The following notes are based on recollections of comments made at the AGM. They may be inaccurate and should not be relied upon.

The meeting was held at the Trinity Centre, Cambridge Science Park, close to Xaar's head office. It was reasonably well attended with about 15-20 shareholders. The format was formal business followed by a presentation (previously made to analysts) and finally any further questions – in all lasting about 2 hours.

The Chairman, Arie Rosenfeld, opened proceedings by reading out a very brief trading update:

http://www.investegate.co.uk/Article.aspx?id=200704230700433002V

The meeting was then addressed predominantly by the CFO, Nigel Berry, and CEO, Ian Dinwoodie, with occasional contributions from the other Directors to answer specific points.

The formal proceedings were enlivened by one shareholder in particular questioning the basis of the Long Term Incentive Plan (resolution 10), which it was revealed had also received some adverse institutional feedback. The plan is based on 2006 earnings, rather than the more demanding 2005 figures, with subsequent debate on just how much of a challenge that would represent to achieve a full bonus. Nigel Berry commented that Chinese sales have been volatile and simply restoring previous levels would not by itself be adequate given the £2.5m pa overheads of the new Huntingdon plant. Richard King, as chair of the Remuneration committee, commented that the committee had consulted on the matter and regarded the scheme as plum in the middle of current smallcap practice, providing realistic targets but which represented a 'high jump' rather than a 'pole vault'.

All the resolutions were passed:

http://www.investegate.co.uk/Article.aspx?id=200704231256543439V


---------- China ----------

All the Chinese customers have resumed purchasing and there has been no price erosion, including the 6% import duty and other taxes, and no signs of any competitor gaining from the episode. Sales to China are now charged for in Sterling on cash terms, reducing exposure to the US Dollar and improving working capital requirements.


---------- Huntingdon ----------

The new plant started producing Platform 3 heads in January with the first commercial sale in February. The decision to lease a new UK site rather than extend the existing site in Sweden was influenced by a number of factors. These included: relatively high Swedish salary overhead costs; lack of readily available expansion space; reduced disaster risk through running 2 sites; and the company size now making it an option. Both sites use the same base machinery and would be capable of manufacturing heads for all 3 platforms. Currently Platform 1 & 2 heads are made in Sweden and Platform 3 heads in Huntingdon.


---------- Patents ----------

Some of the base patents expire in 2008. However, each new product tends to rely on different layers of technology each with their own patents, some which expire in 2018 and beyond. In any case patents are not the only barrier to entry, with a lot of spend by some big corporations in this area ending in failure.

Patent monitoring is taking place in China, where patent recognition has recently come into force. Some patents have also been registered in Russia.


---------- Branding ----------

Branding is considered to be very important, albeit some customers are sensitive to being portrayed as merely a box provider.

Oce are an example customer where Epson and Xaar heads are alternatives used in equal proportion.

Xaar are also open to the approach of exclusive deals, although this has not worked very well. Agfa have exclusive rights for certain markets and semi-exclusive rights for others.


---------- Finances ----------

Margins probably won't improve this year, because of the additional overhead of running the Huntingdon plant.

Development fees are also likely to reduce, since most have come from Agfa for Platform 2. Under IFRS some of the development costs have been capitalised.

For Platform 1 applications the inks used have become a commodity item and consequently ink revenues have diminished. The introduction of Platform 2 & 3 is expected to reverse this trend and drive up ink revenues.

Institutional shareholders have been consulted re. cash distribution policy and views are mixed. Growth, not income, was one view.


---------- Geography ----------

Roughly 10% of 'Asian' sales are to India.

Although China is a manufacturing centre that exports to a large number of countries, the South American market has not been well served, possibly because of the distances involved and available after sales service. Some entrepreneurs have addressed this by manufacturing locally, now supported by the Brazilian office.


---------- Growth ----------

Platform 1 has restricted sales predominantly to the Graphic Arts market (printing an image) where the proportion of the available wide format market being addressed is now quite large. In contrast, less than 10% of the printing industry has gone digital (ignoring the desktop market) and the available market to be addressed is very large indeed.

Converting from analogue to digital though tends not to be a technical issue, but a matter of convincing customers of the benefits in a conservative industry characterised by being slow to change. One area that has experienced pressure to go digital is label printing. For example, supermarket food labels may need to be available in 25 languages, show salt levels, carry the latest promotional message, etc., where the flexibility offered by digital printing is of great significance.

A plausible scenario would be for 10% of the available market to be addressed in the next 2-3 years, with a lot more in 5-10 years. Platform 2 & 3 enables these markets to be addressed and the expectation is for initial sales to be in western markets, based on initial enquiries and the precedent that Chinese customers tend to copy rather than innovate, trailing by 1-2 years.

Agfa (Platform 2) are beginning to roll out and so expect an announcement/splashes from them later this year.


---------- Innovation ----------

Several of the less conventional print application areas being actively worked on by customers were mentioned:

* PAT Inc. have already launched a varnishing product
* 3D modelling, at Loughborough University
* Human tissue deposition, at Manchester University
* PLED technology for interior lighting, by a 'global chemical company'
* Printing of passports in Austria, via a French company
* CMR Fuel cells (see http://www.investegate.co.uk/Article.aspx?id=20070125070000P1059)

The passport application is an example of what can be achieved; the others are characterised by the potential for very high volumes. 3D modelling, for example, may in future compete with injection moulding as a manufacturing technique. [Along with a more conventional 3D model a fairly large chain was on display, the sort of thing used for garden link fencing, presumably 'printed'.]


---------- Danaher ----------

In answer to a specific question it was confirmed that no personal contact had been made with Danaher HQ prior to the take-over approach.

Since the take-over rejection trading with Danaher subsidiaries, e.g. St. Ives, has continued as normal.


---------- Strategy ----------

Over the last few years the company focus has shifted from research to development. A strong roadmap exists to ensure continued development.