Xaar Regulatory News (XAR)

Xaar plc

FINAL RESULTS FOR 2010

Xaar plc ("Xaar", the "group" or the "company"), the inkjet printing technology group headquartered in Cambridge, announces its results for the year ended 31 December 2010.

Key points:

·; Return to profitable growth in 2010 reflects strong demand for Xaar's industrial inkjet technology and demonstrates its clear economic benefits to end users.

·; Orders for Platform 3 products, particularly from the ceramics industry, were higher than anticipated and beyond existing production capacity.

·; A capital investment programme, to substantially increase Platform 3 production capacity at Huntingdon, is underway. First new capacity is expected to start in H2 2011 with fully expanded capacity available in H2 2012; Järfälla Sweden facility to remain open.

·; £13.9m net of fees raised through placing and open offer to fund capacity increase in Huntingdon facility.

·; The financial results were:

o Turnover was up 32% to £54.7m (2009: £41.5m);

o Adjusted* gross margin improved to 42% (2009: 40%);

o Adjusted* profit before tax was up 167% to £5.6m (2009: £2.1m)

o Reported profit before tax was £5.4m (2009: loss £0.7m);

o Adjusted* diluted earnings per share up 88% to 6.2p (2009: 3.3p);

o Reported diluted earnings per share at 6.1p (2009: 0.1p); and

o Net cash** at 31 December 2010 was £22.0m (31 December 2009: £11.1m).

* Before restructuring costs, exceptional commercial agreement costs, exchange differences on intra-group transactions and the cost of share-based payment charges, impairment of trade investments, and gain or loss on derivative financial instruments (where applicable)

** Cash less borrowings

·; Maintained final dividend of 1.5p is recommended, making 2.5p for the year (2009: 2.5p).

·; Accounting treatment for a Chinese distributor amended to a re-seller relationship, with a consequent restatement of the 2009 accounts (£0.5m profit before tax impact in 2009).

·; No immediate business impact from the recent events in Japan, however, with a number of key suppliers and licensees in the country, we will continue to monitor the developing situation closely.

On outlook, Chairman, Phil Lawler stated:

"Having demonstrated during 2010 that we have the products and opportunity to achieve substantial growth in revenue and profits, we now have in place the management team and other resources to execute our strategy. We are well placed to achieve significant further success in 2011 and beyond."

Contacts

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report on a year of significant progress with results that reflect a continuing improvement in the underlying performance and its longer term growth potential.

The considerable success of our Platform 3 ("P3") technology resulted in demand outstripping our capacity; we are addressing this through further capital investment following a successful share placing and open offer in October 2010.

In the meantime, the group is profitable and cash generative with the rate of revenue and earnings growth, both from product sales and royalties, increasing during the second half of the year.

Business trends

The scope for industrial ink-jet continues to increase and our focus on selected segments is bearing fruit. However, the global print industry will always be governed by the general economic climate and our success is based on being able to demonstrate that Xaar's industrial inkjet technology delivers clear economic benefits to the end user.

This has been particularly evident in our P3 markets where, specifically, the ceramics industry has found that Xaar's patented TF Technology™ is particularly suited to tile decoration and delivers significant advantage to ceramic tile manufacturers. Consequently, P3 has become disruptive in this application which has resulted in a substantial increase in demand.

We are also seeing increasing demand for P3 from the primary label printing market and, whilst the size of the opportunity is unlikely to be of the same magnitude as ceramics, it remains a very important sector and a critical first step into the packaging market.

In order to capitalise on this demand, we decided to increase P3 production capacity at our Huntingdon facility through a major capital investment programme. This is being partly funded by the new ordinary share placing and open offer announced on 21 October 2010 and successfully concluded on 11 November 2010, raising £13.9m (net of expenses). The first tranche of new plant and machinery has been ordered and the programme is currently on plan.

However, as previously reported, printhead production is complex and some manufacturing equipment is custom-built for Xaar. Consequently critical lead times are long and printhead production cannot be increased as soon as we would like.

