xaar plc annual report and accounts 2007xaar is recognised for its leading drop‑on‑demand (dod)...

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XAAR PLCAnnual reportand accounts

2007

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

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

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

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

Xaar plcAnnual report and accounts 200701

Directors’ report highlights

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

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

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

• Proposed dividend increased 25% to2.5pfortheyear

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

• Sectorleadingperformanceatbothgrossandnetmarginlevels

• SignificantnumberofPlatform3‘developer kits’ sold to potential Xaar OEMs

• EquipmentlaunchesbymajorOEMs incorporating Xaar’s new products

Pullout quote to go here

Directors’ report at a glance

02 Xaar plcAnnual report and accounts 2007

what?

where?

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

12% 30% 58%americas europe asia


our proDucts our opportunity

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

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

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

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

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

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

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

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

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

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


Iampleasedtoreportafurtheryearofprogress,notjustwithresultsbutalso,significantly,withthelevelofinterestinourPlatform3product,theXaar1001.

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

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

Directors’ report chairMan’s stateMent

Phil Lawler, Chairman

• Sectorleadingperformanceatbothgrossandnetmargin levels

• Increaseinproposeddividendto2.5p

• Committedandtalentedteamwhoarenowfocusedonexecution


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

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

Board2007hasseenanumberofchangestoourboard.InJuly,ArieRosenfeldretiredasChairmanoftheboard.HisdeepknowledgeandexperienceofourindustryhasbeenofgreatbenefittoXaaroverthelasttenyearsandwethankhimsincerelyforthis.

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

InOctoberGregLockettjoinedtheboardasManufacturingDirector.GreghasbeendirectorofmanufacturingatXaarforthepreviousfouryearsandthispromotionreflectsbothhisexcellentworkinthatearlierroleandhisexpectedcontributioninthefuture.

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

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

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

Phil LawlerChairman12 March 2008

IAMCONFIDENTTHATWEHAVEAWORLDLEADINGRANGEOFPRODUCTSTHATISATTRACTIVETOOUROEMCUSTOMERSASTHEyDEVELOP NEWPRINTERSWHICHAREMOREFUNCTIONAL,MOREEFFICIENTANDMOREFLEXIBLE.


Iampleasedtoreportasolidsetofresultsfor2007aswecontinuetobuildXaar’sbusinessandmarketpresence.

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

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

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

Directors’ report review oF operations

Ian Dinwoodie, Chief Executive

• Existingcorebusinesscontinuingtodeliverrobustreturns

• Newproductdevelopmentsarecreatingfurtheropportunities in additional markets

• Continuedinvestmentinresearchanddevelopment


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

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

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

Optimising performanceXaarthoroughlytestsinkstoensureoptimumjettingperformanceandprintheadlife.TestsconsistofMaterialscompatibility/Lifetimetesting,printhead optimisation andreliabilitytesting.



Commercial reviewGeographicAsasupplieroftechnologytoOEMpartners,ourgeographicsalessplitwillreflectwheretheOEMequipmentismanufactured–notnecessarilytheenduserlocation.

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

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

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


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

Overtimewewouldexpecttoseecontinuedgrowthinallregions,withWesternmarketsleadingthewayinitiallywiththeadoptionofournewertechnologies.

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

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

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

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

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



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

ManufacturingOurHuntingdonplantisfullyonscheduleproducingPlatform3Xaar1001products.Hundredsofunitshavebeenproducedandweareheavilyinvolvedwithourkeypartnerstosupporttheirproductlaunchesbasedon the 1001 printheads.

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

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

Xaar futureTheXaar1001isakeybreakthroughininkjettechnologyperformanceandwebelievethisproductisamajorenablingtooltoopennewbusinessopportunitiestoXaar.


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

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

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

PeopleIwouldliketothankallourstaffworldwidewhoseefforts,skillanddedicationarecriticaltothesuccessfulfutureofourbusiness.

Ian DinwoodieChiefExecutive12 March 2008

Xaar drive electronics with printheads


WeexpectourstrategicpartnerstobeginsoonintroducingproductsbasedonPlatform2andPlatform3printheadsandfortheseproductsto generate an increasing proportion ofourrevenues.

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

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

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

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

Directors’ report Financial review

Nigel Berry, Finance Director

• Revenuesforthefullyearincreased13%over2006to £47.9m

• Grossmarginfortheyearof52%(58%excludingHuntingdon impact)

• Operatingcostsreducedby£0.4monalikeforlikecashbasis


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

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

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

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

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

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

Nigel BerryFinanceDirector12 March 2008


Directors’ report boarD oF Directors

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

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

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

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


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

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

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

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

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

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


directors’ report report on affairs of the group

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

• The amendment of Article 68 by:

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

By order of the board

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


directors’ report corporate governance statement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Board committeesSummary of committee membership Audit Remuneration Nomination Name committee committee committeeP Lawler No Yes YesR King Yes Chairman1 NoJ Scott Chairman Yes YesR Eckelmann Yes Yes Yes2I Dinwoodie No No YesA Rosenfeld Yes Yes Chairman2

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

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

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

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

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


directors’ report corporate governance statement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

In addition it is the group’s aim to:

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

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

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

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

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

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

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

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

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

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

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

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


directors’ report directors’ remuneration report

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

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

UnAUDITED InFORMATIOn

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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




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

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

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

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

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

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

Xaar plcFTSE TechMARK All Share Index



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

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

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

AUDITED InFORMATIOn

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

2. To date of resignation from the board.



AUDITED InFORMATIOn

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

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

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

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

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

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


AUDITED InFORMATIOn

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

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

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

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

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

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

xaar plc annual report and accounts 2007xaar is recognised for its leading drop‑on‑demand (dod)...

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