Xaar plc annual report and accounts 2005
Xaar plc
Science Park
Cambridge CB4 0XR
England 
Tel: +44 (0)1223 423663
Fax: +44 (0)1223 423590
Email:  info@xaar.co.uk
Website: www.xaar.co.uk
Xaar is a market-focused technology leader, driving the expansion 
of inkjet printing into targeted industry sectors.
We offer our OEM customers and licensees the capability to be market 
leaders, through the use of our innovative state-of-the-art inkjet 
technologies and through a complementary range of products and 
services based on this technology.
8%
Total sales in Americas
33%
Total sales in Europe
59%
Total sales in Asia
Corporate statement
Xaar plc annual report and accounts 2005 Xaar plc annual report and accounts 2005
Xaar at a glance
Our strategy is to drive the development of Xaar 
technology into multiple applications and industries, 
delivering aggressive and proﬁ table growth.
Research and development
Research and development remains at the 
heart of Xaar’s business. Our signiﬁ cant 
ongoing R&D commitment recognises the 
fact that in order to grow and ﬂ ourish we must 
continue to invest in innovation and its practical 
application to meet real market requirements.
Manufacturing
Xaar’s manufacturing process involves a 
series of precise fabrication and assembly 
routines, the majority carried out in cleanroom 
conditions. Micron-scale electro-mechanical 
elements are successfully integrated to 
achieve a versatile, high precision inkjet 
printhead capable of producing thousands of 
droplets of ink per second, with a performance 
lifetime measured in billions of droplets.
Binary inkjet
Binary printing is enabled by drop-on-demand 
printheads which can either ﬁ re a drop of one 
particular size or no drop at all. 
Conductive
Any material that conducts electricity, i.e. not an insulator . 
CIJ
Continuous inkjet is a low resolution digital printing 
device used predominantly for outer case coding. 
DOD inkjet
Drop-on-demand. The printheads can be precisely 
controlled to produce ink drops when required to 
produce high quality, repeatable images.
Greyscale
Greyscale technology incorporates drop-on-demand 
with a variable drop size. Greyscale printheads ﬁ re 
drops made up of smaller sub drops. By varying the 
drop size a smoother image is achieved. 
OEM
Original equipment manufacturer. Xaar’s direct 
customers are typically OEMs, they use Xaar 
printheads and peripherals as components in the 
machines which they in turn sell to their customers. 
Glossary
Customer care
Xaar is committed to providing the very 
best service for our global customers. Our 
continuous improvement philosophy is not 
only applied to our technology and products, 
but extends to the way we serve the market. 
We focus on building strong relationships 
with partners and OEMs to identify their 
needs and fulﬁ l their requirements.
Licenses
Xaar currently licences its award winning 
technology to a number of major inkjet 
printhead manufacturers. We now have 
over 700 patents covering the technology 
and its implementation. Xaar also considers 
potential licensees who are developing novel 
applications in new market segments.
Further applications
Inkjet is poised to become the most widely 
used digital print process in not only the print 
industry but many other industries too. We are 
experiencing accelerated growth through both 
mainstream print and also non-traditional, 
industrial applications – from true ‘printed’ 
circuit boards to pharmaceutical applications 
and LCD/OLED displays.
OLEDs
Organic light emitting diodes are components used in 
a new type of viewing screen (display). Can be viewed 
in bright lighting conditions, at greater angles, unlike 
LCD’s. Beginning to be used in digital cameras.
Piezoelectric
Mechanical distortion of the material results in the 
formation of a charge across the material, or vice 
versa. The most common material in general use is 
PZT, lead zirconium titanate. 
Pixel
Short for pixel element – the basic element or 
fundamental building block of a bitmapped image. 
It is a coloured tile which, when displayed in a 
mosaic of thousands or millions of other pixels, 
comprises a digital image.
Polyimide
A family of polymers involving carbon and nitrogen 
bonds, known for good thermal stability, mechanical 
toughness and chemical resistance used in thick/thin 
ﬁ lm microelectronics and displays.
Resolution
The amount of detail that can be resolved out of an 
image, i.e. the number of discrete drops of ink that are 
ﬁ red onto a controlled size of media (dots per inch – dpi). 
RFID
Radio frequency identiﬁ cation (ID). Devices attached 
to objects that transmit data to an RFID receiver as 
an alternative to bar coding. Advantages include data 
capacity, read/write capability, and no line-of-sight 
requirements.
T HE D ESIGN P OR TFOLIO
a member of the flathill communications group plc
www.flathillplc.com
designed & produced by Xaar plc annual report and accounts 2005
Xaar at a glance
Our strategy is to drive the development of Xaar 
technology into multiple applications and industries, 
delivering aggressive and proﬁ table growth.
Research and development
Research and development remains at the 
heart of Xaar’s business. Our signiﬁ cant 
ongoing R&D commitment recognises the 
fact that in order to grow and ﬂ ourish we must 
continue to invest in innovation and its practical 
application to meet real market requirements.
Manufacturing
Xaar’s manufacturing process involves a 
series of precise fabrication and assembly 
routines, the majority carried out in cleanroom 
conditions. Micron-scale electro-mechanical 
elements are successfully integrated to 
achieve a versatile, high precision inkjet 
printhead capable of producing thousands of 
droplets of ink per second, with a performance 
lifetime measured in billions of droplets.
Binary inkjet
Binary printing is enabled by drop-on-demand 
printheads which can either ﬁ re a drop of one 
particular size or no drop at all. 
Conductive
Any material that conducts electricity, i.e. not an insulator . 
CIJ
Continuous inkjet is a low resolution digital printing 
device used predominantly for outer case coding. 
DOD inkjet
Drop-on-demand. The printheads can be precisely 
controlled to produce ink drops when required to 
produce high quality, repeatable images.
Greyscale
Greyscale technology incorporates drop-on-demand 
with a variable drop size. Greyscale printheads ﬁ re 
drops made up of smaller sub drops. By varying the 
drop size a smoother image is achieved. 
OEM
Original equipment manufacturer. Xaar’s direct 
customers are typically OEMs, they use Xaar 
printheads and peripherals as components in the 
machines which they in turn sell to their customers. 
Glossary
Customer care
Xaar is committed to providing the very 
best service for our global customers. Our 
continuous improvement philosophy is not 
only applied to our technology and products, 
but extends to the way we serve the market. 
We focus on building strong relationships 
with partners and OEMs to identify their 
needs and fulﬁ l their requirements.
Licenses
Xaar currently licences its award winning 
technology to a number of major inkjet 
printhead manufacturers. We now have 
over 700 patents covering the technology 
and its implementation. Xaar also considers 
potential licensees who are developing novel 
applications in new market segments.
Further applications
Inkjet is poised to become the most widely 
used digital print process in not only the print 
industry but many other industries too. We are 
experiencing accelerated growth through both 
mainstream print and also non-traditional, 
industrial applications – from true ‘printed’ 
circuit boards to pharmaceutical applications 
and LCD/OLED displays.
OLEDs
Organic light emitting diodes are components used in 
a new type of viewing screen (display). Can be viewed 
in bright lighting conditions, at greater angles, unlike 
LCD’s. Beginning to be used in digital cameras.
Piezoelectric
Mechanical distortion of the material results in the 
formation of a charge across the material, or vice 
versa. The most common material in general use is 
PZT, lead zirconium titanate. 
Pixel
Short for pixel element – the basic element or 
fundamental building block of a bitmapped image. 
It is a coloured tile which, when displayed in a 
mosaic of thousands or millions of other pixels, 
comprises a digital image.
Polyimide
A family of polymers involving carbon and nitrogen 
bonds, known for good thermal stability, mechanical 
toughness and chemical resistance used in thick/thin 
ﬁ lm microelectronics and displays.
Resolution
The amount of detail that can be resolved out of an 
image, i.e. the number of discrete drops of ink that are 
ﬁ red onto a controlled size of media (dots per inch – dpi). 
RFID
Radio frequency identiﬁ cation (ID). Devices attached 
to objects that transmit data to an RFID receiver as 
an alternative to bar coding. Advantages include data 
capacity, read/write capability, and no line-of-sight 
requirements.
T HE D ESIGN P OR TFOLIO
a member of the flathill communications group plc
www.flathillplc.com
designed & produced by Xaar plc annual report and accounts 2005
Xaar plc
Science Park
Cambridge CB4 0XR
England 
Tel: +44 (0)1223 423663
Fax: +44 (0)1223 423590
Email:  info@xaar.co.uk
Website: www.xaar.co.uk
Xaar is a market-focused technology leader, driving the expansion 
of inkjet printing into targeted industry sectors.
We offer our OEM customers and licensees the capability to be market 
leaders, through the use of our innovative state-of-the-art inkjet 
technologies and through a complementary range of products and 
services based on this technology.
8%
Total sales in Americas
33%
Total sales in Europe
59%
Total sales in Asia
Corporate statement
Xaar plc annual report and accounts 2005 Xaar plc annual report and accounts 2005
Highlights
Financial highlights
  A year of excellent progress with growth in revenues, margins and proﬁ ts.
  Turnover was up 23% to £42.8m (2004: £34.8m).
  Proﬁ t from operations* jumped 69% to £11.0m (2004: £6.5m).
  Operating proﬁ t up 66% to £10.5m (2004: £6.3m).
  Adjusted basic earnings per share* increased 62% to 12.8p (2004: 7.9p).
  Net cash and cash equivalents at 31 December 2004 were £14.4m 
(2004: £15.3m).
Operational highlights
  Revenue growth in Asia was 29%; European sales were up 24%.
  New manufacturing plant located in Huntingdon, Cambridge was conﬁ rmed and 
is scheduled to be operational by the end of 2006.
  Planned investment in Huntingdon of £10.0m will create initially 30 new jobs.
*  stated before non-trading foreign exchange movements 
on inter-company loan: loss of £1.0m (2004: loss of £0.2m)
Highlights 01
Increasing revenues 02
Developing platforms 04
Expanding markets 06
Chairman’s statement 08
Chief Executive’s review 10
Finance review 14
Directors and Advisors 18
Directors’ report 20
Corporate governance statements 23
Directors’ remuneration report 28
Statement of directors’ responsibilities 34
Independent auditors’ report 35
Consolidated income statement 37
Consolidated statement of recognised income and expense 37
Consolidated balance sheet 38
Consolidated cash ﬂ ow statement 39
Notes to the consolidated ﬁ nancial statements 40
Company balance sheet 70
Notes to the company balance sheet 71
Five year record 74
Notice of Annual General Meeting 75
23%
Revenue growth
£11m
Proﬁ t before tax and foreign
 exchange on intercompany loan
230k
Printheads shipped in 2005
01 INCREASING
02
Xaar plc annual report and accounts 2005
Increasing revenues
What Xaar does
Xaar is well known throughout the industry 
for its leading drop-on-demand piezoelectric 
inkjet printheads and inks. 2005 saw continuing 
growth and success of our original binary 
printheads, while ongoing developments led 
to new product introductions, such as the 
OmniDot 380 based on our proven binary 
technology, as well as the OmniDot 760 using 
our latest multi-pulse, greyscale technology. Increasing revenues
REVENUES
Xaar plc annual report and accounts 2005
03
“ The interest shown by...
global businesses can only 
enhance the prospects 
for digital printing and 
accelerate its acceptance as 
a primary printing process.” DEVELOPING
Developing platforms
Xaar plc annual report and accounts 2005
04
Xaar wins Queen’s award
In 2005 Xaar won the prestigious 
Queen’s Award for Enterprise, Innovation 
category, in recognition of the ongoing 
developments and global success of its 
patented piezoelectric inkjet technology, 
now recognised as a mainstream 
printing technology. PLATFORMS
Xaar plc annual report and accounts 2005
Developing platforms
05
 OmniDot 760
 The printhead of choice
“ Based on Xaar’s unique patented 
multi-pulse greyscale technology 
OmniDot 760 is user-deﬁ nable 
and delivers a choice of binary or 
dynamic variable drop sizes. Ideal 
for high quality graphics, packaging 
and traditional print applications.”  06
Xaar plc annual report and accounts 2005
Expanding markets
EXPANDING
Quantum leap in printing
The future of inkjet lies beyond 
its current printing applications 
and is not constrained to only jet 
ink-based ﬂ uids. Early developments 
using Xaar technology in printed 
electronics, electronic displays, light 
emitting polymers and 3D modelling 
have set a future expectation which 
may revolutionise production in 
these segments.
Examples of this include projects 
where our integration partners are 
independently using our highly 
innovative printing technology to 
produce conductive metal tracks. 
Sample supplied by Conductive Inkjet Technology MARKETS
Xaar plc annual report and accounts 2005
Expanding markets
07
“ The range of applications is 
vast and includes speciality 
graphics, packaging and 
industrial marking. We are 
also advancing further 
into primary packaging 
and industrial graphics 
production such as printing 
directly onto cans and 
bottles, smart cards and 
ID cards, DVDs and CDs.” 08
Xaar plc annual report and accounts 2005
Chairman’s statement
Arie Rosenfeld
Chairman
Introduction
I am delighted to report another excellent year for Xaar. Our technology 
and products continued their rapid advance, resulting in strong growth 
in sales and proﬁ tability. 
Results and ﬁ nance
Group revenues increased by 23% in the year to £42.8m (2004: £34.8m). 
Product sales were £39.9m (2004: £33.1m), royalty revenues £1.3m 
(2004 £1.1m) and development fees £1.6m (2004: £0.6m). Included in 
development fees are integration and early stage business development 
revenues. Sales increased across the whole range of printheads 
demonstrating the strength and depth of the product portfolio which 
the group continues to develop. 
Proﬁ t for the year also grew strongly and proﬁ t before tax and exchange 
movements on inter-company loans was £11.0m (2004: £6.5m), an 
increase of 69% over the prior year. Earnings per share, stated before 
the exchange movement on inter-company loans, increased by 62% to 
12.8p (2004: 7.9p).
Cash balances at the end of the year were £14.4m, a reduction of 
£0.9m during the year reﬂ ecting investment of the group’s cash 
resources in the next phase of our development through increased 
capital expenditure, working capital and trade investments. We also 
funded the purchase of the company’s own shares for its Employee 
Share Ownership Plan (ESOP). The ESOP forms a key part of our 
remuneration strategy for retaining the highly skilled people we have 
within the group. 
Dividend
The board is recommending payment of an annual dividend for the year 
of 1.5p, an increase of 50% on the 1.0p dividend paid in 2004. 
Trends
Turning to the wider print market, inkjet continues its penetration of 
traditional printing markets. In a recent press release, Agfa reiterated 
its intention to become a major player in the industrial inkjet market 
and during the year several other large global imaging companies 
entered the market or signiﬁ cantly expanded their inkjet activities;  09
Xaar plc annual report and accounts 2005
Chairman’s statement
Hewlett Packard acquired Scitex Vision (a major Xaar customer) and 
also announced a new strategic partnership with Seiko Instruments 
(a Xaar licensee); Fuji Photo Film acquired Sericol Inks and Avecia Inks, 
both Xaar ink partners, and Dainippon Screen purchased Inca Digital 
Printers in Cambridge. 
The interest shown by such global businesses can only enhance the 
prospects for inkjet printing and accelerate its acceptance as a primary 
printing process. In addition, we continue to see progress in the 
development of inkjet as an industrial manufacturing process in non-print 
related industries such as packaging, electronics, three dimensional 
modelling and biotechnology. We now have the products that enable us 
to address the requirements of these markets and we continue to build 
strategic partnerships with the main players in these sectors.
In the immediate future, sales of the OmniDot to Agfa are expected 
to build more slowly than originally planned due to a slower roll-out 
by Agfa of its wide-format products which use the printhead. This is 
to allow Agfa to focus on the introduction of its radical digital press, 
the M Press, which is also built around the OmniDot. Xaar’s margin 
on sales to Agfa is signiﬁ cantly lower than that on other printhead 
sales, reﬂ ecting Agfa’s co-funding of the OmniDot’s development and 
its direct investment in Xaar’s Swedish manufacturing facility. The lost 
margin on any shortfall in sales to Agfa in 2006 is, therefore, not material and 
will be covered by incremental sales to other customers. 
Investment in capacity expansion
During the year the board has reviewed the longer term capacity 
requirements of the company given the increasing momentum building 
across all inkjet markets, as well as our own future product and market 
development plans. The review concluded that the group’s present 
manufacturing plant, in Järfälla, Sweden, is likely to become fully utilised 
over the next two years and will be unable to meet future demand. 
After considering a number of options the board has decided to 
establish a second manufacturing plant in Huntingdon, Cambridgeshire, 
close to the group’s Cambridge headquarters. The second plant 
should begin operations by the end of 2006 and will initially produce 
our Platform 3 HSS product. This expansion will require an investment 
of up to £10.0m, including the additional working capital required to 
support the incremental sales these new products will generate. 
Board changes
In October 2005, we were pleased to welcome Robert Eckelmann, 49, 
to the board as an independent, non-executive director. Mr Eckelmann 
had spent a large part of his career at Intel Corporation where he ran 
Intel’s European operations and started up its business in the major 
Asian markets. He replaced Michael Geary who stood down at the 
2005 Annual General Meeting following nine years of valued service. 
Queen’s Award for Enterprise
The company was honoured during the year to be the recipient of the 
Queen’s Award for Enterprise in the Innovation category. The award is 
a ﬁ tting tribute to the inventiveness and determination of our staff both 
past and present. 
Outlook
We see the use of inkjet technology growing strongly in both printing 
and industrial markets and, as a market leader, intend to remain at the 
forefront of that growth. 
Our sales of established products continue to grow and our new 
products launched in 2006 will add growth in the medium term. For the 
longer term we have further new products due for commercial launch 
in 2007, together with an expanding range of applications ready to 
adopt them. 