In the short term shift patterns have been implemented to maximise output from the existing installed capacity, and we have halted the previously announced closure of our Swedish factory. This has enabled us to allocate all available space at Huntingdon for P3 production. The rapid adoption of P3 is improving the mix of revenues geographically, by product range and by end market.

We are developing other applications for P3 although full commercialisation will depend on sufficient capacity being available to deliver the overall level of product required.

Platform 2 ("P2") revenues are stable although, with P2 being superseded by P3, the business has become less significant.

Overall, P1 revenue has remained steady with sales growth in EMEA being offset by a decrease in China. Continuing growth in sales by licensees of printheads using Xaar technology, is reflected in increased royalties. Recently, a number of wide-format printer OEMs have announced the adoption of the Proton 60, Xaar's latest addition to the P1 family. We are maintaining our focus on the development and introduction of new P1 products through a dedicated team rather than diverting resources.

We are now starting to see the benefits of the process improvements relating to the design, manufacture and market implementation of new products, introduced during the year and which form part of a rolling programme of process improvement across the business.

Results and dividend

Revenues and profit for the year were ahead of our expectations, with demand for P3 taking off and royalty income increasing. We continue to manage costs very carefully and pay close attention to cash flow. Based on the continuing cash generation of the business the board has decided to recommend a final dividend of 1.5p which, together with the 1.0p interim dividend paid already, maintains the total dividend for the year at 2.5p (2009: 2.5p). Whilst the dividend per share remains flat when compared to 2009, the total dividend paid will increase following the issue of additional shares in the placing and open offer.

Board

As previously announced, after three years as Manufacturing Director, Greg Lockett resigned from the board on 31 January 2011 and continues to be employed in an operational management role with the company. We thank Greg for his diligence and on going support. On the same date Ted Wiggans, a Chartered Engineer, joined the board as Operations Director from Cambridge Semiconductor Ltd. where he was Chief Operating Officer.

Additionally after ten years at Xaar Andrew Taylor, Finance Director announced his intention to resign from the board and he will leave the company on 31 March 2011. We thank Andrew for all his efforts and contribution to Xaar's progress. On the same date, Alex Bevis, a Chartered Accountant, will be appointed as Finance Director. Alex joined Xaar on 14 February 2011 directly from CSR plc (Cambridge Silicon Radio) where he has spent ten years, most recently as Vice President of Finance.

Accounts restatement

We have concluded that we should treat the relationship with JSS, our distributor of P1 products in China, as that of re-seller, such that we book sales only when JSS sell on to their customers, and inventory held by JSS is treated as on consignment. This has the consequence of a restatement of the 2009 accounts, as set out in the financial review.

Outlook

Our confidence and perseverance with P3 has been justified and, once production capacity has been increased, we expect this platform to have a long and successful life with further potential being realised from P3 through a number of product enhancements.

Whilst we are not planning for significant P1 growth, it is clear that the market continues to be strong and we expect, through new product releases, to remain a significant supplier into the graphic arts sector.

Our strategy to drive the development of Xaar technology into selected multiple applications and industries, whilst delivering sustainable, profitable growth, was re-affirmed at a strategic review early in 2011. Consequently we plan to continue to innovate, focusing on carefully selected market segments and products whilst enhancing business performance and visibility.

We continue to spend a significant proportion of revenue on R&D and, as a market leader, we are planning to be at the forefront of product development.

In short, having demonstrated during 2010 that we have the products and opportunity to achieve substantial growth in revenue and profits, we now have in place the management team and other resources to execute our strategy. Consequently, we are confident that we are well placed to achieve significant further success in 2011 and beyond.

Phil Lawler

Chairman

21 March 2011

REVIEW OF OPERATIONS

Introduction

I am pleased to report on a year of progress and change. Platform 3 ("P3") demand increased significantly during the year with the scale and rate of uptake being substantially higher than anticipated. As a consequence, demand for P3 products outstripped our capacity to supply.

