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Xaar PLC (XAR)

  Print      Mail a friend       Annual reports

Tuesday 14 March, 2006

Xaar PLC

Final Results

Xaar PLC
14 March 2006




FOR IMMEDIATE RELEASE                                           14 March 2006



                                    Xaar plc

            PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005

Xaar plc ('Xaar'), the inkjet printing technology group headquartered in
Cambridge, has announced its audited results for the year ended 31 December
2005.

KEY POINTS :

• Results reflect a year of excellent progress with growth in revenues,
  margins and profits.

• Reported under IFRS, the financial results for the year were:

  o Turnover was up 23% to £42.8m (2004: £34.8m);

  o Profit before tax* jumped 69% to £11.0m (2004: £6.5m);

  o Operating profit was up 66% to £10.5m (2004: £6.3m);

  o Operating profit margins improved to 24% (2004: 18%);

  o Adjusted basic earnings per share* increased 62% to 12.8p (2004: 7.9p); and

  o Net cash and cash equivalents at 31 December 2004 were £14.4m (2004: £15.3m).

    * stated before non-trading foreign exchange movements on inter-company 
      loan: loss of £1.0m (2004: loss of £0.2m)

• Cash investment in the business during the second half of 2005 included
  initial spend on the new manufacturing plant, increased working capital to
  support expanded level of business and funding of purchase of Xaar shares
  for staff share incentive plans.
   
• Proposed annual dividend per share increased 50% to 1.5p (2004: 1.0p).

• New manufacturing plant is to be located in Huntingdon, Cambridge and is
  scheduled to commence production by the end of 2006. Planned investment of
  £10m will create initially 30 new jobs.


On outlook, Chairman, Arie Rosenfeld stated :

'Our sales of established products continue to grow and our new products
launched in 2006 will add growth in the medium term. For the longer term we have
further new products due for commercial launch in 2007, together with an
expanding range of applications ready to adopt them.'

'The Board looks forward to another year of positive results in 2006.'


For further information, please contact:

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

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



CHAIRMAN'S STATEMENT

Introduction

I am delighted to report another excellent year for Xaar. Our technology and
products continued their rapid advance, resulting in strong growth in sales and
profitability.

Results and Finance

Group revenues increased by 23% in the year to £42.8m (2004: £34.8m). Product
sales were £39.9m (2004: £33.1m), royalty revenues £1.3m (2004 £1.1m) and
development fees £1.6m (2004: £0.6m). Included in development fees are
integration and early stage business development revenues. Sales increased
across the whole range of printheads demonstrating the strength and depth of the
product portfolio which the group continues to develop.

Profit for the year also grew strongly and profit before tax and exchange
movements on inter-company loans was £11.0m (2004: £6.5m), an increase of 69%
over the prior year. Earnings per share, stated before the exchange movement on
inter-company loans, increased by 62% to 12.8p (2004: 7.9p).

Cash balances at the end of the year were £14.4m, a reduction of £0.9m during
the year reflecting investment of the group's cash resources in the next phase
of our development through increased capital expenditure, working capital and
trade investments. We also funded the purchase of the company's own shares for
its Employee Share Ownership Plan (ESOP). The ESOP forms a key part of our
remuneration strategy for retaining the highly skilled people we have within the
group.

Dividend

The board is recommending payment of an annual dividend for the year of 1.5p, an
increase of 50% on the 1.0p dividend paid in 2004.

Trends

Turning to the wider print market, inkjet continues its penetration of
traditional printing markets. In a recent press release, Agfa reiterated its
intention to become a major player in the industrial inkjet market and during
the year several other large global imaging companies entered the market or
significantly expanded their inkjet activities; Hewlett Packard acquired Scitex
Vision (a major Xaar customer) and also announced a new strategic partnership
with Seiko Instruments (a Xaar licensee); Fuji Photo Film acquired Sericol Inks
and Avecia Inks, both Xaar ink partners, and Dainippon Screen purchased Inca
Digital Printers in Cambridge.

The interest shown by such global businesses can only enhance the prospects for
inkjet printing and accelerate its acceptance as a primary printing process. In
addition, we continue to see progress in the development of inkjet as an
industrial manufacturing process in non-print related industries such as
packaging, electronics, three dimensional modelling and biotechnology. We now
have the products that enable us to address the requirements of these markets
and we continue to build strategic partnerships with the main players in these
sectors.

In the immediate future, sales of the OmniDot to Agfa are expected to build more
slowly than originally planned due to a slower roll-out by Agfa of its wide
format products which use the printhead. This is to allow Agfa to focus on the
introduction of its radical digital press, the M Press, which is also built
around the OmniDot. Xaar's margin on sales to Agfa is significantly lower than
that on other printhead sales, reflecting Agfa's co-funding of the OmniDot's
development and its direct investment in Xaar's Swedish manufacturing facility.
The lost margin on any shortfall in sales to Agfa in 2006 is, therefore, not
material and will be covered by incremental sales to other customers.

Investment in Capacity Expansion

During the year the board has reviewed the longer term capacity requirements of
the company given the increasing momentum building across all inkjet markets, as
well as our own future product and market development plans. The review
concluded that the group's present manufacturing plant, in Jarfalla, Sweden, is
likely to become fully utilised over the next two years and will be unable to
meet future demand.

After considering a number of options the board has decided to establish a
second manufacturing plant in Huntingdon, Cambridgeshire, close to the group's
Cambridge headquarters. The second plant should begin operations by the end of
2006 and will initially produce our Platform 3 HSS product. This expansion will
require an investment of up to £10m, including the additional working capital
required to support the incremental sales these new products will generate.