The Board looks forward to another year of positive results in 2006.
Arie Rosenfeld 
Chairman 
13 March 2006
“ …the use of inkjet technology is 
growing strongly in both digital printing 
and industrial markets…we intend to 
remain at the forefront of that growth.” 10
Xaar plc annual report and accounts 2005
Chief Executive’s review
Ian Dinwoodie
Chief Executive
Introduction
2005 was a very successful year for Xaar. 
It is particularly pleasing to report another twelve months of strong 
sales, conﬁ rming that our technology is well-placed to beneﬁ t from 
the excellent long term prospects for all aspects of digital printing. 
It is also encouraging to note the expanding range of applications 
for our technology, taking us into the new ﬁ elds of ﬂ uid and materials 
deposition – not just printing in the traditional sense. Our long experience 
in manufacturing piezo-based inkjet products has continued to ensure 
that Xaar is highly proﬁ table with strong margins in the year at both the 
gross and operating level. 
During the second half of the year we embarked on the next stage of 
the group’s development with plans for a new production facility in the 
UK to manufacture our ﬁ rst Platform 3 product, the speciﬁ cation of 
which has now been ﬁ nalised following extensive and positive feedback 
from our early alpha test partners. Evaluation kits for the printhead have 
already been shipped to potential customers and volume supply will be 
available from the end of 2006. 
Product sales
Printheads remain the dominant proportion of our revenues, representing 
85% of total group sales. As we expand our product portfolio we have 
taken the opportunity to simplify its presentation by grouping it into 
three discrete product platforms, each with a clear focus on particular 
market segments. 
Platform 1, which comprised the majority of product sales in 2005, 
encompasses our lower resolution products – the XJ126, XJ128 and 
XJ500 printheads – targeted at external signage and advertising, 
together with coding and marking applications. All Platform 1 
products experienced double digit growth in the year and equipment 
manufacturers continue to introduce new printing machines based on 
our best-selling printhead, the XJ128. During the year we introduced 
a new product to this platform, the OmniDot 380, which has been 
designed to ﬁ ll the gap between the XJ128 and the XJ500. 
“ Our primary long term 
objective is to maintain 
the proﬁ table growth 
of the last two years...”
As we move from outdoor or wide-format graphics to higher 
resolution indoor graphics for point-of-sale materials the OmniDot 
760 is ideally positioned with its greyscale variable drop capability.  11
Xaar plc annual report and accounts 2005
Chief Executive’s review
Platform 2 was introduced during the year and currently consists of the 
greyscale OmniDot 760 in 3 and 8 picolitre dropsize variations bringing 
Xaar into the higher resolution indoor advertising and poster markets 
(including the version of the product manufactured for Agfa). The 
products commenced commercial shipments during the year and, whilst 
they are modest contributors at this early stage, I expect the contribution 
from this range of products to grow signiﬁ cantly in the future. 
Platform 3, the HSS, will be launched commercially at the end of 2006 and 
will open up the higher productivity narrow format sheet and web fed print 
markets and non-print related industrial applications. Selected partners in 
these markets have already received the printhead for evaluation. 
For the future we will continue to enhance and develop products across 
all three platforms to meet the evolving needs of the markets they 
serve, as well as enhancing the core technology on which all platforms 
are based.
Xaar’s ink business continues to contribute positively to the group’s 
results. The business is a combination of our own direct sales of 
low volume, Xaar-branded specialist inks together with growing 
commissions from partners on their sales of approved Xaar-compatible 
inks. During the year we added seven more commission-based ink 
partners, including well known brands such as Hexion and Tetenal, 
to broaden the choice available to end customers by both geography 
and application. We also saw early ink revenues from India and South 
America, which is encouraging for the future.   
Royalties and development fees
Royalty receipts from licensees increased as the volume of printheads 
designed and manufactured by licensees using our patents increased. 
Development fees also include revenue from Vivid, our small integration 
operation in the US, early-stage business development activities 
and design work carried out on behalf of third parties. Since the year 
end we have sold Vivid to one of our integration partners, Xennia 
Technology Ltd. (see Finance Director’s report). 
Geographic markets
When considering the geographic split of our business it is important 
to understand that Xaar’s immediate customers are printing equipment 
manufacturers, not the end-users of such equipment. As a result, 
our geographic analysis of sales is not representative of where our 
printheads are actually used. 
Asia remains our largest market, representing 59% of turnover with 
growth of 29% in the year. Most of our Asian customers produce 
graphics printing machines and many of them now export a signiﬁ cant 
proportion of their equipment to the American and European markets.  
Europe (and the Middle East) is our second largest geographic market 
accounting for a third of group sales with growth of 24% in 2005. 
Wide-format graphics and coding and marking make up the majority 
of sales in this market and Europe continues to be a highly active and 
innovative region for new inkjet applications.
Sales to the Americas fell by 12% during the year to 8% of total revenues 
due to one large customer ceasing its manufacturing operations in 
the USA. Longer term we see future growth in sales to the Americas 
coming from both new customers in the graphics market – where 
high-end sophisticated machines continue to be manufactured in the 
US, and new industrial applications as these develop over the next few 
years. In addition, we expect growth from South America where we 
now have a Brazilian sales ofﬁ ce, through which we will be supporting 
a number of local printer manufacturers in their planned launch of 
wide–format printing machines in the coming year. 12
Xaar plc annual report and accounts 2005
Chief Executive’s review continued
End user markets
The graphic arts market, and particularly the wide and grand format 
sectors of this market, continues to be the largest single application 
for Xaar technology today. Sales to the graphics printing market grew 
28% in the year and accounted for 77% of total revenues. The growth 
of digital printing in what was the traditional analogue screen printing 
market continues apace. 
Outer-case coding provides the primary demand for Xaar’s technology 
in the packaging market and represents 15% of group sales. We saw 
some shrinkage in 2005, following a signiﬁ cant burst of growth in 2004, 
with sales falling 5%; however, sales have grown nearly 40% over the 
last two years and we expect volumes to pick up again in 2006. 
Our business development initiatives for industrial markets continue 
to make progress and are covered in more detail in the Finance 
Director’s report. Applications ranging from display screens, through 
printed electronics, biomedical and human tissue engineering are being 
developed with key strategic partners in each sector. These represent 
medium to longer term opportunities but are already generating 
early-stage revenues. 
Product development
The group continued to invest in research and development during the 
year in each of our three product platforms and in the next step forward 
in our core technology. Total R&D spend for the year was £5.5m, 
or 13% of revenue.
The ﬁ rst Platform 2 products – our own OmniDot and its Agfa variant – 
together with their support peripherals, the XUSB drive electronics and 
ink supply system, have now been transferred to full scale production 
and are commercially available to customers. 
With the increasing demand to print on a wide range of substrates 
(surfaces) we continue to test and approve a wide spectrum of 
inks and functional ﬂ uids from a variety of vendors. The addition of 
aqueous-based inks, to those already compatible with the OmniDot 760, 
allows us to move into new markets such as textiles. 
“ Our business development initiatives 
for industrial markets...are already 
generating...revenues.” 13
Xaar plc annual report and accounts 2005
Chief Executive’s review continued
Xaar’s Platform 3 product, HSS, is now ready for initial production. 
The ﬁ rst HSS prototypes were shipped on schedule to alpha test 
sites during the year and, based on the positive feedback received 
from those tests, the ﬁ nal production speciﬁ cation has been set. 
Fully functioning prototypes are now being produced in the Cambridge 
pilot line to satisfy customer testing programmes in 2006, prior to its 
commercial launch in 2007.
Manufacturing
Despite the high standards we have already achieved, operational 
improvements continue to be made in the key areas of quality, cost and 
delivery. These improvements increased gross margins to 62%, despite 
some signs of pricing pressure in the marketplace. Further product cost 
savings are expected to maintain margins. Commercial production of 
the OmniDot 380 and 760 was also successfully started during the year 
and volumes are increasing.
Work on our second plant in Huntingdon is now underway; ﬁ t-out of 
the facility is due to be complete by mid 2006, with installation and 
commissioning of production equipment scheduled for the second 
half of the year. Although the process is highly automated, the plant 
will initially create around 30 new jobs.
Priorities for the future
Our primary long term objective is to maintain the proﬁ table growth of 
the last two years whilst developing further growth through a broader 
revenue mix across products, geographies and end user markets based 
on the aggressive extension of our lead in inkjet technology. 
Our main markets today, graphic arts and coding and marking, are 
widely forecast to maintain their recent growth rates over the medium 
term – maintaining the growth of our Platform 1 products. Incremental 
sales will be generated by our Platform 2 products as they take us into 
the high resolution or ﬁ ne feature print markets – which initially will be 
weighted towards Europe and the Americas. Our Platform 3 products 
will add further sales from web and sheet fed applications – also 
weighted towards non-Asian locations. 
Progress in development of non-print related industrial applications 
through our business development activities remains on track. Whilst 
these opportunities are not short term initiatives, the innovation and 
potential for longer term growth remains attractive.
People
Once again I would like to thank all of our staff for their skill and 
dedication which has resulted in the excellent performance for 2005. 
We are now entering a very exciting period of development for the 
group; through the ﬂ exibility and determination of our staff we expect 
be able to maximise and exploit the many opportunities we see ahead. 
Ian Dinwoodie 
Chief Executive
13 March 2006 14
Xaar plc annual report and accounts 2005
Finance review
Nigel Berry
Finance Director
Trading for 2005
Sales increased 23% to £42.8m (2004: £34.8m) and gross margin to 
62% (2004: 57%). Overheads (excluding the cost of share options) 
increased by 19% in support of the increase in revenues – with 
operating margins at 24% and proﬁ t before tax and exchange 
movements on inter-company loans, of £11.0m (2004: £6.5m). There
was a non-cash loss on translation of the inter-company loan between 
the UK and Sweden for the year of £1.0m (2004: loss £0.2m). 
The results for 2005 conﬁ rmed the strength of our core markets and 
Platform 1 products. These still provide the majority of our revenue 
but this will change once sales of our new Platform 2 and Platform 3 
products increase, providing more balance to revenues. 
Taxation for the year was £3.0m (30%) (2004: £1.7m, 26%), resulting in 
earnings per share for the year of 12.8p, an increase of 62% over the 
2004 ﬁ gure of 7.9p (both ﬁ gures shown before translation differences 
on the inter-company loan as set out in note 13 to the accounts). The 
rate of corporation tax applicable to the group’s proﬁ ts is a blend of the 
Swedish rate of 28% and the UK rate of 30%. 
The 2005 results, and 2004 comparatives, have been prepared under 
International Accounting Standards (IAS), in accordance with EU 
requirements for listed European companies. The difference in reported 
proﬁ t before tax for the year as determined under IAS, and the same 
ﬁ gure calculated under previously used accounting standards – 
UK GAAP , was an increase £0.5m. 
The outdoor graphics market is predicted to continue growing at 
its current rate of over 10% per annum. Through our Platform 1 
products we are well placed to maintain our leadership position 
in this global market. 15
Xaar plc annual report and accounts 2005
Finance review
Foreign currency
The group invoices approximately 65% of its sales in US dollars and 
a small percentage in other currencies such as the Euro. Compared 
to 2004, sales and proﬁ t before tax were not materially impacted by 
exchange rate movements. The group hedges its dollar receipts on a 
rolling twelve month basis to provide a level of certainty in the value of 
sterling receipts by placing a ﬂ oor under the dollar/sterling rate to give 
protection against signiﬁ cant downside movements in the dollar, whilst 
leaving room for some upside beneﬁ t should the dollar strengthen. 
Cash and capital expenditure 
Cash and short-term investments at the end of the year were £14.4m 
(2004: £15.3m). Cash is stated after capital expenditure on assets and 
investments of £5.2m (2004: £3.3m) with no lease ﬁ nancing entered 
into during the year (2004: £nil). The total value of outstanding lease 
commitments at the end of the year was £1.2m (2004: £1.9m). 
Working capital increased by £4.7m during the year, in part to support 
the increased sales for the year, but in part due to slow payment by 
certain customers in China. We do not consider the amounts involved 
(£1.7m) to be at risk, although ﬁ nal collection may be spread over 
several months.
During the year we announced plans to invest some of the group’s cash 
resources in the next stage of the group’s expansion, and in particular 
the funding of the new production plant. During 2006 we expect to 
invest capital in the order of £6.0m in equipment and ﬁ t-out of the new 
facility. The expansion is initially for production of our new Platform 3 
product and we expect the investment to generate a strong return on 
capital when fully operational. 
We also increased our trade investments during the year by £1.4m. 
These investments will help build a strong network of equipment 
integrators supporting our technology, particularly in the markets 
we have targeted for expansion: packaging, printed electronics, 
3D modelling and biotech. 
Dividend policy and dividend
The board is proposing an increased annual dividend for the year 
of 1.5p (2004: 1.0p). This payment is covered seven times and 
follows the policy set out in my report last year of maintaining a high 
level of dividend cover. Subject to the approval of shareholders in 
Annual General Meeting, the dividend of 1.5p per share will be paid on 
16 June 2006 to shareholders on the register at the close of business 
on 19 May 2006.
Business development
I am pleased to report continuing progress in our development of new 
markets for the group’s technology. As ever, it is not possible to refer 
to individual development partners as these activities are subject to 
conﬁ dentiality agreements. However, in summary:
Packaging
We are now actively engaged with ﬁ ve of the world’s largest packaging 
companies and in discussions with others. These projects involve 
printing onto products including beverage cans, aerosol cans, paper 
and other labels, plastic food cartons, supermarket bags and surgical 
products. The projects are driven by the ever-increasing demand for 
short run printing within processes conﬁ gured to maximise long run 
efﬁ ciencies. Whilst it is always difﬁ cult to predict how long such new 
development programmes will take, I would hope to see a successful 
conclusion to at least some of the projects outlined above within the 
next twelve months.
We are also seeing signiﬁ cant interest in the use of RFID for packaging 
applications and expect a fully integrated RFID tagging system using 
Xaar printheads – for the printing of antennas and other conductive 
tracks – to be commercially available towards the end of 2006.
“ Sales increased 23% to £42.8m and gross 
margin to 62%...”  16
Xaar plc annual report and accounts 2005
Finance review continued
Printed electronics
Our focus in this sector is on electronic displays, commercial lighting 
and printed circuit boards. For LCDs our OmniDot 760 printhead 
is being tested in two different processes within the production of 
ﬂ at panel TV screens. For new OLED-based displays, and lighting 
applications, we have testing programmes with both commercial and 
research organisations, in many cases using equipment supplied by 
our integrator partners. 
In the production of printed circuit boards we have initially focussed on 
the printing of etch masks and metallic inks. We were pleased to see 
the release of three Xaar-based etch mask printers at the Productronica 
trade show held in Germany, in November 2005. We have also made 
good progress during the year in jetting a range of metallic inks for the 
direct printing of conductive tracks; during 2006 we expect the release 
– in commercial volumes, not research quantities – of at least one silver 
nano particle metal ink fully compatible with Xaar printheads. 
Xennia, one of our integration partners, has developed its own 
conductive metallic ink process using Xaar printheads which it is 
commercialising via CIT, a joint venture with Carclo plc in the UK. 
This system was previewed at the Productronica tradeshow referred 
to above and is now in use with CIT for the printing of RFID antennas 
and ﬂ exible circuitry.
Metallic inks are also of interest for decorative purposes to replace 
expensive hot and cold metal foiling techniques used with traditional 
printing. Currently the level of metal nano particles required to make 
an ink conductive also make it too expensive for decorative use, but 
our primary development partner in this area expects to overcome this 
issue in the near future. 
03 04 05
0
Sales (£m)
+23%
5
10
15
20
25
30
35
40
45
29.2
34.8
+66%
0
Operating proﬁ t (£m)
2
4
6
8
10
12
03 04 05
-1.3
6.3
+62%
0
Adjusted EPS (pence)
2
4
6
8
10
12
03 04 05
-1.4
7.9
14
42.8
10.5
12.8 17
Xaar plc annual report and accounts 2005
Finance review continued
Integrators
Last year I referred to our key integrator partners and the important 
role they have to play in developing inkjet printing equipment for the 
new markets discussed above. Although small, these companies are 
pioneers in their ﬁ elds and are now beginning to see the beneﬁ ts of 
this prime-mover advantage. We will be showcasing some of these 
products with key partners on our stand at the IPEX trade show being 
held at the NEC, Birmingham, in April. 
We have reviewed the future of our own integration business, Vivid 
Print Innovations Inc. (“Vivid”), and decided that our increasingly 
close relationship with other integrators makes it unnecessary for us 
to continue to own our own integration business. As a result we have 
sold Vivid to Xennia Technology Ltd in return for shares in Xennia. Vivid 
was acquired by Xaar in early 2003 for a nominal sum and at the date 
of disposal had gross assets of £0.1m. This sale increases our total 
holding in Xennia from 10.0% to 12.5%. 
Nigel Berry 
Finance Director and Deputy Chief Executive 
13 March 2006
“ ...our trade investments...will help build a strong 
network of equipment integrators supporting 
our technology...” 18
Xaar plc annual report and accounts 2005
Directors and advisors
Aged 45 – joined Xaar in September 2001 as 
Group Operations Director and was appointed 
Chief Executive in July 2003. With over 20 years 
experience in hi-tech operations, he has held a 
variety of roles in engineering, quality assurance 
and manufacturing within the semiconductor, 
electronics and electronic imaging industries. 
Immediately prior to joining Xaar, he held the 
position of director of manufacturing for Fujiﬁ lm 
Electronic Imaging Ltd.
Aged 46 – joined Xaar in May 2002. Qualiﬁ ed as 
a chartered accountant with Coopers & Lybrand, 
he has lived and worked in the US and Asia, both 
while at Wassall plc. More recently he was ﬁ nance 
director of Rexam Printing Ltd and Cambridge 
Display Technology Ltd. Nigel brings manufacturing 
and licensing experience to the group gained in 
international fast-growth businesses.
