Xaar announces 'solid set of results' for 2007

13/03/2008

Xaar plc, the inkjet printing technology group headquartered in Cambridge, announces its audited results for the year ended 31 December 2007.

Key points:

* The results reflect continued growth from Xaar's established, market leading printhead products.

* The financial results for the year were:

o Turnover was up 13% to £47.9m (2006: £42.2m);

o Profit before tax increased 6% to £7.3m (2006: £6.9m) after providing for the early stage losses of the new Huntingdon manufacturing facility (2006: £nil);

o Underlying profit before tax (before net Huntingdon costs) increased 35% to £9.3m (2006: £6.9m);

o Earnings per share increased 9% to 8.6p (2006: 7.9p); and

o Net cash at year end was £13.0m (2006: £12.4m)

* 25% increase in proposed annual dividend to 2.5p (2006: 2.0p)

* Good progress in commercialising new Platform 3 printhead products with a significant number of 'developer kits' sold to potential OEMs and initial printer product launches by Xaar customers.

On outlook, Chairman, Phil Lawler stated: "I believe that Xaar is well positioned to capitalise on the progressive shift from analogue to inkjet technology based printing - a trend which is gathering momentum within specialist and mainstream printing markets.

"Xaar's reputation and position in the inkjet market is building. We have the manufacturing capacity and capability, the technical knowledge and a committed and talented team which is now focused on execution and delivery of growth."

www.xaar.com

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Contacts

Xaar plc:
Ian Dinwoodie, Chief Executive
Nigel Berry, Group Finance Director & Deputy Chief Executive
Andrew Taylor, Finance Director Designate
today:  020-7367-8888
thereafter: 01223-423663

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



CHAIRMAN'S STATEMENT

Introduction

I am pleased to report a further year of progress, not just with results but
also, significantly, with the level of interest in our Platform 3 product, the
Xaar 1001.

Xaar has reached an exciting stage in its development. Our main markets
continued to grow during 2007 and our Platform 1 product range, now firmly
established as market leader, is expected to continue to provide a solid
foundation for the business going forward. At the same time, our new Platform 2
and Platform 3 products are beginning to enter the end user market as our OEM
(Original Equipment Manufacturer) customers complete their development
activities and launch new printing machines. These Platform 2 and Platform 3
products are more sophisticated than Platform 1 and appeal to printing machine
manufacturers the world over (not just in Asia) in a wider range of
applications. Consequently our potential market is now much larger. We believe,
in line with independent industry analysts, that today less than 10% of
commercial print world wide is produced using inkjet technology. Whilst the
commercial printing market is conservative with long product life cycles, this
benefits the longevity of our Platform 1 products. Our aim looking forward is to
continue to accelerate the commercial adoption of our newer technologies.

Results and dividend

The results for the year were in line with IFRS compliant market consensus,
showing growth in revenue and profits with a continued strong cash flow and
sector leading performance at both the gross and net margin levels. While full
details are provided within the financial review, it should be noted that the
results are struck after providing for the early stage losses of the new
Huntingdon plant - a long-term investment in manufacturing capacity for the new
Platform 3 product range.

Based on its confidence in the future profitability and cash generation of the
business, the board has decided to recommend a 25% increase to 2.5p in the
dividend per share for the year. With effect from 2008 it is the board's
intention, subject to satisfactory performance, to introduce payment of an
interim as well as a final dividend.

Board

2007 has seen a number of changes to our board. In July Arie Rosenfeld retired
as Chairman of the board. His deep knowledge and experience of our industry has
been of great benefit to Xaar over the last ten years and we thank him
sincerely for this.

As stated in the Interim Report, founder and Technical Director Steve Temple
retired but remains a consultant to the Company. We are pleased to keep Steve's
counsel given his significant experience in inkjet and huge contribution to
Xaar over many years. At that time we welcomed Ramon Borrell as Research and
Development Director, having previously spent many years in senior roles at
Hewlett-Packard's large format printing division.

In October Greg Lockett joined the board as Manufacturing Director. Greg has
been director of manufacturing at Xaar for the previous four years and this
promotion reflects both his excellent work in that earlier role and his expected
contribution in the future.