This sudden shift required a set of immediate actions to be put into place, including the reversal of the decision to close the Järfälla manufacturing plant in Sweden, and to increase significantly P3 production capacity in the Huntingdon plant. This expansion is being funded through a combination of equity and lease financing.

The delivery lead-times for the processing equipment required means that this capacity will not start to come on line until the second half of 2011, with fully expanded capacity becoming available from the second half of 2012.

In the meantime, costs of manufacturing reduced during 2010 leading to a positive progression in gross margin in the second half. The increase in P3 business and improved levels of royalty income combined with Platform 1 ("P1") business remaining at 2009 levels, has led to an overall sales and profitability improvement over the previous year.

Business Review

Total revenue for 2010 of £54.7m (2009: £41.5m) is made up of product sales: £47.2m (2009: £36.1m), representing 86% of turnover (2009: 87%); royalties: £7.0m (2009: £4.7m), representing 13% of turnover (2009: 11%); and development fees: £0.5m (2009:£0.7m). This 32% growth in total revenue is made up of 31% growth in product sales, 49% growth in royalties and 29% decline in development fees.

Adjusted gross margin increased steadily during the year with H1 at 41% and H2 at 43%. This reflects higher sales resulting in improved operational gearing, and a reduction, as expected, in the costs associated with new product stabilisation. For the full year adjusted gross margin increased slightly to 42% (2009: 40%).

P3 has made very significant progress during the year, both in primary label printing and ceramic tile decoration. The P3 performance and advantages demonstrated in the ceramic tile decoration application have caused the transition to digital print to be much faster than expected, with demand for our P3 product rapidly increasing as the year progressed. This transition is presently constrained by our capacity to supply; the significant planned production capacity increases over the next 18 months will enable the desired rate of change from analogue to digital print to be realised. The potential for growth in other applications remains but our ability to access these markets will be constrained until sufficient capacity is in place.

As expected, P1 sales in 2010 were equal to those in 2009 as the wide-format advertising market matures. Stable and reliable revenues from this market remain important to Xaar hence the need to support our customers and continue to offer new products and variants to protect this business.

Licensee royalties increased strongly based on a combination of higher sales and a more financially favourable mix of product.

Commercial Review

Geographic

As a supplier of technology to OEM partners, our geographic sales split reflects where our products are integrated into the final product and not necessarily the end user location.

For the first time in the company's history, the EMEA region has become our largest at £24.9m (2009: £12.8m) representing 94% growth over the previous year and predominantly reflects P3 applications moving into volume. P1 business in EMEA also grew in the year although this is primarily the result of a change of distribution routes that previously ran through Asia. Overall P1 business worldwide was flat on 2009.

Asia generated 41% of sales which at £22.3m is a 2% increase on 2009. Included within this figure is a significant increase in royalty income which is offset by the reduction in product sales following changes in distribution routes noted above. Licensee royalties increased strongly through a combination of higher sales and a more financially favourable mix of product. Asia continues to be an important P1 market for Xaar, mainly with sales into the wide-format graphics market. The potential for P3 in Asia is expected to grow once applications have matured and production capacity is available to support that growth.

Total sales to the Americas grew 9% to £7.5m (2009: £6.8m) representing 14% of sales. The growth has come primarily from P3 adoption with primary label applications in North America whilst P1 business has remained broadly stable with coding and marking applications in North America and wide-format graphics applications in South America.

End markets

Sales into the graphic arts market were 3% up from 2009 but, as other markets have grown, the graphic arts market now represents only 39% of total sales (2009: 50%). Sales were £21.4m (2009: £20.7m). This market will continue to be an important core market for Xaar, specifically in the areas of large format advertising and signage printing. Whilst P3 may generate some graphic arts business, it is expected that this market will continue to be dominated by P1 products. Our efforts to bring new P1 products and variants to market will continue to support customers and protect our position.

Sales into the packaging market grew by 25% with the total for the year of £11.8m (2009: £9.4m) representing 22% of total sales. P1 products into coding and marking applications were stable with the growth in this sector coming from P3 products for primary label printing. As mentioned in my previous report, the label application has been technically challenging. However, as anticipated, significant progress has been made during the year. The success we are now achieving in the primary label space is prompting interest and activity in other areas of the package printing market.

