Interim Results

Xaar PLC
13 September 2006


FOR IMMEDIATE RELEASE                                         13 September 2006

                                    Xaar plc

                INTERIM RESULTS FOR THE 6 MONTHS TO 30 JUNE 2006

Xaar plc ('Xaar'), the inkjet printing technology group headquartered in
Cambridge, has announced its unaudited results for the six months ended 30 June
2006.

KEY POINTS:

• Increased sales were achieved in each principal territory and in the key
  graphic arts and packaging industry segments.

• Sales into the important Chinese market held back by knock-on effect of
  investigation by Chinese customs authorities into certain Xaar customers
  over alleged non-payment of import duties.

  o Xaar assisting customers to implement new supply arrangements for
    PRC shipments.

• The financial results were:

  o Turnover was up 13% to £22.3m (2005: £19.8m);

  o Profit before tax was £4.8m (2005: £4.9m*);

  o Net margin was 21% (2005: 24%*);

  o Earnings per share were 5.5p (2005: 5.6p*);

  o Net cash and cash equivalents at 30 June 2006 increased to £16.3m
    (31 December 2005: £14.4m).

    * stated before non-trading foreign exchange loss on inter-company loan of 
      £1.3m

• Although an interim dividend is not being paid, as last year, a final
  dividend for the year is expected to be declared, subject to second half
  performance, (2005: 1.5p).

• New UK manufacturing facility in Huntingdon on track for initial
  production in Q1, 2007.


On outlook, Chairman, Arie Rosenfeld stated:

'The timing of the recovery in China remains uncertain and this will inevitably
impact our second half results. We believe that the underlying demand for
Xaar-based products in China remains strong and in the medium and longer term we
remain positive about the group's prospects in Asian markets and elsewhere. Our
medium and longer term growth will be driven by new products and new market
applications which are now progressing towards volume production. These new
products and markets will bring an increased spread of risk and an improving
balance to revenues and profitability.'



Contacts

Xaar plc:                                                today: 020-7367-8888
Ian Dinwoodie, Chief Executive                       thereafter: 01223-423663
Nigel Berry, Group Finance Director & Deputy                   www.xaar.co.uk
Chief Executive

Bankside Consultants:
Steve Liebmann                                   020-7367-8883 / 07802-888159


                              CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that Xaar is continuing to make progress on most fronts
and that the business remains robust. Sales of all existing products grew and
fundamental demand for Xaar technology and solutions remains solid. As already
announced, the one area which has caused concern is sales into China, details of
which are set out below.

Xaar's prospects are underpinned by our new products, and interest in the
platform 2 OmniDot 760 and our groundbreaking platform 3 Xaar 1001 (the
commercial name for the HSS) has been strong. We expect to see the introduction
of products incorporating these new printheads during 2007.

Results and finance

Total group revenue for the six months to 30 June 2006 was £22.3 million (2005:
£19.8 million), an increase of 13% over the same period last year. The
comparative figure for last year included sales of £0.4 million (2006: £nil) by
Vivid Print Innovations Inc., which was sold in March of this year. Revenue
consisted of the sale of printheads and inks valued at £21.1 million (2005:
£18.1 million), licensee royalties of £0.7 million (2005: £0.8 million) and
development fees of £0.5 million (2005: £0.9 million).

Trading profit before tax was £4.8 million (2005: £4.9 million, before losses on
the inter-company loan). Earnings per share were 5.5p (2005: 5.6p, before losses
on the inter-company loan). The inter-company loan between the UK and Swedish
operations was fully repaid during the period.

Production costs and capacity increased during the period and while this
restricted profitability in the first half it represents an investment in the
future as sales of existing products recover and volume sales of new products
begin.

Cash generation was strong with cash at the half-year standing at £16.3 million,
an increase of £1.9 million in the period (2005: £14.4 million at 31 December;
£17.5 million at 30 June). This is after providing for capital investment in
tangible assets of £2.6 million, intangible assets of £1.6 million and decreased
working capital. The group's only debt is the outstanding balance on certain
equipment leases totalling £1.0 million (2005: £1.5 million).

China

The Chinese market is important to Xaar as China has now become the largest
manufacturer of wide and grand format printers for the exterior graphics market,
Xaar's core market today. In 2005, sales to China accounted for some 50% of
printhead sales revenue, all from our platform 1 range of products. To date,
Xaar has supplied products for this market on an ex-works basis and many
customers choose to have their products delivered to Hong Kong.