Aged 62 – was until 1995 President of Scitex, 
which he joined shortly after its formation in 1968. 
Scitex is a world leader in graphic arts, digital 
printing and digital video products. He currently 
holds the post of managing partner at DOR 
Ventures, a venture capital fund. He joined the 
Xaar board in February 1997 and was appointed 
Chairman in June 1997.
Aged 76 – is Chairman of Aveva Group plc, 
Sentec Ltd and is a director of a number of other 
Cambridge hi-tech companies. An Emeritus Fellow 
of Darwin College, he was a founding member of 
Xaar and has been a director since 1990. He was 
appointed Deputy Chairman of the company in 
September 1997.
Aged 53 – until 2001 an executive director of 
Lazard Brothers & Co., Limited and currently 
a director of a range of quoted and private 
companies, including Dunedin Income Growth 
Investment Trust plc, Scottish Mortgage 
Investment Trust PLC, Miller Insurance Services 
Ltd, JP Morgan Fleming Claverhouse Investment 
Trust plc, Endace Ltd and Albany Venture 
Managers Ltd. He joined the Xaar board in April 
2001 and was appointed the senior independent 
director in February 2002.
Ian Dinwoodie
Chief Executive
Nigel Berry
Finance Director and Deputy Chief Executive
Arie Rosenfeld
Chairman
Richard King CBE
Deputy Chairman
John Scott
Senior Independent Director 19
Xaar plc annual report and accounts 2005
Directors and advisors
Aged 58 – is one of the original inventors of the 
Xaar technology. His inventions and joint inventions 
have led to more than 90 patents covering the 
technology. His primary role, aside from leading the 
technical team, is to focus on future development. 
He has been a director since 1991.
Aged 52 – was previously marketing manager, 
Europe at Dainippon Screen, a world leader in 
electronic equipment for the graphic arts, ﬂ at panel 
display, printed circuit board and semi-conductor 
markets. He brings over 20 years of sales and 
marketing expertise across many sectors of 
imaging and printing industries, and has held 
senior management positions at Scitex, Crosﬁ eld 
and Xeikon.
Aged 49, started his career with the US 
Government in the Department of Commerce 
where he was involved in global trade policy for 
the science and electronics sector. In 1988 he 
joined Intel Corporation at an early stage in its 
development in a role within ‘The ofﬁ ce of the 
President’, before moving to Singapore to launch 
Intel’s Asian business. He later became VP and 
general manager for the whole EMEA region. 
Mr Eckelmann, a US citizen, holds several 
European non-executive directorships including 
Wolfson Microelectronics plc in the UK.
Registered ofﬁ ce 
Science Park
Cambridge CB4 0XR
Registered number
3320972
Secretary 
A Taylor
Financial advisor 
and lead broker
Panmure Gordon & Co 
Moorgate Hall
155 Moorgate
London EC2M 6XB
Registered auditors 
Deloitte & Touche LLP
Cambridge, England
Solicitors 
Clifford Chance LLP
10 Upper Bank Street
London E14 5JJ
Bankers 
Barclays Bank plc
15 Bene’t Street
Cambridge CB2 3PZ
Registrars 
Capita Registrars
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Stepen Temple
Technical Director
Phil Eaves
Sales and Marketing Director
Robert Eckelmann
Non-executive Director 20
Directors’ report for the year ended 31 December 2005
Xaar plc annual report and accounts 2005
The directors present their annual report on the affairs of the group together with the ﬁ nancial statements and auditors’ report for the year ended 
31 December 2005. 
Principal activity and business review
The 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 and the Chief Executive’s 
review. The subsidiary undertakings of the group are listed in Note 8 to the company balance sheet.
Research and development
£5.5m (2004: £5.0m) was spent on research and development in the year.
Treasury
65% of the group’s sales are in US dollars and in excess of 90% of its costs are in Swedish kronor (the group’s manufacturing facility is in Stockholm, 
Sweden) and pound sterling (the group’s headquarters, R&D function, European sales and marketing function are in Cambridge, England). The group’s 
policy is to use ﬁ nancial instruments to hedge these US dollar inﬂ ows into Swedish kronor and pound sterling to protect against ﬂ uctuations in 
exchange rates. The group does not take out ﬁ nancial instruments of a speculative nature.
Results and dividends
Revenue for the year was £42.8m (2004: £34.8m) and comprised the sale of printheads and related products, development fees and licence fees 
and royalties. The proﬁ t after tax for the year was £7.0m (2004: £4.6m). The directors recommend the payment of a ﬁ nal dividend of 1.5p per 
ordinary share (2004: 1p). If approved at the forthcoming Annual General Meeting, the ﬁ nal dividend will be paid on 16 June 2006 to shareholders 
on the register at close of business on 19 May 2006.
Directors and their interests 
The directors who served during the year were as follows:
I Dinwoodie
N Berry
S Temple
H Baker-Smith (resigned 24 January 2005)
P Eaves (appointed 1 March 2005)
A Rosenfeld
R King
M Geary (resigned 28 April 2005)
J Scott
R Eckelmann (appointed 1 October 2005)
Brief biographical descriptions of the directors are set out on pages 18 and 19. Full details of their interests in shares of the company and its 
subsidiary undertakings are included in the directors’ remuneration report on pages 28 to 33. Xaar plc annual report and accounts 2005
21
Directors’ report for the year ended 31 December 2005
The interests of the directors in the shares of the company and its subsidiaries (all of which are beneﬁ cial) as at 31 December 2005 are as follows:
Shareholdings in the company
   Number of ordinary  Number of ordinary
   shares of 10p each  shares of 10p each
   31 December 2005  31 December 2004
I Dinwoodie    96,757 76,180 
N Berry    350,000 350,000 
S Temple    435,499 485,499 
P Eaves    — — 
A Rosenfeld    200,000 200,000 
R King    150,000 163,580 
J Scott   72,100 72,100 
R Eckelmann    — — 
There have been no changes in the directors’ interests in shares of the company between 31 December 2005 and 13 March 2006.
In accordance with the company’s articles of association, at the Annual General Meeting referred to in more detail on page 75, N Berry and 
R Eckelmann will retire from the board by rotation and offer themselves for re-election. Additionally R King, in accordance with best practice for 
directors over the age of 70, offers himself for re-election.
Share capital
As at 1 March 2006 the company had been notiﬁ ed in accordance with sections 198 to 208 of the Companies Act 1985, of the following material 
interests in its share capital:
   Number of ordinary  Percentage of issued
   shares held  share capital
AXA Investment Managers UK Limited   6,290,166 10.3%
Merrill Lynch Investment Managers Limited   6,117,409 10.0%
Barclays plc    3,852,145 6.3%
Legal & General Investment Management Limited    3,253,520  5.3%
Newton Investment Management Limited    2,159,000  3.5%
Annual General Meeting
The notice convening the Annual General Meeting is set out on page 74. Resolutions 1 to 6 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 7 to 11) is explained on page 28 (in relation to Resolution 
7) and below (in relation to Resolutions 8 to 10). 
Authority to purchase own shares
Resolution 8
It is proposed by Resolution 8 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 Ofﬁ cial List of the London Stock Exchange for the ﬁ ve 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 Annual General Meeting of 
the company or within 15 months from the date of the passing of this resolution.
The directors currently have no intention to exercise the authority and will only purchase shares if it is in the best interests of shareholders as a whole.
The total number of options to subscribe for ordinary shares outstanding at 31 December 2005 was 4,581,492. This represents 7% 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 2005 would represent 9% of the reduced 
issued ordinary share capital. 22
Directors’ report for the year ended 31 December 2005
Xaar plc annual report and accounts 2005
Power to issue securities
Resolution 9
Under 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 9, to be proposed as an ordinary resolution, authority is sought to allot shares up to an 
aggregate nominal amount of £879,911, which is equal to the whole of the unissued share capital as at 13 March 2006 and which represented 14% 
of the company’s ordinary share capital in issue as at 13 March 2006 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 10
This 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 £306,004, representing 5% of the issued ordinary share capital of the company as at 13 March 2006.
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 9 and 10 
will expire no later than 15 months after the passing of those resolutions.
Charitable contributions
The group made charitable contributions during the year totalling £25,385 (2004: £225). No political donations were made (2004: £nil).
Supplier payment policy
The 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 2005 were 15 days (2004: 30 days).
Auditors
Deloitte & Touche LLP have expressed their willingness to continue in ofﬁ ce as auditors and a resolution to reappoint them will be proposed at the 
forthcoming Annual General Meeting.
By order of the board 
A Taylor Science Park 
Secretary Cambridge
13 March 2006 CB4 0XR
 Registered number: 3320972
  Xaar plc annual report and accounts 2005
23
Corporate governance statements
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 2003 FRC Code’) and for which the board is accountable to shareholders.
Statement of compliance with the Code of Best Practice
Throughout the year ended 31 December 2005 the company has been in compliance with the Code provisions set out in section 1 of the 2003 FRC 
code except for the following matters:
A7.2 A Rosenfeld, R King and J Scott do not have contracts of employment for a speciﬁ c period due to their appointment being prior to the 
2003 FRC code. R Eckelmann is, 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 Neither R King, Chairman of the remuneration committee, nor A Rosenfeld, Chairman of the company, is considered independent. The other 
two committee members are independent non-executive directors. The board believes that given the current board structure the composition of 
the committee is appropriate at this time.
C3.1 Neither R King, a member of the audit committee, nor A Rosenfeld, Chairman of the company, is considered independent. The other two 
committee members, including the committee Chairman, are independent non-executive directors. The board believes that given the current board 
structure the composition of the committee is appropriate at this time.
D1.1 The company’s formal investor relations and shareholder communication programmes do not routinely involve either the Chairman or the 
Senior Independent Director. The board considers that the Chairman has a good understanding of the issues and concerns of major shareholders, 
and does not consider formal inclusion in the programme beneﬁ cial. Both the Chairman and the Senior Independent Director, and any other 
member of the board, are available to meet any shareholder as appropriate.
Statement about applying the Principles of Good Governance
The 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 2003 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 directors
The board of directors comprises the non-executive Chairman, four executive directors and three further non-executive directors. Brief biographical 
details of all members of the board are set out on pages 18 and 19. 
The board considers J Scott and R Eckelmann to be independent within the meaning of the 2003 FRC Code. Neither A Rosenfeld, 
as Chairman of the company, nor R King, due to length of service, are considered to be independent. The board does however support both 
A Rosenfeld’s and R King’s membership of both the audit and the remuneration committees. 
The board is responsible for the formulation of strategy, the monitoring of ﬁ nancial and non-ﬁ nancial performance, and the approval of major 
transactions, ﬁ nancial statements 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 2005, including 
once at the company’s manufacturing facility in Stockholm.
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 ﬁ nancial and operational objectives are attained. Xaar plc annual report and accounts 2005
Board of directors (continued)
The board delegates management of the business 
to the executive team, headed by the Chief Executive 
(I Dinwoodie) and consisting of the three other executive 
directors (N Berry, P Eaves and S Temple), the Director 
of Manufacturing (G Lockett), the Director of Engineering 
(R Welford) and the Company Secretary and Group 
Financial Controller (A Taylor).
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 
efﬁ cient management of the group.
 From left to right: G Lockett, N Berry, I Dinwoodie, S Temple, A Taylor, R Welford, P Eaves
  
Summary of board meeting attendance in 2005
Ten board meetings were held in 2005.
    Meetings 
    attended
A Rosenfeld     9
R King     8
J Scott     10
M Geary     3 (of 4)
R Eckelmann    2 (of 3)
I Dinwoodie     10
N Berry     9
H Baker-Smith     0 (of 1)
S Temple     10
P Eaves    7 (of 8)
Board committees
Summary of committee membership
  Audit  Remuneration  Nomination
Name   committee  committee  committee
A Rosenfeld   Yes  Yes  Chairman
R King   Yes  Chairman  No
J Scott   Chairman  Yes  Yes
M Geary
1
  Yes  Yes  No
R Eckelmann
2
  Yes Yes Yes
I Dinwoodie   No  No  Yes
1. to date of resignation from the board
2. from 1 February 2006
Corporate governance statements
24 25
Xaar plc annual report and accounts 2005
Summary of committee meeting attendance in 2005
  Audit  Remuneration  Nomination
Name   committee  committee  committee
Number of meetings held   2 2 2
A Rosenfeld   2 2 2
R King   2 2 n/a
J Scott   2 2 2
M Geary   1 (of 1) 1 (of 1) n/a
R Eckelmann  n/a n/a n/a
I Dinwoodie   n/a  n/a  2
Audit committee
The audit committee’s role includes the examination and review of, on behalf of the board, internal ﬁ nancial controls, ﬁ nancial and accounting 
policies and practices, the form and content of ﬁ nancial reports and statements and the ﬁ nancial judgements therein, and the work of the external 
auditors. The written terms of reference of the committee are available on request from the Company Secretary. 
The committee meets with the company’s auditors twice a year. The Chief Executive and the Finance Director attend by invitation, except for a period 
of each meeting where the committee members meet with the auditors without any member of the company management present. 
The Chairman of the committee, J Scott, is deemed by the board to have recent and relevant ﬁ nancial experience as he was, until 2001, 
an executive director of Lazard Brothers and is currently a fellow of the FSI.
The committee reviews the type of work, effectiveness of and level of fees charged by the auditors 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 auditors in respect of non-audit work. As a matter of policy, the only non-audit work which the auditors 
routinely undertake is tax compliance and tax advisory services. The committee considers that it is cost effective to use the auditors for such work 
and that the amount and nature of such work does not impair the independence and objectivity of the auditors. All additional work performed 
by the auditors is approved by the audit committee. During the course of 2005 the only additional work performed by the auditors was advisory 
services on the transition from UK GAAP to IFRS.
The independence and objectivity of the auditors is regularly considered by the committee. The committee receives an annual statement from the 
auditors detailing their independence policies and safeguards and conﬁ rming 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.
Remuneration committee
The 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.
Corporate governance statements 26
Xaar plc annual report and accounts 2005
Corporate governance statements
Nomination committee
The 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 speciﬁ c vacancy is, in the ﬁ rst instance, to determine whether any individuals 
known to the committee would be suitable for the role. If no candidates can be identiﬁ ed 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 identiﬁ ed, the Chairman of the committee will recommend to the board 
that the company make a formal offer of employment to the candidate.
With regard to the recruitment of P Eaves, the committee obtained a short list of four candidates from an external search consultancy of which 
three were invited to interview. P Eaves was recommended to the board as a suitable candidate for the role on the basis of his signiﬁ cant 
experience of sales and marketing across many sectors of the printing and imaging industries. P Eaves was appointed to the board on 
1 March 2005.
M Geary, having served nine years as an independent non-executive director of Xaar plc, retired from the board at the company’s eighth Annual 
General Meeting held on 28 April 2005. R Eckelmann was appointed to the board as a non-executive director on 1 October 2005. The committee 
considered four candidates for the vacant non-executive director position from a shortlist prepared by an external search consultancy, and 
interviewed three candidates for the role. R Eckelmann was recommended to the board by the committee as a suitable candidate for the vacant 
non-executive director position on the basis of his excellent record of working with growing electronics companies and his experiences at Intel. 
The committee considers R Eckelmann to be independent within the meaning of the Combined Code.
All directors are required to submit themselves for re-appointment at least every three years, and directors appointed during the year are required 
to seek re-appointment at the ﬁ rst AGM following their appointment. In accordance with best practice it is also group policy that all directors 
over the age of seventy submit themselves for re-appointment on an annual basis. It is the committee’s view that R King be put forward for 
re-appointment on the basis of his continued contribution to the board.
Performance evaluation
The board have commissioned ICSA to undertake a full board effectiveness review. It is expected that the review will be complete by the end of the ﬁ rst 
half of 2006. The board’s policy for individual director performance reviews is for a formal and rigorous appraisal process centred on periodic discussion 
between the Chairman, Senior Independent Director and the Chief Executive. These discussions are not minuted. Appropriate feedback is given to 
individual directors as required.
Company structure
The company has three main locations. The head ofﬁ ce, research and development, European sales and the marketing function are based in 
Cambridge, England. The dedicated manufacturing facility is in Stockholm, Sweden and the applications division, Vivid Print Innovations Inc. 
in San Antonio, USA. The company has representative ofﬁ ces in Shanghai (China), New Delhi (India), São Paulo (Brazil), 
Shin-Yokohama (Japan) and San Antonio (USA). 27
Xaar plc annual report and accounts 2005
Environment
The company manufactures product in Sweden and undertakes research and development in England, and complies with all local and European 
legislation relevant to the respective territories. The company’s manufacturing facility in Sweden is both ISO9001 and ISO14001 certiﬁ ed, and it 
is the company’s policy to maintain this level of certiﬁ cation for all 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 company 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 fulﬁ l these environmental policies more readily.
In addition it is the company’s aim to:
 improve performance in areas which have a signiﬁ cant 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 company can take advantage of opportunities that reduce the 
environmental impact of the company’s activities.
Dialogue with institutional shareholders
The directors seek to build on a mutual understanding of objectives between the company 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 company has hosted 
institutional investors at both the company’s headquarters in Cambridge and the manufacturing facility in Stockholm during 2005.
The company’s ﬁ nancial public relations advisors give all investors and potential investors that the company’s investor relations team meets 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.
Constructive use of the AGM
The board use the AGM to communicate with investors and to encourage their participation. 
Internal control 
The board has applied Principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing 
the signiﬁ cant 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. 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 ﬁ nancial information and the safeguarding of assets and against material misstatement or loss.