Board Changes

In October 2005, we were pleased to welcome Robert Eckelmann, 49, to the board
as an independent, non-executive director. Mr Eckelmann had spent a large part
of his career at Intel Corporation where he ran Intel's European operations and
started up its business in the major Asian markets. He replaced Michael Geary
who stood down at the 2005 Annual General Meeting following nine years of valued
service.

Queen's Award for Enterprise

The company was honoured during the year to be the recipient of the Queen's
Award for Enterprise in the Innovation category. The award is a fitting tribute
to the inventiveness and determination of our staff both past and present.

Outlook

We see the use of inkjet technology growing strongly in both printing and
industrial markets and, as a market leader, intend to remain at the forefront of
that growth.

Our sales of established products continue to grow and our new products launched
in 2006 will add growth in the medium term. For the longer term we have further
new products due for commercial launch in 2007, together with an expanding range
of applications ready to adopt them.

The Board looks forward to another year of positive results in 2006.


Arie Rosenfeld
CHAIRMAN
13 March 2006


CHIEF EXECUTIVE'S REVIEW

Introduction

2005 was a very successful year for Xaar.

It is particularly pleasing to report another twelve months of strong sales,
confirming that our technology is well-placed to benefit from the excellent long
term prospects for all aspects of digital printing. It is also encouraging to
note the expanding range of applications for our technology, taking us into the
new fields of fluid and materials deposition - not just printing in the
traditional sense. Our long experience in manufacturing piezo-based inkjet
products has continued to ensure that Xaar is highly profitable with strong
margins in the year at both the gross and operating level.

During the second half of the year we embarked on the next stage of the group's
development with plans for a new production facility in the UK to manufacture
our first Platform 3 product, the specification of which has now been finalised
following extensive and positive feedback from our early alpha test partners.
Evaluation kits for the printhead have already been shipped to potential
customers and volume supply will be available from the end of 2006.

Product sales

Printheads remain the dominant proportion of our revenues, representing 85% of
total group sales. As we expand our product portfolio we have taken the
opportunity to simplify its presentation by grouping it into three discrete
product platforms, each with a clear focus on particular market segments.

Platform 1, which comprised the majority of product sales in 2005, encompasses
our lower resolution products - the XJ126, XJ128 and XJ500 printheads - targeted
at external signage and advertising, together with coding and marking
applications. All Platform 1 products experienced double digit growth in the
year and equipment manufacturers continue to introduce new printing machines
based on our best-selling printhead, the XJ128. During the year we introduced a
new product to this platform, the OmniDot 380, which has been designed to fill
the gap between the XJ128 and the XJ500.

Platform 2 was introduced during the year and currently consists of the
greyscale OmniDot 760 in 3 and 8 picolitre dropsize variations bringing Xaar
into the higher resolution indoor advertising and poster markets (including the
version of the product manufactured for Agfa). The products commenced commercial
shipments during the year and, whilst they are modest contributors at this early
stage, I expect the contribution from this range of products to grow
significantly in the future.

Platform 3, the HSS, will be launched commercially at the end of 2006 and will
open up the higher productivity narrow format sheet and web fed print markets
and non-print related industrial applications. Selected partners in these
markets have already received the printhead for evaluation.

For the future we will continue to enhance and develop products across all three
platforms to meet the evolving needs of the markets they serve, as well as
enhancing the core technology on which all platforms are based.

Xaar's ink business continues to contribute positively to the group's results.
The business is a combination of our own direct sales of low volume,
Xaar-branded specialist inks together with growing commissions from partners on
their sales of approved Xaar-compatible inks. During the year we added seven
more commission-based ink partners, including well known brands such as Hexion
and Tetenal, to broaden the choice available to end customers by both geography
and application. We also saw early ink revenues from India and South America,
which is encouraging for the future.

Royalties and Development Fees

Royalty receipts from licensees increased as the volume of printheads designed
and manufactured by licensees using our patents increased. Development fees also
include revenue from Vivid, our small integration operation in the US,
early-stage business development activities and design work carried out on
behalf of third parties. Since the year end we have sold Vivid to one of our
integration partners, Xennia Technology Ltd. (see Finance Director's report).

Geographic Markets

When considering the geographic split of our business it is important to
understand that Xaar's immediate customers are printing equipment manufacturers,
not the end-users of such equipment. As a result, our geographic analysis of
sales is not representative of where our printheads are actually used.

Asia remains our largest market, representing 59% of turnover with growth of 29%
in the year. Most of our Asian customers produce graphics printing machines and
many of them now export a significant proportion of their equipment to the
American and European markets.

Europe (and the Middle East) is our second largest geographic market accounting
for a third of group sales with growth of 24% in 2005. Wide format graphics and
coding and marking make up the majority of sales in this market and Europe
continues to be a highly active and innovative region for new inkjet
applications.

Sales to the Americas fell by 12% during the year to 8% of total revenues due to
one large customer ceasing its manufacturing operations in the USA. Longer term
we see future growth in sales to the Americas coming from both new customers in
the graphics market - where high-end sophisticated machines continue to be
manufactured in the US, and new industrial applications as these develop over
the next few years. In addition, we expect growth from South America where we
now have a Brazilian sales office, through which we will be supporting a number
of local printer manufacturers in their planned launch of wide format printing
machines in the coming year.

End User Markets

The graphic arts market, and particularly the wide and grand format sectors of
this market, continues to be the largest single application for Xaar technology
today. Sales to the graphics printing market grew 28% in the year and accounted
for 77% of total revenues. The growth of digital printing in what was the
traditional analogue screen printing market continues apace.