After some evidence of slower payments by Chinese customers in the latter part
of 2005, Xaar tightened its terms of trade early in 2006 which may have had some
impact on sales. As already announced, on 19 July 2006 Xaar was notified by the
Chinese customs authorities of an investigation into three of Xaar's customers
with respect to alleged non-payment of import duties. This initial 90-day
investigation is influencing other customers in China which have reduced orders
to Xaar and Xaar's competitors whilst they conduct a review of their own
importation policies and procedures. Xaar is not implicated in this
investigation.

Xaar's management is moving quickly to put new arrangements in place for
supplying the Chinese market. Xaar will now ship directly into mainland China,
where goods will be held in a bonded warehouse for collection by customers.
After-market sales of replacement heads for export markets served by our Chinese
customers are, where appropriate, being made directly to end-users or local
distributors.

Business review

Printheads and related products

Sales once again improved for all Xaar's printhead products. Despite the issues
in China, sales to Asia were up 5% on the same period last year, sales to Europe
and the Middle East increased by 23% and sales to the US were up by 17%. In
Europe, our strategic partner in the development of the OmniDot 760, Agfa
Gevaert, successfully completed the first installation of its new OmniDot based
digital press, the M-Press, at SMP Group plc in London. Agfa expects this to
pave the way for further installations as we move into next year.

Following the opening last year of our South American sales office in Sao Paulo,
Brazil our first two customers in Brazil have launched locally manufactured wide
format printers into the market. In India, sales have been slow to take off but
we remain optimistic about the longer term prospects for this market.

New markets

We continue to make progress in developing new markets for the future. I am
particularly pleased to report that one of our Japanese strategic partners sold
its first digital inkjet polyimide coating machine in the period. Polyimide
coating is an essential part of the production of LCD screens. The machine was
fitted with an OmniDot 760 print engine supplied by Xennia Technology Ltd and
the interest in digital solutions for this market augers well for our future in
this sector.

The LabelExpo tradeshow, currently being held in Chicago, includes important new
product launches featuring Xaar printheads. PAT Technology Systems, a small
company based in Canada, will preview a UV digital coating machine based on the
new Xaar 1001 (HSS) printhead. Jetrion, a subsidiary of XSYS Print Solutions,
will launch its new Jetrion 4000 digital label press based on the greyscale
OmniDot 318 printhead. XSYS is one of the world's leading suppliers of
commercial printing inks.

Elsewhere, the recent Mediatech tradeshow in Frankfurt saw the launch of two
Xaar-based CD printers: one developed by Copytrax, a company based in Cambridge,
UK and one by Werner Kammann Maschinenfabrik of Germany. Both machines use the
OmniDot 318 printhead. In addition, development projects into packaging
printing, 3D modelling and other sectors of the electronics industry continue to
progress, although it is always difficult to predict the timing of
commercialisation of such programmes.

Technology revenues

Royalties from licensees were little changed from the first half of 2005 due to
lower pricing by one licensee for a specific market application.

New production facility

Progress on our new production facility in Huntingdon, UK remains on target for
the start of commercial production in the first quarter of 2007. Equipment for
the plant is now being delivered and is due to be commissioned during the final
quarter of this year.

Dividend

It is not the group's intention to pay an interim dividend but, subject to
second half performance, it is our intention to declare a dividend for the full
year.

Outlook

The timing of the recovery in China remains uncertain and this will inevitably
impact our second half results. We believe that the underlying demand for
Xaar-based products in China remains strong and in the medium and longer term we
remain positive about the group's prospects in Asian markets and elsewhere. Our
medium and longer term growth will be driven by new products and new market
applications which are now progressing towards volume production. These new
products and markets will bring an increased spread of risk and an improving
balance to revenues and profitability.


Arie Rosenfeld
Chairman 
12 September 2006



Consolidated income statement
for the six months ended 30 June 2006

                                     6 months to     6 months to   12 months to
                                     30 June         30 June       31 December
                                     2006            2005          2005
                                     (unaudited)     (unaudited)   (audited)

                               Notes £'000           £'000         £'000
Continuing operations

Revenue                          1   22,296          19,849        42,772
Cost of sales                        (9,274)         (7,944)       (16,123)
Gross profit                         13,022          11,905        26,649

Distribution costs                   (2,032)         (1,950)       (4,038)
Administrative expenses              (6,410)         (5,310)       (12,132)
Operating profit                     4,580           4,645         10,479

Investment income                    233             252           576
Finance costs                        (39)            (34)          (63)
Foreign exchange loss on
inter-company loan                   -               (1,340)       (977)
Profit before tax                    4,774           3,523         10,015

Tax                                  (1,432)         (1,057)       (2,966)
Profit for the period
attributable to shareholders         3,342           2,466         7,049

Earnings per share from
continuing operations
Basic                            2   5.5p            4.1p          11.6p
Diluted                          2   5.2p            3.9p          11.1p


Dividends paid in the period amounted to £921,000 (six months to 30 June 2005:
£604,000; twelve months to 31 December 2005: £604,000).