In compliance with Provision C.2.1 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 ﬁ nancial, operational and compliance controls and risk management systems. It is based principally 
on reviewing reports from management to consider whether signiﬁ cant risks are identiﬁ ed, evaluated, managed and controlled and whether 
any signiﬁ cant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The board has also performed a speciﬁ c 
assessment for the purpose of this annual report. This assessment considers all signiﬁ cant aspects of internal control arising during the period 
covered by the report. The audit committee assists the board in discharging its review responsibilities.
Corporate governance statements 28
Xaar plc annual report and accounts 2005
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 7 to approve the report will be proposed at the Annual General Meeting of the company at which 
the ﬁ nancial statements of the company will be approved. 
The Act requires the auditors 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 committee
The principal function of the remuneration committee (the membership of which is outlined in the corporate governance statements) is to 
determine, on behalf of the board, the speciﬁ c remuneration and other beneﬁ ts 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.
Total level of remuneration
The remuneration committee’s policy is to attract and retain individuals of the highest calibre by offering remuneration competitive with comparable 
publicly listed companies, and fairly and responsibly reward individuals for their contribution to the success of the company. A substantial 
proportion of remuneration of executive directors is performance related.
Executive directors are entitled to accept appointments outside the company providing that the chairman’s permission is sought and fees in excess 
of £20,000 from all such appointments are accounted for to the company.
Basic salaries
An 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.
Bonus payments
Bonuses 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 company 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 2006 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.
Share options
All 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 granted prior to 2004 under the Xaar plc 1997 share option scheme:
I Dinwoodie: 150,000 options with an exercise price of 88p 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 130p, 66% vest at 145p and 100% vest at 160p. 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.
Directors’ remuneration report 29
Xaar plc annual report and accounts 2005
S Temple: 100,000 options with an exercise price of 74p where, as long as the share price remains above the relevant threshold for at least 
20 days after the earliest date of exercise, 33% vest at a share price of 110p, 66% vest at 125p and 100% vest at 140p.
H Baker-Smith: 133,500 options with an exercise price of 131p 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 200p, 66% vest at 225p and 100% vest at 250p. 16,500 
options with an exercise price of 131p 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 250p, 66% vest at 300p and 100% vest at 350p.
All options detailed above additionally require EPS growth over the three year vesting period to be more than RPI + 5% per annum compound.
Options granted during 2003 under the Xaar plc 1997 share option scheme:
   Number  Exercise price
I Dinwoodie    200,000  36p
N Berry    200,000  36p
S Temple    200,000  36p
H Baker-Smith    200,000  36p
These options will vest as long as the share price remains above 76p for at least 20 consecutive days after the earliest date of exercise.
Options granted under the Xaar plc 2004 share option plan:
  Date of grant Number  Exercise price
I Dinwoodie   20.05.04 100,000  84p
N Berry   20.05.04 100,000  84p
I Dinwoodie   28.10.04 50,000  109p
N Berry   28.10.04 50,000  109p
S Temple   28.10.04 50,000  109p
P Eaves  15.03.05 250,000 192p
I Dinwoodie   15.09.05 200,000 274p
N Berry   15.09.05 100,000 274p
S Temple   15.09.05 100,000 274p
P Eaves  15.09.05 50,000 274p
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 earnings per share (“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 ﬁ nancial year preceding the third anniversary of grant. Performance may be 
retested once only from the date of grant to the fourth or ﬁ fth 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 ﬁ nal ﬁ nancial year in the 
extended period. 
Retesting of performance criteria under the rules of the Xaar plc 2004 share option plan
In 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 2005
On 24 November 2005 I Dinwoodie exercised 50,000 of the 150,000 options with an exercise price of 88p granted on 22 November 2001.
Pension scheme
The company operates a self-administered, deﬁ ned contribution, Inland Revenue approved pension scheme. All current executive directors 
participate in this scheme. Non-executive directors do not receive pension contributions.
Directors’ remuneration report 30
Xaar plc annual report and accounts 2005
Performance graph
The 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.
Terms of appointment
Executive directors’ appointments are terminable by twelve months’ written notice. Non-executive directors’ appointments are terminable by 
six months’ written notice.
The details of directors’ contracts are summarised below:
   Date of contract
I Dinwoodie    13.11.01
N Berry    20.05.02
S Temple    08.10.97
P Eaves    04.02.05
H Baker-Smith    19.01.99 (resigned 24.01.05)
A Rosenfeld    08.10.97
R King    08.10.97
J Scott    10.04.01
M Geary    08.10.97 (resigned 28.04.05)
R Eckelmann   01.10.05
Other directorships
S Temple served as a non-executive director of Global Graphics SA, a company registered in France, throughout the year. S Temple received fees 
of £5,157 during 2005 from the company.
Directors’ remuneration report
                31
Xaar plc annual report and accounts 2005
Audited information
Directors’ remuneration
The remuneration of directors who served during the year was as follows (total remuneration for all directors who served during 2004 was £989,000):
        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  2005  2004  2004
 £’000 £’000  £’000  £’000  £’000  £’000  £’000  £’000  £’000
Executive         
I Dinwoodie  135 — 13 120 268 15 283 242 13
N Berry  125 — 19 89 233 14 247 223 13
S Temple  110 — 16 59 185 12 197 184 12
P Eaves
1
  96 — 15 58 169 11 180 — —
H Baker-Smith
2
 122 — 14 — 136 13 149 221 13
Non-executive
A Rosenfeld  — 40 — — 40 — 40 40 —
R King  — 27 — — 27 — 27 27 —
M Geary
3
 — 6 — — 6 — 6 25 —
J Scott  — 27 — — 27 — 27 27 —
R Eckelmann
1
 — 8 — — 8 — 8 — —
 588 108 77 326 1,099 65 1,164 989 51
1. From date of appointment to the board.
2.  To date of resignation from the board. Included in basic salary is an amount of £115k, in beneﬁ ts an amount of £12k and in pension contributions an amount of £13k 
in relation to amounts due post resignation from the board.
3. To date of resignation from the board.
Directors’ remuneration report 32
Xaar plc annual report and accounts 2005
Directors’ share options
Directors’ 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
Name   1 January  Exercised/ 31 December 2005  exercise date of Expiry
  2005 Granted  lapsed 2005 £ price exercise date
I Dinwoodie   150,000
2
 — (50,000)
4
 100,000 86,500 88p  22.11.04  22.11.11
  100,000
2
 — — 100,000 —  68.5p  12.06.05  12.06.12
  200,000
2 
— — 200,000 — 36p  06.10.06  06.10.13
  26,084
1 
— — 26,084 —  29p  01.12.06  01.06.07
  100,000
2
 — — 100,000 — 84p  20.05.07  20.05.14
  50,000
2 
— — 50,000 — 109p  20.10.07  20.10.14
  1,722
1 
— — 1,722 — 99p  01.11.07  01.05.08
  — 200,000
2 
— 200,000 — 274p 15.09.08 15.09.15
  627,806
2
 200,000 (50,000) 777,806 86,500
N Berry   250,000
2 
— — 250,000 — 71.5p  21.05.05  21.05.12
  200,000
2 
— — 200,000 — 36p  06.10.06  06.10.13
  26,084
1 
— — 26,084 — 29p  01.12.06  01.06.07
  100,000
2
 — — 100,000 —  84p  20.05.07  20.05.14
  50,000
2 
— — 50,000 — 109p  20.10.07  20.10.14
  1,722
1 
 — — 1,722 — 99p  01.11.07  01.05.08
  — 100,000
2
 — 100,000 — 274p 15.09.08 15.09.15
  627,806
2 
100,000 — 727,806 —
S Temple   100,000
2 
— — 100,000 — 74p  22.02.05  22.02.12
  200,000
2
 — — 200,000 — 36p  06.10.06  06.10.13
  50,000
2 
— — 50,000 — 109p  28.10.07  28.10.14
  — 50,000
2
 — 50,000 — 274p 15.09.08 15.09.15
  350,000 50,000 — 400,000 —
P Eaves  — 250,000
2
 — 250,000 — 192p 15.03.08 15.05.15
  — 100,000
2
 — 100,000 — 274p 15.09.08 15.09.15
  — 350,000 — 350,000 —
H Baker-Smith   201,620
2
 — — 201,620
3
 — 62p  20.10.01  20.10.05
(resigned 24   48,380
2
 — — 48,380
3
 — 62p  20.10.01  20.10.08
January 2005)  133,500
2 
— — 133,500
3
 — 131p  23.07.04  23.07.11
  16,500
2 
— — 16,500
3
 — 131p  23.07.06  23.07.08
  200,000
2 
— — 200,000
3
 — 36p  06.10.06  06.10.13
  26,084
1 
— — 26,084
3
 — 29p  01.12.06  01.06.07
  1,7221 — — 1,722
3
 — 99p  01.11.07  01.05.08
  627,806  — — 627,806 —
1. These options were granted under the Xaar plc 1997 Share Save Scheme (SAYE).
2.  These options carry certain speciﬁ c performance criteria which must be achieved prior to vesting. Details are shown in the unaudited section of the directors’ 
remuneration report.
3.  These amounts represent options outstanding as at the date of resignation from the board. As at the date of resignation from the board the 201,620 options 
were exercisable between 15 March 2005 and 5 April 2005. The 48,380 options were exercisable within twelve months of resignation. The 133,500 options were 
exercisable up until 31 October 2006. The 200,000 options were exercisable between 6 October 2006 and 31 December 2006. All other options lapsed 
on resignation.
4. The market price of these shares was 261p at the date of exercise. 
Directors’ remuneration report 33
Xaar plc annual report and accounts 2005
No gains on the exercise of share options were made by directors in 2004.
The market value of the ordinary shares of the company as at 31 December 2005 was 268.5p per share. The closing mid range price ranged from 
138.5p to 295.0p per share during the year.
Approval
This report was approved by the board of directors on 13 March 2006 and signed on its behalf by:
I Dinwoodie
Chief Executive
13 March 2006
Directors’ remuneration report 34
Xaar plc annual report and accounts 2005
The directors are responsible for preparing the annual report and the ﬁ nancial statements. The directors are required to prepare ﬁ nancial 
statements for the group in accordance with International Financial Reporting Standards (IFRSs). Company law requires the directors to prepare 
such ﬁ nancial statements in accordance with IFRS, the Companies Act 1985 and Article 4 of the IAS Regulation.
The directors have elected to prepare ﬁ nancial statements for the company in accordance with United Kingdom Generally Accepted Accounting Practice.
In the case of UK GAAP accounts, the directors are required to prepare ﬁ nancial statements for each ﬁ nancial year which give a true and fair view 
of the state of affairs of the company and of the proﬁ t or loss of the company for that period. In preparing these ﬁ nancial statements, the directors 
are required to:
 select suitable accounting policies and then apply them consistently;
 make judgments and estimates that are reasonable and prudent; and
  state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the 
ﬁ nancial statements.
  prepare the accounts on a going concern basis unless, having assessed the ability of the company to continue as a going concern, 
management intends to either liquidate the entity or to cease trading, or have no realistic alternative but to do so.
In the case of IFRS accounts, International Accounting Standard 1 requires that ﬁ nancial statements present fairly for each ﬁ nancial year the 
company’s ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows. This requires the faithful representation of the effects of transactions, 
other events and conditions in accordance with the deﬁ nitions and recognition criteria for assets, liabilities, income and expenses set out 
in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all 
circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are 
also required to:
  properly select and apply accounting policies;
  present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
  provide additional disclosures when compliance with the speciﬁ c requirements in International Financial Reporting Standards is insufﬁ cient 
to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁ nancial position and ﬁ nancial 
performance; and
  prepare the accounts on a going concern basis unless, having assessed the ability of the company to continue as a going concern, 
management either intends to liquidate the entity or to cease trading, or have no realistic alternative but to do so.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the ﬁ nancial position of 
the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the 
preparation of a directors’ report and directors’ remuneration report which comply with the requirements of the Companies Act 1985.
The directors are responsible for the maintenance and integrity of the company web site. Legislation in the United Kingdom governing the 
preparation and dissemination of ﬁ nancial statements differs from legislation in other jurisdictions.
Statement of directors’ responsibilities 35
Xaar plc annual report and accounts 2005
We have audited the group and individual company ﬁ nancial statements (the “ﬁ nancial statements”) of Xaar plc for the year ended 31 December 2005 which 
comprise the consolidated income statement, the consolidated and individual company balance sheets, the consolidated cash ﬂ ow statement, the 
consolidated statement of recognised income and expenses and the related notes 1 to 38 to the consolidated balance sheet and notes 1 to 8 to 
the company balance sheet. These ﬁ nancial statements have been prepared under the accounting policies set out therein. We have also audited 
the information in the directors’ remuneration report that is described as having been audited. 
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has 
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for 
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the 
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report and the group ﬁ nancial statements in accordance with applicable law and 
International Financial Reporting Standards (IFRSs) as adopted for use in the European Union and for preparing the parent individual company 
ﬁ nancial statements and the directors’ remuneration report in accordance with applicable law and United Kingdom Accounting Standards 
(United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities.
Our responsibility is to audit the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited 
in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland). 
We report to you our opinion as to whether the ﬁ nancial statements give a true and fair view in accordance with the relevant ﬁ nancial reporting 
framework and whether the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited have been 
properly prepared in accordance with the Companies Act 1985 and whether, in addition, the group ﬁ nancial statements have been properly 
prepared in accordance with Article 4 of the IAS Regulation. We also report if, in our opinion, the directors’ report is not consistent with the 
ﬁ nancial statements. We also report to you if the company has not kept proper accounting records, if we have not received all the information and 
explanations we require for our audit, or if information speciﬁ ed by law regarding directors’ remuneration and other transactions is not disclosed.
We also report to you if, in our opinion, the company has not complied with any of the four directors’ remuneration disclosure requirements 
speciﬁ ed for our review by the Listing Rules of the Financial Services Authority. These comprise the amount of each element in the remuneration 
package and information on share options, details of long term incentive schemes, and money purchase and deﬁ ned beneﬁ t schemes. We give 
a statement, to the extent possible, of details of any non-compliance.
We review whether the corporate governance statement reﬂ ects the company’s compliance with the nine provisions of the 2003 FRC Combined 
Code speciﬁ ed for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider 
whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate 
governance procedures or its risk and control procedures.
We read the directors’ report and the other information contained in the annual report for the above year as described in the contents section 
including the unaudited part of the directors’ remuneration report and consider the implications for our report if we become aware of any apparent 
misstatements or material inconsistencies with the ﬁ nancial statements.
Independent auditors’ report to the members of Xaar plc 36
Xaar plc annual report and accounts 2005
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit 
includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the ﬁ nancial statements and the part of the directors’ 
remuneration report described as having been audited. It also includes an assessment of the signiﬁ cant estimates and judgements made by the 
directors in the preparation of the ﬁ nancial statements, and of whether the accounting policies are appropriate to the company’s circumstances, 
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us 
with sufﬁ cient evidence to give reasonable assurance that the ﬁ nancial statements and the part of the directors’ remuneration report to be audited 
are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall 
adequacy of the presentation of information in the ﬁ nancial statements and the part of the directors’ remuneration report described as having 
been audited.
Opinion
In our opinion:
  the group ﬁ nancial statements give a true and fair view, in accordance with IFRSs as adopted for use in the European Union, of the state of the 
group’s affairs as at 31 December 2005 and of its proﬁ t for the year then ended;
  the group ﬁ nancial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
  the individual company ﬁ nancial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting 
Practice, of the state of the individual company’s affairs as at 31 December 2005;
  the individual company ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited have been 
properly prepared in accordance with the Companies Act 1985; and
  the directors’ report is consistent with the ﬁ nancial statements.
Emphasis of matter – trade receivables 
Without qualifying our opinion, we draw attention to the disclosures made in note 20 of the ﬁ nancial statements concerning the possible outcome 
of amounts due from some of the group’s debtors. There is uncertainty over both the timing and quantum of amounts which may be recovered.
Separate opinion in relation to IFRS 
As explained in Note 2 to the ﬁ nancial statements, the group, in addition to complying with its legal obligation to comply with IFRSs as adopted 
for use in the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board. Accordingly, in our 
opinion the ﬁ nancial statements give a true and fair view, in accordance with IFRSs, of the state of the group’s affairs as at 31 December 2005 and 
of its proﬁ t for the year then ended. 
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Cambridge, England
13 March 2006
Independent auditors’ report to the members of Xaar plc 37
Xaar plc annual report and accounts 2005
  2005 2004
 Notes  £’000 £’000
Continuing operations   
Revenue 5 42,772 34,812
Cost of sales   (16,123) (15,078)
Gross profit   26,649 19,734
Distribution costs  (4,038) (2,850)
Administrative expenses  (12,132) (10,590)
Operating profit   10,479 6,294
Investment income 9 576 306
Finance costs 10 (63) (100)
Foreign exchange loss on intercompany loan  (977) (231)
Profit before tax  10,015 6,269
Tax  11 (2,966) (1,658)
Profit for the year attributable to shareholders 7 7,049 4,611
   
Earnings per share from continuing operations   
Basic  13 11.6p 7.7p
Diluted 13 11.1p  7.5p
Dividends paid in the year amounted to £604,000 (2004: £nil). Further disclosures are given in note 12.