Outer-case coding provides the primary demand for Xaar's technology in the
packaging market and represents 15% of group sales. We saw some shrinkage in
2005, following a significant burst of growth in 2004, with sales falling 5%;
however, sales have grown nearly 40% over the last two years and we expect
volumes to pick up again in 2006.

Our business development initiatives for industrial markets continue to make
progress and are covered in more detail in the Finance Director's report.
Applications ranging from display screens, through printed electronics,
biomedical and human tissue engineering are being developed with key strategic
partners in each sector. These represent medium to longer term opportunities but
are already generating early-stage revenues.

Product Development

The group continued to invest in research and development during the year in
each of our three product platforms and in the next step forward in our core
technology. Total R&D spend for the year was £5.5m, or 13% of revenue.

The first Platform 2 products - our own OmniDot and its Agfa variant - together
with their support peripherals, the XUSB drive electronics and ink supply
system, have now been transferred to full scale production and are commercially
available to customers.

Xaar's Platform 3 product, HSS, is now ready for initial production. The first
HSS prototypes were shipped on schedule to alpha test sites during the year and,
based on the positive feedback received from those tests, the final production
specification has been set. Fully functioning prototypes are now being produced
in the Cambridge pilot line to satisfy customer testing programmes in 2006,
prior to its commercial launch in 2007.

Manufacturing

Despite the high standards we have already achieved, operational improvements
continue to be made in the key areas of quality, cost and delivery. These
improvements increased gross margins to 62%, despite some signs of pricing
pressure in the marketplace. Further product cost savings are expected to
maintain margins. Commercial production of the OmniDot 380 and 760 was also
successfully started during the year and volumes are increasing.

Work on our second plant in Huntingdon is now underway; fit-out of the facility
is due to be complete by mid 2006, with installation and commissioning of
production equipment scheduled for the second half of the year. Although the
process is highly automated, the plant will initially create around 30 new jobs.

Priorities for the future

Our primary long term objective is to maintain the profitable growth of the last
two years whilst developing further growth through a broader revenue mix across
products, geographies and end user markets based on the aggressive extension of
our lead in inkjet technology.

Our main markets today, graphic arts and coding and marking, are widely forecast
to maintain their recent growth rates over the medium term - maintaining the
growth of our Platform 1 products. Incremental sales will be generated by our
Platform 2 products as they take us into the high resolution or fine feature
print markets - which initially will be weighted towards Europe and the
Americas. Our Platform 3 products will add further sales from web and sheet fed
applications - also weighted towards non-Asian locations.

Progress in development of non-print related industrial applications through our
business development activities remains on track. Whilst these opportunities are
not short term initiatives, the innovation and potential for longer term growth
remains attractive.

People

Once again I would like to thank all of our staff for their skill and dedication
which has resulted in the excellent performance for 2005. We are now entering a
very exciting period of development for the group; through the flexibility and
determination of our staff we expect be able to maximise and exploit the many
opportunities we see ahead.

Ian Dinwoodie
CHIEF EXECUTIVE
13 March 2006


GROUP FINANCE DIRECTOR AND DEPUTY CHIEF EXECUTIVE'S REVIEW

Trading for 2005

Sales increased 23% to £42.8m (2004: £34.8m) and gross margin to 62% (2004:
57%). Overheads (excluding the cost of share options) increased by 19% in
support of the increase in revenues - with operating margins at 24% and profit
before tax and exchange movements on inter-company loans, of £11.0m (2004:
£6.5m). There was a non-cash loss on translation of the inter-company loan
between the UK and Sweden for the year of £1.0m (2004: loss £0.2m).

The results for 2005 confirmed the strength of our core markets and Platform 1
products. These still provide the majority of our revenue but this will change
once sales of our new Platform 2 and Platform 3 products increase, providing
more balance to revenues.

Taxation for the year was £3.0m (30%) (2004: £1.7m, 26%), resulting in earnings
per share for the year of 12.8p, an increase of 62% over the 2004 figure of 7.9p
(both figures shown before translation differences on the inter-company loan as
set out in note 13 to the accounts). The rate of corporation tax applicable to
the group's profits is a blend of the Swedish rate of 28% and the UK rate of
30%.

The 2005 results, and 2004 comparatives, have been prepared under International
Accounting Standards (IAS), in accordance with EU requirements for listed
European companies. The difference in reported profit before tax for the year as
determined under IAS, and the same figure calculated under previously used
accounting standards - UK GAAP, was an increase £0.5m.

Foreign currency

The group invoices approximately 65% of its sales in US dollars and a small
percentage in other currencies such as the Euro. Compared to 2004, sales and
profit before tax were not materially impacted by exchange rate movements. The
group hedges its dollar receipts on a rolling twelve month basis to provide a
level of certainty in the value of sterling receipts by placing a floor under
the dollar/sterling rate to give protection against significant downside
movements in the dollar, whilst leaving room for some upside benefit should the
dollar strengthen.

Cash and capital expenditure

Cash and short-term investments at the end of the year were £14.4m (2004:
£15.3m). Cash is stated after capital expenditure on assets and investments of
£5.2m (2004: £3.3m) with no lease financing entered into during the year (2004:
£nil). The total value of outstanding lease commitments at the end of the year
was £1.2m (2004: £1.9m).

Working capital increased by £4.7m during the year, in part to support the
increased sales for the year, but in part due to slow payment by certain
customers in China. We do not consider the amounts involved (£1.7m) to be at
risk, although final collection may be spread over several months.

