base, that could be taken to avoid a liquidity shortfall. Namely, deferring non-committed capital expenditure, delaying, or suspending research and development expenditure, reducing performance related pay by aligning payments to actual results and/or ultimately even making headcount reductions. It is worth noting that such actions would only be required in the event of an extreme downside scenario. The Group is continuously monitoring and mitigating, where possible, the impacts of such risks. There is a high degree of predictability within the Group’s short-term cash flows as they reflect existing technologies and products, existing OEM adoption and the committed order pipeline. The level of sensitivity testing, and reverse stress testing performed is proportionate to this level of predictability. The Group’s business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Strategic Report on pages 1 to 35. The Group continues to have a net current assets position and maintains sufficient financial resources as at 31 December 2023. These consist of cash and cash equivalents of £7,135,000 as well as £5,000,000 of committed, but undrawn, banking facilities made available under a revolving credit facility agreement which currently expires in June 2025. The revolving credit facility is subject to leverage, interest cover and capital expenditure threshold covenants. In addition, to support the Group’s working capital position, alongside the above core banking facilities, the Group also has access to ancillary funding arrangements in the form of an invoice discounting facility; of which £1,403,000 of the total £3,000,000 committed facility was utilised as at 31 December 2023. Details of the Group’s objectives, policies and processes for managing its capital and its exposure to financial risks, including both credit risk and liquidity risk, are included in Note 30. 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 8 to 10 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 19 to 25 45 Xaar plc Annual Report and Financial Statements 2023Directors’ report continued Viability Statement continued 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. Taking account of the Group’s and 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 2026. Auditor Ernst & Young LLP resigned as auditor in 2023. The Directors appointed PKF Littlejohn LLP as auditor in 2023 to fill the vacancy, following a tender process. They have expressed their willingness to continue in office as auditor and a resolution to appoint them will be proposed at the forthcoming AGM. Directors’ statement as to disclosure of information to auditor i The Directors who were members of the Board at the time of approving the Directors’ report are listed on page 39 Having made enquiries of fellow Directors, each of these Directors confirm that: L 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 L 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 25 March 2024 and is signed on its behalf by: John Mills Chief Executive Officer 46 Xaar plc Annual Report and Financial Statements 2023Section 172 statement Strategic Report Governance Financial Statements 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. Likely consequences of any decision in the long-term, 2. 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 49 to 54 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 16 to 25 Stakeholder engagement The Directors have ongoing engagement with all of our key stakeholders: L our Investors L our People L our Communities L 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 pages 49 to 54 and the Directors’ Remuneration report on page 62 47 Xaar plc Annual Report and Financial Statements 2023 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 27 and the Directors’ Remuneration report on page 62 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 charger and installed LED lighting. i More details of our engagement with our communities and the results of those engagements are set out in the Sustainability and Responsible Business Report on page 29 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 invested £5.6 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 page 3 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. 48 Xaar plc Annual Report and Financial Statements 2023Corporate Governance statement Strategic Report Governance Financial Statements 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 2023, 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: L Disclosure of Board discussions and the resulting actions L A clear and honest view of progress throughout the year L The outcome of our Board evaluation L Our approach to ensuring long-term viability of the business L Our approach to risk and mitigation. Statement of compliance with the Code Throughout the year ended 31 December 2023 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 40 to 46, the report of the Audit Committee (see pages 55 to 58), the Nomination Committee report (see pages 59 to 60) and the Directors’ Remuneration report set out on pages 61 to 71. A copy of the Code can be found on the FRC website at www.frc.org.uk. 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: L We do Everything with Passion L We are Innovative L We have Integrity L We are Creative L 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 pages 7 to 11 for the Strategy review and pages 27 to 28 for Company values and culture 49 Xaar plc Annual Report and Financial Statements 2023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 2 to 3 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 pages 47 to 48 for the s.172 disclosure The key focus this year has been on managing costs 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 macro-economic uncertainty with inflationary pressures in energy costs and continued challenges in the supply chain. 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: L Continuing to invest in R&D and the product roadmap with further product development. L Held a Strategic Review session over two days with presentations from senior management on key strategy issues for the Group over the next three years. L Agreed the disposal of certain IP interests from FFEI. L Considered the impact of changing revenue expectations for 2024. 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 62 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 2023, the majority of resolutions had less than 1% of votes cast against the Board’s recommendation. The exception being Resolution 5 (re-appointment of Andrew Herbert as a Director) with 13.69% 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.xaargroup.com. Workforce engagement The Board continued to hold employee engagement sessions which are held during 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 four sessions in total. 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 2023. The only change to Directors’ outside commitments during 2023 related to the resignation of Alison Littley as a non-executive director of musicMagpie plc on 31 December 2023 Each Director devoted significant time to their Xaar Board responsibilities during 2023, with all Directors attending all Board meetings (see page 37). 50 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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 39 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. Julia Crane was appointed as Company Secretary on 16 January 2023. 3. Composition, Succession and Evaluation Board composition The Board of Directors comprises the Chairman, two Executive Directors and four Non-Executive Directors. The Board considers Alison Littley, Richard Amos, Jacqueline Sutton 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. Stuart Widdowson joined the Board on 27 February 2024 as a Non-Executive Director representing a shareholder, Odyssean Capital LLP under the terms of a relationship agreement dated 23 February 2024. He is not considered to be independent. All the Non-Executive Directors, other than Stuart Widdowson, are deemed to be independent members of the Board having no financial relationship or significant links with related parties. 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. Richard Amos joined the Board on 1 June 2023 and Jacqueline Sutton was appointed as a Director on 1 November 2023. Chris Morgan resigned as Director on 30 November 2023. Stuart Widdowson was appointed as a Non- Executive Director representing Odyssean Capital LLP on 27 February 2024. 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 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. 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 Report on page 28. 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 request. 51 Xaar plc Annual Report and Financial Statements 2023Corporate Governance statement continued 3. Composition, Succession and Evaluation continued 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 2023. 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. Agreed changes to the oversight of the risk register. 2. To further develop the financial reporting to the Board. 3. Agreed that the majority of scheduled board and committee meetings should be held in person. 4. Review the annual Board and committee work plans to ensure that the key topics are regularly reviewed. Areas of improvement identified in 2022 were addressed and actions taken and implemented during 2023 as follows: 2022 Recommendations Action taken in 2023 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. Richard Amos and Jacqueline Sutton were appointed as Directors during the year. To consider holding at least one Board meeting each year at a subsidiary location. This will be actioned once profitability has increased. To increase the frequency of Board review to quarterly of the identification and management of risk across the Company. Changes to the principal risks are submitted to the Board once a quarter. To improve the evaluation and consideration of the longer-term implications of changes to strategy. A two day strategy session was held in May 2023 and key strategic milestones were agreed. The Board is updated each month on progress against these milestones. i Further details of the activities of the Nomination Committee can be found on pages 59 to 60 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. L 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. L 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 2023 AGM. i The biographies of the Directors, set out on page 39, contain the evaluation of skills and experience beneficial to the Company so that the Board recommends the re-election or election of each Director 4. Audit and Risk and Internal Controls i The role and responsibilities of the Audit Committee are set out in the Audit Committee section on pages 55 to 58 L The Audit Committee review of the effectiveness of the external audit is set out on page 58. L PKF Littlejohn LLP was appointed as auditor in August 2023 following a tender process, and provide no non-audit services; the Audit Committee assessment of the auditor’s independence is disclosed on page 57. i The Directors’ assessment of the Group’s internal control environment as required under the UK Corporate Governance Code is set out on pages 56 to 57 under ‘Internal controls and compliance’ 52 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 4. Audit and Risk and Internal Controls continued The Audit Committee, led by Richard Amos, 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 Richard Amos 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 55 to 57 and in note 4 to the accounts on pages 90 to 91 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 35, 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 17, 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: L Supply Chain – this risk was increased due to shipping delays in the Red Sea. L War in Ukraine and the conflict in the Middle East – this risk was increased and revised to reflect the impact on the world’s economy. L Cyber Security – this risk was increased due to the higher incidence of cyber attacks worldwide. L Law and regulations – this risk has been reduced following a review by the Company Secretary and changes made to the oversight system. i Descriptions of principal and emerging risks and how they are mitigated and any changes are set out on pages 16 to 25 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 16 to 25 The Board explains on pages 45 to 46 of the Directors’ 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. The Remuneration Policy was approved by shareholders at the 2023 AGM. Further details are set out on page 61 to 71. The Remuneration Committee has exercised its discretion in relation to remuneration outcomes in 2023, in connection with the outcome of 2023 annual bonus. i Details of the activities of the Remuneration Committee can be found in the Directors’ Remuneration report on pages 61 to 71 L The alignment of executive remuneration with Company purposes and values is set out on page 61 L The award of long-term incentives and their performance conditions are set out on page 66 L 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 63 L The discretionary powers of the Remuneration Committee are on page 62 L The alignment of executive pensions with those of the workforce are on page 63 L Recovery and withdrawal provisions (malus/clawback), and the circumstances under which the provisions may apply, are on page 64. 53 Xaar plc Annual Report and Financial Statements 2023Corporate Governance statement continued 5. Remuneration continued Summary of Board meeting attendance in 2023 11 Board meetings were held in 2023, with one additional unscheduled meeting for a specific item: Name Andrew Herbert Alison Littley Chris Morgan (resigned 30 November 2023) John Mills Ian Tichias Richard Amos (appointed 1 June 2023) Jacqueline Sutton (appointed 1 November 2023) Board Committees Summary of Committee membership: Name Andrew Herbert Alison Littley Richard Amos Jacqueline Sutton Stuart Widdowson John Mills Ian Tichias Summary of Committee meeting member attendance in 2023: Name Andrew Herbert Alison Littley Chris Morgan (resigned 30 November 2023) Richard Amos (appointed 1 June 2023) Jacqueline Sutton (appointed 1 November 2023) Scheduled Board meetings Additional meeting 11 (11) 11 (11) 11 (11) 10 (10) 11 (11) 6 (6) 2 (2) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 0 (0) Audit Committee Remuneration Committee Nomination Committee No Yes Chair Yes No No No Yes Chair Yes Yes No No No Chair Yes Yes Yes No No No Audit Committee1 Remuneration Committee1 Nomination Committee1 n/a 4 (4) 3 (3) 2 (2) 1 (1) 5 (5) 5 (5) 4 (4) 3 (3) 1 (1) 6 (6) 6 (6) 6 (6) 3 (3) 0 (0) 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 Richard Amos replaced Chris Morgan as Chair of the Audit Committee on 1 June 2023. 3 Stuart Widdowson was appointed as a Non-Executive Director on 27 February 2024. As he is deemed not be independent, he does not serve on any Committees of the Board. Figures in brackets denote the maximum number of meetings that could have been attended. Approval The Board confirms the 2023 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 by reference the Directors’ Report, the Audit Committee report, the Nomination Committee report and the Directors’ Remuneration report, was approved by the Board on 25 March 2024 and is signed on its behalf by: John Mills Chief Executive Officer 54 Xaar plc Annual Report and Financial Statements 2023 Audit Committee Strategic Report Governance Financial Statements The Audit Committee (the ‘Committee’) is appointed by the Board from the Non-Executive Directors of the Company. The Chair of the Committee is Richard Amos. Audit Committee composition and meetings Richard Amos is a Chartered Accountant. His previous roles have given him recent and relevant financial experience working for a number of UK listed companies. Alison Littley and Jacqueline Sutton, Audit Committee members, also bring a breadth of experience including executive experience in complex and international business operations. Additional information on the Committee’s skills and experience can be found in the Board biographies set out on page 39. The Audit Committee met formally on four occasions during the year. Please see the tables on page 54 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. In addition to its normal work, the main focus of the Committee was the running of a competitive tender process for the external audit. This resulted in the appointment of PKF Littlejohn LLP (PKF) in August 2023. The Audit Committee’s primary responsibilities are the following: L To approve and monitor key financial and accounting policies and practices L To monitor the integrity of the financial statements, announcements and review significant financial reporting judgements contained therein L To keep under review the adequacy and effectiveness of internal controls L To review procedures, systems and controls for whistleblowing, fraud detection and bribery prevention L To review, approve and monitor internal audit activities L To monitor and review the Group’s external auditor’s independence, objectivity and effectiveness L To monitor and approve any non-audit services provided by the external auditor L 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 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: L Conducting a competitive tender for the external auditor resulting in the appointment of PKF in August 2023 L Impairment of goodwill, intangible assets and PPE L 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: Critical accounting judgements Capitalisation of development costs The Group capitalises costs for product development projects, where appropriate. At 31 December 2023, the carrying amount of capitalised development costs was £2,325,000 (2022: £1,879,000). Development costs can be capitalised if and when they relate to a project that is technically feasible, there is the intention and are adequate resources to be able to complete the project, there are secure future economic benefits that can be realised in excess of the development costs incurred and all such costs can be reliably measured. This requires management to make judgements as to whether and when all the criteria for capitalisation are met and when to commence amortising any such assets. The Audit Committee concurs with the assessment made by management in respect of this matter. 55 Xaar plc Annual Report and Financial Statements 2023Audit Committee continued Key areas of management judgement continued Critical accounting judgements continued Apportionment of technology based intangible assets In June 2023 the Group entered into a series of transactions in the context of the integration of the recently acquired FFEI Ltd business. These consisted of the disposal of the non-core Life Sciences activities and all associated patents, software and technological know-how. On acquisition of FFEI Ltd in July 2021, the fair value of these patents was not separately identified. Instead, they were grouped with software and technological know- how and recognised in aggregate as a ‘technology-based intangible asset’. In order to retrospectively estimate the fair value separately attributable to the patents sold, an apportionment methodology was adopted based on gross margins and estimates of replacement cost. The Audit Committee concurs with the methodology and the judgements adopted by management in respect of this matter. Timing of revenue recognition Under certain contracts entered into by the Product Print Systems and the Digital Imaging segments, revenue has been recognised over time (rather than at a point in time) following judgements taken as to the existence of alternative uses for the custom-built printing solutions being sold and assessment as to whether the Group has an enforceable right to payment. The Audit Committee concurs with the assessments made by management in respect of all applicable, material contracts with customers. Estimation uncertainty Fair value measurement of contingent consideration An element of the consideration receivable under the Group’s divestment of its remaining interest in the share capital of Xaar 3D Limited in 2021 remains contingent on achievement of certain revenue milestones and performance targets. Contingent consideration with an estimated fair value of £10,863,000 was recognised at the acquisition date and remeasured to £10,599,000 as at the reporting date. Fair value is estimated using a Monte Carlo simulation. Certain inputs into this statistical model involve estimation; namely, the risk adjusted discount rate and revenue volatility. These estimates are subject to rapid changes in market conditions that cannot always be fully anticipated. The Audit Committee concurs with the assessment made by management that the fair value of this asset is appropriately measured and the impact of the estimation uncertainty is adequately disclosed in the financial statements. Assessment of the carrying value of goodwill and other intangible assets The Group reviews goodwill for impairment on at least an annual basis and more frequently where there are indicators of potential impairment. This review requires the value-in-use of each CGU to be estimated, these calculations are based on a number of assumptions. The assumptions relating to future cash flows, estimated useful economic lives and discount rates are based on forecasts and are, therefore, inherently judgemental. The Audit Committee concurs with the assessment made by management that the recoverable values of all CGUs exceed the carrying value of the underlying assets, therefore, no impairment is required. Furthermore, it is agreed that the disclosures provided in Note 16 are proportionate and appropriate in light of the levels of headroom available. Revenue recognition – estimating stage of completion of contracts Revenue receivable for the manufacture of bespoke machinery and equipment as well as for the provision of research and development consultancy services is generally required to be recognised over a period of time in line with the stage of completion of each contract with the customer. In order to estimate the stage of completion of all such contracts, an input methodology (based on total estimated labour hours to deliver the contract) is used. This estimate is subject to a level of uncertainty as it is not always possible to anticipate the impact of market factors on total project cost. The Audit Committee concurs with the assessment made by management that the Group’s revenue for those controls, as presented, is materially accurate. i Additional disclosure in relation to key sources of estimation uncertainty and critical accounting judgements is provided in the Group financial statements – note 4 on pages 90 to 91 Key activities In discharging its responsibilities, the Committee has completed the following activities: Financial statements and reports L Reviewed the Annual Report, financial statements and the half-yearly financial results 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 L Reviewed Going Concern and Viability Statements and supporting assessments L Reviewed reports from the external auditor on their work and findings L Reviewed the effectiveness of the Group’s internal control environment. L Reviewed the accounting treatment of proceeds of the sale of the IP assets. L Reviewed the accounting papers and reviews prepared as part of the half-yearly and full year results processes. 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 16 to 25), 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. 56 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Key activities continued Internal controls and compliance continued 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: L Reviewed the internal financial controls and risk management systems L 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 L 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 Financial Controls Manager 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. In line with the provisions of the UK Corporate Governance Code, 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 45 and 46. External audit L 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 L The scope of the audit work to be undertaken by the auditor was reviewed and agreed on 19 December 2023 L The Committee agreed the fees to be paid to the external auditor relating to their services rendered for the annual audit L The independence and objectivity of the external auditor was assessed by the Committee L The Chairman of the Audit Committee will be available at the AGM to answer any questions about the work of the Committee. External auditor PKF was appointed as the Company’s auditor in August 2023 after a competitive tender. Further details of tender process are set out on page 58 below. Daniel Hutson was appointed as the senior statutory auditor during the year. EY resigned as auditor at the same time. 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, re-appointment, term, remuneration, and terms of engagement of the external auditor. The Committee safeguards auditor objectivity and independence through maintaining a dialogue with the auditor and by monitoring all fees paid. It is the policy of the Group not to engage the statutory auditor in any non-audit related services. This includes tax services. Specifically, the policy states that the preparation of tax forms, payroll tax, calculation of indirect tax and the provision of tax advice cannot be provided by the statutory auditor. Note 7 to the consolidated financial statements includes disclosure of the auditor’s remuneration 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 2023 the Committee was able to conclude the audit undertaken by EY 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 2023 results and reported on in next year’s annual report. 