  2005 2004
  £’000 £’000
Exchange differences on translation of foreign operations  842 (136)
Gains/(losses) on cashflow hedges  (2,545) 1,348
Tax on items taken directly to equity  1,690 —
Net income recognised directly in equity   (13) 1,212
Profit for the year  7,049 4,611
Total recognised income and expense for the year   7,036 5,823
Consolidated income statement for the year ended 31 December 2005
Consolidated statement of recognised income and expense for the year ended 31 December 2005 38
Xaar plc annual report and accounts 2005
  2005 2004
 Notes £’000 £’000
Non-current assets   
Goodwill 14 720 771
Other intangible assets 15 3,773 2,958
Property, plant and equipment 16 6,436 5,624
Investments 18 1,377 —
Deferred tax asset 23 1,970 —
  14,276 9,353
Current assets   
Inventories 19 2,835 2,485
Trade and other receivables 20 9,142 5,422
Cash and cash equivalents  32 14,395 15,316
Derivative financial instruments 22 — 1,348
  26,372  24,571
Assets held for sale 36 265 —
Total assets   40,913  33,924
Current liabilities   
Trade and other payables 25 (7,875) (8,015)
Current tax liabilities  (2,916) (557)
Obligations under finance leases 24 (556) (632)
Provisions 26 (120)  (72)
Derivative financial instruments 22 (1,197) —
Liabilities directly associated with assets classified as held for sale 36 (15) —
  (12,679)  (9,276)
Net current assets   13,693 15,295
Non-current liabilities   
Deferred tax liabilities 23 — (116)
Obligations under finance leases 24 (681) (1,278)
  (681) (1,394)
Total liabilities   (13,360) (10,670)
Net assets   27,553 23,254
Equity   
Share capital  27 6,115  6,013
Share premium  28 9,376  8,713
Own shares  29 (3,420) (20)
Other reserves  31 2,386  1,884
Hedging and translation reserves  30 (131) 1,212
Retained earnings  31 13,227  5,452
Equity attributable to shareholders   27,553  23,254
Total equity   27,553  23,254
The ﬁ nancial statements were approved by the board of directors and authorised for issue on 13 March 2006.
They were signed on its behalf by:
I Dinwoodie  N Berry
Director  Director
13 March 2006
Consolidated balance sheet as at 31 December 2005 39
Xaar plc annual report and accounts 2005
  2005 2004
 Notes £’000 £’000
Net cash from operating activities  32 7,862  10,224
Investing activities   
Interest received   577 308
Purchases of property, plant and equipment   (2,579) (1,748)
Proceeds on disposal of property, plant and equipment   1 9
Purchases of trading investments  (1,377) —
Expenditure on product development   (1,220) (1,583)
Net cash used in investing activities   (4,598) (3,014)
Financing activities   
Dividends paid   (604)  —
Proceeds from issue of ordinary share capital   754  179
Repayments of obligations under finance leases  (553)  (623)
Purchase of own shares  (3,400) —
Net cash used in financing activities   (3,803) (444)
Net (decrease)/increase in cash and cash equivalents   (539) 6,766
Cash and cash equivalents at beginning of year  15,316 8,458
Effect of foreign exchange rate changes  (382) 92
Cash and cash equivalents at end of year  14,395 15,316
Consolidated cash ﬂ ow statement for the year ended 31 December 2005 40
Xaar plc annual report and accounts 2005
1. General information
Xaar plc (the company) is incorporated in the United Kingdom under the Companies Act 1985. The address of the registered ofﬁ ce is given on 
page 76. The nature of the group’s operations and its principal activities are set out in the directors’ report on page 20. 
2. Adoption of new and revised International Financial Reporting Standards
In the current year, the group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting 
Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to 
its operations and effective for accounting periods beginning on 1 January 2005. The adoption of these new and revised Standards and 
Interpretations has resulted in changes to the group’s accounting policies in the following areas that have affected the amounts reported for 
the current or prior years:
  share-based payments (IFRS 2);
  goodwill (IFRS 3);
  ﬁ nancial instruments (IAS 32 and IAS 39); and
  capitalisation of development costs (IAS 38).
The impact of these changes in accounting policies is discussed in detail in Note 38.
At the date of authorisation of these ﬁ nancial statements, the following Standards and Interpretations were in issue but not yet effective:
IFRS 6 Exploration for an Evaluation of Mineral Resources
IFRIC 3 Emission Rights
IFRIC 4 Determining whether an Arrangement contains a Lease
IFRIC 5 Rights to Interest Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the ﬁ nancial 
statements of the group.
3. Key sources of estimation uncertainty
The key assumptions concerning the future, and other sources of estimation uncertainty at the balance sheet date, that have a signiﬁ cant risk of 
causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year, are discussed below.
Provisions
Throughout the year, management consider the carrying value of both debtors and inventory balances. Provisions against both balances are made 
on the basis of past losses, current trading patterns and anticipated future events.
4. Signiﬁ cant accounting policies
Basis of accounting
The ﬁ nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted for use in the 
European Union for the ﬁ rst time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in Note 38. 
The ﬁ nancial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with 
Article 4 of the EU IAS Regulation.
The ﬁ nancial information has been prepared on the basis of all applicable IFRSs, including all International Accounting Standards (IAS), Standing 
Interpretations Committee (SIC) interpretations and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued 
by the International Accounting Standards Board (IASB) before 31 December 2005. These include IFRS endorsed by the EU and those awaiting 
formal endorsement. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 41
Xaar plc annual report and accounts 2005
The rules for ﬁ rst adoption of IFRS are set out in IFRS 1, “First-time Adoption of International Financial Reporting Standards”. IFRS 1 requires use 
of the same accounting policies in the IFRS transition balance sheet and for all periods presented thereafter. The accounting policies must comply 
with all IFRS’s effective at the reporting date for the ﬁ rst ﬁ nancial reporting under IFRS, the year ended 31 December 2005.
IFRS 1 permits companies adopting IFRS for the ﬁ rst time to take exemptions from the full requirements of IFRS in the transition period. 
This ﬁ nancial information has been prepared on the basis of taking the following exemptions:
 Business combinations prior to 1 January 2004 have not been restated to comply with IFRS 3 “Business Combinations”;
  Cumulative translation differences on foreign operations are deemed to be £nil at 1 January 2004. Any gains and losses recognised in the 
consolidated income statement on subsequent disposals of foreign operations will therefore exclude translation differences arising prior to the 
transition date; and
  Fixed assets have not been revalued as at the date of transition. The depreciated cost has been assumed as the effective carrying value for 
IFRS purposes.
The ﬁ nancial information presented for the year ended 31 December 2004 has been restated to comply with IFRS. 
The ﬁ nancial statements have been prepared on the historical cost basis, except for the revaluation of ﬁ nancial instruments. The principal 
accounting policies adopted are set out below.
Basis of consolidation
The consolidated ﬁ nancial statements incorporate the ﬁ nancial statements of the company (Xaar plc) and entities controlled by the company 
(its subsidiaries) made up to 31 December each year. Control is achieved where the company has the power to govern the ﬁ nancial and operating 
policies of an investee entity so as to obtain beneﬁ ts from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of 
acquisition or up to the effective date of disposal, as appropriate. 
Where necessary, adjustments are made to the ﬁ nancial statements of subsidiaries to bring the accounting policies used in line with those used 
by the group. 
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method, except the company has accounted for Xaar Technology Limited 
under merger accounting principles.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination 
over the group’s interest in the net fair value of the identiﬁ able assets, liabilities and contingent liabilities recognised. If, after reassessment, the 
group’s interest in the net fair value of the acquiree’s identiﬁ able assets, liabilities and contingent liabilities exceeds the cost of the business 
combination, the excess is recognised immediately in proﬁ t or loss.
Non-current assets held for sale
Non-current assets (and disposal groups) classiﬁ ed as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classiﬁ ed as held for sale if their carrying amount will be recovered through a sale transaction rather 
than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available 
for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a 
completed sale within one year from the date of classiﬁ cation.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 42
Xaar plc annual report and accounts 2005
4. Signiﬁ cant accounting policies (continued)
Goodwill
Goodwill arising on consolidation is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment 
losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in proﬁ t 
or loss and is not subsequently reversed.
For the purposes of impairment testing, goodwill is allocated to each of the group’s cash-generating units expected to beneﬁ t from the synergies 
of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there 
is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, 
the impairment loss is allocated ﬁ rst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit 
pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a 
subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the proﬁ t or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being 
tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in 
determining any subsequent proﬁ t or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services 
provided in the normal course of business, net of discounts, VAT and other sales related taxes, but gross of any tax withheld. 
Sales of goods are recognised when goods are delivered and title has passed.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate 
that exactly discounts estimated future cash receipts through the expected life of the ﬁ nancial asset to that asset’s net carrying amount.
Leasing
Leases are classiﬁ ed as ﬁ nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. 
All other leases are classiﬁ ed as operating leases.
Assets held under ﬁ nance leases are recognised as assets of the group at their fair value or, if lower, at the present value of the minimum lease 
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a ﬁ nance 
lease obligation. Lease payments are apportioned between ﬁ nance charges and reduction of the lease obligation so as to achieve a constant rate 
of interest on the remaining balance of the liability. Finance charges are charged directly against income. 
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease, even if the payments are 
not made on such a basis.
Foreign currencies
The individual ﬁ nancial statements of each group company are presented in the currency of the primary economic environment in which it 
operates (its functional currency). For the purpose of the consolidated ﬁ nancial statements, the results and ﬁ nancial position of each group 
company are expressed in pounds sterling, which is the functional currency of the company, and the presentation currency for the consolidated 
ﬁ nancial statements. 
In preparing the ﬁ nancial statements of the individual companies, transactions in currencies other than the entity’s functional currency 
(foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions or, if hedged, at the forward contract rate. 
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on 
the balance sheet date or, if appropriate, at the forward contract rate. Non-monetary items carried at fair value that are denominated in foreign 
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms 
of historical cost in a foreign currency are not retranslated. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 43
Xaar plc annual report and accounts 2005
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the proﬁ t or loss for 
the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the proﬁ t or loss for the 
period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in 
equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. 
In order to hedge its exposure to certain foreign exchange risks, the group enters into forward contracts (see below for details of the group’s 
accounting policies in respect of such derivative ﬁ nancial instruments).
For the purposes of presenting consolidated ﬁ nancial statements, the assets and liabilities of the group’s foreign operations are translated at the 
exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. 
Exchange differences arising, if any, are classiﬁ ed as equity and transferred to the group’s translation reserve. Such translation differences are 
recognised as income or as expenses in the period in which the operation is disposed of. 
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and 
translated at the closing rate. The group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of 
transition to IFRSs as sterling denominated assets and liabilities. 
Government grants
Government grants relating to research and development are treated as income over the periods necessary to match them with the related costs. 
Government grants relating to property, plant and equipment are treated as deferred income and released to proﬁ t or loss over the expected useful 
lives of the assets concerned. 
Operating proﬁ t
Operating proﬁ t is stated before investment income and ﬁ nance costs.
Retirement beneﬁ t costs
Payments to deﬁ ned contribution retirement beneﬁ t schemes are charged as an expense as they fall due. Payments made to state-managed 
retirement beneﬁ t schemes are dealt with as payments to deﬁ ned contribution schemes where the group’s obligations under the schemes are 
equivalent to those arising in a deﬁ ned contribution retirement beneﬁ t scheme.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax, including UK corporation tax and foreign tax.
The tax currently payable is based on taxable proﬁ t for the year. Taxable proﬁ t differs from net proﬁ t as reported in the income statement because 
it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or 
deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance 
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the ﬁ nancial 
statements and the corresponding tax bases used in the computation of taxable proﬁ t, and is accounted for using the balance sheet liability 
method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent 
that it is probable that taxable proﬁ ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities 
are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business 
combination) of other assets and liabilities in a transaction that affects neither the tax proﬁ t nor the accounting proﬁ t. 
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the group is able to 
control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 44
Xaar plc annual report and accounts 2005
4. Signiﬁ cant accounting policies (continued)
Taxation (continued)
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that 
sufﬁ cient taxable proﬁ ts will be available to allow all or part of the asset to be recovered. 
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is 
charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax 
is also dealt with in equity. 
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and 
when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a 
net basis. 
Property, plant and equipment
All ﬁ xed assets are shown at original historical cost less accumulated depreciation and any recognised impairment loss. 
Assets in the course of construction for production or administrative purposes are carried at cost, less any recognised impairment loss. 
Depreciation of these assets, on the same basis as other assets in the same class, commences when the assets are ready for their intended use.
Depreciation is charged so as to write off the cost or valuation of assets, other than assets in the course of construction, over their estimated 
useful lives, using the straight-line method, on the following bases: 
Improvements to leasehold property  ten years
Plant and machinery  three-ﬁ ve years
Furniture, ﬁ ttings and equipment  three-ﬁ ve years
Motor vehicles  three years
Assets held under ﬁ nance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the 
term of the relevant lease.
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the 
asset and is recognised in income. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 45
Xaar plc annual report and accounts 2005
Internally generated intangible assets - research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the group’s development of new products is recognised only if all of the following 
conditions are met:
  an asset is created that can be identiﬁ ed (such as software and new processes);
  it is probable that the asset created will generate future economic beneﬁ ts; and
  the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally generated intangible asset 
can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. 
Patents, trademarks, licence rights and software
Costs incurred in maintaining the patent and trademark portfolio are written off to the proﬁ t and loss account as incurred. 
Payments in respect of software and licence rights acquired are capitalised at cost and amortised on a straight-line basis over their estimated 
useful lives.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any 
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in 
order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂ ows that are independent from other assets, 
the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indeﬁ nite useful 
life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂ ows are 
discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks 
speciﬁ c to the asset for which the estimates of future cash ﬂ ows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset 
(cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset 
is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate 
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had 
no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as 
income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as 
a revaluation increase.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 46
Xaar plc annual report and accounts 2005
4. Signiﬁ cant accounting policies (continued)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour costs and an attributable 
proportion of manufacturing overheads based on normal levels of activity that have been incurred in bringing the inventories to their present 
location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less 
all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow-moving 
or defective items where applicable.
Financial instruments
Financial assets and ﬁ nancial liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual provisions 
of the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in proﬁ t 
or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s 
carrying amount and the present value of estimated future cash ﬂ ows discounted at the effective interest rate computed at initial recognition. 
Investments
Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require 
delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.
Investments are classiﬁ ed as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where 
investments are held for trading purposes, gains and losses arising from changes in fair value are included in net proﬁ t or loss for the period.
Fixed asset investments are shown at cost less any provision for impairment. 
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short term highly liquid investments that are readily 
convertible to a known amount of cash and are subject to an insigniﬁ cant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classiﬁ ed according to the substance of the contractual arrangements entered into. An equity 
instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The accounting policies 
adopted for speciﬁ c ﬁ nancial liabilities and equity instruments are set out below.
Bank borrowings
Interest-bearing bank overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on 
settlement or redemption and direct issue costs, are accounted for on an accrual basis in proﬁ t or loss using the effective interest rate method and 
are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are measured at original cost. 
Equity instruments
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 47
Xaar plc annual report and accounts 2005
Derivative ﬁ nancial instruments and hedge accounting
The group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates and interest rates, and liquidity risk. 
The group uses derivative ﬁ nancial instruments (primarily foreign currency forward contracts) to hedge its risks associated with foreign currency 
ﬂ uctuations relating to certain ﬁ rm commitments and forecasted transactions. 
The group’s interest rate risk arises mainly from its funds invested in short term bank deposits. To mitigate these risks, limits have been set by the 
board in relation to maturity period and maximum deposits with any one institution. 
In order to mitigate the group’s liquidity risks, the policy is to fund signiﬁ cant ﬁ xed asset purchases by ﬁ nance leases repayable over a period of 
three to ﬁ ve years dependent on the individual asset being ﬁ nanced. Finance leases and hire purchase commitments are the only borrowings of 
the group.
The use of ﬁ nancial derivatives is governed by the group’s policies approved by the board of directors, which provides written principles on the 
use of ﬁ nancial derivatives consistent with the group’s risk management strategy. The group does not use derivative ﬁ nancial instruments for 
speculative purposes. 
Derivative ﬁ nancial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. 
Changes in the fair value of derivative ﬁ nancial instruments that are designated and effective as hedges of future cash ﬂ ows are recognised directly 
in equity and the ineffective portion is recognised immediately in the income statement. If the cash ﬂ ow hedge of a ﬁ rm commitment or forecasted 
transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on 
the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not 
result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which 
the hedged item affects net proﬁ t or loss.
Changes in fair value of derivative ﬁ nancial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualiﬁ es for hedge 
accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted 
transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred 
to net proﬁ t or loss for the period. 
Derivatives embedded in other ﬁ nancial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are 
not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 48
Xaar plc annual report and accounts 2005
4. Signiﬁ cant accounting policies (continued)
Provisions
Provisions are recognised when the group has a present obligation as a result of a past event, and it is probable that the group will be required 
to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance 
sheet date, and are discounted to present value where the effect is material.
Share-based payments
The group has applied the requirements of IFRS 2 Share-based payment. In accordance with the transitional provisions, IFRS 2 has been applied 
to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.
The group issues equity-settled share-based payments to certain employees. These payments are measured at fair value (excluding the effect of 
non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments 
is expensed on a straight-line basis over the vesting period, based on the group’s estimate of the shares that will eventually vest and adjusted for 
the effect of non market-based vesting conditions.
Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s 
best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations
5. Revenue
An analysis of the group’s revenue is as follows:
   2005  2004
   £’000  £’000
Sales of goods    39,872 33,064 
Development fees    1,587 612 
Licence fees and royalties    1,313 1,136 
   42,772 34,812 
Investment income   576 306
   43,348 35,118
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 49
Xaar plc annual report and accounts 2005
6. Business and geographical segments
Business segments
For management reporting purposes, the group’s operations are currently analysed according to product type. These product groups are the basis 
on which the group reports its primary segment information. 
Principal product groups are as follows:
Printheads and related products
Development fees
Licence fees and royalties
Segment information about these product types is presented below.