Sales into industrial markets have more than doubled to £14.1m (2009: £6.0m) and now account for 26% of sales. Rapid adoption of P3 technology in the ceramic tile printing sector has been the primary driving force in this area. Sales have been constrained by capacity during the second half of 2010, a situation which will continue until the second half of 2011 when we expect additional capacity to come on stream. Development of further industrial applications has continued with multiple partners but will be constrained until product availability is improved following the capacity expansion.

Operations Review

The plan to relocate all manufacturing capacity from Sweden to the UK was halted during the year as the demand for P3 grew significantly. Following a thorough review, it was concluded that the financial benefit of expanding P3 significantly outweighed the cost savings of the planned manufacturing plant consolidation, and hence the plant in Järfälla, Sweden, would be required for the foreseeable future and, therefore, the relocation programme was cancelled. This change allows all available space in the Huntingdon plant to be dedicated to P3 expansion. As announced during the year, the company will invest £22.2m in significant expansion of P3 capacity to respond to the demand created.

This expansion will involve: the clean-room originally built for the Sweden relocation to be allocated to P3; construction of a third full clean-room at the Huntingdon site; over 100 processing asset additions; the recruitment of close to 200 people; and a very significant installation and process qualification effort. The plan is well underway and additional capacity is due to start to come on stream in the second half of 2011 with the full capacity available by the second half of 2012.

Although a little later than anticipated, costs started to fall during the year, allowing gross margin to progress from 39% in the first half to 43% in the second half of the year. Further progression in gross margin is not expected before additional production capacity comes on line as overheads are planned to rise in advance of realising the benefit of the incremental output.

R&D spend in the year was £4.7m (2009: £4.6m), representing 9% (2009: 11%) of sales.

New product stabilisation programmes are now completing, and the focus is shifting to development of new variants of both P1 and P3. Early stage research of Platform 4 ('P4') has commenced, however technical and commercial feasibility is not expected to be proven until 2013 at the earliest.

Priorities for the Future

The priority for 2011 is to execute the first stage of the P3 capacity expansion plan and, therefore, to increase P3 product availability in the second half of the year. This, combined with a stable P1 business, is expected to deliver further progression of both sales and margins during the latter stages of 2011. As stated previously, the anticipated P3 growth also brings a better balance to the business, both geographically and by end market and application.

People

I would like to thank all our staff for their efforts during the year, especially our Swedish employees who have had to endure some significant uncertainty and changes of circumstance. Overall it is pleasing to see the benefits starting to appear from all the effort applied over the past couple of difficult years.

Ian Dinwoodie

Chief Executive

21 March 2011

FINANCIAL REVIEW

Trading

Trading in 2010 was significantly improved over recent years with first half revenue up 14% to £23.8m (H1 2009: £20.9m), second half revenue up 50% to £30.9m (H2 2009: £20.6m) and full year revenue up 32% to £54.7m (2009: £41.5m). The acceleration in growth is also reflected in revenues for the first half of 2010 being 16% up on the second half of 2009 and, for the second half of 2010, being up 30% on the first half of the year.

This growth is predominantly a result of increased demand for the company's Platform 3 ('P3') product in primary label printing and ceramic tile decoration applications. The strong demand for P3 was the prime driver of growth in printhead and related product sales to £47.2m for the year (2009: £36.1m), an increase of 31%. Licence fees and royalties have increased by 49% to £7.0m (2009: £4.7m), a result of both an increase in licencee product sales and a more favourable product mix within those sales, and the absolute level being supported by the continuing strength of the Japanese Yen. Development fees remain immaterial at £0.5m (2009: £0.7m).

Adjusted gross margin for the full year improved over 2009 to 42% (2009: 40%). Adjusted gross margins for the second half of 2010 increased to 43% (H1 2010: 41%) as the operational gearing effect of increased production volume, through a relatively fixed cost base, began to have a positive financial impact.