57 Xaar plc Annual Report and Financial Statements 2023Audit Committee continued External auditor tender Ernst & Young LLP (EY) was first appointed as the Company’s auditor following a competitive tender process in July 2019. The Committee agreed in May 2023 that it would initiate a new competitive tender process following a review of the Company’s external auditing requirements. The purpose of the tender process was to identify an external auditor more suited to the Company’s size and activities and to seek value for money whilst maintaining the effective audit standards. The Committee appointed a working party consisting of the Chair of the Audit Committee, the CFO and key members of the senior finance management team to run the tender process. Candidate firms were invited to tender and were sent a detailed information pack setting out the requirements for the external auditor. Initial meetings were held with the candidate firms by the senior finance management team, before a short-list was submitted to the Committee for review. Three firms were invited to submit formal tender documents setting out further details including audit approach, quality, team structure and fee proposal. Each firm on the shortlist gave a presentation to the working party and Committee members before a recommendation was made to the Board to appoint PKF Littlejohn LLP in August 2023, following EY’s resignation. 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). No significant matters of concern were identified. I am satisfied that the degree of rigour and challenge applied in performing the Committee’s responsibilities is appropriate and effective. Richard Amos Chair of the Audit Committee 25 March 2024 58 Xaar plc Annual Report and Financial Statements 2023Nomination Committee Strategic Report Governance Financial Statements 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 six times during 2023. 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 54 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: L Reviewing the size, structure, composition and independence of the Board and its Committees L Identifying and nominating candidates to fill Board vacancies as the need arises L Ensuring adequate succession planning is in place for Executive Directors, Non-Executive Directors and members of the senior management team L Making recommendations to the Board on the appointment of new Executive and Non-Executive Directors and their re-appointment following retirement by rotation L 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 28. 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 29% female versus 71% male (two females and five males). The Board has not set any measurable objectives in respect of a diversity quota but appointments made to the Board in the past five 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 27 and 28. 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 recruitment process 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. In January 2023 the Committee started the process to recruit a new Chair of the Audit Committee to replace Chris Morgan who stepped down from the Board on 30 November 2023. The Committee appointed the Independent Search Partnership to conduct the search for potential candidates. The Committee agreed that candidates with a background in an executive finance role in listed companies would be suitable for the role. With the assistance of the headhunter, a candidate profile was prepared. A wide range of candidates were considered and discussed by the Committee. Following the agreement of a shortlist by the Committee, the Chair interviewed the candidates and considered their skills and attributes against the role profile. Members of the Committee then met with the final shortlisted candidates and a recommendation was made to the Board. The outcome of the process was the appointment of Richard Amos on 1 June 2023 and his details are shown on page 39. In July 2023, the Committee started a process to recruit an additional Non-Executive Director as part of its commitment to build a diverse board. The role specification was drawn up by the Committee having agreed to search for candidates with recent and relevant operational executive experience. Initially the role was externally advertised on a reputable web site. The Committee also agreed to appoint Rockwell Search to conduct a further search for candidates. A wide range of candidates were considered and discussed by the Committee. Following the agreement of a shortlist by the Committee, the Chair interviewed the candidates and considered their skills and attributes against the role profile. Members of the Committee then met with the final shortlisted candidates and a recommendation was made to the Board. The outcome of the process was the appointment of Jacqueline Sutton on 1 November 2023 and her details are shown on page 39. Other than in respect of recruitment services, Independent Search Partnership and Rockwell Search have no other connection with the Company or any of its Directors. In February 2024, the Committee reviewed and considered the terms of the appointment of Stuart Widdowson as an Non-Executive Director representing Odyssean Capital LLP (Odyssean), a shareholder in the Company. Mr Widdowson was appointed on 27 February 2024 under the terms of a relationship agreement (Relationship Agreement) between the Company and Odyssean. His details are set out on page 39. 59 Xaar plc Annual Report and Financial Statements 2023Nomination Committee continued Key issues and activities continued A summary of the key terms of the Relationship Agreement is set out below: L Xaar has granted Odyssean the right to appoint Mr Widdowson to be a Director of the Company for appointment to the Board (the ‘Nominated Director’) for so long as Odyssean has the right to exercise at least 10% or more of the Company’s ordinary shares or voting rights attaching to the ordinary shares; L Odyssean undertakes to, inter alia: (1) conduct all transactions and relationships with any member of Xaar’s Group on an arm’s length basis; (2) not take any action which would have the effect of preventing Xaar or any member of Xaar’s Group from carrying on business independently of Odyssean or its associates; (3) not influence the day-to-day running of the Company (save through Mr Widdowson’s role as the Nominated Director) and (4) not vote to prevent Xaar being managed in accordance with the principles of good governance set out in the UK Corporate Governance Code; and L the Relationship Agreement will terminate (1) on the date upon which Odyssean ceases to hold at least 10% of the ordinary shares of the Company or the voting rights attaching to the ordinary shares of the Company; (2) on six months’ notice written notice by either party at any time or immediately upon written notice in the event of a material breach of the Relationship Agreement; or (3) in the event that the Company’s ordinary shares cease to be listed on the Official List or another recognised UK stock exchange. 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 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. Induction On appointment to the Board, the Non-Executive Directors were given a thorough induction on the Group which involves meeting with members of the senior management team with responsibility for operational and functional areas. Directors visited the Group’s assets and meet with local management to gain important insights into the business and the strategy. Moreover, Directors are invited to meet with key external advisors to the Board to gain wider perspectives on Xaar and its sector. 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, see page 39. No Executive Directors have non-executive roles, or other significant appointment. All Directors are required to submit themselves for re-appointment 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 25 March 2024 60 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Directors’ Remuneration report Statement from the Chair of the Remuneration Committee Dear Shareholder On behalf of the Board, I am pleased to present the Directors’ Remuneration report for 2023. Following my statement, the Annual Report on Remuneration sets out how we implemented the Remuneration Policy in 2023 and how we propose to implement it in 2024. The Annual Report on Remuneration will be the subject of an advisory shareholder vote at the 2024 AGM. Remuneration in the context of our business performance and our approach to wider workforce remuneration As reported elsewhere in the Annual Report, 2023 has been a challenging year for the business as a result of the impact of macro-economic factors. Despite these external challenges, good progress has been made within the business as our technology and product roadmap continue to deliver new capabilities and enhanced performance. The management team has responded proactively to inflationary cost pressures, streamlining internal operations and lowering total overheads. We remain focused on our core technology, and we are pleased with the progress we have made across several areas of the business. The Board is optimistic about the opportunities that lie ahead. I have described below, with the detail later in the report, how the performance in the year and across the last three years is reflected in the outturns for the 2023 annual bonus and 2021 LTIP awards respectively. Our performance in the year includes the following: L We continue to execute our strategy of delivering compelling products in each of our market segments, and remaining focused on the significant opportunities that will drive profitable growth. This strategy is now delivering, with our new products, especially Aquinox, generating strong interest from both existing and new customers. L We have seen an increase in the number of customers adopting Xaar technology, evidenced by the 12 new customer product launches during 2023. We expect further customer product launches that incorporate Xaar’s technology during 2024. L Phase 1 of our factory upgrade has been successfully completed on time and within budget, positioning us to deliver increased efficiency and capacity, whilst realising significant cost savings. L As part of our decision to strategically withdraw from the Life Science part of FFEI, we sold non-core IP assets delivering a profit of £2.0 million. L We continue to make progress on ESG and the Group’s Sustainability Roadmap. The Board remains committed to the business becoming carbon net zero by 2030. Our products are well placed to deliver significant benefits both commercially and environmentally for our customers through reductions in power consumption and water usage. For 2024 we have again implemented a tiered pay increase, ranging from an 8% base salary increase for our most junior employees and cascading down to 2.5% for our senior employees, including the Executive Directors. This results in our UK starting base salary for production operatives continuing to be at a premium to the National Living Wage rate effective from April 2024. Our people are at the heart of our business, and we were delighted that during 2023 we gained full accreditation for the Great Place To Work certification. This was especially pleasing as it was gained on our first application and is testament to the hard work and engagement of colleagues across the business . During the year we welcomed Richard Amos and Jacqueline Sutton to the Board and Remuneration Committee, bringing a wealth of experience to the business. I will be stepping down as a Non-Executive Director during 2024 meaning that this is my last Directors’ Remuneration Report for Xaar. I would like to take the opportunity to thank my Committee colleagues, the wider Board and all of my other colleagues at Xaar for their support during my tenure as Committee Chair. Annual bonus and LTIP outturns for the year ended 31 December 2023 2023 Annual bonus For the financial year ended 31 December 2023, the CEO and CFO were eligible for an 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 measures against adjusted Group profit before tax (70%) and cash generated from operations (30%). Full details of the targets and performance achieved can be found on page 70. Notwithstanding that bonuses would have been earned by reference to the achievements against the targets set, the Committee concluded that, in light of the overall outturn in the year for our key stakeholders no bonuses should be paid to Executive Directors in respect of 2023. Long-Term Incentive Plan (LTIP) awards vesting in respect of 2023 John Mills and Ian Tichias were granted LTIP awards over 293,478 and 136,957 shares respectively on 14 October 2021. The awards were based 60% on Cumulative Adjusted EPS for the three-year period ending 31 December 2023 and 40% on relative TSR performance against the companies in the FTSE SmallCap Index measured over the same period. The maximum EPS target was exceeded and Xaar’s relative TSR over the performance period was below the median level and therefore these awards vested at 60% in accordance with the EPS target. 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 March 2026. The 2023 LTIP awards were granted at 150% of base salary for the CEO and 100% of salary for the CFO. The 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). When considering the outturn for the LTIP granted in 2021, 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 2023 The 2023 LTIP awards were granted at 150% of base salary for the CEO and 100% of salary for the CFO. The 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 2025. Each award will be subject to a further two-year holding period following the end of the performance period. 61 Xaar plc Annual Report and Financial Statements 2023Directors’ Remuneration report continued Directors’ Remuneration Policy The Directors’ Remuneration Policy was approved by shareholders at the AGM held on 31 May in 2023 with over 97% of votes in favour. The Committee considers that the Policy remains fit for purpose, supports the strategy of the Group and is aligned with stakeholder interests. Therefore, the Policy approved in 2023 will continue to apply in 2024 and shareholders will not be asked to approve a new Policy at the 2024 AGM. The full Policy is included in the Directors’ Remuneration report for the year ended 31 December 2022 which is included in the Annual Report and Accounts for that year, which are available on the Company’s website. Implementation of the Policy in 2024 A summary of our approach to pay increases for the wider workforce for 2024 is set out above. As disclosed in last year’s report, our Executive Directors’ salaries were increased by 8% with effect from 1 January 2023. This was the second part of a phased two-stage approach and recognised our strong performance, future ambitions, and our intention to move our Executive Directors’ salaries on a phased basis towards the mid-point of the market competitive range. For 2024 our Executive Directors’ salaries have been increased by 2.5% in line with the lowest rate of increases awarded to the wider workforce. CEO – John Mills CFO – Ian Tichias No other changes are proposed to the Executive Directors’ package for 2023. L Pension/cash in lieu – in line with wider workforce (currently 6% of salary) Salary effective from 1 January 2023 Salary effective from 1 January 2024 £390,000 £260,000 £399,750 £266,500 L Maximum annual bonus for 2024 is 125% of salary for the CEO and 100% for the CFO. 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 70 L 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 65 L 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 2024 During the course of 2024 we will continue the implementation of the reward policy including suitable bonus targets taking into consideration the wider workforce. Board Chair and Non-Executive Directors Board Chairman The Committee reviewed the Chairman's fee. It was agreed that the Chairman's fee would increase from £130,000 to £131,223. The Committee considers that the fee is broadly in line with market practice. 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 £48,925 for the Non-Executive Directors’ fees is broadly market competitive. The base fee will be increased by 2.5%, in line with the lowest rate of increase for the wider workforce for 2024 to £50,148. 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. Shareholder engagement 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 2023 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 29 May 2024. Alison Littley Chair of the Remuneration Committee 25 March 2024 62 Xaar plc Annual Report and Financial Statements 2023 Strategic Report Governance Financial Statements Directors’ Remuneration Policy Introduction Our Policy was approved by shareholders at the AGM held on 31 May 2023. As noted in the statement from the Committee Chair, the full Policy is included in the Annual Report for the year ended 31 December 2022, which is available on the Company’s website. We have set out below how the Remuneration Committee addresses the principles set out in the UK Corporate Governance Code 2018 in respect of the Directors’ Remuneration Policy. 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 2023. The information provided in this part of the Directors’ Remuneration report is subject to audit. Single figure table The aggregate remuneration provided to Directors who have served as Directors in the year ended 31 December 2023 is set out below, along with the aggregate remuneration provided to such Directors for the financial year ended 31 December 2022. Year ended 31 December 2023 Executive John Mills Ian Tichias Non-Executive Andrew Herbert (Chairman) Alison Littley Chris Morgan1 Richard Amos2 Jacqueline Sutton3 Salary/fees(a) £'000 Benefits(b) £’000 Bonus(c) £’000 Long-term incentives(d) £’000 Pension(e) £’000 Total remuneration £’000 Total fixed remuneration £’000 Total variable remuneration £’000 390 260 130 59 48 33 8 32 25 – – – – – – – – – – – – 271 126 – – – – – 23 16 – – – – – 716 427 130 59 48 33 8 445 301 130 59 48 33 8 271 126 – – – – – 1 Chris Morgan stepped down from the Board on 30 November 2023. 2 Richard Amos joined the Board on 1 June 2023. 3 Jacqueline Sutton joined the Board on 1 November 2023. Year ended 31 December 2022 Executive John Mills Ian Tichias Non-Executive Andrew Herbert (Chairman) Alison Littley Chris Morgan Salary/fees(a) £'000 Benefits(b) £’000 Bonus(c) £’000 Long-term incentives(d) £’000 Pension(e) £’000 Total remuneration £’000 Total fixed remuneration £’000 Total variable remuneration £’000 360 240 120 58 55 31 24 – – – 178 95 – – – 1,001 410 – – – 22 14 – – – 1,592 783 120 58 55 413 278 120 58 55 1,179 505 – – – The figures in the single figure table above are derived from the following: (a) Salary/fees The amount of base salary/fees received in the year. (b) Benefits (c) Bonus This is the taxable value of benefits and the flexible benefits allowance received in the year. The value of the bonus earned in respect of the year, including the amount paid in cash and the amount deferred into shares. 63 Xaar plc Annual Report and Financial Statements 2023Directors’ Remuneration report continued Single figure table continued Year ended 31 December 2022 continued (d) 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. In the 2022 Directors’ Remuneration Report, the long-term incentives values for the year ended 31 December 2022 were calculated in line with the applicable regulations by reference to the average share price over October, November and December 2022, being £1.82. In line with the applicable regulations, these have now been updated to reflect the share price at the date of vesting as follows. Award John Mills’ joining award Ian Tichias’ joining award John Mills’ 2020 LTIP award Ian Tichias’ 2020 LTIP award Number of vested shares Share price on date of vesting Value of vested shares 177,623 50,000 365,000 170,000 £1.844 £1.844 £1.844 £1.844 £327,537 £92,200 £687,060 £313,480 (e) 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 £390,000 from 1 January 2023 and the CFO’s salary was increased to £260,000 from 1 January 2023. 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. Executive Directors participate in this scheme. In appropriate circumstances, Executive Directors may take a salary supplement instead of contributions into a pension plan. This salary supplement does not form part of salary for the purposes of calculating any other entitlement under the policy. Non-Executive Directors do not receive pension contributions. Annual bonus For the financial year ended 31 December 2023, 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%). As set out on page 61, notwithstanding that bonuses would have been earned by reference to the achievements against the target set, the Committee concluded that, in light of the overall return to key stakeholders, no bonuses should be paid to the Executive Directors in respect of 2023. However, the targets set out below show the performance against them. Adjusted Group PBT (pre bonus) Cash flow from operations Overall outturn Threshold (0% of maximum vests) Target (50% of maximum vests) Maximum (100% vesting) 2,863 n/a 6,352 4,000 12,074 7,000 Actual 3,562 (1,047) Weighting 70% 30% 100% Long-term incentives vesting in respect of 2023 The 2021 LTIP awards vested by reference to performance over the period ending 31 December 2023. In line with the applicable regulations, the estimated vesting value of those awards is included in the 2023 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. 64 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Individual elements of remuneration continued Long-term incentives vesting in respect of 2023 continued Award Performance condition 2021 LTIP award TSR (40% weighting)1 Threshold vesting (25%) Maximum vesting Performance outturn Vesting percentage Shares under award Median Upper quartile Below median 0% EPS (60% weighting) 0.5 6.5 8.4 100% 117,391 (John Mills) 54,783 (Ian Tichias) 176,087 (John Mills 82,174 (Ian Tichias) Vested shares 0 (John Mills) 0 (Ian Tichias) 176,087 (John Mills) 82,174 (Ian Tichias) 1 Total shareholder return relative to the TSR of the companies constituting the FTSE SmallCap Index over the three-year performance period –1 January 2021 to 31 December 2023. In the 2023 single total figure of remuneration, the value of these awards is calculated as follows: Award John Mills’ 2021 LTIP award Ian Tichias’ 2021 LTIP 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 176,087 82,174 £270,943 £126,440 £283,500 £132,300 £(12,557) £(5,860) 1 In accordance with the applicable regulations, this is calculated by reference to the average share price over October, November and December 2023 being £1.53869. 2 This is calculated by reference to the share price at the date of grant being £1.61. 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 2023. Long-term incentives and deferred bonuses awarded during the financial year The table below outlines awards made under the LTIP and DBP to Executive Directors in 2023: Award basis Performance condition Number of shares Face value of the award £’000 Vesting at threshold Performance period Vesting date 9 May 2023 John Mills 9 May 2023 Ian Tichias Performance Share Plan awards Deferred Bonus Plan Performance Share Plan awards Deferred Bonus Plan EPS & TSR 325,180 585 25% of award – 29,645 53 EPS & TSR 144,524 260 25% of award – 15,811 28 1 January 2023 to 31 December 2025 March 2026 (2025 Results) March 2025 (2024 Results) N/A 1 January 2023 to 31 December 2025 March 2026 (2025 Results) March 2025 (2024 Results) N/A 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 9 May 2023 was £1.799 being the closing average share price on the five business date preceding the grant award date. The Deferred Bonus Plan award is a grant calculated as 30% of the 2022 bonus earned. The 2023 LTIP grants were based on Cumulative Adjusted EPS performance for the three-year performance period commencing with the 2023 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 2023 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. Given the turnaround position of the Company, the Board considers the EPS performance targets for the LTIP awards granted in 2023 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% 65 Xaar plc Annual Report and Financial Statements 2023Directors’ Remuneration report continued Long-term incentives and deferred bonuses awarded during the financial year continued Shareholding guidelines and total shareholdings of Directors Executive Directors are required to retain half of the after tax number of shares they acquire pursuant to the LTIP or deferred bonus until they have achieved a shareholding with a value of 200% of salary. 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 Subject to performance conditions Not subject to performance conditions Total as at 31 December 2023 Unvested 200% of salary 134% Shares 125,000 1,564,345 LTIP options DBP and SAYE options 177,623 826,590 365,000 28,543 46,883 Ian Tichias 200% of salary 83% Shares 50,000 686,682 LTIP options DBP and SAYE options 50,000 373,895 170,000 10,849 31,938 Non-Executive Directors Andrew Herbert Alison Littley Chris Morgan1 Richard Amos Jacqueline Sutton Shares Shares Shares Shares Shares 100,000 – – – – 100,000 – – – – 1 The number of shares held by Chris Morgan is stated as at 30 November 2023, being the date on which he stepped down as a Non-Executive Director. Shares that count towards the guideline are those owned outright and the net of tax shares subject to DBP and LTIP awards for which 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 2023 (£1.1650) with the percentage of salary determined by reference to salaries at 31 December 2023 (CEO £390,000 and CFO £260,000). 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 2023 and 26 March 2024. Stuart Widdowson was appointed as Non-Executive Director on 27 February 2024. Mr Widdowson beneficially owns 25,000 shares. Andrew Herbert holds no options in Xaar plc. Chris Morgan, Alison Littley, Richard Amos and Jacqueline Sutton 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. Name John Mills Ian Tichias As at 1 January 2023 Granted during the year Exercised during the year Lapsed during the year As at 31 December 2023 Share price at date of grant Grant date 180,328 365,000 293,478 207,932 – – – – – 325,180 1,046,738 325,180 50,000 170,000 136,957 92,414 – – – – – 144,524 449,371 144,524 – – – – – – – – – – – – 2,705 – – – – 177,623 365,000 293,478 207,932 325,180 4 October 2019 4 June 2020 14 October 2021 6 April 2022 9 May 2023 2,705 1,369,213 – – – – – – 50,000 170,000 136,957 92,414 144,524 593,895 29 April 2020 4 June 2020 14 October 2021 6 April 2022 9 May 2023 £0.452 £0.59 £1.61 £2.70 £1.799 £0.41 £0.59 £1.61 £2.70 £1.799 Earliest date of exercise Expiry date 4 October 2029 4 October 2022 4 June 2025 4 June 2030 March 2026* 14 October 2031 6 April 2032 March 2027* 9 May 2033 March 2028* 29 April 2030 29 April 2023 4 June 2025 4 June 2030 March 2026* 14 October 2031 6 April 2032 March 2027* 9 May 2033 March 2028* * 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. 