   2005  2004
   £’000  £’000
Revenue    
Printheads and related products   39,872 33,064
Development fees    1,587 612 
Licence fees and royalties    1,313 1,136 
Total revenue   42,772 34,812 
   2005  2004
   £’000  £’000
Result  
Printheads and related products   24,100 18,296
Development fees    464 230
Licence fees and royalties    1,049 932
Total segment results   25,613 19,458
Unallocated corporate expenses   (15,134) (13,164)
Profit from operations   10,479 6,294
Investment income   576 306
Finance costs   (63) (100)
Foreign exchange loss on intercompany loan   (977) (231)
Profit before tax   10,015 6,269
Tax   (2,966) (1,658)
Proﬁ t after tax   7,049 4,611
Other information
 Printheads and  Development Licence fees 
 related products  fees and royalties Consolidated
 2005 2005 2005 2005
 £’000 £’000 £’000 £’000
Capital additions 2,694 1,265 — 3,959
Depreciation and amortisation 1,454 273 57 1,784
Balance sheet    
Assets 
Segment assets 15,816 3,667 525 20,008
Unallocated corporate assets    20,905
Consolidated total assets    40,913
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 50
Xaar plc annual report and accounts 2005
6. Business and geographical segments (continued)
Other information (continued)
 Printheads and  Development Licence fees 
 related products  fees and royalties Consolidated
 2005 2005 2005 2005
 £’000 £’000 £’000 £’000
Liabilities    
Segment liabilities (4,934) (1,549) (69) (6,552)
Unallocated corporate liabilities    (6,808)
Consolidated total liabilities    (13,360)
 Printheads and  Development Licence Fees 
 related products  fees and royalties Consolidated
 2004 2004 2004 2004
 £’000 £’000 £’000 £’000
Capital additions 1,006 1,147 — 2,153
Depreciation and amortisation 1,412 155 57 1,624
Balance sheet    
Assets 
Segment assets 10,850 2,498 585 13,933
Unallocated corporate assets    19,991
Consolidated total assets    33,924
Liabilities    
Segment liabilities (4,896) (667) (60) (5,623)
Unallocated corporate liabilities    (5,047)
Consolidated total liabilities    (10,670)
Geographical segments
The group’s operations are located in Europe, Asia and North and South America. The following table provides an analysis of the group’s sales by 
geographical market, irrespective of the origin of the goods:
   2005  2004
   £’000  £’000
Europe and Middle East    14,025 11,308 
Asia    25,440 19,748 
Americas    3,307 3,756 
   42,772 34,812 
Substantially, all assets and additions to property, plant and equipment and intangible assets are located in Europe and the Middle East.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 51
Xaar plc annual report and accounts 2005
7. Proﬁ t for the year
Proﬁ t for the year has been arrived at after charging:
   2005  2004
   £’000  £’000
Net foreign exchange losses   752 539
Research and development costs   4,613 3,841
Government grants towards research and development   502 —
Depreciation of property, plant and equipment   1,936 1,865
Amortisation of internally generated intangible assets included in administrative expenses  103 —
Amortisation of other intangible assets included in administrative expenses   301 295
Staff costs (see Note 8)   11,346 10,179
Auditors’ remuneration for audit services (see below)   130 96
Amounts payable to Deloitte & Touche LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit 
services were £222,000 (2004: £90,000). 
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
 2005 2005 2004 2004
 £’000  % £’000 %
Audit services    
– statutory audit 105 27 94 47
– audit-related regulatory reporting 25 6 2 1
 130 33 96 48
Further assurance services 7 2 — —
 137 35 96 48
Tax services    
– compliance services 52 14 41 21
– advisory services 177 46 49 25
 229 60 90 46
Other services    
– employee related tax advice 19 5 12 6
 385 100 198 100
Fees for further assurance services principally comprise assistance with preparation of statutory accounts for overseas subsidiary companies. 
A description of the work of the audit committee is set out in the audit committee report on page 25 and includes an explanation of how auditor 
objectivity and independence is safeguarded when non-audit services are provided by the auditors.
The audit fee for Xaar plc in 2005 was £17,000 (2004: £15,000).
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 52
Xaar plc annual report and accounts 2005
8. Staff costs
The average monthly number of persons employed by the group including executive directors was as follows:
   2005  2004
   Number  Number
Research and development    59 54 
Sales and marketing    33 28 
Manufacturing and engineering    142 132 
Administration    26 21 
   260 235 
Their aggregate remuneration comprised:
   2005  2004
   £’000  £’000
Wages and salaries    8,874 7,760 
Social security costs    1,923 1,784 
Other pension costs (see Note 35)   549 635 
   11,346 10,179 
9. Investment income
   2005  2004
   £’000  £’000
Interest receivable on short term deposits    576 306 
10. Finance costs
   2005  2004
   £’000  £’000
Interest on bank loans and overdrafts    10 31 
Interest on obligations under ﬁ nance leases   53 69 
   63 100 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 53
Xaar plc annual report and accounts 2005
11. Tax
   2005  2004
  Note £’000  £’000
Current tax    3,346 1,021 
Deferred tax  23 (380) 637
   2,966 1,658 
The standard rate of tax for the year, based on the UK standard rate of corporation tax is 30%. Taxation for other jurisdictions is calculated at the 
rates prevailing in the respective jurisdictions.
The charge for the year can be reconciled to the proﬁ t per the income statement as follows:
   2005  2004
   £’000  £’000
Profit on ordinary activities before tax    10,015 6,269
Tax on ordinary activities at standard rate of 30% (2004: 30%)   3,004 1,881 
Effect of:  
Expenses not deductible for tax purposes    2,695 49 
Effect of foreign tax rates    (102) (114) 
Unrelieved foreign tax suffered    114 54 
Enhanced tax deduction for Research and Development expenditure    (146) (233) 
Deferred tax (asset)/liability not previously recognised   (2,599) 2 
Prior period adjustments   — 19
Total tax expense for the year   2,966 1,658 
The effective tax rate for the year is 29.6% (2004: 26.4%).
12. Dividends
   2005  2004
   £’000  £’000
Amounts recognised as distributions to equity holders in the period:    
Final dividend for the year ended 31 December 2004 of 1p (2003: nil) per share  604 —
Proposed ﬁ nal dividend for the year ended 31 December 2005 of 1.5p (2004: 1p) per share  909 604 
The proposed ﬁ nal dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these 
ﬁ nancial statements.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 54
Xaar plc annual report and accounts 2005
13. Earnings per ordinary share – basic and diluted
The calculation of the basic and diluted earnings per share is based on the following data:
   2005  2004
   £’000  £’000
Earnings   
Earnings for the purposes of basic earnings per share being net proﬁ t attributable to equity holders of the parent 7,049 4,611
Number of shares  
Weighted average number of ordinary shares for the purposes of basic earnings per share  60,578,422 60,043,056
Effect of dilutive potential ordinary shares:  
Share options   2,921,181 1,703,904
Weighted average number of ordinary shares for the purposes of diluted earnings per share  63,499,603 61,746,960
The calculation of earnings per share excluding foreign exchange loss on the inter-company loan is based on earnings of:
   2005  2004
   £’000  £’000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 7,049 4,611
Foreign exchange loss on the inter-company loan    977 231 
Tax effect of loss on inter-company loan   (293) (69)
Proﬁ t on ordinary activities after tax excluding foreign exchange loss on the inter-company loan   7,733 4,773 
The denominators used are the same as those detailed above for both basic and diluted earnings per share.
Earnings per share excluding foreign exchange loss on the inter-company loan:
   2005  2004
   £’000  £’000
Basic   12.8p 7.9p 
Diluted   12.2p 7.7p 
This additional earnings per share information is considered to provide a fairer representation of the company’s trading performance year on year.
14. Goodwill
The carrying amount of goodwill at 31 December 2005 was £720,000 (2004: £771,000). There were no accumulated impairment losses at the end 
of either period.
    2005
    £’000
Carrying amount at 1 January 2005    771
Classiﬁ ed as held for sale    (51)
Carrying amount at 31 December 2005    720
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 55
Xaar plc annual report and accounts 2005
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to beneﬁ t from that 
business combination. The carrying amount of goodwill had been allocated as follows:
   2005  2004
   £’000  £’000
Printheads and related products (a single CGU)   720 771
The group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amount of the CGU is determined from a value in use calculation. The key assumptions for the value in use calculation are those 
regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount 
rates using pre-tax rates that reﬂ ect current market assessments of the time value of money and the risks speciﬁ c to the CGU. The growth rates are 
based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in 
the market. 
The group prepares cash ﬂ ow forecasts derived from the most recent ﬁ nancial budgets approved by management for the next ﬁ ve years. The rate 
used to discount the forecast cash ﬂ ows from the group’s printheads and related products activities is 12%. This rate does not exceed the average 
long-term growth rate for the relevant markets.
Having performed impairment testing, no impairment has been identiﬁ ed, and therefore no impairment loss has been recognised in either period.
15. Other intangible assets
 Internally- Other
 generated product product 
  development development Licences
 costs  costs  acquired  Software Total
 £’000 £’000  £’000  £’000 £’000
Cost    
At 1 January 2005  2,107 460 533  486 3,586
Additions  867 352 — — 1,219
At 31 December 2005  2,974 812 533 486 4,805
Amortisation    
At 1 January 2005  — 153  245  230 628
Charge for the year  103 153 57 91 404
At 31 December 2005  103 306 302 321 1,032
Carrying amount     
At 31 December 2005  2,871 506 231 165 3,773
At 31 December 2004  2,107 307  288  256 2,958
The amortisation period for software and development costs incurred on the group’s product development is three years.
Internally-generated product development costs relate to the OmniDot and HSS range of printheads. The remaining amortisation period of these 
costs are two years and three years from the date of initial production, respectively.
Licences acquired are amortised over their estimated useful lives, which is on average nine years. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 56
Xaar plc annual report and accounts 2005
16. Property, plant and equipment
   Furniture, Assets in the   
 Leasehold  Plant and  fittings and  course of  Motor 
 property  machinery  equipment  construction  vehicles Total
 £’000  £’000  £’000  £’000  £’000  £’000
Cost      
At 1 January 2005  2,273  12,808  1,274  47  14  16,416
Additions  138 757 278 1,968 — 3,141
Transfers  — 147 — (147) — —
Exchange movements  (85) (526) (21) (6) — (638)
Disposals  — (29) (153) — — (182)
At 31 December 2005  2,326 13,157 1,378 1,862 14 18,737
Depreciation      
At 1 January 2005  1,164  8,688  926 —  14  10,792
Charge for the year  275 1,454 207 — — 1,936
Exchange movements  (43) (290) (17) — — (350)
Disposals  — (29) (48) — — (77)
At 31 December 2005  1,396 9,823 1,068 — 14 12,301
Carrying amount      
At 31 December 2005  930 3,334 310 1,862 — 6,436
At 31 December 2004  1,109  4,120  348 47  —  5,624
Leased assets included in the above:
Carrying amount      
At 31 December 2005  — 1,169 4 — — 1,173
At 31 December 2004  — 1,889  10 — —  1,899
At 31 December 2005, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to 
£57,000 (2004: £92,000).
17. Subsidiaries
A list of the investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in Note 8 to the 
company’s separate ﬁ nancial statements.
18. Investments
   2005  2004
   £’000  £’000
Trading investments    1,377 —
These investments represent the original cost of investments in companies that present the group with opportunity for return through trading gains. 
The directors consider that the fair value of these investments is not signiﬁ cantly different from the original cost. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 57
Xaar plc annual report and accounts 2005
19. Inventories
   2005  2004
   £’000  £’000
Raw materials and consumables    1,055 934 
Work in progress    533 450 
Finished goods    1,247 1,101 
   2,835 2,485 
There is no material difference between the balance sheet value of stocks and their replacement cost.
20. Other ﬁ nancial assets
   2005  2004
   £’000  £’000
Trade and other receivables    
Amounts receivable for the sale of goods   9,142 5,422
The average credit period taken on sales of goods is 53 days. An allowance has been made for estimated irrecoverable amounts from the sale of 
goods of £450,000 (2004: £335,000). This allowance has been determined by reference to past default experience. 
Included within trade and other receivables is an overdue amount of £1.7m in relation to certain customers in China. The directors have assessed 
the need for a further provision against this risk, are actively pursuing these amounts, have concluded that no further provision is required at 
present, and are of the opinion that substantially all amounts from these debtors are recoverable.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
Bank balances and cash comprise cash held by the group and short term bank deposits with an original maturity of three months or less. 
The carrying amount of these assets approximates their fair value.
Credit risk
The group’s principal ﬁ nancial assets are bank balances and cash and trade and other receivables. 
The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful 
receivables. An allowance for impairment is made where there is an identiﬁ ed loss event which, based on previous experience, is evidence of a 
reduction in the recoverability of the cash ﬂ ows. 
The credit risk on liquid funds and derivative ﬁ nancial instruments is limited because the counterparties are banks with high credit-ratings assigned 
by international credit-rating agencies.
The group has no signiﬁ cant concentration of credit risk, with exposure spread over a large number of counterparties and customers. 
21. Bank overdrafts
The group had undrawn committed borrowing facilities at 31 December 2005 of £2.0m (2004: £2.0m) in respect of which all conditions precedent 
had been met. The facility is scheduled for review by 2 May 2006. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 58
Xaar plc annual report and accounts 2005
22. Derivative ﬁ nancial instruments
The group utilises currency derivatives to hedge signiﬁ cant future transactions and cash ﬂ ows. The group is party to a variety of foreign currency 
forward contracts and options in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the 
currencies of the group’s principal markets. 
At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the group has committed are as below.
   2005  2004
   US$’000 US$’000
Forward foreign exchange contracts   35,250 31,500
These arrangements are designed to address signiﬁ cant exchange exposures for 2006, and are renewed on a revolving basis as required.
At 31 December 2005, the fair value of the group’s currency derivatives is estimated to be a liability of approximately £1,197,000 (2004: asset of 
£1,348,000). These amounts are based on market values of equivalent instruments at the balance sheet date, comprising £1,197,000 liabilities 
included in trade and other payables (2004: £1,348,000 assets included in trade and other receivables). These derivatives are all designated and 
effective as cashﬂ ow hedges and have been deferred in equity.
The group does not currently designate its foreign currency denominated debt as a hedging instrument for the purpose of hedging the translation 
of its foreign operations.
23. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior 
reporting period.
 Accelerated tax Cashflow  Share-based  Untaxed  Other temporary 
  depreciation   hedges  payment reserves Tax losses difference Total
 £’000  £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2004 (430) — — 256 (359) (18) (551)
Charge/(credit) to income 139 — (141) 407 343 (111) 637
Charge/(credit) to equity — 404 (404) — — — —
Exchange differences 3 — — 26 16 (15) 30
At 1 January 2005 (288) 404 (545) 689 — (144) 116
Charge/(credit) to income 10 — — 458 (1,102) 254 (380)
Credit to equity — (764) (926) — — — (1,690)
Exchange differences 10 — — (52) — 26 (16)
At 31 December 2005 (268) (360) (1,471) 1,095 (1,102) 136 (1,970)
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 59
Xaar plc annual report and accounts 2005
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for ﬁ nancial 
reporting purposes:
   2005  2004
   £’000  £’000
Deferred tax liabilities   — 116
Deferred tax assets   1,970 —
At the balance sheet date, the group has unused tax losses of £3,674k (2004: £7,728k) available for offset against future proﬁ ts. A deferred tax 
asset has been recognised in respect of £3,674k (2004: £nil) of such losses. 
24. Obligations under ﬁ nance leases
  Minimum lease payments
   2005  2004
   £’000 £’000
Amounts payable under finance leases:
Within one year   556 632
In the second to fifth years inclusive   681 1,278
After ﬁ ve years   — —
   1,237 1,910
Less: amount due for settlement within twelve months
(shown under current liabilities)   (556) (632)
Amount due for settlement after twelve months   681 1,278
The amounts included above are not considered to be materially different from the present value of minimum lease payments.
It is the group’s policy to lease certain of its ﬁ xtures and equipment under ﬁ nance leases. The average lease term is ﬁ ve years. For the year ended 
31 December 2005, the average effective borrowing rate was 5.8% (2004: 5.8%). Interest rates are ﬁ xed at the contract date. All leases are on a 
ﬁ xed repayment basis and no arrangements have been entered into for contingent rental payments.
The majority of lease obligations are denominated in Swedish kronor.
The fair value of the group’s lease obligations approximates their carrying amount. 
The group’s obligations under ﬁ nance leases are secured by the lessors’ rights over the leased assets.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 60
Xaar plc annual report and accounts 2005
25. Other ﬁ nancial liabilities
   2005  2004
   £’000  £’000
Trade and other payables    
Trade creditors and accruals   7,875 8,015
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit taken for trade 
purchases is 53 days.
The directors consider that the carrying amount of trade payables approximates to their fair value.
26. Provisions
  Warranty  Restructuring 
  provision  provision Total
  £’000  £’000  £’000
At 1 January 2005   54 18 72
Additional provision in the year  66 — 66
Utilisation of provision   — (18) (18)
At 31 December 2005   120 — 120
The warranty provision represents management’s best estimate of the group’s liability under twelve month warranties granted on printheads, 
based on past experience of returns for defective products. 