During the year we announced plans to invest some of the group's cash resources
in the next stage of the group's expansion, and in particular the funding of the
new production plant. During 2006 we expect to invest capital in the order of
£6.0m in equipment and fit-out of the new facility. The expansion is initially
for production of our new Platform 3 product and we expect the investment to
generate a strong return on capital when fully operational.

We also increased our trade investments during the year by £1.4m. These
investments will help build a strong network of equipment integrators supporting
our technology, particularly in the markets we have targeted for expansion:
packaging, printed electronics, 3D modelling and biotech.

Dividend Policy and Dividend

The board is proposing an increased annual dividend for the year of 1.5p (2004:
1.0p). This payment is covered seven times and follows the policy set out in my
report last year of maintaining a high level of dividend cover. Subject to the
approval of shareholders in Annual General Meeting, the dividend of 1.5p per
share will be paid on 16 June 2006 to shareholders on the register at the close
of business on 19 May 2006.

Business Development

I am pleased to report continuing progress in our development of new markets for
the group's technology. As ever, it is not possible to refer to individual
development partners as these activities are subject to confidentiality
agreements. However, in summary:

Packaging

We are now actively engaged with five of the world's largest packaging companies
and in discussions with others. These projects involve printing onto products
including beverage cans, aerosol cans, paper and other labels, plastic food
cartons, supermarket bags and surgical products. The projects are driven by the
ever-increasing demand for short run printing within processes configured to
maximise long run efficiencies. Whilst it is always difficult to predict how
long such new development programmes will take, I would hope to see a successful
conclusion to at least some of the projects outlined above within the next
twelve months.

We are also seeing significant interest in the use of RFID for packaging
applications and expect a fully integrated RFID tagging system using Xaar
printheads - for the printing of antennas and other conductive tracks - to be
commercially available towards the end of 2006.

Printed Electronics

Our focus in this sector is on electronic displays, commercial lighting and
printed circuit boards. For LCDs our OmniDot 760 printhead is being tested in
two different processes within the production of flat panel TV screens. For new
OLED-based displays, and lighting applications, we have testing programmes with
both commercial and research organisations, in many cases using equipment
supplied by our integrator partners.

In the production of printed circuit boards we have initially focussed on the
printing of etch masks and metallic inks. We were pleased to see the release of
three Xaar-based etch mask printers at the Productronica trade show held in
Germany, in November 2005. We have also made good progress during the year in
jetting a range of metallic inks for the direct printing of conductive tracks;
during 2006 we expect the release - in commercial volumes, not research
quantities - of at least one silver nano particle metal ink fully compatible
with Xaar printheads.

Xennia, one of our integration partners, has developed its own conductive
metallic ink process using Xaar printheads which it is commercialising via CIT,
a joint venture with Carclo plc in the UK. This system was previewed at the
Productronica tradeshow referred to above and is now in use with CIT for the
printing of RFID antennas and flexible circuitry.

Metallic inks are also of interest for decorative purposes to replace expensive
hot and cold metal foiling techniques used with traditional printing. Currently
the level of metal nano particles required to make an ink conductive also make
it too expensive for decorative use, but our primary development partner in this
area expects to overcome this issue in the near future.

Integrators

Last year I referred to our key integrator partners and the important role they
have to play in developing inkjet printing equipment for the new markets
discussed above. Although small, these companies are pioneers in their fields
and are now beginning to see the benefits of this prime-mover advantage. We will
be showcasing some of these products with key partners on our stand at the IPEX
trade show being held at the NEC, Birmingham, in April.

We have reviewed the future of our own integration business, Vivid Print
Innovations Inc. ('Vivid'), and decided that our increasingly close relationship
with other integrators makes it unnecessary for us to continue to own our own
integration business. As a result we have sold Vivid to Xennia Technology Ltd in
return for shares in Xennia. Vivid was acquired by Xaar in early 2003 for a
nominal sum and at the date of disposal had gross assets of £0.1m. This sale
increases our total holding in Xennia from 10.0% to 12.5%.

Nigel Berry
FINANCE DIRECTOR AND DEPUTY CHIEF EXECUTIVE
13 March 2006


Consolidated income statement
for the year ended 31 December 2005


                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Continuing operations                                                      
 Revenue                                           42,772        34,812       
 Cost of sales                                    (16,123)      (15,078)     
 -----------------------------------------------  -------      --------
 Gross profit                                      26,649        19,734       
 Distribution costs                                (4,038)       (2,850)      
 Administrative expenses                          (12,132)      (10,590)     
 -----------------------------------------------  -------      --------
 Operating profit                                  10,479         6,294        
 Investment income                                    576           306          
 Finance costs                                        (63)         (100)        
 Foreign exchange loss on inter-company loan         (977)         (231)        
 -----------------------------------------------  -------      --------
 Profit before tax                                 10,015         6,269        
 Tax                                               (2,966)       (1,658)     
 -----------------------------------------------  -------      --------
 Profit for the year attributable to                        
 shareholders                                       7,049         4,611                        
 -----------------------------------------------  -------      --------
 Earnings per share from continuing operations                              
 Basic                                               11.6p          7.7p         
 Diluted                                             11.1p          7.5p         
 -----------------------------------------------  -------      --------

Dividends of 1 pence per share paid in the year amounted to £604,000 (2004:
£nil). Dividends of 1.5 pence per share proposed for the year ended 31 December
2005 amount to £909,000.