66 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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 2023 Granted during the year Exercised during the year Lapsed during the year As at 31 December 2023 23,249 11,944 – – – 29,645 35,193 29,645 10,849 6,689 – – – 15,811 17,538 15,811 – – – – – – – – – – – – – – – – 23,249 11,944 29,645 64,838 10,849 6,689 15,811 33,349 Grant date 14 October 2021 6 April 2022 9 May 2023 14 October 2021 6 April 2022 9 May 2023 Share price at date of grant £1.61 £2.70 £1.799 £1.61 £2.70 £1.799 Earliest date of exercise Expiry date March 2023* 14 October 2031 6 April 2032 March 2024* 9 May 2033 March 2025* March 2023* 14 October 2031 6 April 2032 March 2024* 9 May 2033 March 2025* * 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 2023 are as follows: Name John Mills Ian Tichias As at 1 January 2023 Granted during the year Exercised during the year Lapsed during the year As at 31 December 2023 Share price at date of grant Grant date Earliest date of exercise Expiry date 5,294 5,294 5,581 3,857 14,732 – – – – – 5,294 – – 5,294– – – – – – 5,294 2 November 2020 £1.02 1 December 2023 2 May 2024 0 5,581 2 November 2020 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 9,438 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 2023. The information provided in this part of the Directors’ Remuneration report is not subject to audit. Performance graph and table The graph on this page shows the Company’s performance measured by total shareholder return (TSR), compared with the performance of the FTSE TechMARK All Share Index and FTSE SmallCap Index (of which Xaar is now a member), which the Remuneration Committee considers to be the most appropriate indices for comparison because they illustrate the Company’s TSR performance against a broad equity market index of similar UK companies. Total shareholder return ) £ ( 0 0 1 o t d e s a b e r e u l a V 250.00 200.00 150.00 100.00 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-23 Source: Datastream (Thomson Reuters). Xaar FTSE Small Cap FTSE TechMARK All Share 67 Xaar plc Annual Report and Financial Statements 2023 Directors’ Remuneration report continued Payments for loss of office and payments to past Directors made during the year continued Total shareholder return continued This graph shows the value, by 31 December 2023, of £100 invested in Xaar on 31 December 2013, 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. 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 2023 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 Total remuneration Annual bonus as a % of maximum opportunity LTIP as a % of maximum opportunity 716 1,592 454 511 122 357 502 594 429 571 562 0% 39.51% 26.26% 43.27% 0% 0% 12% 0% 12.5% 48% 0% 60% 99.50% n/a n/a 0% 0% 0% 50% 0% 0% 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 2022 and the year ended 31 December 2023 (in addition to the changes between prior years as required by the regulations – notes in relation to the data for prior years are included in prior Directors’ Remuneration Reports), 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. Richard Amos and Jacqueline Sutton were appointed to the Board during the year and, accordingly, have been excluded from the table below. Chris Morgan stepped down from the Board with effect from 30 November 2023; to enable a meaningful comparison, his fees for 2023 have been annualised for the purposes of the table below. He resigned as Chair of the Audit Committee on 1 June 2023 and his overall fee therefore reduced compared with 2022. Salary Benefits Bonus Year 2022- 2023 % Increase 2021- 2022 % increase 2020- 2021 % increase 2019- 2020 % increase 2023 2022- 2023 % Increase 2021- 2022 % increase 2020- 2021 % increase 2019- 2020 % increase 2023 2022- 2023 % Increase 2021- 2022 % increase 2020- 2021 % increase 2019- 2020 % increase 2023 John Mills 390,000 8.33% 14% Ian Tichias 260,000 8.33% 9% 5% 5% – 32,348 5.54% 9% 4% – 25,124 4.59% 4% -36% Andrew Herbert 130,000 8.33% 30% 15% 70% Alison Littley 59,425 2.46% 16% 3.9% – Chris Morgan 52,334 -4.85% 10% 3.9% 10% – – – – – – – – – – – – – – – – – 0 -100% 72% -36% -21% 0 -100% 64% -24% – – – – – – – – – – – – – – – – Comparator employee group 91,670 4.70% 46% 11.20% 2.50% 13,492 1.03% 494% 10% 2.5% 0 -100% 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. 68 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements CEO pay ratio The following table sets out the ratio of the CEO’s total remuneration in respect of FY23 (taken from the single figure table on page 63, 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 the previous years are also included. Year 2023 2022 2021 2020 2019 Method 25th percentile Median pay ratio 75th percentile Option A Option A Option A Option A Option A 26:1 62:1 16:1 15:1 17:1 20:1 41:1 11:1 11:1 12:1 12:1 29:1 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. 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. Year 2023 2022 2021 2020 2019 CEO total remuneration (salary component of total remuneration) 25th percentile employee (salary component of total remuneration) Median employee (salary component of total remuneration) 75th percentile employee (salary component of total remuneration) £608k (£390k) £1,592k (£360k) £454k (£315k) £511k (£300k) £479k (£338k) £28k (£25k) £26k (£24k) £28k (£24k) £33k (£29k) £28k (£26k) £36k (£33k) £39k (£34k) £43k (£34k) £46k (£34k) £39k (£33k) £59k (£54k) £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 2023. Dividends paid to shareholders Group-wider expenditure on pay for all employees (note 9) 2023 £’000 – 29,539 2022 £’000 – 28,011 Change % 0% 5.45% Implementation of Directors’ Remuneration Policy for the financial year commencing 1 January 2024 Information on how the Company intends to implement the Policy for the financial year commencing 1 January 2024 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 2024 are set out in the statement from the Chairman of the Committee. 69 Xaar plc Annual Report and Financial Statements 2023Directors’ Remuneration report continued Annual bonus The maximum opportunity for the CEO and CFO will be unchanged at 125% and 100% of base salary respectively for 2024. The performance metrics for the bonus for 2024 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 2024 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. Long-term incentives The maximum LTIP award in 2024 will be capped at 150% of base salary for the CEO and 100% of salary for the CFO. 2024 LTIP awards will be based on financial measures appropriate to Xaar. Cumulative Adjusted EPS and relative TSR performance will be measured over a three-year performance period to 31 December 2026 with a further two-year holding period following the end of the performance period. As for 2023, given the turnaround position of the Company, the Board considers the EPS performance targets for the LTIP awards to be granted in 2024 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 2023, as set out above. 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 54 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 2023 were Andrew Herbert, Chris Morgan (until he stepped down from the Board with effect from 30 November 2023), Richard Amos (with effect from 1 June 2023), and Jacqueline Sutton (with effect from 1 November 2023). 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: L 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. L 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). L To review the design of all share incentive plans and oversee any major changes in employee benefit structures. L 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. 70 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Consideration by the Directors of matters relating to Directors’ remuneration continued Key issues and activities The key activities of the Remuneration Committee during 2023 are shown below: Remuneration Committee’s key activities in 2023 Executive Directors’ and senior management remuneration Assess 2022 bonus and LTIP outturns Finalise and approve 2023 bonus and LTIP targets Review update on market practice and corporate governance Share incentive plans Governance Wider workforce Review eligibility for LTIP awards Approve grant of LTIP awards Approve grant of DBP awards Approve grant of SAYE awards 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 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 £17,565. 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 and the Directors’ Remuneration Policy at the 2023 AGM. Number of votes Directors’ Remuneration report for the year ended 31 December 2022 Directors’ Remuneration Policy Approval This report was approved by the Board on 25 March 2024 and signed on its behalf by: For (including discretion) 58,994,131 (97.62%) 58,994,131 (97.6%) Against Withheld 1,441,296 (2.38%) 1,441,100 (2.38%) 1 197 Alison Littley Chair of the Remuneration Committee 71 Xaar plc Annual Report and Financial Statements 2023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: L Select suitable accounting policies and then apply them consistently L Make judgements and accounting estimates that are reasonable and prudent L State whether FRS 101 has been followed, subject to any material departures disclosed and explained in the financial statements L 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: L Select and apply accounting policies in accordance with IAS 8 L Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information L 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 L 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: L 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; L 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 L 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 39 This responsibility statement was approved by the Board of Directors and is signed on its behalf by: John Mills Chief Executive Officer 25 March 2024 72 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Independent auditor’s report to the members of Xaar plc Opinion We have audited the financial statements of Xaar plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2023 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including 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). In our opinion: L 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 2023 and of the group’s loss for the year then ended; L the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; L the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practices; and L the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to 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’s and parent company’s ability to continue to adopt the going concern basis of accounting included the following audit procedures: L Obtaining and documenting our understanding of the controls in place around the preparation of the going concern forecast and future plans for the group through discussions with management; L Obtaining management’s assessment for going concern for the 15-month period to 31 March 2025 and checking the mathematical accuracy of the cash flow forecasts and budgets prepared; L Comparing budgeted performance for the year ended 31 December 2023 against actual to assess management’s historical forecasting accuracy; L Challenging management where appropriate on the reasonableness of key inputs and assumptions underpinning the going concern model. These challenges included but not limited to: ― Performing sensitivity analysis on key inputs and assumptions to assess the headroom across the going concern period. Key inputs and assumptions included: (i) sales growth rates, (ii) long-term profitability/margins, (iii) levels of operating and capital expenditure, and (iv) cost- saving initiatives; ― Assessing management’s reverse stress testing performed and corresponding mitigating actions; ― Assessing management’s assumptions against external factors and market trends for appropriateness; ― Agreeing the opening cash position at 1 January 2024 in the going concern forecast to the audited position as at 31 December 2023; and ― Assessing the prospective accuracy of management’s forecast in 2024 against post year-end bank statements and management accounts; L Reviewing the terms of debt financing facilities within the group to confirm their availability across the forecast period; L Assessing the associated covenants and conditions of the Revolving Credit Facility impact on the going concern basis preparation; L Undertaking a review of subsequent events on matters impacting the going concern assessment; and L Considering the adequacy of the disclosures and accounting policies in the financial statements. 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’s or parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the entities’ 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. 73 Xaar plc Annual Report and Financial Statements 2023Independent auditor’s report continued Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of audit procedures on the individual financial statement line items and disclosures in evaluating the effect of misstatements, both individually and in aggregate, on the financial statements as a whole. Overall materiality £350,000 £349,000 Financial statements - group Financial statements - parent company Basis for determining overall materiality 0.5% of revenue Rationale for the benchmark applied The nature of the business activities and operations results in the group being revenue- driven, and revenue is considered to be a core driver of the overall business. Revenue is a key performance metric for internal reporting purposes by group management and is a key figure within the financial statements for users of the financial statements, shareholders and wider stakeholders. On this basis, revenue was determined to be an appropriate basis for determining overall materiality. 1% of gross assets as constrained by the allocation of overall group materiality We considered the nature of the parent company, being a holding company for the entities within of the group, and determined that gross assets was an appropriate basis for the calculation of the overall materiality given the significant asset base as at 31 December 2023. Performance materiality £210,000 £209,000 Basis for determining performance materiality 60% of the group overall materiality 60% of the parent company overall materiality Rationale for the benchmark applied In determining the performance materiality, we have considered the following factors: L The level of significant judgements and estimates; L The risk assessment and aggregation of risk and the effectiveness of controls; L The control environment and the group’s financial reporting controls and processes; and L The stability of key management personnel. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £17,500 for the audit of the group and £17,450 for the parent company as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. For each component in the scope of the group audit, we allocated a materiality that was less than the overall group materiality. The range of materiality allocated across the components was between £45,000 and £185,000. Our approach to the audit In designing our audit approach, we determined materiality and assessed risk of material misstatement in the financial statements. In particular, we looked at areas involving significant accounting estimates and judgements by the directors, including the recognition of revenue, the impairment of goodwill and other identifiable intangible assets and the valuation of contingent consideration. Procedures were then performed to address the risk identified and for the most significant assessed risks of misstatement, the procedures performed are outlined below in the key audit matters section of this report. We re-assessed the risks throughout the audit process and concluded that the scope remained in line with that determined at the planning stage of the audit. An audit was performed on the financial information of the group’s significant operating components which, for the year ended 31 December 2023, were located in the United Kingdom (UK) and the United States of America (USA). For management reporting purposes, the group is organised into four reportable business units – Printhead, Product Print Systems, Digital Imaging and Ink Supply Systems. As a result of our materiality and risk assessments, we determined which components required a full scope audit of their financial information, with consideration of their significance to the group based on their contribution to overall revenue and their risk characteristics. On this basis, we scoped in five components requiring a full scope audit of their financial information, of which three were considered to be financially significant components. The additional two components subject to a full scope audit were selected due to specific risk characteristics and due to the presence of material classes of transactions and account balances. The remaining eight components, which contributed 0.02% of the group’s total revenue, were subjected to analytical procedures at the group level. All components of the group were audited by us in our London, UK office. As group auditor, we performed an on-site visit of the financially significant component located in Vermont, USA. 74 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance 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) we identified, including 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 forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit How our scope addressed this matter Revenue recognition (note 6) Under ISA (UK) 240, there is a rebuttable presumption that there is a risk of material misstatement due to fraud in revenue recognition. Recognition of revenue is a key driver of the presented results of the group and therefore there is a perceived incentive to manipulate recognition to meet performance targets. We consider the risk in relation to the potential manipulation of the revenue recognised arises from incorrect recognition of revenue transactions and the posting of inappropriate journal entries via management override. There is also a significant judgment in relation to the recognition of revenue at a point in time or over time. Where revenue is recognised over time (in the Engineered Printing Solutions component) on the long-term contracts crossing over the year end, there is significant estimation in determining whether the performance obligation has been satisfied in the year and how much is recorded as a contract liability. A material error in this balance could affect financial statement user’s decision. As a result, there is a risk of fraud or error in revenue recognition due to the potential to inappropriately recognise revenue in the year, and therefore revenue recognition is a key audit matter. In addition to the procedures required by ISA (UK) 240, our work on this key audit matter included: L Obtaining and documenting an understanding of the internal control environment in operation and undertaking walk-throughs to assess whether the key controls within the revenue processes and systems had been designed and implemented effectively in the year; L Reviewing the revenue recognition policy against the requirements under IFRS 15 Revenue from contracts with customers (IFRS 15) and assessing the adequacy of disclosures made within the financial statements; L Performing substantive tests of detail on a sample of revenue transactions to ensure the occurrence and accuracy of the revenue through to supporting documents; L Reviewing the stage of completion and inputs to the supporting documents and contracts to ensure appropriate recognition of revenue over time and completeness of the revenue recognised in the year ended 31 December 2023; L Analysing the population of all material journals impacting revenue during the financial period using data analytics. All material journal entries that fell outside of our expectation were investigated further by agreeing to underlying supporting documents and through discussion with management; L Reviewing contract assets and liabilities balances on a sample basis, and reviewing the post-year end positions on the samples selected and agreeing the balances have been appropriately recognised; and L Testing the cut-off of the revenue for the year by selecting samples from pre and post year-end revenue listings to ensure that the revenue was appropriately recognised in the correct period. Key observations Based on the audit procedures performed above, we did not identify any instance of management override and are satisfied that revenue has been recognised in accordance with the recognition criteria set out in IFRS 15. 75 Xaar plc Annual Report and Financial Statements 2023Independent auditor’s report continued Key Audit Impairment of goodwill and other intangible assets (notes 16 and 17) There are material balances of goodwill and other intangible assets on the Consolidated Statement of Financial Position. Under IAS 36 Impairment of Assets, goodwill and other intangible assets with an indefinite useful life must be tested for impairment annually by comparing its carrying amount with its recoverable amount. As at 31 December 2023, a goodwill balance of £6.9m is present at the year-end on the Consolidated Statement of Financial Position. This can be attributed to the following components within the group: Cash Generating Unit Product Print Systems Digital Imaging Ink Delivery Systems £’m 5.5 0.7 0.7 The impairment assessment is performed using value-in-use calculations, which require the identification of Cash Generating Units (CGUs), forecasting Cash flows, extrapolated growth rates and an applicable discount rate. Given the significant amount of management judgment and estimation involved, goodwill and other intangible assets was deemed to be significant risk and a key audit matter for the year ended 31 December 2023. Valuation of contingent consideration (note 30) Stratasys Solutions Limited completed the acquisition of the remaining 55% equity stake that Xaar 3D Holdings Limited held in Xaar 3D Limited on 6 October 2021. The purchase price consideration consisted of £9.3m paid in cash, an additional potential payment of up to USD21.2m based on specific milestones, and a 3% earn-out consideration tied to Xaar 3D Limited’s future revenues. On the date of the transaction, the group recognised a financial asset of £10.9m in relation to the contingent consideration., At 31 December 2023, the fair value of the contingent consideration was £10.6m. Determining the fair value of the contingent consideration is complex and involves significant judgments and estimates and as such there is a risk of material misstatement. Given the aforementioned, the Valuation of contingent consideration is deemed a significant risk and a key audit matter. How our scope addressed this matter Our work on this key audit matter included: L Obtaining and documenting an understanding of the relevant controls and procedures in place over the impairment of goodwill and other intangible assets; L Reviewing management’s impairment memorandum and models and challenging management on the key inputs and assumptions underpinning the assessments; L Comparing forecasted performance with post year-end actuals in order to assess management’s forecasting accuracy; L Reviewing the discounted cash flows for each CGU, performing downward sensitivity analysis on key inputs and estimates and assessing the corresponding value-in-use (VIU) against the carrying value of the corporate assets; and L Assessing the adequacy of disclosures made in the financial statements in line with the requirements under UK-adopted international accounting standards. Key observations Based on the audit procedures performed, we are satisfied with management’s assessment and conclusion that no impairments are required in respect of goodwill and other intangible assets recognised within each CGU. Our work on this key audit matter included: L Obtaining and documenting an understanding of the method used by management’s valuation expert to determine the fair value of the contingent consideration at the year-end; L Assessing management expert’s competence, and capability and objectivity based on knowledge of their qualifications and professional standards; L Using our internal valuations team as an audit specialist and assessing the appropriateness of the key inputs into the Monte Carlo Simulation model used by management’s expert. This included a review of the methodology and reasonableness of assumptions and a determination of a point estimate; L Challenging management on the appropriateness and consistency of the forecasted revenue amounts provided by Stratasys Solutions Limited; L Recalculating the 3% earn-out consideration based on Xaar 3D Limited’s reportable revenue within the relevant reporting periods; L Recalculating the year-end closing fair value movement recorded in the statement of income and comparing this to management’s calculation; and L Ensuring the adequacy and accuracy of the associated disclosures and that they were in line with the requirements of UK-adopted international accounting standards. Key observations Based on the audit procedures performed above, we are satisfied that the valuation methodology, and key inputs and assumptions therein to determine the fair value of the contingent consideration were reasonable and in line with the requirements of UK-adopted international accounting standards. 76 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our 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 this 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: L 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 L the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. 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 their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 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: L 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 L 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 L certain disclosures of directors’ remuneration specified by law are not made; or L we have not received all the information and explanations we require for our audit. 