27. Share capital
   2005  2004
   £’000  £’000
Authorised:    
70,000,000 ordinary shares of 10p each    7,000 7,000 
Issued and fully paid:    
61,146,281 (2004: 60,127,416) ordinary shares of 10p each    6,115 6,013 
The movement during the year on the company’s issued and fully paid shares was as follows:
  2005  2005  2004
  Number  £’000  £’000
At beginning of year   60,127,416 6,013 5,983
Exercise of share options   1,018,865 102 30 
At end of year   61,146,281 6,115 6,013 
The company has one class of ordinary shares which carry no right to ﬁ xed income.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 61
Xaar plc annual report and accounts 2005
Options have been granted under separate share option schemes to subscribe for ordinary shares of the company as follows:
   Number of shares  Subscription price
Scheme   Date of grant under option  per share
Xaar plc 1997 Share Option Scheme   20.10.99  50,000  115p
  18.04.00  50,000  279p
  18.12.00  25,000  142p
  16.02.01  30,000 160p
  22.11.01  100,000  88p
  22.02.02  100,000  74p
  21.05.02  250,000  71.5p
  12.06.02  100,000  68.5p
  19.11.02 128,400  25p
  15.01.03  40,000  27p
  06.03.03  100,000  40p
  06.10.03  800,000  36p
  03.11.03  50,000  36p
   1,823,400 
Xaar plc 2004 Share Option Plan   20.05.04  635,000  84p
  28.10.04  385,000  109p
  15.03.05 270,000 192p
  13.04.05 90,000 208.5p
  15.09.05 877,500 274p
   2,257,500 
Xaar plc Share Save Scheme   01.11.03  405,628  29p
  01.11.04  94,964  99p
   500,592 
Total share options outstanding at 31 December 2005   4,581,492 
Options under the Xaar plc 1997 Share Option Scheme are exercisable within three to seven years after the date of the grant, except that approved 
options, and unapproved options granted after 27 March 2001, are exercisable within three to ten years after the date of the grant. Options granted 
under the Xaar plc 2004 Share Option Plan are exercisable within three to ten years after the date of the grant. The maximum value of approved 
options, under the Xaar plc 1997 Share Scheme and the Xaar plc 2005 Share Option Plan, which may be granted to individual employees is £30,000.
Options under the Xaar plc Share Save Scheme are exercisable between 36 and 42 months after the date of the grant.
28. Share premium account
    2005 
    £’000 
Balance at 1 January 2005    8,713
Premium arising on issue of equity shares     663
Balance at 31 December 2005    9,376
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 62
Xaar plc annual report and accounts 2005
29. Own shares
    2005
    £’000
Balance at 1 January 2005    (20)
Acquired in the period     (3,400)
Balance at 31 December 2005    (3,420)
The balance at 1 January 2005 represents 91,250 ordinary shares in Xaar plc held in trust by Xaar Trustee Ltd. Xaar Trustee Ltd was formed in 
1995 to act as trustee to the Employee Beneﬁ t Trust established in 1995 to hold shares for the beneﬁ t of the employees of the company and 
the group. There has been no movement in the number of shares held in trust by Xaar Trustee Ltd during the year.
During the year the company established the Xaar plc ESOP trust. Own shares acquired in the period represents the cost of 1,205,504 shares 
in Xaar plc purchased in the market at market value and held by the Xaar plc ESOP trust to satisfy options granted under the company’s share 
option schemes.
30. Hedging and translation reserves
  Hedging reserve  Translation reserve Total
  £’000  £’000 £’000
Balance at 1 January 2004  — — —
Exchange differences on translation of overseas operations  — (136) (136)
Increase in fair value of hedging derivatives  1,348 — 1,348
Balance at 1 January 2005  1,348 (136) 1,212
Exchange differences on translation of overseas operations  — 842 842
Decrease in fair value of hedging derivatives  (2,545) — (2,545)
Deferred tax asset recognised  360 — 360
Balance at 31 December 2005  (837) 706 (131)
The hedging reserve at the balance sheet date represents the market value of the group’s foreign currency hedges at that date. The translation 
reserve represents the foreign exchange difference arising on the translation of subsidiary company results prepared in a currency other than 
pound sterling.
31. Retained earnings, merger reserve and other reserves
   Share-based
 Retained earnings  Merger reserve payments Other reserves Total
 £’000  £’000 £’000 £’000 £’000
Balance at 1 January 2004 (1,239) 1,105 50 — (84)
Net profit for the year 4,611 — — — 4,611
Transfer of reserve from share premium account 2,565 — — — 2,565
Transfer of reserve from retained earnings (485) — — 485 —
Movement in valuation of share options — — 244 — 244
Balance at 1 January 2005 5,452 1,105 294 485 7,336
Net profit for the year 7,049 — — — 7,049
Dividends paid (604) — — — (604)
Deferred tax asset recognised 1,330 — — — 1,330
Movement in valuation of share options — — 502 — 502
Balance at 31 December 2005 13,227 1,105 796 485 15,613
The merger reserve and other reserves are not distributable. The merger reserve represents the share premium account in Xaar Technology Limited. 
Other reserves represent the non-distributable portion of the dividend received in Xaar plc from Xaar Digital Ltd, as well as the movement in 
valuation of share options.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 63
Xaar plc annual report and accounts 2005
32. Notes to the cash ﬂ ow statement
   2005  2004
   £’000  £’000
Operating profit    10,479 6,294
Adjustments for:   
Increase in cost of share options   502 244
Depreciation of property, plant and equipment   1,936 1,865
Amortisation of intangible assets   404 210
Loss on disposal of property, plant and equipment   103 104
Increase/(decrease) in provisions   66 (12)
Operating cash flows before movements in working capital   13,490 8,705
(Increase)/decrease in inventories   (556) 128
Increase in receivables   (4,867) (260)
Increase in payables   681 2,643
Cash generated by operations   8,748 11,216
Income taxes paid   (823) (892)
Interest paid   (63) (100)
Net cash from operating activities   7,862 10,224
Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short 
term highly liquid investments with a maturity of three months or less.
33. Operating lease arrangements
   2005  2004
   £’000  £’000
Minimum lease payments under operating leases recognised in income for the year:
Fixtures, fittings and equipment   108 142
Land and buildings   978 1,043
   1,086 1,185
At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, 
which fall due as follows:
 Fixtures, fittings
  and equipment Land and buildings
 2005  2004 2005  2004
 £’000  £’000 £’000  £’000
Within one year 11 15 21 —
In the second to fifth years inclusive 48 72 665 667
After ﬁ ve years — — 418 376
 59 87 1,104 1,043
The operating leases in respect of ﬁ xtures, ﬁ ttings and equipment extend over a period of up to three years. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 64
Xaar plc annual report and accounts 2005
34. Share-based payments
Equity-settled share option scheme
The company has a share option scheme for all employees of the group. Options are exercisable at a price equal to the average quoted market 
price of the company’s shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years 
from the date of grant, the options expire. Save as permitted in the share option scheme rules options lapse on an employee leaving the group.
Details of the share options outstanding during the year are as follows:
 2005 2004
 Number  Weighted  Number of  Weighted average 
 of share  average exercise share  exercise 
 options  price (£) options price (£)
Outstanding at beginning of period 4,500,729 0.69 3,724,605 0.60
Granted during the period 1,242,500 2.51 1,187,619 0.93
Lapsed during the period (142,872) 0.75 (112,465) 0.87
Exercised during the period (1,018,865) 0.75 (299,030) 0.49
Outstanding at the end of the period 4,581,492 1.17 4,500,729 0.69
Exercisable at the end of the period 833,400 0.76 960,000 1.09
The weighted average share price at the date of exercise for share options exercised during the period was £2.39. The options outstanding at 
31 December 2005 had a weighted average exercise price of £0.76, and a weighted average remaining contractual life of six years. In 2005, 
options were granted on 15 March, 13 April and 15 September. The aggregate of the estimated fair values of the options granted on those dates 
is £1.9m. In 2004, options were granted on 20 May, 28 October and 1 November. The aggregate of the estimated fair values of the options granted 
on those dates is £0.7m.
The inputs into the Black-Scholes model are as follows:
   2005 2004
Weighted average share price   £2.53 £0.96
Weighted average exercise price   £2.53 £0.94
Expected volatility   60% 60%
Expected life   6.5 years 6.2 years
Risk free rate   4.8% 4.8%
Expected dividends   — 0.42%
Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous three years. The expected 
life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and 
behavioural considerations.
The group recognised total expenses of £0.5m (2004: £0.2m) related to equity-settled share-based payment transactions in the year.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 65
Xaar plc annual report and accounts 2005
35. Retirement beneﬁ t schemes
Deﬁ ned contribution schemes
The UK based employees of the group’s UK companies have the option to be members of a deﬁ ned contribution pension scheme managed 
by a third party pension provider. For each employee who is a member of the scheme the company will contribute a ﬁ xed percentage of each 
employee’s salary to the scheme. The only obligation of the group with respect to this scheme is to make the speciﬁ ed contributions.
The employees of the group’s subsidiaries in Sweden are members of a state-managed retirement beneﬁ t scheme operated by the government of 
Sweden. The subsidiaries are required to contribute a speciﬁ ed percentage of payroll costs to the retirement beneﬁ t scheme to fund the beneﬁ ts. 
The only obligation of the group with respect to the retirement beneﬁ t scheme is to make the speciﬁ ed contributions.
The total cost charged to the income statement in respect of these schemes during 2005 was £549k (2004: £635k). As at 31 December 2005 
contributions of £32k (2004: £26k) due in respect of the current reporting period had not been paid over to the schemes.
36. Events after the balance sheet date
On 14 March 2006, Xaar announced the disposal of its wholly owned subsidiary, Vivid Print Innovations Inc., for £250,000. In accordance with 
IFRS 5, the assets and liabilities of Vivid have been written down to their fair value and classiﬁ ed separately on the balance sheet.
37. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed 
in this Note. Transactions between the company and its subsidiaries are disclosed in the company’s separate ﬁ nancial statements.
There were no transactions during the year with related parties who are not members of the group. 
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories 
speciﬁ ed in IAS 24 “Related Party Disclosures”. Further information about the remuneration of individual directors is provided in the audited part 
of the directors’ remuneration report on pages 28 to 33. 
   2005  2004
   £’000  £’000
Short term employee benefits   972 938
Post-employment benefits   52 51
Termination benefits   139 —
Share based payments   1,057 209
38. Explanation of transition to IFRSs
This is the ﬁ rst year that the company has presented its ﬁ nancial statements under IFRS. The following disclosures are required in the year of 
transition. The last ﬁ nancial statements under UK GAAP were for the year ended 31 December 2004 and the date of transition to IFRSs was 
therefore 1 January 2004. 
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 66
Xaar plc annual report and accounts 2005
38. Explanation of transition to IFRSs (continued)
Reconciliation of equity at 1 January 2004 (date of transition to IFRSs)
  UK GAAP Effect of transition IFRS
 Notes £’000 £’000 £’000
Non-current assets    
Goodwill  771 — 771
Other intangible assets 1, 2 805 1,082 1,887
Tangible assets 2 6,090 (98) 5,992
  7,666 984 8,650
Current assets    
Inventories  2,592 — 2,592
Trade and other receivables  6,424 — 6,424
Short term investments  2,325 — 2,325
Cash and cash equivalents   6,133 — 6,133
  17,474 — 17,474
Total assets   25,140 984 26,124
Current liabilities    
Amounts falling due in one year  3 (5,968) (970) (6,938)
Short term provisions  (345) — (345)
  (6,313) (970) (7,283)
Net current assets   11,161 (970) 10,191
Non-current liabilities    
Obligations under ﬁ nance leases  (1,833) — (1,833)
Total liabilities   (8,146) (970) (9,116)
Net assets   16,994 14 17,008
Equity    
Share capital   5,983 — 5,983
Share premium   11,129 — 11,129
Own shares   (20) — (20)
Other reserves  4 1,105 50 1,155
Retained earnings   (1,203) (36) (1,239)
Equity attributable to shareholders   16,994 14 17,008
Total equity   16,994 14 17,008
Notes to the reconciliation of equity at 1 January 2004
1.  Where the group’s research and development programmes meet the criteria set out in IAS 38 the costs have been capitalised as an intangible 
asset. The cost of research and development programmes capitalised at 1 January 2004 is £984k.
2.  Software purchased by the company and capitalised as a tangible asset under UK GAAP has been reclassiﬁ ed as an intangible asset under IFRS. 
The net cost of software held as an intangible asset at 1 January 2004 is £98k.
3.  Income received in relation to the company’s research and development programmes that directly relates to the intangible asset booked under 
IAS 38 is held as deferred income and amortised in accordance with the amortisation proﬁ le for the associated intangible asset. Deferred income at 
1 January 2004 is £970k.
4.  Share options granted after 7 November 2002 that have not vested are measured in accordance with IFRS 2 at their fair value as determined 
by the Black-Scholes option pricing model. The amortisation charged through the proﬁ t and loss account up to 1 January 2004 is £50k. This 
amount is shown as an other reserve.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 67
Xaar plc annual report and accounts 2005
Reconciliation of equity at 31 December 2004 (date of last UK GAAP ﬁ nancial statements)
  UK GAAP Effect of transition IFRS
 Notes £’000 £’000 £’000
Non-current assets    
Goodwill 1 627 144 771
Other intangible assets 2, 3 595 2,363 2,958
Tangible assets 3 5,880 (256) 5,624
  7,102 2,251 9,353
Current assets    
Inventories  2,485 — 2,485
Trade and other receivables 4 5,741 1,029 6,770
Cash and cash equivalents   15,316 — 15,316
  23,542 1,029 24,571
Total assets   30,644 3,280 33,924
Current liabilities    
Amounts falling due in one year  5 (8,179) (1,025) (9,204)
Provisions  (72) — (72)
  (8,251) (1,025) (9,276)
Net current assets   15,291 4 15,295
Non-current liabilities    
Deferred tax liabilities  (116) — (116)
Obligations under ﬁ nance leases  (1,278) — (1,278)
  (1,394) — (1,394)
Total liabilities   (9,645) (1,025) (10,670)
Net assets   20,999 2,255 23,254
Equity    
Share capital   6,013 — 6,013
Share premium   8,713 — 8,713
Own shares   (20) — (20)
Other reserves  6 1,590 294 1,884
Hedging and translation reserves  4, 7 — 1,212 1,212
Retained earnings   4,703 749 5,452
Equity attributable to shareholders   20,999 2,255 23,254
Total equity   20,999 2,255 23,254
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 68
Xaar plc annual report and accounts 2005
38. Explanation of transition to IFRSs (continued)
Notes to the reconciliation of equity at 31 December 2004
1.  In accordance with IFRS 3 the group has ceased to amortise goodwill with effect from 1 January 2004. Under UK GAAP the total amount of 
goodwill amortised in 2004 is £144k.
2.  Where the group’s research and development programmes meet the criteria set out in IAS 38 the costs have been capitalised as an intangible 
asset. The cost of research and development programmes capitalised at 31 December 2004 is £2,107k.
3.  Software purchased by the company and capitalised as a tangible asset under UK GAAP has been reclassiﬁ ed as an intangible asset under IFRS. 
The net cost of software held as an intangible asset at 31 December 2004 is £256k.
4.  Under IAS 39 where hedge accounting is adopted, any movement in the valuation of ﬁ nancial instruments is shown on the face of the 
balance sheet with the effect of this movement being recognised in the hedging and translation reserve. The effect of these movements 
at 31 December 2004 is an asset of £1,348k. Other immaterial differences amount to a credit to trade and other receivables of £319k.
5.  Income received in relation to the company’s research and development programmes that directly relates to the intangible asset booked under 
IAS 38 is held as deferred income and amortised in accordance with the amortisation proﬁ le for the associated intangible asset. Deferred 
income at 31 December 2004 is £1,637k. Under UK GAAP proposed dividends are recognised as an expense in the year to which they relate 
and a current liability at the balance sheet date. Under IFRS dividends are recognised as an expense in the year in which they are declared. 
The proposed dividend held as a current liability under UK GAAP at 31 December 2004 is £601k. Other immaterial differences amount to a 
debit of £11k.
6.  Share options granted after 7 November 2002 that have not vested are measured in accordance with IFRS 2 at their fair value as determined 
by the Black-Scholes option pricing model. The amortisation charged through the proﬁ t and loss account up to 31 December 2004 is £294k. 
This amount is shown as an other reserve.
7.  Under IAS 39 the amount recognised as a credit to the hedging and translation reserve is £1,348k. Other immaterial differences amount to a 
debit to the hedging and translation reserve of £136k.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 69
Xaar plc annual report and accounts 2005
Reconciliation of proﬁ t for 2004
  UK GAAP Effect of transition IFRS
 Notes £’000 £’000 £’000
Continuing operations    
Revenue 1 35,479 (667) 34,812
Cost of sales   (15,078) — (15,078)
Gross profit   20,401 (667) 19,734
Distribution costs  (2,850) — (2,850)
Administrative expenses 2, 3, 4 (11,612) 1,022 (10,590)
Operating profit   5,939 355 6,294
Investment revenues  306 — 306
Finance costs  (100) — (100)
Foreign exchange loss on intercompany loan  (231) — (231)
Profit before tax  5,914 355 6,269
Tax   (1,658) — (1,658)
Profit for the year from continuing operations   4,256 355 4,611
Notes to the reconciliation of proﬁ t for 2004
1.  Under UK GAAP income received in the year in relation to the company’s research and development programmes is booked as revenue. Under 
IFRS this income is deferred to the extent that it relates to an intangible asset created in accordance with IAS 38. Income received in 2004 and 
deferred amounts to £667k.
2.  In accordance with the group’s accounting policies under UK GAAP , expenditure on research and development programmes is written off as 
an expense in the year in which it is incurred. Under IFRS, where the group’s research and development programmes meet the criteria set out 
in IAS 38, the costs have been capitalised as an intangible asset. Research and development expenditure capitalised in the year in accordance 
with IAS 38 amounts to £1,123k.
3.  Share options granted after 7 November 2002 that have not vested are measured in accordance with IFRS 2 at their fair value as determined by 
the Black Scholes option pricing model. The amortisation charged through the proﬁ t and loss account for the year ended 31 December 2004 
amounts to £243k.
4.  In accordance with IFRS 3 the group has ceased to amortise goodwill with effect from 1 January 2004. The goodwill amortised in the year 
ended 31 December 2004 under UK GAAP amounts to £144k.