In January 2008, Finance Director and Deputy Chief Executive Nigel Berry
informed the company of his intention to resign from his position and from the
board with effect from 31 March 2008. We thank him warmly for his excellent
stewardship of the group's finances and relationships during the past six years
during which the group has shown considerable development. We wish him every
success for the future. Andrew Taylor, currently Deputy Finance Director and
Company Secretary, will join the board as Finance Director on the same date.
Andrew has been with the company since 2001 and we are pleased to have such an
able replacement.

Outlook

I believe that Xaar is well positioned to capitalise on the progressive shift
from analogue to inkjet technology based printing - a trend which is gathering
momentum within specialist and mainstream printing markets. As a provider of
printhead technology, I am confident that we have a world leading range of
products that is attractive to our OEM customers as they develop new printers
which are more functional, more efficient and more flexible. We have proof of
this with the continuing success of the Platform 1 family of products which we
expect to continue to provide a solid foundation for the group after more than
a decade of commercial production, together with recent announcements of new
OEM products incorporating our newer Platform 2 and 3 printheads.

Xaar's reputation and position in the inkjet market is building. We have the
manufacturing capacity and capability, the technical knowledge and a committed
and talented team which is now focused on execution and delivery of growth.

Phil Lawler
Chairman
12 March 2008




REVIEW OF OPERATIONS

Introduction

I am pleased to report a solid set of results for 2007 as we continue to build
Xaar's business and market presence. The existing core business, which serves
the graphic display and product coding markets, continues to deliver robust
returns whilst our new product developments are creating further opportunities
in additional markets. These new products will complement the existing business
and are expected to deliver continued growth over the medium term. Xaar is
maintaining its level of investment in research and development with the
intention of capturing a significant proportion of the digital printing market
over the longer term.

Business Review

Xaar's business continues to consist of product sales, royalty income and
development fees. Product sales proportionately dominate our revenue at 95% of
the total, whilst royalty income has grown to 4% and development fees have
fallen to 1% for the reasons described in the financial review.

Sales of Platform 1 products, which serve the graphics display and product
coding markets, increased during the year and continued to build their
reputation as proven industrial solutions. This is especially true of the Xaar
128 which has become the 'de facto' standard printhead for these markets. The
Platform 1 offerings are being enhanced regularly, including the successful
launch of a new variant of the Xaar 126 product during 2007. The Xaar 126-35
enables high resolution printing for both solvent and UV ink applications based
on this established small outline printhead. During the year a number of
additional ink agreements for Platform 1 products were signed. These include the
co-branding of locally manufactured inks for both the Chinese and Indian
domestic markets. We also broadened our ink partnership arrangements for the
international market with agreements concluded with both Fujifilm Sericol and
Nazdar. During the year a new Platform 1 product has been developed, the Xaar
382; this high end product will complement the Xaar 128 by offering high
resolution and high productivity performance for grand format printers. Concept
samples of the product have been well received by existing customers and we
expect to be supplying volume product during the second half of 2008.

For both Platform 2 (Xaar 760) and Platform 3 (Xaar 1001) a significant amount
of work has been undertaken with our partners to support their activities to
bring their finished products to market. This process has taken longer than
anticipated, especially for the Xaar 760. Whilst continuing to support our
existing Platform 2 customers, we have encouraged a number of these development
accounts to transfer from the 760 to 1001 to take advantage of the latest
technology as both products are now available in volume.

I am pleased to report that a significant number of developer kits for the Xaar
1001 have been shipped during the year, resulting in very positive feedback from
both existing and new development partners. I am also particularly pleased to
report that a number of digital printing products based on our latest technology
have entered commercial life during the year. The first two models of commercial
wide format printers were launched by Teckwin Development Co. Ltd. and have been
well received by the market. Nilpeter, the world leader in analogue narrow web
presses, announced its first digital product for the label market. Sales of this
machine, named 'Caslon', will commence during 2008. Additionally EFI, the large
US printing technology group has launched a digital narrow web label press based
on the Xaar 1001. The EFI Jetrion 4000 press commenced limited shipments at the
end of 2007 and will be available in volume from the second quarter 2008.
Further launches are expected during the year, particularly at or around
'Drupa', the world's largest print and imaging trade show held in late May every
four years in Dusseldorf, Germany. Whilst the timescale to generate returns from
these new products has been frustratingly long, we remain confident that the
value generated from these developments will significantly enhance the financial
performance of the company over time.

Commercial Review - Geographic

As a supplier of technology to OEM partners, our geographic sales split will
reflect where the OEM equipment is manufactured - not necessarily the end user
location.