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’s and parent 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: L Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on pages 45 to 46 L Directors’ explanation as to their assessment of the group’s prospects, the period this assessment covers and why the period is appropriate set out on page 46; L Directors’ statement on whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities set out on page 45; L Directors’ statement that they consider the annual report and the financial statements, taken as a whole, to be fair, balanced and understandable set out on page 72; L Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 18; L The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 16 to 21; and L The section describing the work of the audit committee set out on pages 56 to 58. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the group and parent company 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 group and parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. 77 Xaar plc Annual Report and Financial Statements 2023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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: L We obtained an understanding of the group and parent company and the sector in which they operate to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, industry research experience of the sector. L We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from: ― The Companies Act 2006; ― UK-adopted International Accounting Standards ― United Kingdom General Accepted Accounting Practice ― The UK Corporate Governance Code; ― General Data Protection Regulation; ― Anti-bribery laws; ― Serious Organised Crime and Police Act 2005; ― Proceeds of Crime Act 2002; ― Listing Rules; ― Disclosure Guidance and Transparency Rules; ― UK tax legislation; and ― Tax legislation applicable in other jurisdictions. L We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group and parent company with those laws and regulations. These procedures included, but were not limited to: ― Making enquiries of management; ― Reviewing Board minutes; ― Reviewing legal expenditure nominal ledger accounts; and ― Reviewing Regulatory News Services announcements. L We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, that the potential for management bias was identified in relation to revenue recognition, the impairment of goodwill and other intangible assets, and the valuation of the contingent consideration. We addressed this by challenging the assumptions and judgements made by management when auditing these significant accounting estimates. Please refer to the Key audit matters section of our report for further information. L As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non- compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc. org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters which we are required to address We were appointed by the Audit Committee on 14 August 2023 to audit the financial statements for the period ending 31 December 2023 and subsequent financial periods. Our total uninterrupted period of engagement is one year, covering the period ending 31 December 2023. 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 our audit. Our audit opinion is consistent with the additional report to the audit committee. 78 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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. Daniel Hutson (Senior Statutory Auditor) For and on behalf of PKF Littlejohn LLP Statutory Auditor 25 March 2024 79 Xaar plc Annual Report and Financial Statements 2023Consolidated income statement for the year ended 31 December 2023 Revenue Cost of sales Gross profit Research and development expenses Selling, general and administrative expenses Other income Operating (loss) / profit Finance income Finance costs (Loss) / profit before tax Tax (Loss) / profit for the year from continuing operations Loss from discontinued operations after tax (Loss) / profit for the year attributable to the equity shareholder of the parent (Loss) / earnings per share Basic (loss) / earnings per share Diluted (loss) / earnings per share * Further information on adjusting items is included in Note 9. Note 6 9 9 8 7 11 11 13 12 14 14 Year ended 31 December 2023 Year ended 31 December 2022 Adjusted £'000 70,614 (43,723) 26,891 (5,642) (20,093) 2,201 3,357 89 (562) 2,884 (64) 2,820 Adjusted items* £’0000 – – – 179 (5,484) – (5,305) – – (5,305) 311 (4,994) Total £'000 70,614 (43,723) 26,891 (5,463) (25,577) 2,201 (1,948) 89 (562) (2,421) 247 (2,174) – – – Adjusted £'000 72,782 (44,138) 28,644 (6,718) (18,828) 139 3,237 38 (453) 2,822 867 3,689 (159) Adjusted items* £’0000 – – – 379 (2,377) – (1,998) – – (1,998) 100 (1,898) – Total £'000 72,782 (44,138) 28,644 (6,339) (21,205) 139 1,239 38 (453) 824 967 1,791 (159) 2,820 (4,994) (2,174) 3,530 (1,898) 1,632 3.6p 3.5p (2.8)p (2.8)p 4.8p 4.5p 2.1p 2.0p Consolidated statement of comprehensive income for the year ended 31 December 2023 (Loss) / profit for the year attributable to the equity shareholders of the parent Items that may be reclassified to the income statement in subsequent years Exchange (losses)/gains on translation of foreign operations Other comprehensive (expense) / income for the year Total comprehensive (expense) / income for the year Year ended 31 December 2023 £'000 Year ended 31 December 2022 £'000 (2,174) 1,632 (318) (2,492) (2,492) 617 2,249 2,249 80 Xaar plc Annual Report and Financial Statements 2023 Consolidated statement of financial position as at 31 December 2023 Strategic Report Governance Financial Statements Non-current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Deferred tax assets Financial asset at fair value through profit or loss Non-current financial assets Current assets Inventories Trade and other receivables Contract assets Current tax receivable Financial asset at fair value through profit or loss Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred consideration Provisions Contract liabilities Borrowings Lease liabilities Net current assets Non-current liabilities Lease liabilities Provisions Deferred consideration Total liabilities Net assets Equity Share capital Share premium Own shares Translation reserve Other reserves Retained earnings Total equity attributable to the equity shareholders of the parent 31 December 2023 £'000 31 December 2022 £'000 Notes 16 17 18 19 20 30 19 21 22 23 30 24 25 26 23 27 19 19 26 25 28 28 28 28 28 6,873 7,366 14,529 7,826 493 8,277 136 45,500 31,035 8,802 2,156 306 2,322 7,135 51,756 97,256 (9,568) (2,115) (972) (2,369) (1,403) (1,800) (18,227) 33,529 (6,898) (300) – (7,198) (25,425) 71,831 7,923 29,950 (566) 1,310 6,256 26,958 71,831 7,163 8,681 16,104 8,068 726 11,089 136 51,967 29,148 10,027 1,500 735 517 8,546 50,473 102,440 (13,216) (1,646) (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 6,256 27,389 71,769 The consolidated financial statements on of Xaar Plc, registered number 3320972, were approved and authorised for issue by the Board of Directors on 25 March 2024 and signed on its behalf by: John Mills Chief Executive Officer Ian Tichias Chief Financial Officer 81 Xaar plc Annual Report and Financial Statements 2023Consolidated statement of changes in equity for the year ended 31 December 2023 Balance as at 1 January 2022 Profit for the year Other comprehensive income Total comprehensive income Own shares disposed of on exercise of share options Exercise of share options Purchase of own shares Share–based payments Share capital £'000 Share premium account £'000 Own shares £'000 Translation reserve £'000 Other reserves £'000 Retained earnings £'000 Total equity £'000 7,844 29,427 (1,923) 1,011 6,256 26,187 68,802 – – – – – – – – – – – – – – – – – 2,148 – (1,000) – – 617 617 – – – – – – – – – – – 1,632 – 1,632 – (1,989) – 1,559 1,632 617 2,249 2,148 (1,989) (1,000) 1,559 Balance as at 31 December 2022 7,844 29,427 (775) 1,628 6,256 27,389 71,769 Loss for the year Other comprehensive expense Total comprehensive expense Issue of ordinary shares Own shares disposed of on exercise of share options Exercise of share options Share–based payments – – – 79 – – – – – – 523 – – – – – – – 209 – – – (318) (318) – – – – – – – – – – – (2,174) – (2,174) – – (194) 1,937 (2,174) (318) (2,492) 602 209 (194) 1,937 Balance as at 31 December 2023 7,923 29,950 (566) 1,310 6,256 26,958 71,831 82 Xaar plc Annual Report and Financial Statements 2023Consolidated cash flow statement for the year ended 31 December 2023 Strategic Report Governance Financial Statements Cash utilised from operations Net income taxes received Net cash outflow from operating activities Investing activities Interest income received Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Purchases of intangible assets Proceeds from sale of intangible assets Cash earn-out received from financial assets at FVTPL Net cash outflow arising from acquisitions Net cash inflow / (outflow) from investing activities Financing activities Proceeds from sale of own shares Proceeds from issue of shares Payment for own shares acquired Lease payments Interest paid Utilisation of revolving credit facility Repayment of revolving credit facility Net inflows from invoice discounting facility Payment of deferred consideration Net cash outflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rates Cash and cash equivalents at end of year Notes 29 18 18 17 30 33 19 Year ended 31 December 2023 £'000 Year ended 31 December 2022 £'000 (1,537) 1,088 (449) 89 (1,510) 24 (430) 1,760 637 – 570 15 602 – (1,075) (59) 1,700 (1,700) 915 (1,746) (1,348) (1,227) 8,546 (184) 7,135 (5,617) 112 (5,505) 38 (2,456) 17 (2,933) – 236 (3,536) (8,634) 408 – (1,000) (914) (22) – – 346 (1,733) (2,915) (17,054) 25,051 549 8,546 83 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements for the year ended 31 December 2023 1. Presentation of the financial statements a) General information Xaar plc (the Company, and together with its subsidiaries, the Group) is a public limited company whose shares are listed on the London Stock Exchange, is incorporated and domiciled in the UK and is registered in England under the Companies Act 2006. b) Basis of preparation The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006. The consolidated financial statements include the results of the Company and its subsidiaries (together 'the Group'). The Group’s directly and indirectly held subsidiary undertakings are disclosed in note C6 to the company financial statements. The consolidated financial statements have been presented in Sterling, the functional and presentational currency of the Company. Certain of the Group’s subsidiary entities have functional currencies other than Sterling. The financial position and performance of all such subsidiary entities is translated into the presentational currency (Sterling) in accordance with the foreign currencies accounting policy as detailed in Note 2. The consolidated financial statements have been prepared under the historical cost convention as modified for the revaluation of certain financial instruments. All values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. c) Alternative performance measures The alternative performance measures (APMs) used by the Group adjust for both recurring and non-recurring items that the Directors consider are not reflective of the underlying performance of the Group. Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment. The Directors believe that the ‘adjusted profit before tax’ and ‘adjusted earnings per share’ measures presented provide a consistent presentation of the Group’s underlying operational performance. They also present shareholders with a clearer insight of performance metrics used by the Chief Operating Decision Maker and mitigate volatility, for example resulting from exchange rate fluctuations, resulting from external factors that are not influenced by the Group. These measures are not defined under IFRS; therefore, they may not be directly comparable with the ‘adjusted’ profit measures of other companies. Adjusting items are defined as follows: L fair value gains or losses on financial assets at FVTPL; L restructuring and transaction expenses; L amortisation of intangible assets arising on business combinations; L foreign exchange gains or losses arising on intra-group transactions; L research and development expenditure credits and patent box tax credits; L share-based payments charges and employer’s tax contributions thereon; and L the tax effect of the aforementioned adjusting items. d) Going Concern The consolidated financial statements are prepared on a going concern basis. Having considered the Group’s forecast financial performance and cash flows, and after making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for at least one year from the date that these consolidated financial statements are signed. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group were unable to continue as a going concern. When making their assessment, the Directors have considered the impacts on profitability of margin constraints prompted by inflationary cost pressures. Furthermore, the impacts on revenue generation and profitability resulting from wider market disruption in certain customer and supplier markets and jurisdictions have been factored into forecast and sensitivity scenarios. A reverse stress test has been performed to model the circumstances required to eliminate available liquidity during the going concern period, this includes reducing revenues. This reverse stress scenario would require a reduction in Printhead segment revenue in excess of 23% in comparison to the base case, which would be below the actual reported result for the year ended 31 December 2023. 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 new revenue streams secured from products launched by OEMs in the second half of 2023 or due to be launched in 2024. In the unlikely event of such a scenario materialising, the Group has a range of mitigating actions, focused on reducing the Group’s cost base, that could be taken to avoid a liquidity shortfall. Namely, deferring non- committed capital expenditure, delaying, or suspending research and development expenditure, reducing performance related pay by aligning payments to actual results and/or ultimately even making headcount reductions. It is worth noting that such actions would only be required in the event of an extreme downside scenario. The Group is continuously monitoring and mitigating, where possible, the impacts of such risks. There is a high degree of predictability within the Group’s short-term cash flows as they reflect existing technologies and products, existing OEM adoption and the committed order pipeline. The level of sensitivity testing, and reverse stress testing performed is proportionate to this level of predictability. The Group’s business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Strategic Report on pages 1 to 35. The Group continues to have a net current assets position and maintains sufficient financial resources as at 31 December 2023. These consist of cash and cash equivalents of £7,135,000 as well as £5,000,000 of committed, but undrawn, banking facilities made available under a revolving credit facility agreement which currently expires in June 2025. The revolving credit facility is subject to leverage, interest cover and capital expenditure threshold covenants. In addition, to support the Group’s working capital position, alongside the above core banking facilities, the Group also has access to ancillary funding arrangements in the form of an invoice discounting facility; of which £1,403,000 of the total £3,000,000 committed facility was utilised as at 31 December 2023. Details of the Group’s objectives, policies and processes for managing its capital and its exposure to financial risks, including both credit risk and liquidity risk, are included in Note 30. 84 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 2. Principal accounting policies Revenue recognition The Group has the following revenue streams: 1. Product sales; 2. Commissions and services; and 3. Licensee royalties. 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. Revenue recognition continued 2. Commissions and services This revenue stream consists of the provision of consulting and research and development services to customers. Revenue is recognised over time where the customer simultaneously receives and consumes the benefits of the Group’s performance obligations. In order to estimate the stage of completion of the contract when recognising revenue over a period of time, an input methodology (based on total estimated labour hours to deliver the contract) is used. This is considered to best depict the performance conditions. Revenue is presented after eliminating sales within the Group and is shown net of discounts, VAT and other sales related taxes. Where this is not the case, revenue is recognised at a point in time. Payments for this revenue stream are typically in arrears. Goods and services deliverable under a contract are identified as separate performance obligations to the extent that the customer can independently benefit from each good or service and they are distinct. Each such product or service provided has a defined transaction price, being its standalone selling price. Where the criteria to be separately identifiable as distinct performance obligations are not met, the goods and services are aggregated until a separate obligation is identified. Where there are multiple performance obligations, revenue is measured at the value per the contract of the consideration receivable in exchange for the products and/or services, allocated by reference to the relative stand-alone selling prices of each of the performance obligations. Typically goods and services provided by the Group meet the definition of separate performance obligations, with the transaction price being allocated to each such obligation. However, certain contracts in the Digital Imaging and Product Print Systems segments contain deliverables that are not distinct, such as where the services provided are essential for a customer to be able to derive a benefit from the goods purchased. 1. Product sales This revenue stream consists of: a. the manufacture and sale of finished goods (printheads); b. the sale of engineered printing solutions; and c. the sale of digital imaging devices. Revenue is recognised when control has been transferred to the customer. Control is deemed to transfer to the customer at point of delivery or collection of the products. Revenue is generally recognised at a point in time (such as on delivery or collection) and is typically invoiced in arrears. Certain contractual arrangements in the Product Print Systems and Digital Imaging segments require revenue to be recognised over a period of time, such as where the asset produced does not have an alternative use and the Group has an enforceable right to payment for performance completed to date. Where this is the case, the performance obligations are typically not distinct. In order to estimate the stage of completion of the contract when recognising revenue over a period of time, an input methodology (based on total estimated labour hours to deliver the contract) is used. This is considered to best depict the performance conditions. Payments are typically invoiced in instalments. The Group typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are accounted for as warranty provisions. See the ‘Provisions’ accounting policy on page 88 for full details. 3. Licensee royalties The Group licences intellectual property to third parties. Revenue is recognised on an accruals basis at a point in time, 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). Leasing Leased assets are capitalised on inception of the lease as right of-use assets. A corresponding lease liability, representing the present value of the lease payments is also recognised and split between current and non-current liabilities accordingly. The lease liability includes; fixed payments, variable lease payments dependent on an index or rate (initially measured using the index or rate on the lease commencement date) and in substance fixed payments. The variable aspect of variable payments are recognised when the rate or index takes effect resulting in an adjustment to the liability and right-of- use asset. The discounted lease liability is calculated where possible using the interest rate implicit in the lease or where this is not attainable the incremental borrowing rate is utilised. The incremental borrowing rate is the rate the Group would have to pay to borrow the funds necessary to obtain a similar asset under similar conditions. The Group calculates the incremental borrowing rate using risk free rate of the country where the asset is held, adjusted for length of the lease and a risk premium. Lease payments are allocated against the principal and finance cost. Finance costs, representing the unwinding of the discount on the lease liability are charged to the income statement to produce a constant periodic rate of interest on the remaining liability. The Group has elected to not present the capital and interest elements of lease payments separately within cash flows arising from financing activities. Instead, these amounts are presented in aggregate as ‘lease payments’ in the Consolidated Cash Flow Statement. Right-of-use assets are measured at cost including; the discounted initial lease liability, lease payments made at or before the commencement date, any dilapidation provisions and initial direct costs and reduced by any lease incentives received. Right-of-use assets are depreciated over the shorter of the non- cancellable lease period and any extension options that are considered reasonably certain to be taken or the useful life of the asset. The Group’s current leases run from 1–20 years. Modifications to lease agreements result in remeasurement of the lease liability and right-of-use asset. Short-term leases, defined as less than one year, and also of low value, are recognised on a straight-line basis in the Consolidated Income Statement. 85 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 2. Principal accounting policies continued Foreign currencies Foreign currency transactions are booked at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are retranslated at the rates of exchange ruling at the balance sheet date. Exchange differences arising on settlement or retranslation of monetary assets and liabilities are included in the Consolidated Income Statement. The results of overseas subsidiaries are translated into Sterling using the average exchange rates during the year. Assets and liabilities are translated at the rates ruling at the balance sheet date. Goodwill arising on the acquisition of a foreign operation is treated as an asset of that foreign operation and as such is translated at the relevant foreign exchange rate at the balance sheet date. Exchange differences arising on this translation are recognised through other comprehensive income in the translation reserve. Other exchange differences are recognised in the income statement in the period in which they arise. 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 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 Consolidated 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 nor deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is the tax expected to be payable or recoverable on temporary 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 each reporting date and risk educed 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 to the Consolidated 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 recognised within either Other Comprehensive Income or directly in equity respectively. 86 Taxation continued 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. Business combinations Business combinations are accounted for using the acquisition method. On the acquisition of a business, fair values are attributed to the identifiable assets, liabilities and contingent liabilities unless the fair value cannot be reliably measured in which case the value is subsumed into goodwill. Where applicable, on a transaction-by-transaction basis the Group elects to utilise the optional concentration test when assessing whether a transaction consists of a business combination or instead is in substance the purchase of a single asset or group of similar assets. The concentration test is met if substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Where the concentration test is met, the transaction is accounted for as an asset acquisition rather than as a business combination. The fair value of the gross assets acquired is calculated as the sum of the consideration transferred plus the fair value of liabilities assumed (other than deferred tax liabilities) less cash acquired. No goodwill arises on such transactions and acquisition costs are capitalised. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed as at the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. Where measurement period adjustments are identified, comparative prior period is revised to reflect the change to the acquisition accounting. Acquisition-related costs are expensed to the Consolidated Income Statement in the period in which they are incurred. Goodwill Goodwill represents the excess of the fair value of the consideration over the fair value of the net assets acquired. Where the fair value of the consideration is less than the fair value of the acquired net assets, the deficit is recognised immediately in the Consolidated Income Statement as a bargain purchase. Goodwill is not amortised, but is subject to an impairment review at least annually and is carried at cost less accumulated impairment losses. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Xaar plc Annual Report and Financial Statements 20232. Principal accounting policies continued Goodwill continued For the purpose of impairment testing, goodwill is allocated to cash generating units (CGUs). The CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the carrying value may not be recoverable. Intangible assets Acquisition intangibles Acquisition intangibles comprise of brands, customer relationships, patents, technology and know-how. These are capitalised at fair value and are amortised on a straight-line basis over their estimated useful lives. The principal expected useful lives are as follows: Brands Customer relationships Patents, technology and know-how 10 years 6-8 years 6 years Other intangible assets These comprise software, licence fees and expenditure on developed technology. Costs associated with the development activities are recognised as an asset if and only if they meet the recognition criteria set out in IAS 38 ‘Intangible Assets’, namely that: L the project must be technically feasible; L there must be the intention to complete the project; L there must be adequate resources to be able to complete the project; L the ability to use or sell the asset or product is secure; L the future economic benefits must exceed the costs; and L the ability to reliably measure costs. Where no internally generated intangible assets can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. All expenditure on research is expensed in the period in which it is incurred. Intangible assets are amortised on a straight-line basis over their estimated useful lives. Assets under construction are not amortised. The principal expected useful lives are as follows: Software Licence fees Internally developed technology 3 to 15 years 1 to 20 years 3 to 20 years Capitalised development costs – patent Life of patent Capitalised development costs Life of project The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Consolidated Income Statement. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and, where appropriate, provision for impairment in value. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, as follows: Leasehold improvements Plant and machinery Furniture, fittings and equipment Buildings 1 to 20 years up to the maximum of the lease term 3 to 20 years 3 to 20 years Up to 40 years Strategic Report Governance Financial Statements Property, plant and equipment continued The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Assets under the course of construction are not depreciated. 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. Impairment of property, plant and equipment and intangible assets excluding goodwill A review is undertaken upon the occurrence of events or circumstances which indicate that the carrying amount may not be recoverable. In addition, any assets not yet available for use are tested for impairment annually. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If it is not possible to determine the recoverable amount for an individual asset, the assessment is made for the asset’s cash-generating unit (CGU). 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. 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. Other income Other income comprises government grants, settlements received and the profits on disposal of patent intangible assets. Financial instruments Financial instruments are recognised and classified according to the substance of the contractual arrangements into which the Group enters. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. 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. 87 Xaar plc Annual Report and Financial Statements 2023 Notes to the consolidated financial statements continued for the year ended 31 December 2023 2. Principal accounting policies continued Financial assets Cash and cash equivalents, trade and other receivables (excluding prepayments and contract assets) and financial assets held at fair value through profit or loss are categorised as financial assets. On initial recognition, financial assets are classified as either fair value through profit or loss, or amortised cost. The classification depends on the purpose for which the financial assets were acquired and their contractual cash flows. Amortised cost assets are non-derivative debt instruments that meet the following conditions: L the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and L the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. For financial assets other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. Interest income is recognised in the Consolidated Income Statement and is included in the 'finance income' line item. 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). 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. 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. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits with an original maturity of three months or less. 88 Trade and other receivables Trade receivables are recognised at cost less allowances for expected credit losses. The provision is based on the Group’s expected credit loss, which is calculated using the simplified approach for trade receivables based on historical data adjusted for forward looking information. Financial liabilities Financial liabilities are those which involve a contractual obligation to deliver cash to external parties at a future date. Interest-bearing loans and borrowings Interest-bearing loans and bank overdrafts are measured initially at fair value, net of direct issue costs. Interest is subsequently at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the Consolidated 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 27. Trade and other payables Trade payables are non-interest bearing and are stated at amortised cost which approximates cost here due to the short term nature of the payables. 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. Restructuring provisions 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. Warranty provisions 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. For general warranty provisions, this estimate is based on historical trends. For specific warranty provisions, this estimate is based on the known faults in the product sold in the year. Dilapidation provisions 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. Contract assets and contract liabilities 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. When there is an unconditional entitlement, generally when invoices are raised, the contract asset values are reclassified to trade receivables. Xaar plc Annual Report and Financial Statements 20232. Principal accounting policies continued Contract assets and contract liabilities continued 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. Discontinued operations A discontinued operation is a component of the Group that has been disposed of and that represents a separate major line of business and is part of a single coordinated plan to dispose of such a line of business. The results of discontinued operations are presented separately in the Consolidated Income Statement and are shown net of tax. The cash flows from the discontinued operations are disclosed in Note 12. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds. Own shares No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of the Group’s own shares. Instead, any difference between the carrying amount and the consideration paid is recognised in equity. Share-based payments Equity settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant and is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. Share-based payments where vesting is by reference to external, market based performance criteria (such as growth in an external index) are measured using the Monte Carlo simulation. Those which are subject only to internal, non-market based performance criteria and/or service conditions are measured using the Black-Scholes model. For schemes that have non-market based performance conditions the number of options expected to vest is recalculated at each reporting date based on expectations of leavers prior to vesting. The number of options expected to vest for schemes with internal performance criteria is also adjusted based on expectations of performance against targets. No adjustments are made for expected performance against external, market based targets. Charges recognised in the Consolidated Income Statement in respect of equity-settled share-based payments are credited to the share-based payments reserve in equity. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and the entities under its control (together the ‘Group’). Control is achieved when the Company has power to control the financial and operating policies of an entity either directly or indirectly and the ability to use that power to affect the returns it receives from its involvement with the entity. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies in line with those used by the Group. All intra-group transactions, balances, equity, income and expenses are eliminated on consolidation. Strategic Report Governance Financial Statements 3. Changes in accounting policies and disclosures Except where disclosed otherwise in this note, the accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied when preparing the consolidated financial statements for the year ended 31 December 2022. New accounting standards, amendments and interpretations adopted by the Group The following new standards and amendments to existing standards became effective in January 2023 and have been adopted in the consolidated financial statements for the first time during the year ended 31 December 2023. These have been assessed as having no financial or disclosure impact on these consolidated financial statements. Effective for accounting periods beginning on or after Date issued May 2017 1 January 2023 June 2020 1 January 2023 February 2021 1 January 2023 February 2021 1 January 2023 May 2021 1 January 2023 IFRS 17 Insurance Contracts – New standard replacing IFRS 4. Sets out the principles for the recognition, measurement, presentation and disclosure of insurance contracts. Amendments to IFRS 17 Insurance Contracts – Narrow scope amendment to the transition requirements creating a policy option in relation to the presentation of comparative information. Amendments to IAS 1 Presentation of Financial Statements – Changes to the requirements in respect of the disclosure of accounting policies. Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Clarification of the definition of an accounting estimate and the circumstances that constitute a change in estimate. Amendments to IAS 12 Income Taxes – Clarification of the application of the initial recognition exemption to deferred tax assets and liabilities that arise from a single transaction. 89 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 3. Changes in accounting policies and disclosures continued New standards, amendments and interpretations not yet adopted by the Group The following standards, amendments and interpretations were in issue, but were not yet effective at the balance sheet date. These have not yet been endorsed by the UK Endorsement Board. These standards have not been applied when preparing the consolidated financial statements for the year ended 31 December 2023. It is not anticipated that the application of the below will have a significant financial or disclosure impact in future years. 4. Key sources of estimation uncertainty and critical accounting judgements The preparation of financial statements requires management to make judgements, estimates and assumptions about the application of its accounting policies which affect the reported amounts of assets, liabilities, revenue and expenses. Actual amounts and results may differ from those estimates. Judgements and estimates are evaluated regularly and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Any revisions to accounting estimates are recognised in the period in which the estimate is revised. Effective for accounting periods beginning on or after Date issued October 2022 1 January 2024 September 2022 1 January 2024 Amendments to IAS 1 Presentation of Financial Statements – Clarification of the conditions required to be met in order to classify liabilities, notably debt with covenant, as either current or non-current. Amendments to IFRS 16 Leases – Specifies the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction. a) Critical accounting judgements The accounting judgements and assumptions (excluding those which also involve estimates which are covered in the key sources of estimation uncertainty section below) included in the consolidated financial statements which have a material impact on amounts reported are as detailed below. Apportionment of technology based intangible assets In June 2023 the Group entered into a series of transactions in the context of the integration of the recently acquired FFEI Limited business. These consisted of the disposal of the non-core Life Sciences activities and all associated patents, software and technological know-how. On acquisition of FFEI Limited in July 2021, the fair value of these patents was not separately identified. Instead they were grouped with software and technological know-how and recognised in aggregate as a ‘technology based intangible asset’. In order to retrospectively estimate the fair value separately attributable to the patents, an apportionment methodology has needed to be adopted – this is based on gross margins and estimates of replacement cost. This methodology leverages the approach and data points adopted by external valuation experts when determining the fair value of the technology based intangible asset at the original acquisition date. Capitalisation of development costs The Group capitalises costs for product development projects. At 31 December 2023, the carrying amount of capitalised development costs was £2,325,000 (2022: £1,879,000). Development costs can be capitalised if and when they relate to a project that is technically feasible, there is the intention and are adequate resources to be able to complete the project, there are secure future economic benefits that can be realised in excess of the development costs incurred and all such costs can be reliably measured. During a printhead product development programme many sub-systems are evaluated in parallel and carry their own levels of risk. For most internal projects, technical feasibility is typically only deemed to have been achieved at the end of a project; as a result, internal costs of development activities are typically not capitalised. 90 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements b) Key sources of estimation uncertainty continued Impairment of goodwill and other intangible assets Goodwill is deemed to have an indefinite useful economic life and is, therefore, not amortised. As a result, the Group reviews goodwill for impairment on at least an annual basis and more frequently where there are indicators of potential impairment. The impairment review requires the value-in-use of each CGU to be estimated, these calculations are based on a number of assumptions. Areas of significant judgement include: L the estimation of future cash flows; L the selection of risk and the estimation of risk adjustment factors to be applied to cash flows; L the selection of an appropriate discount rate to calculate present value; and L the selection of an appropriate terminal growth rate. The assumptions used in the impairment test are detailed in Note 16. The assumptions relating to future cash flows, estimated useful economic lives and discount rates are based on forecasts and are, therefore, inherently judgemental. Future events could result in the assumptions used needing to be revised, changing the outcome of the impairment test and resulting in impairment charges being recognised in the Consolidated Income Statement. Revenue recognition – estimating stage of completion of contracts Revenue receivable under contracts with customers for the manufacture of bespoke machinery and equipment as well as for the provision of research and development consultancy services is generally required to be recognised over a period of time in line with the stage of completion of each contract with the customer. Such contractual arrangements are isolated to the Product Print Systems and Digital Imaging segments. In order to estimate the stage of completion of all such contracts, an input methodology (based on total estimated labour hours and total estimated costs to deliver the contract) is used. Each month an assessment is undertaken on a contract-by-contract basis of work in progress in respect of both the supply of individual components and the labour hours allocated to each project. These costs incurred are assessed against the total estimated costs to complete all contractual, performance obligations under each contract. This assessment enables both the stage of completion and profitability of the contract to be estimated. This estimate is subject to a level of uncertainty as it is not always possible to anticipate the impact of market factors on the total project cost. The aggregate transaction price allocated to partially satisfied and unsatisfied performance obligations under open contracts with customers as at the balance sheet date is set out in Note 6. 4. Key sources of estimation uncertainty and critical accounting judgements continued a) Critical accounting judgements continued Timing of revenue recognition The assessment used by the Group to determine the timing of revenue recognition could have a significant impact on the amount and timing of revenue recognised. Under certain contracts entered into by the Product Print Systems and the Digital Imaging segments, revenue has been recognised over time (rather than at a point in time) following judgements taken as to the existence of alternative uses for the custom-built printing solutions being sold and whether the Group has an enforceable right to payment. Firstly, the assessment of which customer projects include significant customisation (therefore have no alternative use) is based on the extent to which each machine is made to specific, detailed measurements at the request of a customer and takes into consideration the commercial reality underlying each contract. Whilst unlikely in reality, it remains possible that custom-built machines may have an alternative use and could potentially be sold to a different customer. Nevertheless, this remote possibility is not deemed to change the determination of the timing of revenue recognition because selling to an alternative customer would necessitate modifications to the printhead/machinery, therefore, significant additional cost. Secondly, when determining the timing of revenue recognition an assessment is made as to whether the contract contains an explicit enforceable right to payment for performance completed to date, being recovery of labour hours and other costs incurred in satisfying the performance obligations plus a reasonable profit margin. Where these two factors are assessed to be the case, the performance obligation under the contract is deemed to be satisfied over time. b) Key sources of estimation uncertainty The accounting estimates included in the consolidated financial statements which have a material impact on amounts reported are as detailed below. Fair value measurement of contingent consideration An element of the consideration receivable for the Group’s divestment in November 2021 of its remaining interest in the share capital of Xaar 3D Limited remains contingent on achievement of certain revenue milestones and performance targets. Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial asset, it is subsequently remeasured to fair value at each reporting date with any revaluation gains or losses being recognised in the Consolidated Income Statement. Fair value is estimated using the Monte Carlo simulation. Certain inputs into this statistical model involve estimation; namely, the risk adjusted discount rate and revenue volatility. These estimates are subject to rapid changes in market conditions that cannot always be fully anticipated. In light of the materiality of contingent consideration held in the Consolidated Statement of Financial Position, this uncertainty is considered to represent a key source of estimation uncertainty. Contingent consideration with an estimated fair value of £10,863,000 was recognised at the acquisition date and remeasured to £10,599,000 as at the reporting date. Future developments may require further revisions to the estimated fair value. The maximum consideration potentially receivable at the acquisition date was £16,691,000. Full sensitivity to changes in these estimates is provided in Note 30. 91 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 5. Operating segments The Group’s operating segments are determined based on the internal reporting to the Chief Operating Decision Maker (CODM). The CODM has been determined to be the Chief Executive Officer, with support from the other members of the Board of Directors, being the individual who is primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The principal activities of the Group are presented in the following segments: ‘Printhead’, ‘Product Print Systems’, ‘Digital Imaging’ and ‘Ink Supply Systems’. This presentation reflects how the Group’s operating performance is reviewed internally by management. Income Statement Year ended 31 December 2023 Note Revenue – external Revenue – intra segment Adjusted operating (loss)/profit Adjusting items 9 Operating (loss)/profit Year ended 31 December 2022 Note Revenue – external Revenue – intra segment Adjusted operating (loss)/profit Adjusting items 9 Operating profit/(loss) Printhead £’000 Product Print Systems £’000 37,086 771 (2,867) (1,037) (3,904) Printhead £’000 39,042 1,399 (626) 457 (169) 22,063 – 3,195 (1,251) 1,944 Product Print Systems £’000 19,624 – 2,756 – 2,756 Digital Imaging £’000 8,748 – 2,207 (922) 1,285 Digital Imaging £’000 11,633 – 337 (479) (142) Ink Supply Systems £’000 Unallocated £’000 2,717 423 822 (213) 609 – (1,194) – (1,882) (1,882) Ink Supply Systems £’000 Unallocated £’000 2,483 538 770 (228) 542 – (1,937) – (1,748) (1,748) Total £’000 70,614 – 3,357 (5,305) (1,948) Total £’000 72,782 – 3,237 (1,998) 1,239 Statement of Financial Position 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 CODM. As at 31 December 2023 Non-current assets Current assets Total assets As at 31 December 2022 Non-current assets Current assets Total assets Other segment information Year ended 31 December 2023 Depreciation and amortisation Share-based payment charge Capital expenditure Year ended 31 December 2022 Depreciation and amortisation Impairment of property, plant and equipment Share-based payment charge Capital expenditure 92 Printhead £’000 29,854 35,924 65,778 Printhead £’000 34,925 32,164 67,089 Product Print Systems £’000 8,311 7,555 15,866 Digital Imaging £’000 5,743 6,069 11,812 Ink Supply Systems £’000 1,592 2,208 3,800 Product Print Systems £’000 Digital Imaging £’000 Ink Supply Systems £’000 8,436 8,484 16,920 7,726 7,309 15,035 880 2,517 3,397 Printhead £’000 Product Print Systems £’000 Digital Imaging £’000 Ink Supply Systems £’000 Unallocated £’000 4,566 – 1,231 276 – 190 599 – – 47 – 75 – 1,882 – Printhead £’000 Product Print Systems £’000 Digital Imaging £’000 Ink Supply Systems £’000 Unallocated £’000 3,265 147 – 1,639 244 – – 231 1,260 – – 673 23 – – 119 – – 1,748 – Total £’000 45,500 51,756 97,256 Total £’000 51,967 50,474 102,441 Total £’000 5,488 1,882 1,496 Total £’000 4,792 147 1,748 2,662 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 6. Revenue The Group derives its revenue from the provision of goods and services both at a point in time and over time: Revenue recognised at a point in time Revenue recognised over time 2023 £’000 57,283 13,331 70,614 2022 £’000 67,318 5,464 72,782 The Group has no individual product or customer which contributes more than 10% of its revenues. Revenues from the top five customers represent 24% of the Group’s total revenues (2022: 29%). Geographical information Revenues are attributed to regions based primarily on customers’ location. The Group’s revenue from external customers and information about its non-current segment assets (excluding deferred tax and financial asset at FVTPL) is set out below: Revenue Non-current assets The Americas EMEA China Rest of Asia Pacific 2023 £’000 30,404 28,035 7,440 4,735 70,614 2022 £’000 36,175 28,418 6,748 1,441 72,782 2023 £’000 7,927 28,504 163 – 36,594 Revenue by operating segment and type The following table shows the disaggregation of revenue by major product/service lines for continuing operations. Printhead Product Print Systems Digital Imaging Ink Supply Systems Product sales Commissions & services Licensee royalties Total 2023 £’000 35,643 21,511 6,094 2,717 65,965 2022 £’000 38,318 19,056 8,809 2,483 68,666 2023 £’000 1,428 552 2,654 – 4,634 2022 £’000 675 568 2,824 – 4,067 2023 £’000 2022 £’000 15 – – – 15 49 – – – 49 2023 £’000 37,086 22,063 8,748 2,717 70,614 2022 £’000 8,450 31,353 213 – 40,016 2022 £’000 39,042 19,624 11,633 2,483 72,782 Partially completed contracts The operating segments Product Print Systems and Digital Imaging have contracts with customers where the performance obligations are partially unsatisfied at 31 December 2023. 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 and is set out below. Partially satisfied performance obligations Partially unsatisfied performance obligations 2023 £’000 13,331 3,500 16,831 2022 £’000 5,464 6,437 11,901 £3,459,000 from partially unsatisfied performance conditions will be recognised during the year ending 31 December 2024 with the remaining £40,000 in future periods (2022: £6,310,000 in 2023, £127,000 in future periods). 93 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 7. Operating (loss)/profit Operating (loss)/profit for the year is stated after charging/(crediting): Research and development expenses UK R&D tax credits Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of other intangible assets Loss on disposal of property, plant and equipment Costs of inventories recognised as an expense Write down of inventories as an expense Impairment losses on financial assets Net loss/(gain) on foreign exchange Auditor’s remuneration comprised the following: Audit Services – Group and Company audit Total audit fees Audit related assurance services – Interim review Total assurance-related fees Total auditor remuneration Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 Notes 9 18 19 17 18 22 5,642 (179) 2,914 1,084 1,487 24 39,692 2,040 99 508 6,718 (379) 2,654 1,071 1,067 80 41,849 335 46 (1,152) Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 547 547 – – 547 695 695 84 84 779 The Group’s policy on the use of the auditor for non-audit services is set out in the Audit Committee Report on pages 55 to 58. 