Consolidated statement of recognised income and expense
for the year ended 31 December 2005

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Exchange differences on translation of foreign        
 operations                                           842          (136)        
 (Losses)/gains on cash flow hedges                (2,545)        1,348 
 Tax on items taken directly to equity              1,690             - 
 -----------------------------------------------  -------      --------
 Net income recognised directly in equity             (13)        1,212 
 Profit for the year                                7,049         4,611 
 -----------------------------------------------  -------      --------
 Total recognised income and expense for the year   7,036         5,823
 -----------------------------------------------  -------      -------- 


Consolidated balance sheet
as at 31 December 2005

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Non-current assets                                                            
 Goodwill                                             720           771        
 Other intangible assets                            3,773         2,958        
 Property, plant and equipment                      6,436         5,624        
 Investments                                        1,377             -        
 Deferred tax asset                                 1,970             -        
 -----------------------------------------------  -------      --------
                                                   14,276         9,353
 -----------------------------------------------  -------      --------        
 Current assets                                                                
 Inventories                                        2,835         2,485        
 Trade and other receivables                        9,142         5,422        
 Cash and cash equivalents                         14,395        15,316        
 Derivative financial instruments                       -         1,348        
 -----------------------------------------------  -------      --------
                                                   26,372        24,571        
 -----------------------------------------------  -------      --------
 Assets held for sale                                 265             -        
 -----------------------------------------------  -------      --------
 Total assets                                      40,913        33,924
 -----------------------------------------------  -------      --------        
 Current liabilities                                                           
 Trade and other payables                          (7,875)       (8,015)       
 Current tax liabilities                           (2,916)         (557)       
 Obligations under finance leases                    (556)         (632)       
 Provisions                                          (120)          (72)       
 Derivative financial instruments                  (1,197)            -        
 Liabilities directly associated with assets                                 
 classified as held for sale                          (15)            -      
 -----------------------------------------------  -------      --------
                                                  (12,679)       (9,276)     
 -----------------------------------------------  -------      --------
 Net current assets                                13,693        15,295      
 Non-current liabilities                                                     
 Deferred tax liabilities                               -          (116)     
 Obligations under finance leases                    (681)       (1,278)     
 -----------------------------------------------  -------      --------
                                                     (681)       (1,394)
 -----------------------------------------------  -------      --------     
 Total liabilities                                (13,360)      (10,670)     
 -----------------------------------------------  -------      --------
 Net assets                                        27,553        23,254
 -----------------------------------------------  -------      --------      
 Equity                                                                      
 Share capital                                      6,115         6,013       
 Share premium                                      9,376         8,713       
 Own shares                                        (3,420)          (20)      
 Other reserves                                     2,386         1,884       
 Hedging and translation reserves                    (131)        1,212       
 Retained earnings                                 13,227         5,452       
 -----------------------------------------------  -------      --------
 Equity attributable to shareholders               27,553        23,254
 -----------------------------------------------  -------      --------       
 Total equity                                      27,553        23,254
 -----------------------------------------------  -------      --------       


Consolidated cash flow statement
for the year ended 31 December 2005

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Net cash from operating activities                 7,862        10,224      
 Investing activities                                                        
 Interest received                                    577           308         
 Purchases of property, plant and equipment        (2,579)       (1,748)     
 Proceeds on disposal of property, plant and                      
 equipment                                              1             9                      
 Purchases of trading investments                  (1,377)            -           
 Expenditure on product development                (1,220)       (1,583)     
 -----------------------------------------------  -------      --------
 Net cash used in investing activities             (4,598)       (3,014)     
 Financing activities                                                        
 Dividends paid                                      (604)            -           
 Proceeds from issue of ordinary share capital        754           179         
 Repayments of obligations under finance leases      (553)         (623)       
 Purchase of own shares                            (3,400)            -           
 -----------------------------------------------  -------      --------
 Net cash used in financing activities             (3,803)         (444)
 -----------------------------------------------  -------      --------       
 Net (decrease)/increase in cash and cash                  
 equivalents                                         (539)        6,766                         
 Cash and cash equivalents at beginning of year    15,316         8,458       
 Effect of foreign exchange rate changes             (382)           92          
 -----------------------------------------------  -------      --------
 Cash and cash equivalents at end of year          14,395        15,316
 -----------------------------------------------  -------      --------      


Notes to the consolidated financial statements
for the year ended 31 December 2005

1. Basis of preparation

Information in this preliminary announcement does not constitute statutory
accounts of the group within the meaning of Section 240 of the Companies Act
1985. The financial information for the year ended 31 December 2005 and the year
ended 31 December 2004, presented in this preliminary announcement is extracted
from, and is consistent with, that in the Group's audited financial statements
for the year ended 31 December 2005. The financial statements were approved by
the Board of Directors on 13 March 2006; the auditors' report on these accounts
was unqualified. In their unqualified opinion the auditors have drawn attention
to the matter set out in note 6 below. The financial statements will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting. Statutory accounts for the year ended 31 December 2004, which were
prepared under accounting practices generally accepted in the UK, have been
filed with the Registrar of Companies. The auditors' report on those accounts
was unqualified and did not contain any statement under Section 237 of the
Companies Act 1985.

2. Business and geographical segments

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
reports its primary segment information.

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.