Consolidated statement of recognised income and expense
for the six months ended 30 June 2006

                                   6 months to    6 months to   12 months to
                                   30 June        30 June       31 December
                                   2006           2005          2005
                                   (unaudited)    (unaudited)   (audited)
                                   £'000          £'000         £'000
Exchange differences on
translation of foreign operations  (37)           678           842
Gains/(losses) on cash flow hedges 1,487          (2,485)       (2,545)
Tax on items taken directly to     (1,198)        -             1,690
equity
Net income/(loss) recognised
directly in equity                 252            (1,807)       (13)

Profit for the period              3,342          2,466         7,049
Total recognised income and
expense for the period             3,594          659           7,036




Consolidated balance sheet
as at 30 June 2006

                                   As at          As at         As at
                                   30 June        30 June       31 December
                                   2006           2005          2005
                                   (unaudited)    (unaudited)   (audited)
                                   £'000          £'000         £'000
Non-current assets
Property, plant and equipment      8,633          5,546         6,436
Goodwill                           720            771           720
Other intangible assets            4,770          3,228         3,773
Investments                        1,768          234           1,377
Deferred tax asset                 607            -             1,970
                                   16,498         9,779         14,276
Current assets

Trade and other receivables        7,444          6,535         9,142
Inventories                        3,358          2,086         2,835
Cash and cash equivalents          16,264         17,523        14,395
Derivative financial instruments   290            -             -
                                   27,356         26,144        26,372
Assets held for sale               -              -             265
Total assets                       43,854         35,923        40,913

Current liabilities
Trade and other payables           (8,986)        (8,199)       (7,875)
Current tax liabilities            (2,975)        (1,130)       (2,916)
Obligations under finance leases   (490)          (573)         (556)
Provisions                         (188)          (134)         (120)
Derivative financial instruments   -              (1,137)       (1,197)
Liabilities directly associated
with assets classified as held for -              -             (15)
sale
                                   (12,639)       (11,173)      (12,679)
Net current assets                 14,717         14,971        13,693

Non-current liabilities
Obligations under finance leases   (512)          (889)         (681)
Total liabilities                  (13,151)       (12,062)      (13,360)

Net assets                         30,703         23,861        27,553

Equity

Share capital                      6,147          6,057         6,115
Share premium                      9,512          9,001         9,376
Own shares                         (3,420)        (20)          (3,420)
Other reserves                     2,695          2,104         2,386
Hedging and translation reserves   872            (595)         (131)
Retained earnings                  14,897         7,314         13,227
Equity attributable to             30,703         23,861        27,553
shareholders

Total equity                       30,703         23,861        27,553



Consolidated cash flow statement
for the six months ended 30 June 2006



                                     6 months to   6 months to   12 months to
                                     30 June       30 June       31 December
                                     2006          2005          2005
                                     (unaudited)   (unaudited)   (audited)
                                     £'000         £'000         £'000

Net cash from operating activities   6,791         4,807         7,862

Investing activities
Interest received                    233           253           577
Purchases of property, plant and     (2,626)       (1,252)       (2,579)
equipment
Proceeds on disposal of property,
plant and equipment                  5             -             1
Purchase of trading investments      (141)         (234)         (1,377)
Expenditure on product development   (1,412)       (469)         (1,220)
Net cash used in investing           (3,941)       (1,702)       (4,598)
activities

Financing activities
Dividends paid                       (921)         (604)         (604)
Proceeds from issue of ordinary      162           333           754
share capital
Repayments of obligations under
finance leases                       (261)         (285)         (553)
Purchase of own shares               -             -             (3,400)
Net cash used in financing           (1,020)       (556)         (3,803)
activities

Net increase/(decrease) in cash and
cash equivalents                     1,830         2,549         (539)
Cash and cash equivalents at
beginning of period                  14,395        15,316        15,316
Effect of foreign exchange rates     39            (342)         (382)
Cash and cash equivalents at end of
period                               16,264        17,523        14,395



Notes to the interim financial information
for the six months ended 30 June 2006

1. Segmental analysis

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
presents its primary segment information.


