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Xaar PLC (XAR)

  Print      Mail a friend       Annual reports

Wednesday 17 March, 2004

Xaar PLC

Final Results

Xaar PLC
17 March 2004

                                    Xaar plc


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


• Results reflect a strong turn-round to profitability and cash generation 
  during the second half year.

• Agfa-Gevaert identified as partner for new 5-year research, development
  and manufacturing programme announced in January 2004.

• Manufacturing yields for all printhead products are now stable and
  satisfactory with production costs significantly reduced.

• Operating profit in the second half year was £2.0m, following an
  operating loss of £3.3m in the first half year which included £1.8m of
  exceptional items as previously reported.

• The financial results for the year were :
       •Turnover: £29.2m (2002: £30.9m);
       •Profit before tax: £0.4m (2002: £0.9m);
       •Tax credit for the year of £0.5m (2002: credit of £0.1m);
       •Earnings per share: 1.6p (2002: 1.7p); and
       •Net cash and short-term investments at 31 December 2003: £8.5m (June
        2003: £5.9m; Dec 2002: £9.9m).

• A non-trading foreign exchange gain of £1.8m (2002: £nil) is included
  within the pre-tax result. Prior to this gain, the operating loss was in line
  with expectations at £1.3m.

On outlook, Chairman, Arie Rosenfeld stated :

'In the short term the board and senior management team will concentrate on
maintaining and developing the return to profitability and cash generation seen
in the second half of the year, together with delivering further sales growth
from the group's existing core markets and products which will include
investigation of new geographical markets for these products, such as India.

'In the absence of unforeseen events, the board expects the company to achieve
satisfactory results in 2004.

'We believe we are only at the beginning of the opportunities for digital
printing and Xaar intends to remain at the forefront of their profitable

Ian Dinwoodie, Chief Executive; or                         020-7444-4140 today
Nigel Berry, Finance Director at Xaar on :             01223-423663 thereafter

Steve Liebmann at Bankside :                      020-7444-4163 / 07802-888159

                              CHAIRMAN'S STATEMENT


I am pleased to report that the group returned to profitability in the second
half of the year following resolution of the problems encountered during the
first half of the year. These were set out in detail in the interim report and
earlier statements. The action plan put in place, including the appointment of a
new Chief Executive, has proved effective; we now have a reinvigorated culture
and a resumption in profitable growth.

During the second half of the year we have achieved our short-term goals. The
updated MK2 XJ500 printhead, released to the market in the first quarter of
2003, has now proved its reliability in the marketplace and new printer launches
using the MK2 printhead are expected in 2004. The group's manufacturing
operation in Sweden has been reorganised and significantly enhanced; yields for
all products have improved and are now stable and satisfactory. Detailed
attention to all aspects of the cost side of the business has underpinned the
return to profitability.

The group finished the year by agreeing an important new five-year research,
development and manufacturing programme with Agfa-Gevaert on which I comment in
more detail below.

Results and finance

Group revenues for the year to 31 December 2003 were £29.2m (2002: £30.9m) with
the decrease attributable to weakness in the US dollar and changes to the
group's method of selling inks, both of which are covered in more detail within
the Chief Executive's review. Sales of Xaar products (printheads, peripherals
and inks) were £26.6m (2002: £28.5m); within that figure unit sales of the XJ128
increased by 13% for another record year, but sales of the XJ500 were adversely
affected by the problems reported in the first half.

Technology income (licences and royalties) was £1.5 million (2002: £1.2m) and
development fees £1.1m (2002: £1.2m), including income recognisable from
contracts being undertaken by Vivid Print Innovations Inc. of £0.1m (2002:

The group reported a second half operating profit of £2.0m. This return to
profitability was, however, insufficient to offset the losses of the first half,
leaving an overall operating loss for the year of £1.3m, in line with
expectations and my interim statement.

A foreign currency gain of £1.8m (2002: £nil) was incurred on the inter-company
loan between Xaar plc and Xaar Group AB, the Swedish holding company. Under UK
accounting rules, gains or losses on this loan must be taken to the profit and
loss account; after accounting for this gain the group recorded a full year
profit before tax of £0.4m. Based on this figure, the reported earnings per
share were 1.6p (2002: 1.7p).

The strong second half trading performance meant the group was cash generative
for that period and it ended the year with cash and short-term investments of
£8.5m (2002: £9.9m).

Agfa-Gevaert ('Agfa')

Xaar has enjoyed a long relationship with Agfa and I am particularly pleased to
be able to identify Agfa as the development partner behind the new five-year
agreement announced at the beginning of January 2004. Both parties have for some
time been engaged on a joint development programme to produce a new range of
high specification printheads, capable of satisfying a variety of different
application requirements within both companies. This joint development has now
resulted in a new range of printheads which both companies will preview at the
forthcoming Drupa tradeshow in May 2004. Xaar will sell the new range of
printheads under the OmniDot trade name.