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Revenue                                                    
 Printheads and related products                   39,872        33,064       
 Development fees                                   1,587           612          
 Licence fees and royalties                         1,313         1,136        
 -----------------------------------------------  -------      --------
 Total revenue                                     42,772        34,812
 -----------------------------------------------  -------      --------       


                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Result                                                         
 Printheads and related products                   24,100        18,296      
 Development fees                                     464           230         
 Licence fees and royalties                         1,049           932         
 -----------------------------------------------  -------      --------
 Total segment results                             25,613        19,458      
 Unallocated corporate expenses                   (15,134)      (13,164
 -----------------------------------------------  -------      --------)    
 Profit from operations                            10,479         6,294       
 Investment income                                    576           306         
 Finance costs                                        (63)         (100)       
 Foreign exchange loss on inter-company loan         (977)         (231)       
 -----------------------------------------------  -------      --------
 Profit before tax                                 10,015         6,269       
 Tax                                               (2,966)       (1,658)     
 -----------------------------------------------  -------      --------
 Profit after tax                                   7,049         4,611
 -----------------------------------------------  -------      --------       


Other information
                         Printheads                    Licence
                          & related  Development        fees &
2005                       products         fees     royalties   Consolidated
                               2005         2005          2005           2005
                              £'000        £'000         £'000          £'000
---------------------      --------     --------       -------        -------
Capital additions             2,694        1,265             -          3,959
Depreciation and              
amortisation                  1,454          273            57          1,784
---------------------      --------     --------       -------        -------
Balance sheet
Assets
Segment assets               15,816        3,667           525         20,008
Unallocated corporate                                                  
assets                                                                 20,905
---------------------      --------     --------       -------        -------
Consolidated total                                                     
assets                                                                 40,913
---------------------      --------     --------       -------        -------
Liabilities
Segment liabilities          (4,934)      (1,549)          (69)        (6,552)
Unallocated corporate
liabilities                                                            (6,808)
---------------------      --------     --------       -------        -------
Consolidated total                                                    
liabilities                                                           (13,360)
---------------------      --------     --------       -------        -------


                         Printheads                    Licence
                          & related  Development        fees &
2004                       products         fees     royalties   Consolidated
                               2004         2004          2004           2004
                              £'000        £'000         £'000          £'000
---------------------      --------     --------       -------        -------
Capital additions             1,006        1,147             -          2,153
Depreciation and              
amortisation                  1,412          155            57          1,624
---------------------      --------     --------       -------        -------
Balance sheet
Assets
Segment assets               10,850        2,498           585         13,933
Unallocated corporate                                                  
assets                                                                 19,991
---------------------      --------     --------       -------        -------
Consolidated total                                                     
assets                                                                 33,924
---------------------      --------     --------       -------        -------
Liabilities
Segment liabilities          (4,896)        (667)          (60)        (5,623)
Unallocated corporate
liabilities                                                            (5,047)
---------------------      --------     --------       -------        -------
Consolidated total                                                    
liabilities                                                           (10,670)
---------------------      --------     --------       -------        -------


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:

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Europe and Middle East                            14,025        11,308      
 Asia                                              25,440        19,748      
 Americas                                           3,307         3,756       
 -----------------------------------------------  -------      --------
                                                   42,772        34,812
 -----------------------------------------------  -------      --------      

Substantially, all assets and additions to property, plant and equipment and
intangible assets are located in Europe and the Middle East.

3. Earnings per ordinary share - basic and diluted

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

                                                     2005          2004         
                                                    £'000         £'000        
 ---------------------------------------------  ---------    ----------
 Earnings
 Earnings for the purposes of basic earnings 
 per share being net profit attributable to 
 equity holders of the parent                       7,049         4,611
 ---------------------------------------------  ---------    ----------
 Number of shares

 Weighted average number of ordinary shares 
 for the purposes of basic earnings per share  60,578,422    60,043,056

 Effect of dilutive potential ordinary shares:
 Share options                                  2,921,181     1,703,904
 ---------------------------------------------  ---------    ----------
 Weighted average number of ordinary shares 
 for the purposes of diluted earnings per 
 share                                         63,499,603    61,746,960
 --------------------------------------------- ----------    ---------


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

                                                     2005          2004         
                                                    £'000         £'000        
 ---------------------------------------------  ---------    ----------
 Earnings for the purposes of basic earnings per                       
 share being net profit attributable to equity        
 holders of the parent                              7,049         4,611                   
 Foreign exchange loss on the inter-company loan      977           231    
 Tax effect of loss on inter-company loan            (293)          (69)   
 ---------------------------------------------  ---------    ----------
 Profit on ordinary activities after tax                               
 excluding foreign exchange loss on the               
 inter-company loan                                 7,733         4,773                   
 ---------------------------------------------  ---------    ----------

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

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Basic                                               12.8p          7.9p     
 Diluted                                             12.2p          7.7p     
 -----------------------------------------------  -------      --------

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

4. Notes to the cash flow statement

                                                     2005          2004         
                                                    £'000         £'000        
 -----------------------------------------------  -------      --------
 Operating profit                                  10,479         6,294 
 Adjustments for:                                                
 Increase in cost of share options                    502           244   
 Depreciation of property, plant and equipment      1,936         1,865  
 Amortisation of intangible assets                    404           210  
 Loss on disposal of property, plant and                
 equipment                                            103           104                    
 Increase/(decrease) in provisions                     66           (12)
 -----------------------------------------------  -------      --------
 Operating cash flows before movements in                                 
 working capital                                   13,490         8,705   
 (Increase)/decrease in inventories                  (556)          128   
 Increase in receivables                           (4,867)         (260)   
 Increase in payables                                 681         2,643 
 -----------------------------------------------  -------      --------
 Cash generated by operations                       8,748        11,216  
 Income taxes paid                                   (823)         (892)  
 Interest paid                                        (63)         (100) 
 -----------------------------------------------  -------      --------
 Net cash from operating activities                 7,862        10,224
 -----------------------------------------------  -------      --------       


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.

5. Explanation of transition to IFRSs

This is the first year that the company has presented its financial statements
under IFRS. The following disclosures are required in the year of transition.
The last financial statements under UK GAAP were for the year ended 31 December
2004 and the date of transition to IFRSs was therefore 1 January 2004.

Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRSs, this announcement does not itself
contain sufficient information to comply with IFRSs. The Company plans to
publish full financial statements that comply with IFRSs in April 2006.

Reconciliation of equity at 1 January 2004 (date of transition to IFRSs)

                                                      Effect of          
                                          UK GAAP    transition        IFRS       
                                    Notes   £'000         £'000       £'000  
 ---------------------------------- ----- -------      --------      ------
 Non-current assets                                                          
 Goodwill                                     771             -         771    
 Other intangible assets             1, 2     805         1,082       1,887  
 Tangible assets                        2   6,090           (98)      5,992  
 ---------------------------------- ----- -------      --------      ------
                                            7,666           984       8,650  
 Current assets                                                              
 Inventories                                2,592             -       2,592  
 Trade and other receivables                6,424             -       6,424  
 Short term investments                     2,325             -       2,325  
 Cash and cash equivalents                  6,133             -       6,133  
 ---------------------------------- ----- -------      --------      ------
                                           17,474             -      17,474
 ---------------------------------- ----- -------      --------      ------ 
 Total assets                              25,140           984      26,124
 ---------------------------------- ----- -------      --------      ------ 
 Current liabilities                                                         
 Amounts falling due in one year        3  (5,968)         (970)     (6,938)
 Short term provisions                       (345)            -        (345)  
 ---------------------------------- ----- -------      --------      ------
                                           (6,313)         (970)     (7,283)
 ---------------------------------- ----- -------      --------      ------
 Net current assets                        11,161          (970)     10,191 
 Non-current liabilities                                                     
 Obligations under finance leases          (1,833)            -      (1,833)
 ---------------------------------- ----- -------      --------      ------
 Total liabilities                         (8,146)         (970)     (9,116)
 ---------------------------------- ----- -------      --------      ------
 Net assets                                16,994            14      17,008 
 ---------------------------------- ----- -------      --------      ------
 Equity                                                                     
 Share capital                              5,983             -       5,983   
 Share premium                             11,129             -      11,129 
 Own shares                                   (20)            -         (20)    
 Other reserves                         4   1,105            50       1,155  
 Retained earnings                         (1,203)          (36)     (1,239)
 ---------------------------------- ----- -------      --------      ------
 Equity attributable to                    
 shareholders                              16,994            14      17,008                                   
 ---------------------------------- ----- -------      --------      ------
 Total equity                              16,994            14      17,008 
 ---------------------------------- ----- -------      --------      ------


Notes to the reconciliation of equity at 1 January 2004

1. Where the group's research and development programmes meet the criteria set
out in IAS 38 the costs have been capitalised as an intangible asset. The cost
of research and development programmes capitalised at 1 January 2004 is
£984,000.

2. Software purchased by the company and capitalised as a tangible asset under
UK GAAP has been reclassified as an intangible asset under IFRS. The net cost of
software held as an intangible asset at 1 January 2004 is £98,000.

3. Income received in relation to the company's research and development
programmes that directly relates to the intangible asset booked under IAS 38 is
held as deferred income and amortised in accordance with the amortisation
profile for the associated intangible asset. Deferred income at 1 January 2004
is £970,000.

4. Share options granted after 7 November 2002 that have not vested are measured
in accordance with IFRS 2 at their fair value as determined by the Black-Scholes
option pricing model. The amortisation charged through the profit and loss
account up to 1 January 2004 is £50,000. This amount is shown as an other
reserve.

Reconciliation of equity at 31 December 2004 (date of last UK GAAP financial
statements)
                                                      Effect of
                                          UK GAAP    transition        IFRS       
                                    Notes   £'000         £'000       £'000  
 ---------------------------------- ----- -------      --------      ------
 Non-current assets             
 Goodwill                               1     627           144         771     
 Other intangible assets             2, 3     595         2,363       2,958   
 Tangible assets                        3   5,880          (256)      5,624   
 ---------------------------------- ----- -------      --------      ------
                                            7,102         2,251       9,353
 ---------------------------------- ----- -------      --------      ------   
 Current assets                   
 Inventories                                2,485             -       2,485   
 Trade and other receivables            4   5,741         1,029       6,770   
 Cash and cash equivalents                 15,316             -      15,316  
 ---------------------------------- ----- -------      --------      ------
                                           23,542         1,029      24,571
 ---------------------------------- ----- -------      --------      ------  
 Total assets                              30,644         3,280      33,924  
 ---------------------------------- ----- -------      --------      ------
 Current liabilities            
 Amounts falling due in one year        5  (8,179)       (1,025)     (9,204) 
 Provisions                                   (72)            -         (72)    
 ---------------------------------- ----- -------      --------      ------
                                           (8,251)       (1,025)     (9,276) 
 ---------------------------------- ----- -------      --------      ------
 Net current assets                        15,291             4      15,295  
 Non-current liabilities        
 Deferred tax liabilities                    (116)            -        (116)   
 Obligations under finance leases          (1,278)            -      (1,278)
 ---------------------------------- ----- -------      --------      ------ 
                                           (1,394)            -      (1,394)
 ---------------------------------- ----- -------      --------      ------ 
 Total liabilities                         (9,645)       (1,025)    (10,670)
 ---------------------------------- ----- -------      --------      ------
 Net assets                                20,999         2,255      23,254  
 ---------------------------------- ----- -------      --------      ------
 Equity                         
 Share capital                              6,013             -       6,013   
 Share premium                              8,713             -       8,713   
 Own shares                                   (20)            -         (20)    
 Other reserves                         6   1,590           294       1,884   
 Hedging and translation reserves    4, 7       -         1,212       1,212   
 Retained earnings                          4,703           749       5,452 
 ---------------------------------- ----- -------      --------      ------  
 Equity attributable to                      
 shareholders                              20,999         2,255      23,254
 ---------------------------------- ----- -------      --------      ------
 Total equity                              20,999         2,255      23,254  
 ---------------------------------- ----- -------      --------      ------


Notes to the reconciliation of equity at 31 December 2004

1. In accordance with IFRS 3 the group has ceased to amortise goodwill with
effect from 1 January 2004. Under UK GAAP the total amount of goodwill amortised
in 2004 is £144,000.