Adjusted operating expenditure was £17.3m (2009: £14.8m), including amortisation of capitalised R&D of £0.9m (2009: £1.4m). The increase over 2009 is predominantly second half driven as the business begins the process of scaling up its infrastructure and support functions to deliver the P3 expansion plan, described in further detail in the Review of Operations.

Exceptional items in the year of £0.1m (2009: £2.8m) include share-based payment charges of £1.3m (2009: credit £0.8m), the net release of the provision for restructuring costs associated with the closure of the Swedish plant of £1.1m (2009: charge £2.7m), exceptional commercial agreement costs of £0.5m (2009: £nil) and exchange differences on intra-group transactions of £0.5m (2009: loss £0.2m).

Adjusted profit before tax for the year increased by 167% to £5.6m (2009: £2.1m). Adjusted profit before tax is stated before exceptional items and is the measure used by management for underlying profitability of the company. Profit before tax for the year was £5.4m (2009: loss of £0.7m).

Prior period restatement

The relationship with JSS, the company's distributor of P1 products in China, is such that the board feels it is appropriate to recognise revenue only when JSS sell on to their customers. The effect of this change in the accounts is to defer revenue into future periods, resulting in a reduction in receivables, an increase in inventory, and a reduction in profit equal to the gross profit attributable to the deferred revenue. This restatement applies to the closing balance sheets for 2008 and 2009, and the income statement for 2009. The effect on the 2010 accounts compared to the previous method is largely neutral; an increase in gross profit in 2010 from the timing of revenues is offset against higher stock provisioning against the resulting increased inventory level at 31 December 2010.

Cumulatively up to 31 December 2009 total revenue recognised on shipment rather than resale was approximately £2.0 million with an associated gross profit of £1.1 million. In the period up to and including 2008 approximately £1.5 million of revenue was recognised along with profit of approximately £0.6 million. The balance of approximately £0.5 million of revenue and £0.5 million of gross profit was recognised in 2009. Accordingly, the 2009 figures for revenue and profit have been re-stated, along with the receivables and inventory figures in the 2008 and 2009 balance sheets. Further detail is provided in note 2.

Following the review, the company has changed its systems for tracking products shipped to identify the point at which they are sold on to customers, for revenue recognition at this point. The board believes that this is an issue which applies to JSS only and has no material impact on the company's underlying financial performance in 2010 or the current year.

Restructuring

The decision to halt the relocation of manufacturing capacity from Sweden to the UK, and to keep the Swedish facility open, has resulted in the net release of £1.1m of provision for the costs of the closure, booked originally as an exceptional item in 2009.

Fund raising and capacity expansion

In November 2010, the group raised £15.0m (£13.9m net of expenses) through a placing and open offer. A further £7.0m of debt finance is available through an asset leasing facility with the group's existing bank. This cash and debt facility will be used to fund £20.9m of the proposed £22.2m capital investment required to deliver the P3 expansion plan. The remaining £1.3m will be funded through operational cash flow. During the year £1.6m was paid as deposits for long lead time items and the commencement of the construction of the new clean room.

Cash and capital expenditure

Net cash at the end of the year was £22.0m (2009: £11.1m) after the net proceeds of the placing and open offer of £13.9m (2009: £nil), dividend payments of £1.5m (2009: £1.5m) and capital expenditure (tangible and intangible) of £6.8m (2009: £5.2m). The level of capital expenditure has remained consistent with 2009, but the focus has moved in the year away from the purchase of assets for the relocation of Swedish production capacity to the UK, to the purchase of new assets and infrastructure for the P3 expansion programme. The only debt outstanding at 31 December 2010 was £1.3m (2009: £0.4m) relating to the financing of capital equipment. The group continues to manage its resources prudently, resulting in gross cash at 31 December 2009 of £23.3m (2009: £11.5m).