Agfa intends to use the new printhead in several of its core businesses, while
Xaar will sell the OmniDot into its existing graphic arts markets as well as
certain segments of the packaging and industrial markets. The printheads are the
most sophisticated products yet developed by Xaar and represent a major
step-change in inkjet performance.

Under the new five-year agreement, announced in early January and expected to be
signed shortly, the two companies will continue their collaboration on the
research, design and manufacture of advanced inkjet products, starting with
follow-on and next-generation products for the new OmniDot range. Xaar will
produce the printheads for both parties at its plant in Sweden. To support the
expected production volumes Agfa has invested in new equipment at the facility
in order to increase the capacity of certain key processes.

Longer-term business development

The future for digital inkjet printing in general and Xaar's technology in
particular continues to develop rapidly, and we are now getting a clearer
picture of the way digital technology is likely to be adopted into the
marketplace. We do not see digital technologies replacing traditional printing
processes in the short term, but rather complementing them in areas where the
advantages of digital printing can add to the package of solutions currently
offered to end users. Changes in the nature of printing requirements, toward
shorter run lengths with rapid turnaround and greater personalisation, are now
well established in most printing markets and are features which lend themselves
to a digital solution.

Xaar's intention is to develop a broad range of products and partners with which
to address these market opportunities and hybrid system solutions. We believe
the new OmniDot range and the prototype HSS printhead (referred to in my interim
statement and described in more detail in the Chief Executive's review), will
allow Xaar to become a major beneficiary of these emerging market opportunities.

In addition to the interleaving of digital technology with traditional printing
processes in existing markets, there are interesting developments in the fields
of organic semiconductors, printed electronics and biotechnology, where the
deposition of new functional fluids can often be addressed by inkjet technology.
Although these are markets for the future, Xaar is currently holding discussions
with key organisations with a view to exploring how to offer long-term solutions
to the requirements of these emerging market sectors.

Nigel Berry, Deputy CEO and Group Finance Director, has been given
responsibility for new business development in order to drive forward our
efforts more quickly. Further detail is given within his review.

Finally, I would like to highlight a recent new development in the 'back office'
market, a market which is often talked about but which in the past has proved
somewhat elusive. In November, Olympus Corporation and Riso Kagaku Corporation
announced a new office-based printer, initially for the Japanese market, built
around Xaar-licensee Toshiba-TEC's printhead (a version of which is sold by Xaar
as its Leopard product). The 'ORPHIS HC5000' colour printer, jointly developed
by Olympus Corporation and Riso Kagaku Corporation uses multiple Toshiba-TEC
heads and can deliver up to 105 full-colour A4 pages per minute. We wish them
every success with this exciting new product.


In the short term the board and senior management team will concentrate on
maintaining and developing the return to profitability and cash generation seen
in the second half of the year, together with delivering further sales growth
from the group's existing core markets and products which will include
investigation of new geographical markets for these products, such as India.

In addition, they will aim to successfully introduce the new OmniDot and later
the HSS products to the market and explore the new opportunities these products
offer for longer-term growth. In the absence of unforeseen events, the board
expects the company to achieve satisfactory results in 2004. We believe we are
only at the beginning of the opportunities for digital printing and Xaar intends
to remain at the forefront of their profitable development.

Arie Rosenfeld                                                   16 March 2004

                            CHIEF EXECUTIVE'S REVIEW


Comparison of headline full year results for 2003 with those for 2002 clearly
mask what has been achieved in the group, particularly in the second half of the
year. A heavily loss-making first half contrasted with a profitable and cash
generative second half, as anticipated in our interim report. The changes
implemented during the year not only resulted in better performance during the
second half, but also built a firm foundation for profitable growth over the
coming years.

The changes implemented were typical of those required to resolve the growing
pains of technology companies; upgrading management and simplifying
organisational structures in order to improve focus, increasing productivity and
increasing 'ownership' and accountability among employees. Group headcount at
the end of 2003 stood at 223, a 27% reduction from 12 months earlier.

The two primary issues of the first half, namely excessive warranty and
production costs on the XJ500 product, have both been resolved and the results
of the second half demonstrate the effect of this work.

Revenue performance

Printheads and related products

During this period of corrective action for the group, volume sales of
printheads increased by 16% over 2002 on the back of another good year for the
XJ128 product; ink shipments were also higher than the previous year. Despite
these higher volumes total revenue was down 5% on 2002 as a result of two main
factors; the fall in the US dollar compared to 2002 which reduced sales revenue
by £1.0m, and changes made to the business model for ink which are discussed in
more detail below.

In terms of core markets, sales into the packaging market grew by 29%, and now
represent 15% of total revenues, reflecting a continued increase in the use of
Xaar's technology for coding and marking applications. Revenue from the sale of
Xaar products into the graphic arts market declined by 11%, due in part to
weakness in the US dollar but also to the first half issues surrounding the
XJ500 and the SARS virus in Asia, now the manufacturing centre for graphic arts
equipment. Sales into industrial applications also declined, with one of our
major industrial customers undergoing a restructuring during the year which
adversely affected sales volumes.