8. Other operating income Profit on disposal of intangible assets Settlements received Government grants Total other operating income Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 2,036 165 – 2,201 – – 139 139 In June 2023 the Group entered into a series of transactions in the context of the integration of the recently acquired FFEI Limited business. These consisted in part of the disposal of the non-core Life Sciences activities and all associated patents, software and technological know-how. Consideration for the sale of these intangible assets totalled £2,312,000, generating a profit of £2,036,000 after deduction of the asset’s carrying value. The consideration is receivable in instalments with £1,760,000 having been received as at 31 December 2023. The remaining £552,000 falls due in the year ending 31 December 2024. Settlements received constitute compensation under legal claims. The Group, through the recently acquired FFEI Limited, previously received grants under the UK Research and Innovation ‘Future Leaders Fellowships’ scheme. Grants were issued with the aim of increasing the throughput, quality and validity of imaging data for biomedical artificial intelligence. No such grant income has been recognised or received during the year ended 31 December 2023. 94 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 9. Adjusting items The Directors believe that the ‘adjusted profit before tax’ and ‘adjusted earnings per share’ alternative performance measures presented provide a consistent presentation of the Group’s underlying operational performance. They also present shareholders with a clearer insight of performance metrics used by the Chief Operating Decision Maker and mitigate volatility, resulting from external factors that are not influenced by the Group. These items are as defined below and have been presented consistently in both the current and prior year. Share-based payment charges Exchange (losses)/gains on intra-group transactions Restructuring and transaction expenses Research and development expenditure tax credits Fair value losses on financial assets at FVTPL Amortisation of intangible assets arising on business combinations Affecting operating profit and profit before tax Tax effect of adjusting items Affecting tax Total adjusting items after tax (i) (ii) (iii) (iv) (v) (vi) Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 (1,882) (364) (1,501) 179 (369) (1,368) (5,305) 311 311 (4,994) (1,748) 811 (450) 379 (8) (982) (1,998) 100 100 (1,898) (i) Comprises share-based payment charges of £1,937,000 (2022: £1,559,000) partially offset by an accrual release of £55,000 (2022: charge of £189,000) for the associated employer’s social security contributions and are included in selling, general and administrative expenses. (ii) Comprises exchange gains or losses as a result of intra-group transactions in the United States of America. Such costs are included in selling, general and administrative expenses. (iii) Comprises restructuring costs of £1,501,000 (2022: £256,000) and acquisition costs of £nil (2022: £194,000). Restructuring costs include provision for redundancy costs of £761,000 (2022: £93,000) and £740,000 (2022: £163,000) of costs resulting from the Group’s operational efficiency program. The prior year acquisition costs relate to the acquisition of Megnajet Limited – for full details see Note 33. Such costs are included in selling, general and administrative expenses. (iv) Comprises UK corporation tax relief relating to qualifying research and development expenditure. During the year, £179,000 was claimed of which £15,000 related to XaarJet Limited and £164,000 related to FFEI Limited for the year ended 31 December 2023. During year ended 31 December 2022, £379,000 was claimed of which £198,000 related to XaarJet Limited’s claim for the year ended 31 December 2020 and £219,000 related to FFEI Limited’s claim for the year ended 31 March 2021. These credits are included in research and development expenses. (v) Comprises the fair value movement on contingent consideration that arose on the Group’s divestment of Xaar 3D Limited. Such amounts are included in selling, general and administrative expenses. Refer to Note 30 for further information. (vi) The intangible assets consist of the software, patents and customer relationships recognised on acquisition of FFEI Limited in 2021 and the customer relationships and brand value recognised on acquisition of Megnajet Limited in 2022. These costs are included in selling, general and administrative expenses. 10. Employees and directors The average monthly number of employees including Executive Directors was: Research and development Sales and marketing Manufacturing and engineering Administration Their aggregate remuneration comprised: Wages and salaries Social security costs Post retirement benefits Share-based payment charges Total staff costs Year ended 31 December 2023 Number Year ended 31 December 2022 Number 82 49 230 65 426 85 49 235 66 435 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 23,656 2,594 1,407 1,882 29,539 22,560 2,400 1,303 1,748 28,011 95 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 10. Employees and directors continued Directors’ remuneration The remuneration of the Directors, including rewards under share schemes and other contractual benefits, is included in the Directors’ Remuneration Report on pages 61 to 71. Key management personnel Key management personnel consist of the Group’s Board of Directors. 11. Finance income and costs Interest receivable Finance income Interest expense on lease liabilities Interest payable on bank borrowings Interest expense on invoice securitisation/discounting Finance costs 12. Discontinued operations Year ended 31 December 2023 No discontinued operations occurred or were undertaken during the year. Note 19 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 89 89 (261) (179) (122) (562) 38 38 (242) (178) (33) (453) Year ended 31 December 2022 The Thin Film business which was discontinued in 2019 continued to incur costs in 2021 and 2022. This trailing activity mainly related to the unwinding of supplier and customer liabilities and inventory for last time buy sales. All liabilities have now been settled and the Group maintains an amount of inventory that is fully provided against as these products are not considered likely to be sold. The results of Thin Film activities were as follows: Year ended 31 December 2022 £’000 (159) (159) Year ended 31 December 2022 £’000 (150) (150) Year ended 31 December 2022 Pence per share (0.2)p (0.2)p Operating expenses Loss after income tax from discontinued operations The net cash flows incurred by Thin Film were as follows: Net cash outflow from operating activities Net cash used from discontinued operations The losses per share resulting from the Thin Film operations were as follows: Basic loss per share from discontinued operations Diluted loss per share from discontinued operations 96 Xaar plc Annual Report and Financial Statements 202313. Tax Tax credit Current tax Current income tax credit – UK Current income tax charge – overseas Adjustment in respect of prior years Deferred tax Origination and reversal of temporary differences Adjustment in respect of prior years Total tax credit Strategic Report Governance Financial Statements Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 (304) 291 (467) (480) 252 (19) 233 (247) (269) 87 96 (86) (881) – (881) (967) The corporation tax credit in both the current and prior years is attributable to profit from continuing operations. Reconciliation of tax credit The tax credit for the year differs from the standard rate of corporation tax in the UK of 25% (2022: 19%). The differences are explained below: (Loss)/profit before tax from continuing operations Loss before tax from discontinued operations (Loss)/profit before tax Notional tax charge at the UK corporation tax rate of 23.5% (2022: 19.0%) Effects of: Tax effect of non-deductible expenses* Tax effect of non-taxable income Adjustments in respect of overseas tax rates Utilisation of brought forward losses previously unrecognised Adjustments in respect of prior years Losses surrendered for tax credit Foreign exchange on translation of balances Total tax credit and effective tax rate Year ended 31 December 2023 £’000 Year ended 31 December 2023 % Year ended 31 December 2022 £’000 Year ended 31 December 2022 % (2,421) – (2,421) (569) 755 3 (22) 302 (486) (390) 160 (247) 23.5% (31.1)% (0.1)% 0.9% (12.5)% 20.0% 16.1% (6.6)% 10.2% 824 (159) 665 126 219 2 10 (520) 82 (769) (117) (967) 19.0% 32.9% 0.2% 1.4% (78.2)% 12.3% (115.6)% (17.5)% (145.4)% * Expenses not deductible for tax purposes predominantly consist of valuation and exchange rate movements on capital items and share-based payments charges. Effective tax rate The analysis of the Group’s effective tax rate between adjusted and total reported activities is as follows: (Loss)/profit before tax Tax charge/(credit) Effective tax rate Year ended 31 December 2023 Year ended 31 December 2022 Adjusted £’000 Adjusting items £’000 Total reported £’000 Adjusted £’000 Adjusting Iiems £’000 Total reported £’000 2,884 64 2.2% (5,305) (311) 5.9% (2,421) (247) 10.2% 2,663 (867) (32.6)% (1,998) (100) 5.0% 665 (967) (145.4)% 97 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 13. Tax continued Factors affecting the tax charge of future years Future tax charges, therefore the Group’s effective tax rate, may be affected by factors such as acquisitions, disposals, restructuring and tax regime reforms. No planned UK corporation tax rate changes have been announced by the UK Government. No planned US corporation tax rate changes have been announced by the US Government. 14. Earnings per share Basic EPS and adjusted basic EPS are calculated by dividing the earnings attributable to the equity shareholders of the Company by the weighted average number of shares outstanding during the year. Diluted EPS and adjusted diluted EPS are calculated on the same basis as basic EPS but with a further adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. Such potentially dilutive ordinary shares comprise share options and awards granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year and any unvested shares which have met, or are expected to meet, the performance conditions at the end of the year. Earnings Profit attributable to equity shareholders of the parent – adjusted Adjusting items (Loss)/profit attributable to equity shareholders of the parent – reported Number of shares Weighted average number of ordinary shares in issue Less: ordinary shares held by Xaar Trustee Limited and the Xaar Plc ESOP Trust Weighted average number of ordinary shares for the purposes of basic EPS Effect of potentially dilutive ordinary shares – share options and awards Weighted average number of ordinary shares for the purposes of diluted EPS Basic EPS Diluted EPS Adjusted basic EPS Adjusted diluted EPS Note 9 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 2,820 (4,994) (2,174) 3,530 (1,898) 1,632 Number Number 78,584,418 (335,556) 78,446,230 (896,966) 78,248,862 77,549,264 2,613,007 4,085,096 80,861,869 81,634,360 Pence per share Pence per share (2.8)p (2.8)p 3.6p 3.5p 2.1p 2.0p 4.8p 4.5p 15. Dividends No interim or final dividend was proposed or paid during either the current or preceding year. The Board of Directors are mindful of the importance of dividends to its shareholders and intends to resume the payment of dividends as soon as conditions allow. 98 Xaar plc Annual Report and Financial Statements 202316. Goodwill Cost and carrying amount Balance at 1 January Additions* Exchange differences Balance at 31 December Allocated to Product Print Systems CGU Allocated to Digital Imaging CGU Allocated to Ink Delivery Systems CGU Total Strategic Report Governance Financial Statements 31 December 2023 £’000 31 December 2022 £’000 7,163 – (290) 6,873 5,523 689 661 6,873 5,894 661 608 7,163 5,813 689 661 7,163 * On 2 March 2022 Xaar Plc acquired Megnajet Limited and Technomation Limited. See Note 33 for further details. 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 either the current or preceding year. Goodwill balances have been tested for impairment on the following basis: L The recoverable amount of each CGU has been assessed by reference to its 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 the Group’s core strategy; L Discount rates used range between 16.1% and 14.2% (2022: 18.2 % and 14.5%) reflecting specialist, third-party advice. These rates have been calculated taking into account geographies, size of businesses and industry risk factors; L Long-term growth rates used are 2.0% (2022: 1.0%) for all UK based CGUs and 2.0% (2022: 1.4%) for those operating in the US (being Product Print Systems only). These rates are based on OECD growth rates; and L Before a conclusion on impairment is made, sensitivity analysis is carried out to assess the consequences of any reasonably possible change to the above inputs. Product Print Systems impairment review Using a discount rate of 14.2% (2022: 14.5%) the recoverable amount calculated exceeds the carrying value of the CGU by £12.3 million (2022: £10.1 million). Therefore, no impairment is required. No reasonably possible changes to assumptions that could result in an impairment charge have been identified. Digital Imaging impairment review Using a discount rate of 15.9% (2022: 18.2%) the recoverable amount calculated exceeds the carrying value of the CGU by £6.9 million (2022: £5.1 million). Therefore, no impairment is required. No reasonably possible changes to assumptions that could result in an impairment charge have been identified. Ink Delivery Systems impairment review Using a discount rate of 16.1% (2022: 15.6%) the recoverable amount calculated exceeds the carrying value of the CGU by £1.5 million (2022: £4.1 million). Therefore, no impairment is required. No reasonably possible changes to assumptions that could result in an impairment charge have been identified. 99 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 17. Other intangible assets Cost At 1 January 2022 Additions Acquisitions* Disposals in the year Transfers Exchange differences At 31 December 2022 Additions Disposals in the year Transfers Exchange differences At 31 December 2023 Accumulated amortisation At 1 January 2022 Charge in the year Disposals in the year Exchange differences At 31 December 2022 Charge in the year Disposals in the year Exchange differences At 31 December 2023 At 31 December 2022 At 31 December 2023 Acquisition based Technology based £’000 Brands £’000 Customer relationships £’000 Sub-total £’000 Development costs £’000 Licence fees £’000 Software £’000 Total £’000 3,044 – 1,990 – – – 5,034 – (414) – – 4,620 254 715 – – 969 1,087 (138) – 1,918 4,065 2,702 – – 281 – – – 281 – – – – 281 – 23 – – 23 28 – – 51 1,204 – 422 – – – 1,626 – – – – 4,248 – 2,693 – – – 6,941 – (414) – – 38,687 1,657 – – 222 – 40,566 446 – – – 532 1,100 – – – – 1,632 – – – – 3,483 33 – (14) – 12 3,514 6 (7) 4 (9) 46,950 2,790 2,693 (14) 222 12 52,653 452 (421) 4 (9) 1,626 6,527 41,012 1,632 3,508 52,679 100 245 – – 345 253 – – 598 354 983 – – 1,337 1,368 (138) – 38,687 – – – 38,687 – – – 2,567 38,687 532 38 – – 570 77 – – 647 3,334 46 (14) 12 3,378 42 (7) (1) 42,907 1,067 (14) 12 43,972 1,487 (145) (1) 3,412 45,313 258 230 1,281 1,028 5,604 3,960 1,879 2,325 1,062 985 136 96 8,681 7,366 * See Note 33 for details of the intangible assets arising on the acquisition of Megnajet Limited. Development costs capitalised in the year of £446,000 (2022: £1,657,000) related to externally generated costs for the development of a new generation printhead platform. These assets were in the course of construction at the reporting date and consequently were not amortised during the year. Amortisation is recorded in selling, general and administrative expenses. The amortisation periods are in line with the accounting policy in Note 2. At 31 December 2023 the Group had entered into contractual commitments of £112,000 (2022: £358,000) for the acquisition of intangible assets. 100 Xaar plc Annual Report and Financial Statements 202318. Property, plant and equipment Cost At 1 January 2022 Additions in the year Acquisitions Disposals in the year Transfers Exchange differences At 31 December 2022 Additions in the year Disposals in the year Exchange differences At 31 December 2023 Accumulated depreciation and impairment At 1 January 2022 Charge in the year Impairment Disposals in the year Exchange differences At 31 December 2022 Charge in the year Disposals in the year Exchange differences At 31 December 2023 At 31 December 2022 At 31 December 2023 Strategic Report Governance Financial Statements Land & buildings £’000 Leasehold improvements £’000 Plant and machinery £’000 Furniture, fittings and equipment £’000 Total £’000 88,305 2,662 53 (1,186) (222) 588 90,200 1,495 (3,063) (311) 13,680 217 1 – – 4 13,902 329 (25) (4) 68,252 1,506 50 (931) (222) 286 68,941 1,099 (3,033) (169) 4,447 925 2 (255) – 73 5,192 67 (5) (28) 14,202 66,838 5,226 88,321 8,962 586 – – 1 9,549 672 (25) (3) 59,085 1,614 147 (833) 201 60,214 1,688 (3,009) (131) 3,577 393 – (254) 53 3,769 528 (5) (16) 72,079 2,654 147 (1,087) 303 74,096 2,914 (3,039) (179) 10,193 58,762 4,276 73,792 1,926 14 – – – 225 2,165 – – (110) 2,055 455 61 – – 48 564 26 – (29) 561 1,601 1,494 4,353 4,009 8,727 8,076 1,423 950 16,104 14,529 During the year ended 31 December 2022, an impairment charge of £147,000 was recognised in respect of machinery within the Printhead CGU that had been decommissioned. Included within Plant and Machinery is £415,000 (2022: £651,000) of assets under construction. Capital commitments at 31 December 2023 amounted to £14,000 (2022: £923,000). 101 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 19. Leases The Group has lease contracts for various items of buildings, equipment and vehicles used in its operations. The Group’s obligations under 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. Right-of-use assets Cost At 1 January 2022 Additions Exchange differences At 31 December 2022 Additions Exchange differences At 31 December 2023 Depreciation At 1 January 2022 Charge in the year Disposals in the year Exchange differences At 31 December 2022 Charge in the year Exchange differences At 31 December 2023 At 31 December 2022 At 31 December 2023 Buildings £’000 Equipment £’000 Vehicles £’000 Total £’000 12,376 246 17 12,639 852 (21) 13,470 3,590 1,046 (14) 19 4,641 1,057 (11) 5,687 7,998 7,783 97 28 – 125 – – 125 54 21 – – 75 19 – 94 50 31 – 24 – 24 – – 24 – 4 – – 4 8 – 12 20 12 12,473 298 17 12,788 852 (21) 13,619 3,644 1,071 (14) 19 4,720 1,084 (11) 5,793 8,068 7,826 Lease deposits A refundable deposit of £136,000 was paid under the lease for office premises in Sweden. This deposit would be due for repayment on expiry of the lease, currently due to expire in 2026. This receivable is presented within non-current financial assets on the Consolidated Statement of Financial Position. Lease liabilities Lease liabilities are analysed as follows: Current Non-current The movement in lease liabilities is shown below: At 1 January Additions Interest charge Cash outflows Exchange differences At 31 December 102 31 December 2023 £’000 31 December 2022 £’000 1,800 6,898 8,698 1,032 7,800 8,832 31 December 2023 £’000 31 December 2022 £’000 8,832 827 261 (1,188) (34) 8,698 9,191 323 242 (914) (10) 8,832 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 19. Leases continued Maturity analysis of lease liabilities: Amounts falling due within Less than one year Between one and five years Later than five years Amounts recognised in the Consolidated Income Statement: Depreciation Interest charge Short-term lease expenses 20. Deferred tax assets At 1 January 2022 (Charge)/credit to income statement Arising on acquisition At 31 December 2022 (Charge)/credit to income statement At 31 December 2023 Accelerated capital allowances £’000 Share-based payments £’000 Acquired intangible assets £’000 (171) (206) – (377) (150) (527) 1 – – 1 (1) – (925) 142 (170) (953) 347 (606) Losses £’000 1,094 834 – 1,928 (789) 1,139 31 December 2023 £’000 31 December 2022 £’000 1,175 5,498 3,171 9,844 1,163 5,057 3,620 9,840 31 December 2023 £’000 31 December 2022 £’000 1,084 261 24 1,369 Other temporary differences £’000 – 127 – 127 360 487 1,071 242 59 1,372 Total £’000 (1) 897 (170) 726 (233) 493 Unrecognised deferred tax assets The Group has unrecognised deferred tax assets totalling £30,236,000 (2022: £30,382,000). These consist of the following. Trading losses Deferred tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. As at 31 December 2023, the Group had unused UK trading losses of £112,888,000 (2022: £119,925,000) available to offset against future UK taxable profits of the same trade. These losses may be carried forward indefinitely. Whilst the Board believes in the long-term potential and profitability of the Printhead business unit, forecast taxable losses over the immediately foreseeable period mean that the UK trading losses will not be utilised in the short-term. The impact of climate change has been considered in the forecast and valuation of future taxable profits and no impacts were noted. Therefore, no deferred tax asset has been recognised in respect of these. As at 31 December 2023, the Group has an unrecognised deferred tax asset in respect of carried forward UK trading losses of £28,222,000 (2022: £28,100,000). Capital losses As at 31 December 2023, the Group has unused capital losses of £1,131,000 (2022: £1,100,000) available for offset against future chargeable 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. As a result, the Group has an unrecognised deferred tax asset in respect of carried forward UK capital losses of £283,000 (2022: £283,000). These losses may be carried forward indefinitely. Other temporary differences As at 31 December 2023, the Group has £1,631,000 (2022: £1,999,000) of unrecognised deferred tax assets relating to decelerated capital allowances (£851,000), share options (£660,000) and various, sundry trading items (£120,000). Deferred tax assets arising in these areas have only been recognised to the extent that they offset deferred tax liabilities held by the Group. 103 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 21. Inventories Raw materials Work in progress Finished goods 31 December 2023 £’000 31 December 2022 £’000 12,426 4,317 14,292 31,035 11,804 3,516 13,828 29,148 Cost of inventories recognised as an expense and write down of inventories recognised as an expense (and which are included as part of Cost of Sales) are set out in Note 7. Gross inventory costs are £35,680,000 (2022: £39,973,000) partially offset by provisions of £4,645,000 (2022: £8,826,000). The provision included £nil (2022: £6,143,000) in relation to discontinued operations; all inventories formerly used in discontinued operations are fully written down. There is no specific impact on the valuation of the Group’s inventories arising from climate related matters. Estimates are based upon the most reliable evidence available at the time the estimates are made. 22. Trade and other receivables Amounts receivable for the sale of goods and services Less: provision for expected credit losses Other receivables Prepayments Ageing of trade receivables Not past due Past due 0 to 30 days 30 to 60 days 60 to 90 days More than 90 days Total receivables Movement in provision for bad and doubtful debts Balance at beginning of year Impairment losses recognised in the income statement Amounts written off Exchange differences 31 December 2023 Provision £’000 – (7) – (1) (107) (115) (115) Gross £’000 5,446 1,324 161 175 195 1,855 7,301 Net £’000 5,446 1,317 161 174 88 1,740 7,186 31 December 2023 £’000 31 December 2022 £’000 7,301 (115) 7,186 367 1,249 8,802 31 December 2022 Provision £’000 (3) (1) – (8) (113) (122) (125) Gross £’000 5,746 831 417 398 54 1,700 7,446 7,446 (125) 7,321 1,291 1,415 10,027 Net £’000 5,743 830 417 390 (59) 1,578 7,321 31 December 2023 £’000 31 December 2022 £’000 (125) (99) 108 1 (115) (144) (46) 69 (4) (125) The average credit period taken on sales of goods is 37 days (2022: 37 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 30. 104 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 22. Trade and other receivables continued 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, five (2022: seven) customers each represented greater than 5% (2022: 5%) of the total receivables balance, totalling £3,268,000 (2022: £2,857,000). The total due from these customers represents 5% (2022: 4%) of the Group’s revenue. 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. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 23. Contract assets and contract liabilities Contract assets Accrued income – general Accrued income – ink commissions Accrued income – royalties Total current contract assets 31 December 2023 £’000 31 December 2022 £’000 2,156 – – 2,156 1,440 46 14 1,500 Contract assets consist of a small number of contracts relating to the design and production of bespoke machinery or research and development services. Since there is regular contact with all such customers for project management purposes, with robust milestone payments, there is no generic risk in relation to the recoverability of contract assets. The only time when an expected credit loss provision would be recognised is where the Group became aware of a customer being at risk of bankruptcy. The Directors are not aware of any such cases at 31 December 2023 (31 December 2022: none), therefore, no such provision is in place. Contract liabilities Deferred income Customer deposits Total current contract liabilities 31 December 2023 £’000 31 December 2022 £’000 (350) (2,019) (2,369) (742) (3,057) (3,799) Both deferred income and customer deposits represent consideration received for performance obligations not yet satisfied under contracts to deliver products or services to customers. All deferred income and customer deposits are anticipated to be recognised in revenue within the next financial year. Of the £3,799,000 recognised as contract liabilities as at 31 December 2022, £2,147,000 was recognised in revenue during the year ended 31 December 2023. 