Dividend

The board will recommend a final dividend of 1.5p for 2010 at the forthcoming Annual General Meeting, giving a total dividend for the year of 2.5p (2009: 2.5p). An interim dividend of 1.0p was paid during the year (2009: 1.0p). Subject to approval by shareholders at the Annual General Meeting, the final dividend will be paid on 24 June 2011 to shareholders on the register on 3 June 2011.

Foreign currency

The group's foreign exchange exposure is broadly consistent with prior years, but reflects an increase in sales to euro denominated customers. 60% (2009: 69%) of product revenues were invoiced in sterling, 15% (2009: 18%) in US dollars and 25% (2009: 13%) in euros. Purchases were 57% (2009: 52%) in sterling, 20% (2009:20%) in Swedish kronor, 7% (2009: 12%) in US dollars and 10% (2009: 11%) in euros. The group's exposure to the Swedish kronor will now continue as the Swedish manufacturing facility will now remain operational. The increase in euro revenues is a direct result of the growth in P3 sales with the main customers for ceramic tile decoration markets being based in EMEA.

Annual General Meeting

The Annual General Meeting will be held at 9.30am on 17 May 2011.

Risks and uncertainties

Risk is an inherent part of doing business. The group has a process for identifying, evaluating and managing the risks faced by the business and has identified the following factors as principal potential risks to the successful operation of the business.

·; if our initiatives to grow the business are not effective, financial performance of the group could be adversely affected;

·; if we are unable to satisfy customer demand through inability to supply due to capacity constraints or any other reason, both short term group revenues and longer term financial performance could be adversely affected;

·; if there is insufficient demand for our products to substantially utilise installed production capacity, financial performance could be adversely affected;

·; if we cannot effectively anticipate technology trends and develop new products to respond to changing customer preferences, this could adversely affect group revenues;

·; if we cannot enforce the intellectual property rights on which our business depends or if third parties claim that we infringe their intellectual property rights our revenue and profit may be adversely impacted;

·; if we cannot attract, retain and motivate key employees the performance of our business could be adversely affected;

·; if our IT infrastructure does not perform as required our revenues and profit could be adversely impacted;

·; if we are unable to effectively complete, integrate and manage any acquisitions, disposals or other significant transactions this could adversely affect the group's business performance and revenues and profit;

·; changes to the economic and political environment in both our major markets and the regions where we manufacture could adversely affect our business and financial performance;

·; failure to effectively manage our working capital could adversely affect our cash flow;

·; failure to manage our relationships with third party suppliers for raw materials could adversely affect our ability to maintain consistent supply of finished goods;

·; failure to manage our relationships with third party suppliers for capital production equipment could adversely affect our ability to maintain consistent supply of finished goods;

·; competition from direct competitors or third party technologies could impact our market share and pricing;

·; failure to effectively manage our distribution of products could damage customer confidence and adversely affect our revenues and profits;

·; when goods are sold internationally we are subject to movements in foreign exchange rates that may adversely affect our revenues;

·; if our reputation is damaged through product quality or other issues our ability to generate sales may be harmed;

·; natural disaster affecting our manufacturing locations or our customers' locations could adversely affect our future revenue and profit; and

·; loss or damage to key production equipment as a result of moving production capacity between or within sites may affect our ability to manufacture product.

Key Performance Indicators

The principal measures management uses to monitor the performance of the group are as follows:

Revenue by business and geographical segment: sales revenue measured against budget on a monthly basis;

Gross margin: gross margin measured against budget on a monthly basis;

Operating expenditure: operating expenditure measured against budget on a monthly basis;

Adjusted PBT: adjusted profits before tax is a measure of profit before tax, share option costs and exceptional items.

This is measured monthly against budget; and

Cash: cash is measured weekly with a full cash flow reviewed monthly against target.

Andrew Taylor

Finance Director

21 March 2011

Notes to the consolidated financial information

for the year ended 31 December 2010

1. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2010, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs"), this announcement does not itself contain sufficient information to comply with International Financial Reporting Standards. The company expects to publish full financial statements that comply with IFRSs in April 2011.