2. Where the group's research and development programmes meet the criteria set
out in IAS 38 the costs have been capitalised as an intangible asset. The cost
of research and development programmes capitalised at 31 December 2004 is
£2,107,000.

3. Software purchased by the company and capitalised as a tangible asset under
UK GAAP has been reclassified as an intangible asset under IFRS. The net cost of
software held as an intangible asset at 31 December 2004 is £256,000.

4. Under IAS 39 where hedge accounting is adopted, any movement in the valuation
of financial instruments is shown on the face of the balance sheet with the
effect of this movement being recognised in the hedging and translation reserve.
The effect of these movements at 31 December 2004 is an asset of £1,348,000.
Other immaterial differences amount to a credit to trade and other receivables
of £319,000.

5. Income received in relation to the company's research and development
programmes that directly relates to the intangible asset booked under IAS 38 is
held as deferred income and amortised in accordance with the amortisation
profile for the associated intangible asset. Deferred income at 31 December 2004
is £1,637,000. Under UK GAAP proposed dividends are recognised as an expense in
the year to which they relate and a current liability at the balance sheet date.
Under IFRS dividends are recognised as an expense in the year in which they are
declared. The proposed dividend held as a current liability under UK GAAP at 31
December 2004 is £601,000. Other immaterial differences amount to a debit of
£11,000.

6. Share options granted after 7 November 2002 that have not vested are measured
in accordance with IFRS 2 at their fair value as determined by the Black-Scholes
option pricing model. The amortisation charged through the profit and loss
account up to 31 December 2004 is £294,000. This amount is shown as an other
reserve.

7. Under IAS 39 the amount recognised as a credit to the hedging and translation
reserve is £1,348,000. Other immaterial differences amount to a debit to the
hedging and translation reserve of £136,000.

Reconciliation of profit for 2004

                                                      Effect of
                                          UK GAAP    transition        IFRS       
                                    Notes   £'000         £'000       £'000  
 ---------------------------------- ----- -------      --------      ------
 Continuing operations                             
 Revenue                               1   35,479          (667)     34,812 
 Cost of sales                            (15,078)            -     (15,078) 
 ---------------------------------- ----- -------      --------      ------
 Gross profit                              20,401          (667)     19,734   
 Distribution costs                        (2,850)            -      (2,850)  
 Administrative expenses         2, 3, 4  (11,612)        1,022     (10,590) 
 ---------------------------------- ----- -------      --------      ------
 Operating profit                           5,939           355       6,294    
 Investment revenues                          306             -         306 
 Finance costs                               (100)            -        (100)
 Foreign exchange loss on                        
 inter-company loan                          (231)            -        (231)
 ---------------------------------- ----- -------      --------      ------
 Profit before tax                          5,914           355       6,269
 Tax                                       (1,658)            -      (1,658)
 Profit for the year from                        
 continuing operations                      4,256           355       4,611
 ---------------------------------- ----- -------      --------      ------

Notes to the reconciliation of profit for 2004


1. Under UK GAAP income received in the year in relation to the company's
research and development programmes is booked as revenue. Under IFRS this income
is deferred to the extent that it relates to an intangible asset created in
accordance with IAS 38. Income received in 2004 and deferred amounts to
£667,000.

2. In accordance with the group's accounting policies under UK GAAP, expenditure
on research and development programmes is written off as an expense in the year
in which it is incurred. Under IFRS, where the group's research and development
programmes meet the criteria set out in IAS 38, the costs have been capitalised
as an intangible asset. Research and development expenditure capitalised in the
year in accordance with IAS 38 amounts to £1,123,000.

3. Share options granted after 7 November 2002 that have not vested are measured
in accordance with IFRS 2 at their fair value as determined by the Black Scholes
option pricing model. The amortisation charged through the profit and loss
account for the year ended 31 December 2004 amounts to £243,000.

4. In accordance with IFRS 3 the group has ceased to amortise goodwill with
effect from 1 January 2004. The goodwill amortised in the year ended 31 December 
2004 under UK GAAP amounts to £144,000.

Explanation of material adjustments to the cash flow statement for 2004

Material adjustments to the cash flow statement for 2004 as a result of the
transition to IFRS are detailed below:

1. Corporation tax paid of £892,000 is shown as a reduction in net cash from
operating activities under IFRS. Under UK GAAP corporation tax payments are
shown separately on the face of the cash flow statement.

2. The net cash outflow on research and development expenditure of £1,123,000 is
included in the net cash outflow from operating activities under UK GAAP. Under
IFRS this outflow is shown separately on the face of the cash flow statement as
expenditure on product development.

6. Trade receivables

Included within trade and other receivables is an overdue amount of £1.7m in
relation to certain customers in China. The directors have assessed the need for
a further provision against this risk, are actively pursuing these amounts, have
concluded that no further provision is required at present and are of the
opinion that substantially all amounts from these debtors are recoverable. The
auditors will emphasise this matter in their unqualified audit opinion.



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