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Xaar PLC (XAR)

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Wednesday 17 October, 2001

Xaar PLC

Trading Update

Xaar PLC
17 October 2001

FOR IMMEDIATE RELEASE                                           17 October 2001

                                   Xaar plc



                                TRADING UPDATE

Xaar plc ('Xaar'), the ink jet printing technology group headquartered in
Cambridge, announces its plans to relocate its UK manufacturing production to
its Swedish plant together with an update on current trading.

Manufacturing operations

XaarJet, the division responsible for the sales and production of print heads
and inks, manufactures ink jet print heads at its facilities in Cambridge and
Sweden.  The XJ500 500-channel model is predominately manufactured in Xaar's
Cambridge facility.  Production of the XJ128 128-channel model, which
accounted for 75% of 2001 half-year total XaarJet revenues of £9 million,
takes place in Xaar's factory near Stockholm, Sweden.  Demand for the Swedish
manufactured 128-channel printheads remains good and production yields are in
line with plans.

XaarJet has enjoyed strong demand for the XJ500 which has outstripped its
ability to manufacture.  Production of the XJ500 has not increased at the rate
originally planned for two principal reasons.  The first has been a problem
with the quality of a raw material component sourced from the US.  Although
close liaison with the supplier and new inspection procedures have now
eliminated most of these quality problems, manufacturing yield has been
affected adversely.  The second factor is that the ramp-up in production has
not been as rapid as had been hoped due to a number of manufacturing related
process issues.

As a result, XaarJet's revenues and margins will be lower than originally

The need to increase manufacturing output to satisfy the growing demand for
the XJ500 print head has led to a review of Xaar's manufacturing activities.

Manufacture of the XJ500 product commenced in Cambridge in Q4 1998 and
low-volume parallel production commenced in the Swedish plant during Q2 of
this year.  The UK plant acts as both manufacturer and a development /
prototyping facility.  Xaar proposes to transfer all volume production to its
Swedish factory which has excellent facilities and spare capacity.

As a result, Xaar has today announced that it will begin consultation with
employees about these proposals, which are anticipated to result in the number
of production employees in Cambridge being reduced by approximately 45 and the
number in Sweden being increased by some 20.  It is expected that this
reorganisation would improve manufacturing efficiency significantly and lay
the foundation for a faster expansion of manufacturing output during 2002.

Subject to completing the consultation process, it is anticipated that the
transfer of production will be completed by April 2002.  An exceptional charge
of approximately £1 million would be incurred in 2001.

Jan Fineman, Chief Executive or Gordon MacLeod, Finance Director   
at  Xaar on :  01223-423663

Steve Liebmann or Lisa Baderoon at Buchanan Communications on :   020-7466-5000

R&D activities

As a result of these changes, it is proposed that the Cambridge facility will
focus its efforts on research and development, and certain bespoke, low
volume, pilot prototyping.  Concentrating the research and development in
Cambridge is expected to accelerate the progress on the technology, including
the page wide array project and other leading ink jet  developments.

Licensing and royalties

Xaar is currently in discussions for the sale of a substantial new technology
licence to a prospect in Asia.  As has always been the case for the sale of
new licences, it is difficult to predict either the timing or amount.

Elsewhere, the annual licensee seminar was held in September and Xaar was
greatly encouraged by the progress of product and technology developments by
its licensees.  In particular, recent greyscale product launches provide a
significant endorsement of Xaar's technology, although the licensees and
products cannot be identified at the moment due to confidentiality reasons.