2. Restatement of prior periods

The financial information includes a prior period restatement in relation to the recognition of revenue from a distributor. In prior periods revenue (and associated profits) were recognised at the point of receipt of goods by the distributor. The restated financial information recognises revenue (and associated profits) at the point of resale by the distributor which is when risk and rewards of ownership of inventory has transferred.

In addition to the impact on the 2009 income statement following adjustments to revenue and profit, receivables and inventory have also been restated in the 2009 and 2008 statement of financial position. Segment results in note 3 reflect this restatement which only impacted printheads and related products.

Outlined below are the corrections made for each financial statement line item affected.

3. Business and geographical segments

For management reporting purposes, the group's operations are currently analysed according to product type. These product groups comprise the group's operating segments for the purposes of reporting to the group's Chief Executive Officer and board of directors. The group's chief operating decision maker is the Chief Executive Officer.

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 and the nature of these product groups is discussed in more detail in the review of operations.

Investment income and finance costs are not allocated to reportable segments for the purposes of reporting to the Group's Chief Executive Officer and Board of Directors.

3. Business and geographical segments continued

3. Business and geographical segments continued

No information is provided for segment liabilities as this measure is not provided to the chief operating decision maker.

3. Business and geographical segments continued

3. Business and geographical segments continued

Geographical information

The group operates in three principal geographical areas: EMEA, the Americas and Asia. The group's revenue from external customers and information about its segments (non-current assets excluding deferred tax assets and other financial assets) by geographical location is detailed below:

Revenues are attributed to geographical areas on the basis of the customer's operating location.

Non-current assets, being property, plant and equipment, goodwill, other intangible assets, investments and the deferred tax asset, are attributed to the location where they are situated.

Information about major customers

Included in revenues arising from sales of goods are revenues of approximately £9.5m (17% of revenues) (2009: £10.7m, 26% of revenues) which arose from sales to the group's largest customer. In the year ended 31 December 2010 revenues of approximately £2.9m (5% of revenues) (2009: £3.4m, 8% of revenues) were included in both the sale of goods and licence fees and royalties which arose from sales to the group's second largest customer. In 2010 and 2009, only the largest customer of the group exceeded 10% of revenue in the period. Revenue from the top five customers represents 37% of revenues (2009: 44%).

4. Earnings per ordinary share - basic and diluted

The calculation of basic and diluted earnings per share is based on the following data:

The weighted average number of ordinary shares for the purposes of basic earnings per share is calculated after the exclusion of ordinary shares in Xaar plc held by Xaar Trustee Ltd and the Xaar plc ESOP trust.

Share options granted over 1,939,540 shares (2009: 2,610,156) have not been included in the diluted earnings per share calculation because they are anti-dilutive at the period end.

The performance conditions for LTIP awards granted over 516,061 shares (2009: 2,058,381) and share options granted over nil shares (2009: 668,859) have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.

Adjusted earnings per share

The calculation of adjusted EPS excluding restructuring costs, impairment of trade investments and share-based payments is based on earnings of:

4. Earnings per ordinary share - basic and diluted continued

The denominators used are the same as those detailed above for both basic and diluted earnings per share.

Earnings per share excluding restructuring costs, impairment of trade investments and share-based payment charges:

This adjusted EPS information is considered to provide a fairer representation of the group's trading performance year on year.

5. Provisions

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.

The restructuring provision, created in 2008, related to amounts payable in respect of staff redundancies during the year. The provision was fully utilised in 2009.

On 1 April 2009 the Group announced the rationalisation of its manufacturing facilities which would have involved the eventual closure of its plant in Stockholm, Sweden and the relocation of that manufacturing capability to the Group's manufacturing facility in Huntingdon, England. The board has now announced that the rationalisation programme has been stopped. As a result, the remaining provision is for any committed residual costs associated with the project.

6. Note to the cash flow statement

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.

7. Going concern

The group has considerable financial resources and through a diverse customer base is exposed not only to the western economies but also China, India and Latin America. As a consequence, the directors believe that the group is well placed to manage its business risks successfully despite the continuing uncertain economic outlook.

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