Segment information about these product types is presented below:

                                     6 months to   6 months to   12 months to
                                     30 June       30 June       31 December
                                     2006          2005          2005
                                     (unaudited)   (unaudited)   (audited)
                                     £'000         £'000         £'000
Revenue

Printheads and related products      21,112        18,094        39,872
Development fees                     497           948           1,587
Licence fees and royalties           687           807           1,313
Total                                22,296        19,849        42,772



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:

                                     6 months to   6 months to   12 months to
                                     30 June       30 June       31 December
                                     2006          2005          2005
                                     (unaudited)   (unaudited)   (audited)
                                     £'000         £'000         £'000

Europe and Middle East               8,035         6,519         14,025
Americas                             2,306         1,968         3,307
Asia                                 11,955        11,362        25,440
Total                                22,296        19,849        42,772



2. Earnings per ordinary share - basic and diluted


The calculation of earnings per share is based upon the following data:

                                     6 months to   6 months to   12 months to
                                     30 June       30 June       31 December
                                     2006          2005          2005
                                     (unaudited)   (unaudited)   (audited)
                                     £'000         £'000         £'000
Earnings

Earnings for the purposes of basic
earnings per share being net profit
attributable to equity holders of    3,342         2,466         7,049
the parent

Number of shares

Weighted average number of ordinary
shares for the purposes of basic     61,323,233    60,367,096    60,578,422
earnings per share
Effect of dilutive potential
ordinary shares:
Share options                        2,405,029     2,828,964     2,921,181

Weighted average number of ordinary
shares for the purposes of diluted   63,728,262    63,196,060    63,499,603
earnings per share



2. Earnings per ordinary share - basic and diluted (continued)


The calculation of earnings per share excluding foreign exchange loss on the
inter-company loan is based on earnings of:

                                      6 months to   6 months to   12 months to
                                      30 June       30 June       31 December
                                      2006          2005          2005
                                      (unaudited)   (unaudited)   (audited)
                                      £'000         £'000         £'000
Earnings for the purposes of basic
earnings per share being net profit
attributable to equity holders of the 3,342         2,466         7,049
parent
Foreign exchange loss on the
inter-company loan                    -             1,340         977
Tax effect of loss on inter-company   -             (402)         (293)
loan

Profit on ordinary activities after
tax excluding foreign exchange loss
on the inter-company loan             3,342         3,404         7,733


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:

                                     6 months to   6 months to   12 months to
                                     30 June       30 June       31 December
                                     2006          2005          2005
                                     (unaudited)   (unaudited)   (audited)
Basic                                5.5p          5.6p          12.8p
Diluted                              5.2p          5.4p          12.2p


This additional earnings per share information is considered to provide a fairer
representation of the group's trading performance year on year.



3. Financial information

These interim financial statements do not constitute statutory financial
statements within the meaning of section 240 of the Companies Act 1985. The
results for the year ended 31 December 2005 have been extracted from the
statutory financial statements, which have been filed with the Registrar of
Companies. Without qualifying their opinion on the financial statements for the
year ended 31 December 2005, the previous auditors drew attention, by way of
emphasis, to disclosures concerning the possible outcome of amounts due from
some of the group's debtors. They concluded that there was uncertainty over both
the timing and quantum of amounts which may be recovered.

The unaudited interim financial statements for the six months ended 30 June 2006
have been prepared on the basis of the accounting policies set out in the most
recently published financial statements of the Group for the year ended 31
December 2005.


4. Date of approval of interim financial statements

The interim financial statements cover the period 1 January 2006 to 30 June 2006
and were approved by the board on 12 September 2006.

The interim financial statements will be sent to shareholders in due course.
Further copies will be available from the Company's registered office, Science
Park, Cambridge CB4 0XR and can be accessed on the Xaar plc website,
www.xaar.co.uk.



Independent review report to Xaar plc

Introduction

We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises the consolidated income
statement, the consolidated statement of recognised income and expense, the
consolidated balance sheet, the consolidated cash flow statement and the related
notes 1 to 4. We have read the other information contained in the interim report
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.


This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with the guidance contained in Bulletin
1999/4 'Review of interim financial information' issued by the Auditing
Practices Board for use in the United Kingdom. A review consists principally of
making enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.


Ernst & Young llp
Cambridge
12 September 2006


Notes:

The maintenance and integrity of the Xaar plc website is the responsibility of
the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
information since it was initially first presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.



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