As the largest centre for manufacturing, Asia continues to be our most important
market, generating 58% of total sales in 2007 and growing 17% over last year.
Within the Asian region China remains our largest sales country and this market
has continued to develop, both at the OEM and end user level; we continue to
establish new relationships in this dynamic market. I would also highlight the
success of our Indian sales operation during the year. Opened in late 2004,
sales take-up was slower than initially expected, but over the past year we have
started to see the benefits of our investment in the area with a substantial
increase in sales.

Europe and the Middle East remains our second largest sales area. Sales into
this region were £14.2m being 30% of worldwide revenue. Sales were down 5% on
2006 following a poor first half which was commented on in the Interim Report.
As stated at that time, no significant changes have occurred in the European
market and this result is the net effect of certain 'ups' and 'downs' across
multiple accounts, together with the reduction in development fees from Agfa as
referred to in the financial review.

Sales to the Americas region showed excellent growth, increasing 74% over 2006
levels. Sales in the period totalled £5.7m, this being 12% of the group total.
This growth came principally from South America where we opened a sales
operation in 2005. Mirroring our experience in India, sales initially were
modest whilst a local OEM base was established. During 2007 we began to see the
benefits of this early groundwork with a substantial increase in the level of
business.

Over time we would expect to see continued growth in all regions, with Western
markets leading the way initially with the adoption of our newer technologies.

Commercial Review - End Markets

The graphic arts market continues to be the primary end use of Xaar technology
and, specifically, in the segment of large format advertising. 73% of sales were
related to this market totalling £34.9m (2006: £31.3m), where industrial inkjet
continues to displace screen printing as the most economic and flexible process
for both interior and outdoor large format advertising. The new Xaar 382 product
is expected to consolidate our leading market share in this application.

The packaging market continues to grow for Xaar, albeit our sales in this sector
are presently still dominated by product coding applications. Revenues of £9.0m
in 2007 represent a 19% increase over 2006; this market represents almost one
fifth of our business. While product coding is a small segment of the overall
packaging print market, we expect to see significant growth in revenues over the
next few years from this packaging sector starting with digital label printing,
followed by wider aspects of primary packaging. The Xaar 1001 product is our
'entry vehicle' into this market and we are pleased to see the Xaar 1001 based
Nilpeter Caslon and EFI Jetrion 4000 products already being offered in this
market.

As noted in the Interim Report, whilst there are many potential opportunities
for inkjet to become adopted in non-print related areas, the commercial returns
are on a longer timeline. Accordingly we have redirected our business
development activities toward an acceleration of our entry into the labelling
and packaging print markets noted above. However, in the non-printing industrial
space we continue to support a set of developers exploring many possibilities
including applications such as flat panel displays, flexible electronics and 3D
material deposition, to ensure that when real commercial opportunities present
themselves Xaar is well positioned to take advantage. Sales into this industrial
market for the year amounted to £1.7m, a 52% increase albeit from a small base,
and representing 4% of total sales.

Operations Review

Following the successful commissioning of the Huntingdon plant in 2006,
production of Platform 3 Xaar 1001 products started on schedule in January 2007.
The facility has supported numerous partner developments all over the world with
developer kits and initial production volumes. The availability of supply of
fully functional leading technology is critical to our partners' development
programmes and the Huntingdon operation has performed this role superbly
throughout the year. From this excellent start we now need to support our
partners' commercial implementations which will, in turn, generate the volume
demand which will bring the plant into profitability. The Jarfalla plant in
Sweden continued to perform well throughout the year, supplying the bulk of
product sales for the year.

Investment in R&D continued at its planned level of £4.8m, representing 10% of
sales. This has supported the development of new products, enhancements to
existing products and the investment in future technologies. This ongoing
investment will ensure Xaar has a well primed pipeline of new product offerings,
targeted at accelerating the growth potential of the company.

Priorities for the Future

The top priority for 2008 is to accelerate the generation of commercial returns
from our new products which we have seeded into the market over the last year.
The Xaar 1001 is a key breakthrough in inkjet technology performance -
especially in terms of reliability and ease of use; we believe this product is a
major enabling tool to open new business opportunities for Xaar. We look forward
to 2008 with confidence based on our established profitable business and the
opportunities in additional markets from our new products.

People

I would like to thank all our staff worldwide whose efforts, skill and
dedication are critical to the successful future of our business.



Ian Dinwoodie
Chief Executive
12 March 2008



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