24. Trade and other payables Amounts failing due within one year Trade payables Accruals and other payables 31 December 2023 £’000 31 December 2022 £’000 (4,299) (5,269) (9,568) (6,410) (6,806) (13,216) At 31 December 2023, the Group had an average of 31 days of purchases (2022: 36 days) outstanding in trade payables and accruals. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timetable. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. 105 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 25. Deferred consideration Amounts failing due within one year Deferred consideration Amounts failing due after one year Deferred consideration 31 December 2023 £’000 31 December 2022 £’000 (2,115) (2,115) – – (1,646) (1,646) (2,094) (2,094) Deferred consideration relates to the acquisition of FFEI Limited in 2021 and the acquisition of Megnajet Limited and Technomation Limited in 2022. FFEI Limited In July 2021, the Group acquired 100% of the issued share capital of FFEI Limited for total consideration of £8,762,000. This comprised of £3,907,000 initial cash consideration as well as deferred consideration measured at £4,855,000 (being the net present value of the total amount payable of £5,200,000 discounted at 3.49%). This deferred consideration is payable in equal instalments over the course of three years from the date of acquisition. The second instalment of £1,733,000 was paid during the year ended 31 December 2023 (2022: £1,733,000). The final instalment of £1,733,000 is payable in 2024. Megnajet Limited and Technomation Limited Refer to Note 33 for full details of the transaction giving rise to the deferred consideration. The final instalments of £200,000 each for Megnajet Limited and Technomation Limited respectively are payable in 2024. 26. Provisions Current Warranty provisions Restructuring provisions Non-current Dilapidations Movement in provisions during the year At 1 January 2022 Provided for during the year Provisions utilised At 31 December 2022 Provided for during the year Provisions utilised Provisions released At 31 December 2023 31 December 2023 £’000 31 December 2022 £’000 (476) (496) (972) (300) (300) Warranty provision £’000 Restructuring provision £’000 Dilapidations £’000 (253) (225) 166 (312) (373) 93 116 (476) (11) (93) 11 (93) (645) 242 – (496) (300) – – (300) – – (312) (93) (405) (300) (300) Total £’000 (564) (318) 177 (705) (1,018) 335 116 (300) (1,272) The warranty and commercial agreements provision represents the Directors’ best estimate of the Group’s potential financial exposure from claims received under product warranties or commercial sales agreements. The timing of the utilisation of this provision is uncertain. Restructuring provisions in both the current and prior years consist of redundancy costs arising in the context of the Group’s streamlining of operations. The provision is expected to be utilised during the year ending 31 December 2024. The Group operates from a number of leasehold premises under full repairing leases. The dilapidation provision recognised reflects the estimated costs of repairs that would be required to put these premises back into the state of repair required under these leases. 106 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 27. Borrowings Amounts falling due within one year Invoice discounting facility 31 December 2023 £’000 31 December 2022 £’000 (1,403) (379) Invoice discounting facility The facility limit is £3 million (2022: £5 million) and operates on a rolling basis from the original inception date of September 2022. The facility can be cancelled with a three-month notice period. There are no covenants attached to the invoice discounting facility. Interest on the invoice discounting facility is charged daily when the facility is in an overdrawn position at a rate equivalent to the appropriate base rate +1.75% pa. There is an annual service fee of £25,000 charged monthly, and there was a one-off arrangement fee to open the facility of £10,000. No interest is payable on the unutilised element on the facility. Eligible debts in GBP and USD denominations are legally assigned to the facility provider as, or soon after, they are raised. The facility makes available 90% of the debts to XaarJet 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. No fair value adjustments are deemed necessary for these amounts; however, the receivables are subject to an allowance for doubtful debt.  The invoice discounting facility is secured with fixed rate charges over purchased debts and a floating charge over the assets of XaarJet Limited. It remains the Group’s responsibility to appropriately insure, manage and recover the debts assigned under the arrangement, and the transferred assets are subject to recourse at any time. As a result, the Group retains substantially all the risks/rewards of ownership and control of these assets. Therefore, the Group continues to recognise the gross debts assigned under the facility as trade receivables. Committed facilities On 14 June 2023, Xaar Plc entered into a Revolving Credit Facility (RCF) agreement of £5 million, which matures on 14 June 2025, with an option to extend for a further year, subject to lender approval. The agreement includes an accordion option of a further £2.5 million which can be requested at any time during the facility term, subject to lender approval and relevant fees. The facility as at 31 December 2023 remained undrawn. The facility bears a floating interest rate of the Sterling Overnight Indexed Average (SONIA) rate plus 2.35% margin. A non-utilisation fee of 40% of the margin is chargeable on undrawn and uncancelled amounts. The facility is secured by fixed and floating charges over the assets of the Group. The Group is subject to financial covenants under the facility and has complied with these at all testing points. 107 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 28. Share capital and reserves Share capital Authorised, issued and fully paid: As at 1 January Share issued during year (ordinary shares at 10.0p each) Balance at 31 December The Company has one class of ordinary shares which carries no right to fixed income. 31 December 2023 31 December 2022 £’000 Number £’000 Number 7,844 79 7,923 78,446,230 783,775 79,230,005 7,844 – 7,844 78,446,230 – 78,446,230 Retained earnings Comprises all net gains and losses as well as transactions with owners, such as dividend payments, that are not recognised elsewhere. The share-based payments reserve, which represents the cumulative charges recognised in relation to equity-settled share option awards, are presented in retained earnings. Merger reserve Comprises the premium on shares issued as consideration for Xaar Technology Limited where conditions for merger relief have been satisfied. These are presented as part of other reserves in the Consolidated Statement of Changes in Equity. Non-distributable reserve Comprises of the dividend received by Xaar Plc from Xaar Digital Limited. These are presented as part of other reserves in the Consolidated Statement of Changes in Equity. Own shares reserve Represents shares in the Company held by Xaar Trustee Limited and Xaar Plc ESOP Trust. These shares are held in order to satisfy options granted under the Group’s share option schemes. Own shares 31 December 2023 31 December 2022 Nominal value £’000 Number Nominal value £’000 566 313,201 775 Number 398,660 Of the nominal value £20,000 (2022: £20,000) represents 91,250 ordinary shares held in trust by Xaar Trustee Limited. The remaining value £545,733 (2022: £755,000) represents 221,951 (2022: 307,410) shares in the Company purchased in the market at market value and held by the Xaar Plc ESOP Trust. During the year the ESOP Trust sold 85,459 (2022: 860,136) shares to satisfy options exercised and purchased nil (2022: 474,971) shares. Translation reserve Represents exchange differences on translation of overseas operations. 108 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 29. Notes to the cash flow statement (Loss)/profit before tax from: Continuing operations Discontinued operations (Loss)/profit before tax including discontinued operations Adjustments for: Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of intangible assets Impairment of property, plant and equipment Research and development expenditure credit Net interest expense Unrealised currency translation losses/(gains) Payment of cash settled share-based payments Share-based payment charge Fair value loss on financial assets at FVTPL Loss on disposal of property, plant and equipment Gain on disposal of intangible assets Increase in provisions Operating cash flows before movements in working capital Increase in inventories Decrease/(increase) in receivables Decrease in payables Cash utilised from operations Analysis of changes in net debt Cash and cash equivalents £’000 Lease liabilities* £’000 Net cash as at 1 January 2022 Additions to leases Additions to deferred consideration Cash flow Foreign exchange and other non-cash movements Net debt as at 31 December 2022 Additions to leases Cash flow Foreign exchange and other non-cash movements Net debt as at 31 December 2023 25,051 – – (17,054) 549 8,546 – (1,227) (184) 7,135 (9,191) (323) – 914 (232) (8,832) (827) 1,075 (114) 31 December 2023 £’000 31 December 2022 £’000 Notes 18 19 17 9 11 31 30 18 8 26 (2,421) – (2,421) 2,914 1,084 1,487 - (179) 473 426 – 1,882 369 24 (2,036) 568 4,591 (2,057) 942 (5,013) (1,537) 824 (159) 665 2,654 1,071 1,067 147 (379) 415 (797) (249) 1,748 8 80 – 141 6,571 (9,462) (812) (1,914) (5,617) Borrowings* consideration* Deferred £’000 – – – (346) (33) (379) – (915) (109) £’000 (4,943) – (374) 1,733 (156) (3,740) – 1,746 (121) Net cash/(debt) £’000 10,917 (323) (374) (14,753) 128 (4,405) (827) 679 (528) (8,698) (1,403) (2,115) (5,081) Total financial liabilities included within net debt comprise of those items marked * and amount to £12,216,000 (2022: £12,951,000). Liabilities arising from financing activities comprise the Group’s RCF, the invoice discounting facility (as set out in Note 27) and lease liabilities (as set out in Note 19). 109 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 30. Financial instruments Financial instruments held at amortised cost Trade and other receivables Contract assets Cash and cash equivalents Non-current financial assets Trade and other payables Borrowings Lease liabilities Deferred consideration Financial instruments held at fair value Financial asset at FVTPL Carrying and fair value 31 December 2023 £’000 31 December 2022 £’000 7,553 2,156 7,135 136 (9,568) (1,403) (8,698) (2,115) 8,614 1,500 8,546 136 (13,216) (379) (8,832) (3,740) 10,599 11,606 The Directors consider there to be no material difference between the carrying value and the fair value of the financial instruments classified as held at amortised cost. For the items classified as held at fair value, the fair value is recognised in the Consolidated Statement of Financial Position as the carrying amount. Financial instruments held at fair value The Group has one financial instrument held at fair value, the contingent consideration that arose on the Group’s divestment of its remaining interest in Xaar 3D Limited during the year ended 31 December 2021. In 2021, Xaar 3D Holdings Limited completed the divestment of its remaining interest in the share capital of Xaar 3D Limited. The Group received net cash consideration of £9,272,000 as well as a potential entitlement to additional cash consideration of up to £10,863,000 calculated on an earn-out basis at 3% of revenue per annum, with additional amounts becoming receivable on meeting revenue milestones. Financial instruments that are measured at fair value are classified using a fair value hierarchy that reflects the source of inputs used in deriving the fair value. The three classification levels are: L Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; L Level 2: 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 L Level 3: from valuation techniques that includes inputs for the asset or liability that are not based on observable market data (i.e. unobservable market inputs). The financial asset at FVTPL is deemed to be a Level 3 instrument. Fair value is determined using a Monte Carlo Simulation with significant unobservable inputs being the 20% (2022: 20%) revenue volatility and the 10% (2022: 10%) risk-adjusted discount rate. Fair value movements are recognised in the Consolidated Income Statement in selling, general and administrative expenses. Sensitivity observations on these two inputs show that a +/-1,000bps change in revenue volatility would result in £237,000 decrease and £133,000 increase respectively and a +/- 100bps change in discount rate would result in £291,000 decrease and £262,000 increase in fair value respectively. Movements in the year are as follows: Balance at 1 January Earn out received Milestone consideration received Fair value loss on financial assets at FVTPL* Balance at 31 December * Includes foreign exchange rate movements. Current Non-current Balance at 31 December 110 31 December 2023 £’000 31 December 2022 £’000 11,606 (140) (497) (370) 10,599 2,322 8,277 10,599 11,850 (236) – (8) 11,606 517 11,089 11,606 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 30. Financial instruments continued Capital risk management The capital structure of the Group comprises of cash and cash equivalents, an Invoice Discounting Facility of £3 million which operates on a rolling basis from the original inception date of September 2022, a Revolving Credit Facility of £5 million (with a £2.5 million additional accordion option) that has a maturity date of June 2025 and equity attributable to the owners of the Company. The Group maintains a capital structure with the following objectives: L to protect the ability of the Group to continue as a going concern and maintain sufficient available resources as protection for unforeseen events; L to provide flexibility of resource for strategic growth and investment where opportunities arise; and L to provide reasonable returns to shareholders whilst maintaining a limited level of risk. As part of achieving these objectives the Group identifies the principal financial risk exposures that are created by the Group’s financial instruments and monitors them on a regular basis. These are considered to be foreign currency risk (a component of market risk), interest rate risk, credit risk and liquidity risk. The Group monitors capital using a gearing ratio, which is determined as the proportion of debt to equity. Debt is defined as all long-term and short- term borrowings except for lease liabilities. 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 is as follows: Borrowings (excluding lease liabilities) Equity Gearing ratio 31 December 2023 £’000 31 December 2022 £’000 1,403 71,831 2% 379 71,769 1% Foreign currency risk This is the risk that a change in currency rates causes an adverse impact on the Group’s performance or financial position. The Group receives approximately 41% of its revenues in US Dollars and 7% of its revenue in Euros, which are partially naturally hedged by supplies in these currencies; the remainder requires conversion into Sterling in order to fund the remaining costs of the Group’s UK operations. The Group has R&D operations in Sweden, therefore, also 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 and liabilities). 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 31 December 2023 Equity 31 December 2022 Equity Euro currency impact US Dollar currency impact Swedish Krona currency impact +10% £’000 (54) (63) –10% £’000 66 77 +10% £’000 –10% £’000 (1,436) 1,756 (1,489) 1,819 +10% £’000 35 46 –10% £’000 (43) (57) Interest rate risk The Group’s borrowing facilities, including its invoice discounting facilities, are linked to the Bank of England base rate for GBP values, and the 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. Based on the invoice discounting facility balance at the year end, if interest rates had fluctuated +/- 100bps, and all other variables were held constant, the Group’s loss for the year ended 31 December 2023 would decrease by £14,000 or increase by £14,000 respectively. There would be no effect on equity reserves. 2023 2022 Fixed rate financial liabilities £’000 Floating rate financial liabilities £’000 Interest free financial liabilities £’000 (8,698) – – – – (1,403) – – – – (9,568) (2,115) Total £’000 (8,698) (1,403) (9,568) (2,115) Fixed rate financial liabilities £’000 Floating rate financial liabilities £’000 Interest free financial liabilities £’000 (8,832) – – (379) – – – – (13,216) (3,740) Lease liabilities Invoice discounting facility Trade and other payables Deferred consideration Total £’000 (8,832) (379) (13,216) (3,740) 111 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 30. Financial instruments continued Credit risk 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 carrying out supplier due diligence 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. Further information on the Group’s trade receivable ageing and impairment can be found in Note 22. Liquidity risk This is the risk that the Group will have insufficient funds available in the right currency to settle its obligations as they fall due. 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. On 14 June 2023, Xaar PLC entered into a Revolving Credit Facility (RCF) agreement of £5 million, which matures on 14 June 2025, with an option to extend for a further year, subject to lender approval. The agreement includes an accordion option of a further £2.5 million which can be requested at any time during the facility period, subject to lender approval and relevant fees. 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. The maturity profile of financial liabilities shown below represents the Group’s gross expected contractual cash flows. Less than one year £’000 Between one and five years £’000 Over five years £’000 9,568 1,403 1,175 2,115 – – 5,498 – – – 3,171 – Less than one year £’000 Between one and five years £’000 Over five years £’000 13,216 379 1,163 1,733 – – 5,057 2,133 – – 3,620 – Total £’000 9,568 1,403 9,844 2,115 Total £’000 13,216 379 9,840 3,866 31 December 2023 Trade and other payables Invoice discounting facility Lease liabilities Deferred consideration 31 December 2022 Trade and other payables Invoice discounting facility Lease liabilities Deferred consideration 112 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 31. Share-based payments Equity-settled share-based payments expense Cash-settled share-based payments expense Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 1,882 – 1,882 1,748 249 1,997 The Group operates a number of share schemes for certain employees of the Group as follows: L 2017 Share save scheme (SAYE); L 2007 Long term incentive plan (LTIP); L 2017 Long term incentive plan (LTIP); and L 2020 Deferred bonus plan (DBP). Options or conditional share grants under each scheme have been aggregated. Vesting periods range from one to four years. Where options remain unexercised after a period of ten years from the date of grant, or forty-two months in the case of the share save scheme, they expire and are no longer exercisable. Options are forfeited if the employee leaves the Group before they vest, save where the employee is deemed to be a ‘good leaver’, in which case options awarded are pro-rated to the leaving date. Save as You Earn Scheme Year ended 31 December 2023 Year ended 31 December 2022 Outstanding at beginning of year Granted Forfeited Exercised Outstanding at end of year Number of options exercisable at end of year Weighted average fair value of options granted Weighted average share price at date of exercise Weighted average remaining contractual life The inputs into the Black-Scholes model are as follows: Date of grant Share price at grant Exercise price Expected volatility Risk-free rate Contractual life Weighted average exercise price Pence 116 140 127 121 134 95 Number 1,905,927 494,309 (173,039) (679,695) 1,547,502 84,948 Weighted average exercise price Pence 88 140 149 49 116 34 Number 2,351,911 508,529 (105,267) (849,246) 1,905,927 145,893 Year ended 31 December 2023 Year ended 31 December 2022 81.1p 91.1p 2 years 109.8p 205.0p 2 years Year ended 31 December 2023 Year ended 31 December 2022 9 November 2023 170p 140p 52.8% 4.3% 3.31 years 3 November 2022 181p 140p 78.0% 3.1% 3.25 years 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. 113 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 31. Share-based payments continued Long-Term Incentive Plans Outstanding at beginning of year Granted Forfeited Modification to cash-settled* Exercised Outstanding at end of year Number of options exercisable at end of year Year ended 31 December 2023 Number Year ended 31 December 2022 Number 3,009,441 1,160,074 (408,271) – (178,969) 2,379,665 941,240 (190,043) (84,700) (36,721) 3,582,275 3,009,441 283,849 60,929 * 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. Weighted average fair value of options granted Weighted average share price at date of exercise Weighted average remaining contractual life Year ended 31 December 2023 Year ended 31 December 2022 162.2p 172.6p 7 years 234.4p 203.0p 8 years Fair values of awards with non-market performance conditions (earnings per share) are calculated using the Black-Scholes model. Fair values of awards with market-based performance conditions (total shareholder return) are calculated using the Monte Carlo model. The inputs into the models for awards granted in the current and prior years were as follows: Date of grant Share price at grant Exercise price Expected volatility Risk-free rate Contractual life Year ended 31 December 2023 Year ended 31 December 2022 1 November 2023 168p nil n/a n/a 1.17 years 9 May 2023 186p nil 56.8% 3.8% 2.91 years 6 April 2022 14 December 2022 185p nil 53.2% 3.4% 2.31 years 270p nil 83.1% 1.5% 2.98 years All LTIP awards are subject to achievement of the performance conditions and can be exercised up to ten years after the grant date. Save as permitted in the LTIP rules, awards lapse on an employee leaving the Group. Deferred bonus plan Under the Group’s deferred bonus plan, the Executive Directors are awarded an annual bonus, 70% is achieved in cash and 30% is awarded in the form of share options for which there is a compulsory holding period of two years and a requirement for continued employment before these fully vest to the employees (deferred shares). Year ended 31 December 2023 Number Year ended 31 December 2022 Number 52,731 45,456 – – 98,187 – 34,098 18,633 – – 52,731 – Outstanding at beginning of year Granted Forfeited Exercised Outstanding at end of year Number of options exercisable at end of year 114 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 31. Share-based payments continued Deferred bonus plan continued Weighted average fair value of options granted Weighted average remaining contractual life Year ended 31 December 2023 186.0p 9 years Year ended 31 December 2022 270.0p 9 years Fair values of the awards with non-market performance conditions (earnings per share) are calculated using the Black-Scholes model. The inputs into the models for awards granted in the current and prior years were as follows: Date of grant Share price at grant Exercise price Expected volatility Risk-free rate Contractual life Year ended 31 December 2023 9 May 2023 186p nil n/a n/a 1.91 years Year ended 31 December 2022 6 April 2022 270p nil n/a n/a 1.25 years 32. Retirement benefit 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 Group contributes 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. In addition to the above, the Group complies with all retirement benefit scheme requirements in all other jurisdictions in which it has employees. The total cost charged to the Consolidated Income Statement in respect of all of the Group’s retirement benefit schemes during the year was £1,407,000 (2022: £1,303,000). As at 31 December 2023 contributions of £129,000 (2022: £165,000) due in respect of the current reporting period had not been paid over to the schemes. 33. Business combinations Year ended 31 December 2023 No business combinations were undertaken during the year. Year ended 31 December 2022 Megnajet Limited and Technomation Limited On 2 March 2022, the Group completed the acquisition of 100% of the share capital of both Megnajet Limited and Technomation Limited. The companies trade together under the name of Megnajet and design and manufacture industrial ink management and supply systems for digital inkjet. The acquisitions contributed to the Group’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 the Group. Technomation Limited was acquired for its intellectual property and know-how. The acquisition was accounted for as an asset acquisition using the optional concentration test within IFRS 3. The purchase price of £3,038,000, which included £187,000 of deferred consideration, was allocated to its intellectual property amounting £1,990,000 (being the purchase price net of a £517,000 cash balance and a £531,000 balance relating to working capital consisting of £816,000 receivables, £130,000 corporation tax creditor and £155,000 VAT creditor). 