Explanation of material adjustments to the cash ﬂ ow statement for 2004
Material adjustments to the cash ﬂ ow statement for 2004 as a result of the transition to IFRS are detailed below:
1.  Corporation tax paid of £892k is shown as a reduction in net cash from operating activities under IFRS. Under UK GAAP corporation tax 
payments are shown separately on the face of the cash ﬂ ow statement.
2.  The net cash outﬂ ow on research and development expenditure of £1,123k is included in the net cash outﬂ ow from operating activities under 
UK GAAP . Under IFRS this outﬂ ow is shown separately on the face of the cash ﬂ ow statement as expenditure on product development.
Notes to the consolidated ﬁ nancial statements for the year ended 31 December 2005 70
Xaar plc annual report and accounts 2005
     2004
   2005 (restated)
  Notes £’000  £’000
Fixed assets   
Investments in subsidiaries   3 12,450 12,450 
Trade investments  3 1,377 —
   13,827 12,450
Current assets   
Debtors – due within one year   4 2,593 4,554 
Debtors – due after one year   4 11,587 15,565 
Cash at bank and in hand    11,037 8,966 
   25,217 29,085 
Creditors: amounts falling due within one year   5 (308) (362) 
Net current assets    24,909 28,723
Net assets    38,736 41,173 
Capital and reserves   
Called-up share capital   6 6,115 6,013 
Share premium account   6 9,376 8,713 
Other reserves   6 25,333 25,333 
Own shares  6 (3,400) —
Proﬁ t and loss account  6 1,312 1,114 
Equity shareholders’ funds   7 38,736 41,173 
The ﬁ nancial statements were approved by the board of directors on 13 March 2006 and signed on its behalf by: 
I Dinwoodie N Berry
Director  Director
13 March 2006
The accompanying Notes are an integral part of this balance sheet.
Company balance sheet (UK GAAP) 31 December 2005 71
Xaar plc annual report and accounts 2005
1. Signiﬁ cant accounting policies
Basis of accounting 
The separate ﬁ nancial statements of the company are presented as required by the Companies Act 1985. They have been prepared under the 
historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law.
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the proceeding year, 
with the exception of the accounting treatment of dividends. In accordance with FRS 21, the dividend proposed during 2004 has been recorded 
as a charge to the proﬁ t and loss account in 2005. The comparative ﬁ gures for 2004 have also been updated to reﬂ ect this change. 
Investments 
Fixed asset investments in subsidiaries are shown at cost less provision for impairment. 
For investments in subsidiaries acquired for consideration, including the issue of shares qualifying for merger relief, cost is measured by reference 
to the nominal value only of the shares issued. Any premium is ignored.
2. Proﬁ t for the year
As permitted by section 230 of the Companies Act 1985 the company has elected not to present its own proﬁ t and loss account for the year. 
Xaar plc reported a proﬁ t for the ﬁ nancial year ended 31 December 2005 of £799,000 (2004: £139,000).
The average number of employees throughout 2005 was 17 (2004: 14). Staff costs amounted to £1.1m (2004: £0.9m).
3. Fixed asset investments
   2005  2004
   £’000  £’000
Subsidiary undertakings    
At beginning and end of year    12,450 12,450 
Trade investments     
At beginning of year   — —
Investments purchased in the year   1,377 —
At end of year    1,377 — 
4. Debtors
   2005  2004
   £’000  £’000
Amounts receivable within one year:    
Amounts owed by group undertakings    2,546 4,530 
Prepayments and accrued income    41 18 
VAT    6 6 
   2,593 4,554 
Amounts receivable after more than one year:    
Amounts owed by group undertakings    11,587 15,565 
   14,180 20,119 
Amounts receivable after more than one year are in respect of a ﬁ ve year loan note granted to Xaar Digital Ltd, which can be repaid early at the 
option of Xaar Digital Ltd.
Notes to the (UK GAAP) Company balance sheet 72
Xaar plc annual report and accounts 2005
5. Creditors: amounts falling due within one year
     2004
   2005 (restated)
   £’000  £’000
Trade creditors    41 43 
Accruals    267 319 
   308 362 
6. Capital and reserves
 Called-up share  Share premium  Other  Own Profit and 
 capital  account  reserves  shares loss account Total
 £’000  £’000  £’000  £’000 £’000  £’000
At 31 December 2004 as previously stated 6,013 8,713 25,333 — 513 40,572
Prior year adjustment (Note 1) — — — — 601 601
At 1 January 2005 as restated 6,013  8,713  25,333  — 1,114  41,173
New shares issued  102 663 — — — 765
Own shares acquired  — — — (3,400) — (3,400)
Dividends paid — — — — (601) (601)
Proﬁ t for the ﬁ nancial year  — — — — 799 799
At 31 December 2005  6,115 9,376 25,333 (3,400) 1,312 38,736
Full details of movements in share capital are given in Note 27 to the consolidated ﬁ nancial statements. The share premium account and other 
reserves are non-distributable.
7. Reconciliation of movements in shareholders’ funds
   2005 2004
   £’000 £’000
Profit for the financial year   799 139
Dividends paid   (601) —
New shares issued   765 179
Own shares acquired   (3,400) —
Net (reduction)/addition to shareholders’ funds   (2,437) 318
  
Opening shareholders’ funds as previously stated   40,572 40,855
Prior year adjustment (Note 1)   (601) —
Opening shareholders’ funds as restated   41,173 40,855
Closing shareholders’ funds   38,736 41,173
Notes to the (UK GAAP) Company balance sheet 73
Xaar plc annual report and accounts 2005
8. Subsidiary undertakings
The following entities are wholly-owned subsidiary undertakings of the company:
Name and country of   Issued and fully paid Proportion of ordinary
incorporation Principal activity up share capital  share capital held by the company
Xaar Technology Limited 
Great Britain  Research and development 4,445,322 ordinary £1 shares 100%
XaarJet Limited  Research and development 
Great Britain & sales and marketing 2 ordinary £1 shares 100%
XaarJet (Overseas) Limited 
Great Britain Sales and marketing 1 ordinary £1 share 100%
Xaar Trustee Limited
1
Great Britain Trustee 2 ordinary £1 shares 100%
Xaar Digital Limited
Great Britain Treasury 1 ordinary £1 share 100%
Xaar Group AB 
Sweden Holding company 1,137,000 ordinary shares of SEK 100 each 100%
XaarJet AB
2
 
Sweden Manufacturing 1,000 ordinary shares of SEK 100 each 100%
Vivid Print Innovations Inc.
USA Manufacturing 150,000 shares of common stock US$ 0.01 each 100%
1. Xaar Trustee Limited shares are held by Xaar Technology Limited.
2. XaarJet AB shares are held by Xaar Group AB.
No subsidiary undertakings have been excluded from the consolidation.
Notes to the (UK GAAP) Company balance sheet 74
Xaar plc annual report and accounts 2005
 2005  2004  2003  2002 2001
 £’000  £’000  £’000  £’000  £’000
 IFRS IFRS UK GAAP UK GAAP UK GAAP
Summarised consolidated results     
Results     
Turnover  42,772 34,812  29,230  30,870  23,982 
Gross profit  26,649 19,734  13,475  14,100  12,608 
Operating profit/(loss)  10,479 6,294  (1,300)  785  1,377 
Exceptional item  — —  —  —  (1,049) 
Foreign exchange (loss)/gain on
inter-company loan  (977) (231)  1,791  —  — 
Net interest  513 206  (45)  140  248 
Taxation  (2,966) (1,658)  501  86  (939) 
Dividends  (604) — — — — 
Basic earnings/(loss) per share  11.6p 7.7p  1.6p  1.7p  (0.6)p 
Assets employed     
Property, plant and equipment  6,436 5,624  6,090  4,733  4,336 
Cash and short term investments  14,395 15,316  8,458  9,852  9,760 
Net current assets  13,693 15,295  11,506  12,232  11,131 
Financed by     
Shareholders’ funds: all equity  27,553 23,254  16,994  17,339  15,449 
The amounts disclosed for 2003 and earlier periods are stated on the basis of UK GAAP because it is not practicable to restate amounts for 
periods prior to the date of transition to IFRSs. The principal differences between UK GAAP and IFRSs are explained in Note 38 to the ﬁ nancial 
statements which provides an explanation of the transition to IFRSs. 
Five year record 75
Xaar plc annual report and accounts 2005
Notice is hereby given that the ninth annual general meeting of Xaar plc (the “company”) will be held at The Trinity Centre, Science Park, 
Milton Road, Cambridge on 24 April 2006 at 10.30am for the following purposes:
Ordinary business
1.  To receive the company’s annual ﬁ nancial statements for the ﬁ nancial year ended 31 December 2005, together with the directors’ report, 
the directors’ remuneration report, the auditors report on the auditable part of the directors’ remuneration report and the auditors’ report 
on those ﬁ nancial statements.
2.   To reappoint Deloitte & Touche LLP as auditors to hold ofﬁ ce from the conclusion of this meeting until the conclusion of the next general 
meeting of the company at which ﬁ nancial statements are laid and to authorise the directors to ﬁ x their remuneration.
3. To declare a ﬁ nal dividend for the ﬁ nancial year ended 31 December 2005 of 1.5p per ordinary share.
4. To reappoint as a director in accordance with the company’s articles of association N Berry, who is retiring by rotation.
5. To reappoint R Eckelmann as a director, who offers himself for reappointment at the ﬁ rst AGM after his appointment to the board.
6. To reappoint R King as a director in accordance with corporate governance best practice for directors over the age of 70.
Special business
To consider and, if thought ﬁ t, pass the following resolutions which will be proposed in the case of Resolutions 7 and 9 as ordinary resolutions and 
in the case of Resolutions 8 and 10 as special resolutions:
7.  To approve the directors’ remuneration report in accordance with section 241a of the Companies Act 1985. 
8.   That the company be generally and unconditionally authorised to make one or more market purchases (within the meaning of s.163(3) of the 
Companies Act 1985) of ordinary shares of 10p in the capital of the company (“ordinary shares”) provided that:
  the maximum aggregate number of ordinary shares authorised to be purchased is 9,118,932 (representing 14.9% of the issued ordinary 
share capital);
 the minimum price which may be paid for an ordinary share is the par value of the shares;
  the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market quotations for 
an ordinary share as derived from The London Stock Exchange Daily Ofﬁ cial List for the ﬁ ve business days immediately preceding the day on 
which that ordinary share is purchased;
  this authority expires at the conclusion of the next Annual General Meeting of the company or within 15 months from the date of the passing of 
this resolution whichever is earlier; and
  
the company may make a contract to purchase ordinary shares under this authority before the expiry of the authority which will or may be 
executed wholly or partly after the expiry of the authority, and may make a purchase of ordinary shares in pursuance of any such contract.
Notice of Annual General Meeting 9.  That in substitution for all existing authorities the authority conferred on the directors by article 4(B) of the company’s articles of association 
be renewed for the period expiring 15 months after the date of the passing of this resolution and for that period the ”section 80 amount” 
is £879,911. The company may, before the expiry of this authority, make an offer or agreement which would or might require equity or other 
relevant securities to be allotted after the expiry of this authority and the directors may allot equity or other relevant securities in pursuance 
of that offer or agreement as if the power conferred by this resolution had not expired.
10.  That subject to the passing of Resolution 9, the power conferred on the directors by article 4(C) of the company’s articles of association 
be renewed for the period expiring 15 months after the date of the passing of this resolution and for that period the ”section 89 amount” is 
£306,004. The company may, before the expiry of this authority, make an offer or agreement which would or might require equity or other 
relevant securities to be allotted after the expiry of this authority and the directors may allot equity or other relevant securities in pursuance 
of that offer or agreement as if the power conferred by this resolution had not expired.
By order of the board
A Taylor 
Secretary
13 March 2006
Notes
1.  A member entitled to attend and vote at the meeting is also entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. 
The proxy need not be a member of the company.
2.  To be effective, the instrument appointing a proxy and any authority under which it is executed (or a notarially certiﬁ ed copy of such authority) 
must be deposited at the ofﬁ ce of the company’s registrars not less than 48 hours before the time for holding the meeting or adjourned meeting. 
A form of proxy is enclosed with this notice. Completion and return of the form of proxy will not preclude ordinary shareholders from attending 
and voting in person. 
3.  In accordance with Regulation 41 of the Uncertiﬁ ed Securities Regulations 2001, the company speciﬁ es that only those members entered on 
the register of members of the company as at 10.30am on 19 April 2006 (or in the event the meeting is adjourned, on the register of members 
48 hours before the time of any adjourned meeting) shall be entitled to attend or vote at the meeting in respect of the number of shares 
registered in their name at that time. Changes to entries on the register of members after 10.30am on 19 April 2006 (or in the event the meeting 
is adjourned, on the register of members less than 48 hours before the time of any adjourned meeting) shall be disregarded in determining the 
rights of any person to attend or vote at the meeting.
4.  Copies of directors’ service agreements, the terms of appointment of non-executive directors, the register of directors’ interests and the 
Xaar plc 2004 Share Option Plan kept by the company under section 325 of the Companies Act 1985 will be available 15 minutes prior to the 
commencement of the meeting and will remain open and accessible during the continuance of the meeting to any person attending the meeting.
5. Biographical details of all directors offering themselves for reappointment are set out on pages 18 and 19.
Notice of Annual General Meeting
76
Xaar plc annual report and accounts 2005 Xaar plc annual report and accounts 2005
Xaar at a glance
Our strategy is to drive the development of Xaar 
technology into multiple applications and industries, 
delivering aggressive and proﬁ table growth.
Research and development
Research and development remains at the 
heart of Xaar’s business. Our signiﬁ cant 
ongoing R&D commitment recognises the 
fact that in order to grow and ﬂ ourish we must 
continue to invest in innovation and its practical 
application to meet real market requirements.
Manufacturing
Xaar’s manufacturing process involves a 
series of precise fabrication and assembly 
routines, the majority carried out in cleanroom 
conditions. Micron-scale electro-mechanical 
elements are successfully integrated to 
achieve a versatile, high precision inkjet 
printhead capable of producing thousands of 
droplets of ink per second, with a performance 
lifetime measured in billions of droplets.
Binary inkjet
Binary printing is enabled by drop-on-demand 
printheads which can either ﬁ re a drop of one 
particular size or no drop at all. 
Conductive
Any material that conducts electricity, i.e. not an insulator . 
CIJ
Continuous inkjet is a low resolution digital printing 
device used predominantly for outer case coding. 
DOD inkjet
Drop-on-demand. The printheads can be precisely 
controlled to produce ink drops when required to 
produce high quality, repeatable images.
Greyscale
Greyscale technology incorporates drop-on-demand 
with a variable drop size. Greyscale printheads ﬁ re 
drops made up of smaller sub drops. By varying the 
drop size a smoother image is achieved. 
OEM
Original equipment manufacturer. Xaar’s direct 
customers are typically OEMs, they use Xaar 
printheads and peripherals as components in the 
machines which they in turn sell to their customers. 
Glossary
Customer care
Xaar is committed to providing the very 
best service for our global customers. Our 
continuous improvement philosophy is not 
only applied to our technology and products, 
but extends to the way we serve the market. 
We focus on building strong relationships 
with partners and OEMs to identify their 
needs and fulﬁ l their requirements.
Licenses
Xaar currently licences its award winning 
technology to a number of major inkjet 
printhead manufacturers. We now have 
over 700 patents covering the technology 
and its implementation. Xaar also considers 
potential licensees who are developing novel 
applications in new market segments.
Further applications
Inkjet is poised to become the most widely 
used digital print process in not only the print 
industry but many other industries too. We are 
experiencing accelerated growth through both 
mainstream print and also non-traditional, 
industrial applications – from true ‘printed’ 
circuit boards to pharmaceutical applications 
and LCD/OLED displays.
OLEDs
Organic light emitting diodes are components used in 
a new type of viewing screen (display). Can be viewed 
in bright lighting conditions, at greater angles, unlike 
LCD’s. Beginning to be used in digital cameras.
Piezoelectric
Mechanical distortion of the material results in the 
formation of a charge across the material, or vice 
versa. The most common material in general use is 
PZT, lead zirconium titanate. 
Pixel
Short for pixel element – the basic element or 
fundamental building block of a bitmapped image. 
It is a coloured tile which, when displayed in a 
mosaic of thousands or millions of other pixels, 
comprises a digital image.
Polyimide
A family of polymers involving carbon and nitrogen 
bonds, known for good thermal stability, mechanical 
toughness and chemical resistance used in thick/thin 
ﬁ lm microelectronics and displays.
Resolution
The amount of detail that can be resolved out of an 
image, i.e. the number of discrete drops of ink that are 
ﬁ red onto a controlled size of media (dots per inch – dpi). 
RFID
Radio frequency identiﬁ cation (ID). Devices attached 
to objects that transmit data to an RFID receiver as 
an alternative to bar coding. Advantages include data 
capacity, read/write capability, and no line-of-sight 
requirements.
T HE D ESIGN P OR TFOLIO
a member of the flathill communications group plc
www.flathillplc.com
designed & produced by Xaar plc annual report and accounts 2005
Xaar plc
Science Park
Cambridge CB4 0XR
England 
Tel: +44 (0)1223 423663
Fax: +44 (0)1223 423590
Email:  info@xaar.co.uk
Website: www.xaar.co.uk
Xaar is a market-focused technology leader, driving the expansion 
of inkjet printing into targeted industry sectors.
We offer our OEM customers and licensees the capability to be market 
leaders, through the use of our innovative state-of-the-art inkjet 
technologies and through a complementary range of products and 
services based on this technology.
8%
Total sales in Americas
33%
Total sales in Europe
59%
Total sales in Asia
Corporate statement
Xaar plc annual report and accounts 2005