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Xaar plc

Annual Report and Financial Statements 2023

Xaar plc

Annual Report and Financial Statements 2023

Xaar plc

Annual Report and Financial Statements 2023

We are a world leaderin the development ofdigital 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.

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Xaar plc

Annual Report and Financial Statements 2023

Strategic Report 

Financial highlights 01

Business model and strategy 02

Why invest? 04

Our strategy 05

Chairman’s introduction 06

Strategic update 08

Business performance 11

Key Performance Indicators 14

Risk management 16

Sustainable and responsible business 26

Task Force on Climate-related 30 Financial Disclosures (TCFDs)

Greenhouse Gas Emissions statement 33

Non-financial information statement 34

Board approval of the Strategic and 35 Annual Reports

Governance

Governance at a glance 36

Chairman's introduction to Governance 38

Board of Directors 39

Directors’ report 40

Section 172 statement 47

Corporate Governance statement 49

Audit Committee 55

Nomination Committee 59

Directors’ Remuneration report 61

Directors’ responsibilities statement 72

Financial Statements 

Independent auditor’s report 73

Consolidated income statement 80

Consolidated statement of 80comprehensive income

Consolidated statement of financial 81 position

Consolidated statement of 82changes in equity

Consolidated cash flow statement 83

Notes to the consolidated financial 84statements

Company balance sheet 118

Company statement of changes 119in equity

Notes to the Company financial 120statements

Investor information 127

Notice of the Annual General Meeting 128

Company information and advisors 132

Our 2023 performance

Revenue – continuing operations

£70.6m

Gross margin – continuing operations

38%

R&D spend

£5.6m

Net cash (outflow)/inflow

£(1.4)m

Cash & treasury deposits

£7.1m

2022 £(16.9)m

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Xaar plc

Annual Report and Financial Statements 2023

Xaar markets

Xaar offers a wide range of industrialinkjet printheads and print systems whichare designed and produced to meet the customer-driven requirements for arange of manufacturing applications.

Primary markets include:

3D Printing

Advanced Manufacturing

Ceramic Tile Decoration

Coding & Marking

Decorative Laminates

Direct-to-Shape

Functional Fluid Deposition

Glass Printing

Graphics

Primary Labels

Packaging

Product Printing

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 maintenanceof printing systems.

We export over 95% of our printheads to customers around the world, within theEurope, 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 brandedprint engine for our UDI customers.

Megnajet sells its products directlyto customers and via Xaar.

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Xaar plc

Annual Report and Financial Statements 2023

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 pipelineof 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 groupsto 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.

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.

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Xaar plc

Annual Report and Financial Statements 2023

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Market Opportunity

We focus on markets where we have a competitive advantage, where we can offer a number of benefits over incumbent technologies.

A unique recirculation technology past the back of the nozzle as well as inside the nozzles which offers substantially better printhead reliability and nozzle open time

Patented technology which enables printing fluids which have a high pigment content and high viscosity. This gives us a wider window of opportunity because we can handle a wider range of fluids to deliver richer, more vibrant colours, or add functionality like scratch resistant or anti-slip surfaces, or value add embellishments and print effects

An open internal printhead design which produces industrial levels of printhead reliability and consequently higher production uptime.

Sectors where we focus include Ceramics and Glass, Coding and Marking and Direct-to-Shape, 3D and Advanced Manufacturing, Packaging and Textiles, as well as Graphics and Labels.

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 formany industries.

Experienced and focused management team

As the only leading independent printhead manufacturer we are able to have a flexible, collaborative approach. Our experienced management team is committed to remaining customer-centric with a focus on Xaar’s profitable growth strategy of offering our customers a vertically integrated solution.

A clear strategic vision

Our customer-centric business model places the OEM and UDI at the heart of everything we do. We continue to execute on our plan to become more vertically integrated to drive printhead sales. Our ability to supply electronics, software, fluid management systems and print engines alongside application support, combined with a disruptive technology, sets us apart from our competition.

Roadmap to deliverthe 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.

Healthy balancesheet position

We have the resources necessary to implement our strategy. This provides the platform for security and a great foundationfor future growth.

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Xaar plc

Annual Report and Financial Statements 2023

Our clear business model:sell more printheads

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Xaar plc

Annual Report and Financial Statements 2023

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 generatedcost 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.

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Xaar plc

Annual Report and Financial Statements 2023

Board and Governance

During the year Chris Morgan stood downfrom the Board and we welcomed two newnon-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 meanwe are cautious about the short-term, butwe believe the business is well positionedfor growth over the medium-and long-term.

We look forward with confidence.

Andrew Herbert

Chairman

25 March 2024

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Xaar plc

Annual Report and Financial Statements 2023

2023 was a year in which the Group delivered encouraging progressin 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.

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.

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.

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 representinga decrease of 3% against 2022.

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 inQ4 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.

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Xaar plc

Annual Report and Financial Statements 2023

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. Thishas been a controlled and systematic approach over the last 18 months giving confidence inour 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 havea positive impact on cash generation duringthe 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 andour 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:-

Commercial strategic opportunities

Operational efficiency

Organisational effectiveness

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 marketopportunity 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 wherewe 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 2024and 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.

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Xaar plc

Annual Report and Financial Statements 2023

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.

The already successful ImagineX platform will deliver improved features over the next few years which will provide significant enhancements to the current portfolio, including:

substantially improved speed and throughput (frequencies up to 150kHz, equivalent to a threefold increase in speed compared to current products),

increased throw distance to improve image quality on curved surfaces,

increased robustness to improve the life of the printhead and maintain image quality,

higher viscosities enabling a broader range of fluids to be printed (above 100cP), and

higher resolutions (up to 1440 dpi).

These features will help strengthen our position in markets where we are already well represented and will drive improved adoption in several markets where we are currently not 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.

Ian Tichias

Chief Financial Officer

25 March 2024

John Mills

Chief Executive Officer

25 March 2024

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Xaar plc

Annual Report and Financial Statements 2023

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 launchesin the coming 12 to 18 months drives this confidence.