115 Xaar plc Annual Report and Financial Statements 2023Notes to the consolidated financial statements continued for the year ended 31 December 2023 33. Business combinations continued Year ended 31 December 2022 continued Megnajet Limited and Technomation Limited continued Megnajet Limited was accounted for as a business combination. The details of the net assets acquired, goodwill and purchase consideration were as follows: Intangible assets Property, plant and equipment Inventory Trade and other receivables Cash and cash equivalents Trade and other payables Corporate tax payable Deferred tax liabilities Total identifiable net assets acquired Goodwill Total consideration Satisfied by: Cash Deferred consideration Total consideration Net cash outflow on acquisition Cash consideration Less: cash and cash equivalents acquired Total consideration transferred Final fair value £’000 703 53 503 487 1,067 (821) (27) (170) 1,795 661 2,456 £’000 2,269 187 2,456 £’000 (2,269) 1,067 (1,202) The fair value of acquired trade receivables was £250,000, being the gross contractual amount of trade receivables due of £252,000, less a loss allowance of £2,000 recognised on acquisition. Other receivables consisted of 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 the acquired business 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 corporation tax purposes. The fair value of the intangible assets attributed to the acquisition of the business consisted of 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 anniversary from the date of acquisition. The undiscounted amount of all future payments that the Group is required to make under the deferred consideration arrangement is £200,000. Acquisition related costs are included in selling, general and administrative expenses in the Consolidated Income Statement for the year ended 31 December 2022 and 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 year ended 31 December 2022 would have been £3,038,000 and £832,000 respectively. These amounts have been calculated using the acquired subsidiary’s results and adjusting them for differences in the accounting policies between the Group and the acquired subsidiary. They also include the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets, together with the consequential tax effects, had been applied from 1 January 2022. 116 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements 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. With the exception of transactions with Directors, there were no other transactions during either the current or preceding year with related parties who are not members of the Group. Details of the remuneration of the Directors is set out in the Directors’ Remuneration Report on pages 61 to 71. 35. Subsidiary undertakings exempt from audit The following subsidiaries, which are incorporated in England and Wales, are exempt from the requirements relating to the audit of individual financial statements for the year ended 31 December 2023 by virtue of Section 479A of the Companies Act 2006. Company name XaarJet Limited XaarJet (Overseas) Limited Xaar Technology Limited Xaar Digital Limited Xaar Trustee Limited Xaar 3D Holdings Limited FFEI Limited Megnajet Limited Technomation Limited 36. Subsequent events The Directors believe that there are no such events to report. 37. Ultimate controlling party The Directors believe that there is no ultimate controlling party of the Group. Company registration number 03375961 04312431 02469592 03588121 03025096 11425540 03244452 07160441 05262517 117 Xaar plc Annual Report and Financial Statements 2023Company balance sheet as at 31 December 2023 31 December 2023 £’000 31 December 2022 £’000 Notes Non-current assets Right-of-use asset Investments in subsidiaries Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred consideration Provisions Lease liabilities Net current liabilities Non-current liabilities Lease liabilities Provisions Deferred consideration Total liabilities Net assets Equity Share capital Share premium Own shares Other reserves Retained earnings C5 C6 C7 C8 C9 C10 C5 C5 C10 C9 C12 Total equity attributable to the equity shareholders of the parent Xaar Plc reported a profit for the financial year ended 31 December 2023 of £1,534,000 (2022: loss of £3,588,000). 826 99,909 942 99,282 100,735 100,224 4,909 791 5,700 1,619 517 2,136 106,435 102,360 (17,867) (2,115) (4) (89) (20,075) (14,375) (600) (250) – (850) (20,925) 85,510 7,923 29,950 (546) 38,630 9,553 85,510 (16,147) (1,646) – (113) (17,906) (15,770) (689) (250) (2,094) (3,033) (20,939) 81,421 7,844 29,427 (755) 38,003 6,902 81,421 The financial statements of Xaar Plc, registered number 3320972, were approved and authorised for issue by the Board of Directors on 25 March 2024. 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 2023Strategic Report Governance Financial Statements Company statement of changes in equity for the year ended 31 December 2023 Balance as at 1 January 2022 Loss for the year Total comprehensive expense Own shares disposed of on exercise of share options Purchase of own shares Capital contributions for share-based payments Share-based payments Share capital £’000 7,844 – – – – – – Share premium account £’000 29,427 – – – – – – Own shares reserve £’000 (1,903) – – 2,148 (1,000) – – Other reserves £’000 37,108 – – – – 895 – Balance as at 31 December 2022 7,844 29,427 (755) 38,003 Profit for the year Total comprehensive income Issue of ordinary shares Own shares disposed of on exercise of share options Capital contributions for share-based payments Share-based payments – – 79 – – – – – 523 – – – – – – 209 – – – – – – 627 – Balance as at 31 December 2023 7,923 29,950 (546) 38,630 Retained earnings £’000 11,816 (3,588) (3,588) (1,989) – – 663 6,902 1,534 1,534 – (194) – 1,311 9,553 Total equity £’000 84,292 (3,588) (3,588) 159 (1,000) 895 663 81,421 1,534 1,534 602 15 627 1,311 85,510 119 Xaar plc Annual Report and Financial Statements 2023Notes to the Company financial statements for the year ended 31 December 2023 C1. Presentation of the financial statements Basis of preparation The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the financial statements have been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’ and in accordance with the Companies Act 2006 as applicable to companies using FRS 101. The financial statements have been prepared under the historical cost convention and on the going concern basis. The financial statements are prepared in Sterling which is both the functional and presentational currency of the Company. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated. Disclosure exemptions adopted As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to: L Business combinations; L Share-based payments; L Financial instruments; L Fair value measurement; L Presentation of a Statement of Cash Flows; L Key management and related party transactions, including those with subsidiaries; L impairment testing related disclosures; and L The effects of newly issued but not yet effective IFRSs. The basis for the above exemptions is that equivalent disclosures are included in the consolidated financial statements which incorporate the financial position and performance of the Company. C2. Principal accounting policies The adopted principal accounting policies, which have been applied consistently with the year ended 31 December 2022, are the same as those set out in Note 2 to the consolidated financial statements. Those noted below are in addition to those disclosed in the consolidated financial statements and are company specific. Investments in subsidiaries Investments in subsidiaries are stated at cost plus capital contributions arising from intercompany share-based payments arrangements and after provision for impairment, where required. Where consideration for an investment in a subsidiary consists of the issue of shares qualifying for merger relief, the cost of investment is measured by reference to the nominal value of the shares issued, excluding any premium. The transactions subject to merger relief arose before the adoption of FRS 101. Grandfathering relief has been used, therefore, these legacy amounts were not modified on adoption of FRS 101. Share-based payments The share-based payments reserve represents the cumulative charge recognised in relation to share option awards granted. Only the portion of the charge that relates to awards granted to employees of the Company is recognised in the Income Statement. The remainder of the costs (i.e. those related to employees of other entities in the Group) are recorded as an increase to the cost of investments in subsidiaries and are presented as a capital contribution. Dividend income Income is recognised when the Company’s irrevocable right to receive the payment is established, it is probable that the economic benefits will flow to the Company and the amount can be measured reliably. This is generally when shareholders approve the dividend. C3. Income statement In accordance with the exemption permitted by Section 408 of the Companies Act 2006, the Company has elected to present neither a Company Income Statement nor a Company Statement of Comprehensive Income. The Auditor’s fee for the audit of the Company’s financial statements was £39,000 (2022: £20,000). 120 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements C4. Employees and directors The average monthly number of employees (including Executive Directors) was: Research and development Sales and marketing Manufacturing and engineering Administration Their aggregate remuneration comprised: Wages and salaries Social security costs Post retirement benefits Share-based payments charge Total staff costs Year ended 31 December 2023 Number Year ended 31 December 2022 Number 1 3 3 21 28 1 3 5 19 27 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 3,629 441 143 1,257 5,470 3,277 421 138 852 4,688 Directors’ remuneration The remuneration of the Directors, including rewards under share schemes and other contractual benefits, is included in the Directors’ Remuneration Report on pages 61 to 71. Share-based payments The Company operates various share-based payments schemes; having adopted the disclosure exemptions available, full details of these schemes are included in Note 31 to the consolidated financial statements and are not duplicated here. The share-based payments expense recognised by the Company is calculated by reference to the number of options awarded to the employees of the Company, not those of the entire Group. Post retirement benefits The UK based employees of the Company’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 contributes a fixed percentage of each employee’s salary to the scheme. The only obligation of the Company 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 Company’s retirement benefit schemes during the year was £143,000 (2022: £138,000). As at 31 December 2023 contributions of £24,000 (2022: £22,000) due in respect of the current reporting period had not been paid over to the scheme. 121 Xaar plc Annual Report and Financial Statements 2023 Notes to the Company financial statements continued for the year ended 31 December 2023 C5. Leases Right-of-use assets Cost At 1 January 2022, 31 December 2022 and 31 December 2023 Depreciation At 1 January 2022 Charge in the year At 31 December 2022 Charge in the year At 31 December 2023 At 31 December 2022 At 31 December 2023 Lease liabilities Lease liabilities are analysed as follows: Current Non-current The movement in lease liabilities is shown below: At 1 January Interest charge Cash outflows At 31 December Maturity analysis of lease liabilities: Amounts falling due within Less than one year Between one and five years Later than five years 122 Buildings £’000 1,166 107 117 224 116 340 942 826 31 December 2023 £’000 31 December 2022 £’000 89 600 689 113 689 802 31 December 2023 £’000 31 December 2022 £’000 802 15 (128) 689 862 17 (77) 802 31 December 2023 £’000 31 December 2022 £’000 102 532 108 742 103 400 342 845 Xaar plc Annual Report and Financial Statements 2023C5. Leases continued Lease liabilities continued Amounts recognised in the Income Statement: Depreciation Interest charges C6. Investments in subsidiaries At 1 January Additions Capital contributions arising from share-based payments At 31 December Strategic Report Governance Financial Statements 31 December 2023 £’000 31 December 2022 £’000 116 15 131 117 17 134 31 December 2023 £’000 31 December 2022 £’000 99,282 – 627 99,909 92,893 5,494 895 99,282 Additions Comprise of the acquisitions of 100% of the issued share capital of Megnajet Limited for total consideration of £2,456,000 and Technomation Limited for consideration of £3,038,000. For further details of these transactions and the subsidiaries acquired, refer to Note 33 to the consolidated financial statements. Impairment Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable and a potential impairment may be required. Impairment reviews have been performed for all investments in subsidiaries as at 31 December 2023 and 2022. The Directors believe that the carrying values of investments in subsidiaries are at least equal to their recoverable amounts. Therefore, no impairments have been recognised in either the current or previous years. Capital contributions arising from share-based payments These amounts represent the fair value of equity-settled share options awarded to employees of subsidiary undertakings. 123 Xaar plc Annual Report and Financial Statements 2023Notes to the Company financial statements continued for the year ended 31 December 2023 C6. Investments in subsidiaries continued Subsidiaries The subsidiary undertakings of the Company are listed below. All subsidiaries are directly owned by the Company except where indicated otherwise. Name Xaar Technology Limited Country of incorporation England & Wales XaarJet Limited England & Wales Address of registered office Principal activity Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Research and development Issued and fully paid up share capital 4,445,322 ordinary £1 shares Proportion of ordinary share capital held by the Company 100% Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Manufacturing, research and development and sales and marketing 2 ordinary £1 shares 100% XaarJet (Overseas) Limited England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Sales and marketing 1 ordinary £1 share 100% Xaar Trustee Limited1 England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Trustee 2 ordinary £1 shares 100% Xaar Digital Limited England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Treasury 100 ordinary £1 share 100% Xaar 3D Holdings Limited England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Holding company 1,100 ordinary shares of £0.01 each Xaar US Holdings Inc. USA 1000 Post and Paddock, Suite 405, Grand Prairie, Texas 75050, USA Holding company 10,000 shares of common stock US$1 each Pad Print Machinery of Vermont Inc.2 USA 201 Tennis Way, East Dorset, VT 05253, USA Manufacturing, sales and marketing 200 shares of common stock US$1 each Xaar Americas Inc.2 USA 1000 Post and Paddock Suite 405, Grand Prairie, Texas 75050, USA Sales and marketing Xaar Inkjet Technology (Shenzhen) Company Limited China Room 409, Floor 4, Building 13, Fuhai Industrial Zone, Fuzhou Avenue, Shenzhen, China Sales and marketing 10,000 shares of common stock US$1 each 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 Limited England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Manufacturing, sales and marketing 1 ordinary £1 share 100% Technomation Limited England & Wales Cambridge Research Park, Waterbeach, Cambridge, CB25 9PE Research and development 100 ordinary £1 shares 100% 1. Xaar Trustee Limited shares are held by Xaar Technology Limited. 2. Xaar Americas Inc and Pad Print Machinery of Vermont Inc. shares are held by Xaar US Holdings Inc. 124 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements C7. Trade and other receivables Amounts owed by subsidiary undertakings Other receivables Prepayments 31 December 2023 £’000 31 December 2022 £’000 4,728 – 181 4,909 1,384 27 208 1,619 Amounts owed by subsidiary undertakings are unsecured, interest free and repayable on demand. During the year ended 31 December 2023 the Company made no provision for doubtful debts relating to amounts owed by subsidiary undertakings (2022: £nil). C8. Trade and other payables Amounts falling due within one year Amounts owed to subsidiary undertakings Other payables and accruals Amounts owed to subsidiary undertakings are unsecured, interest free and payable on demand. C9. Deferred consideration Amounts falling due within one year Deferred consideration Amounts falling due after one year Deferred consideration 31 December 2023 £’000 31 December 2022 £’000 (16,456) (1,411) (17,867) (13,869) (2,278) (16,147) 31 December 2023 £’000 31 December 2022 £’000 (2,115) (2,115) (1,646) (1,646) – (2,094) For full details of the deferred consideration balances and the transactions that gave rise to them, refer to Note 25 to the consolidated financial statements. C10. Provisions Current Restructuring Non-current Dilapidations 31 December 2023 £’000 31 December 2022 £’000 (4) (4) – – 31 December 2023 £’000 31 December 2022 £’000 (250) (250) (250) (250) The restructuring provision recognised in the year consists of redundancy costs. The provision is expected to be utilised during the year ending 31 December 2024. The Company operates from leasehold premises under a full repairing lease. The dilapidation provision recognised reflects the estimated costs of repairs that would be required to put these premises back into the state of repair required under the lease. 125 Xaar plc Annual Report and Financial Statements 2023Notes to the Company financial statements continued for the year ended 31 December 2023 C11. Deferred tax Unrecognised deferred tax assets The Company has unrecognised deferred tax assets totalling £1,308,000 (2022: £1,879,000). These consist of the following. Trading losses Deferred tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. As at 31 December 2023, the Company had unused UK trading losses of £2,002,000 (2022: £5,119,000) available to offset against future UK taxable profits of the same trade. These losses may be carried forward indefinitely. A deferred tax asset in respect of these losses is only recognised to the extent that there are offsetting deferred tax liabilities. Therefore, no deferred tax asset has been recognised (2022: £nil). As at 31 December 2023, the Company has an unrecognised deferred tax asset in respect of carried forward UK trading losses of £501,000 (2022: £1,280,000). Capital losses As at 31 December 2023, the Company has unused capital losses of £1,131,000 (2022: £1,100,000) available for offset against future chargeable 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. As a result, the Company has an unrecognised deferred tax asset in respect of carried forward UK capital losses of £283,000 (2022: £283,000). These losses may be carried forward indefinitely. Other temporary differences As at 31 December 2023, the Company has £524,000 (2022: £316,000) of unrecognised deferred tax assets relating to timing differences in respect of the recognition of the cost of share options granted and the future tax relief available on the exercise of these options. C12. Share capital and reserves Details of the Company’s share capital, share premium and own shares reserves are included in Note 28 to the consolidated financial statements. Other reserves Comprises the non-distributable portion of the dividend received by Xaar Plc from Xaar Digital Limited, the profit from the sale of a subsidiary and the capital contribution relating to share options granted to employees of subsidiaries. C13. Dividends No interim or final dividend was proposed or paid during either the current or preceding year. The Board of Directors are mindful of the importance of dividends to its shareholders and intends to resume the payment of dividends as soon as conditions allow. C14. Related party transactions Transactions with subsidiaries The Company has taken advantage of the available exemption from disclosing related party transactions with other entities within the Group. Transactions with Directors Details of the remuneration of the Directors is set out in the Directors’ Remuneration Report on pages 61 to 71. 126 Xaar plc Annual Report and Financial Statements 2023 Investor information Five year record Summarised consolidated results Results Revenue Gross profit Adjusted profit/(loss) before tax Adjusted profit/(loss) after tax Adjusted diluted earnings per share Total reported (loss)/profit before tax Basic (loss)/earnings per share Diluted (loss)/earnings per share Assets employed Cash and cash equivalents2 Strategic Report Governance Financial Statements 2023 Continuing operations £’000 2022 Continuing operations £’000 2021 Continuing operations £’000 2020 Continuing operations £’000 2019 Continuing operations 1 £’000 70,614 26,891 2,871 2,807 3.5p (2,187) (2.8)p (2.8)p 72,782 28,644 2,822 3,689 4.5p 824 2.3p 2.2p 59,254 20,190 (571) (779) (1.0)p 994 0.9p 0.9p 47,984 13,010 (3,911) (4,038) (5.2p) (4,322) (5.7)p (5.7)p 49,379 12,290 (7,952) (11,632) (15.1)p (10,937) (19.4)p (19.4)p 7,135 8,546 25,051 18,117 25,322 1 On adoption of IFRS 15 & 16, the Group used the modified approach, therefore, the impact on prior years was adjusted through retained earnings and comparatives were not restated. 2 Cash and cash equivalents consist of cash at bank and in hand as well as treasury deposits. 127 Xaar plc Annual Report and Financial Statements 2023Notice of the Annual General Meeting Notice is hereby given that the twenty-seventh 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 29 May 2024 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 2023, together with the Directors’ report and auditor’s report on those financial statements, be received and adopted. 2. THAT PKF Littlejohn LLP be 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 Richard Amos be re-elected as Director of the Company. 5. THAT John Mills be re-elected as a Director of the Company. 6. THAT Andrew Herbert be re-elected as a Director of the Company. 7. THAT Alison Littley be re-elected as a Director of the Company. 8. THAT Ian Tichias be re-elected as a Director of the Company. 9. THAT Jacqueline Sutton be re-elected as a Director of the Company. 10. THAT Stuart Widdowson 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 11 and 12 as Ordinary Resolutions and in the case of Resolutions 13 to 14 as Special Resolutions: 11. THAT the Directors’ Remuneration report for the year ended 31 December 2023 be approved. 12. THAT, in substitution for all existing authorities, 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 shares in the Company, or grant rights to subscribe for, or convert any security into, shares in the Company (‘Rights’): (i) up to an aggregate nominal value of £2,642,008.50 (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 £5,284,017.10 (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 shares 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. 128 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Special business continued 13. THAT, subject to the passing of Resolution 12, 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 12, 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 £792,602.50. 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. 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 7,926,025 (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. By order of the Board Julia Crane Company Secretary 25 March 2024 129 Xaar plc Annual Report and Financial Statements 2023Notice of the Annual General Meeting continued 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 (excluding weekends and public holidays). 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. 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. 4. 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 24 May 2024 (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 24 May 2024 (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. 5. 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. 6. Biographical details of all Directors offering themselves for re-appointment are set out on page 39 of the Annual Report and Accounts. 7. 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. 8. 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. 9. 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. 10. 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 24 May 2024. 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. 11. 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. 12. 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). 13. As at 7am on 25 March 2024, the Company’s issued share capital comprised 79,260,257 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 25 March 2024 is 79,260,257. 130 Xaar plc Annual Report and Financial Statements 2023Strategic Report Governance Financial Statements Notes continued 14. 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. 15. 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. 16. A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.xaar.com. 17. 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. 18. 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. 19. Unless otherwise indicated on the Form of Proxy, CREST or any other electronic voting instruction, the proxy will vote as they think fit or, at their discretion, withhold from voting. 20. LinkVote+ is a free app for smartphone and tablet provided by Link Group (the Company’s registrar). It offers shareholders the option to submit a proxy appointment quickly and easily online, as well as real-time access to their shareholding records. The app is available to download on both the Apple App Store and Google Play. 131 Xaar plc Annual Report and Financial Statements 2023Company information and advisors Registered office 3950 Cambridge Research Park Waterbeach Cambridge CB25 9PE Registered number 3320972 Company Secretary Julia Crane Brokers Investec 30 Gresham Street London, EC2V 7QP Registered Auditor PKF Littlejohn LLP 15 Westferry Circus London E14 4HD 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 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 s a public record of all the firms and individuals in the financial services industry that are regulated by the FCA. Use the details on the Financial Services Register to contact the firm. 3. Get impartial advice Think about getting impartial financial advice before you hand over any money. Seek advice from someone unconnected to the firm that has approached you. REMEMBER, if it sounds too good to be true, it probably is! If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme if things go wrong. Report a scam If you suspect you have been approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about investment scams. You can also call the FCA Consumer Helpline on +44 (0)800 111 6768. If you have lost money to investment fraud, you should report it to Action Fraud on +44 (0)300 123 2040 or online at www.actionfraud.police.uk. i Find out more at www.fca.org.uk/scamsmart 132 Xaar plc Annual Report and Financial Statements 2023 Design and Production www.carrkamasa.co.uk Xaar plc 3950 Cambridge Research Park Waterbeach Cambridge CB25 9PE 134 Xaar plc Annual Report and Financial Statements 2023

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