Sales of ink grew in volume terms over the previous year but also declined in
revenue terms. This was largely the result of changes made to the business model
for this product. In response to customer feedback, and the logistical problems
presented by stocking and shipping volume inks on a global basis, Xaar has
agreed with its suppliers that they will ship high volume inks direct to the
customer, with Xaar receiving a commission on the sale. For lower volume and
development inks, however, Xaar will continue with its current purchase and
re-sale model. Although headline ink revenues will be affected by these changes,
bottom line profit is expected to be unchanged. The net effect of these changes
in 2003 was to reduce reported sales by £0.8m.

In a separate development, Xaar has recently introduced a new value-priced
solvent ink specifically for the Chinese market, manufactured locally by a new
Chinese ink partner. Volumes are expected to be strong and Xaar will take a
commission on sales, in line with the model discussed above.

Sales of application services through the acquisition of Vivid Print Innovations
Inc., announced earlier in the year, generated modest revenues for 2003.


Sales in Europe grew by 16% and in 2003 represented 38% of revenue. Sales in
Asia and the US were both affected by the weaker US dollar, with sales to Asia
additionally affected by the first half problems. Sales to Asia were down from
55% to 51% of total revenue, and sales into the Americas down from 13% to 11% of
total revenue.


Royalty income is expected to continue at its current level for the foreseeable
future. The potential success of licensees such as Toshiba-TEC and
Konica-Minolta, who are actively developing and selling products based on Xaar's
technology, may see royalties improve over the medium to longer-term.

The Market

As the technology develops and the early adopters are seen to be successful,
drop-on-demand inkjet is becoming recognised and accepted as an industrial
printing process.

In the graphic arts sector, super-wide, grand format and flat bed digital
printing machines continue to expand into what was an exclusively analogue
printing market only a few years ago, with the number of suppliers increasing
and the performance of their machines improving at a steady rate. The ability to
print full colour, large scale and low volume work onto various substrate
materials, at an economic price, is expected to continue to drive demand in this
sector. Although a core market for Xaar, digital printing still has only a
small, but growing, share of this market.

In-line printing for industrial and packaging applications continues to develop
more slowly and is some way behind the graphics market in terms of
drop-on-demand ink jet adoption. In these applications inkjet must be integrated
into existing industrial processes and operating facilities, but as that
adoption gains momentum these areas are expected to offer significant growth

Within packaging, however, the coding and marking sector is one area where
drop-on-demand inkjet is already established as a complementary technology to
both continuous inkjet and laser marking. One development of particular note in
this area during the year was a decision by Philips Lighting to implement Xaar
printheads directly onto their main packaging lines, printing the Philips logo
onto the product package as part of the production process, reducing the need to
hold stocks of pre-printed packaging materials.

Research and Development

Total R&D spending for the year was £5.7m, with fees of £1.0m being received
from development partners for projects included within that total. A number of
key achievements were made during the year. In respect of first generation
products, the design changes to the XJ500 were the cornerstone of that product's
recovery during the year, enabling not only significantly better reliability in
harsh environments, but also allowing lower manufacturing costs through
piece-part reduction and improved manufacturability. With over 5,000 units of
this Mk2 version now in the field, the issues of the recent past appear to be
behind us. During the year an enhanced version of the XJ128 (the XJ128 Plus) has
been developed, delivering a speed improvement of up to 30% over the standard
product. The XJ128 remains the industry standard workhorse for super-wide and
grand format digital printing machines; the introduction of the XJ128 Plus is
expected to strengthen this position.

In co-operation with Agfa, development of a new second generation of printheads
has made significant progress during the year. Xaar will brand its version of
this new printhead the OmniDot, and the range will include both binary and
greyscale versions, and a choice of either 382 or 764 firing channels. Ink
droplet size will vary from 80 pico litres for high-productivity and
high-coverage applications, down to 3 pico litres for high-resolution and
high-quality applications. The OmniDot product is due to be launched at Drupa
2004, with customer samples available thereafter and volume production scheduled
for early 2005.

Xaar's third generation technology (codenamed 'Hybrid Side Shooter' or 'HSS')
continues in prototyping stage and, when released in the second half of 2005, is
expected to make the next significant jump in performance due to its
self-recovery architecture. Options for the fourth generation of the technology
are under active consideration.


The manufacturing operation of Xaar has borne the brunt of the company changes
through the year with significantly improved performance being attained during
the second half. Management and staff changes have been made together with the
implementation of a lean, continuous improvement based manufacturing culture.
Top of the priority list has been an improvement in yields, through better
process control and waste elimination, together with an increased focus on all
aspects of customer satisfaction.

It is impressive how the plant has responded to these changes and some of the
results to date are worthy of note. A reduction of 30% has been made in the
overhead cost of the plant, largely through headcount reduction; against a
background of increased production volumes this has significantly improved
productivity. Furthermore, high scrap and warranty costs in the first half of
the year, reflected in the exceptional items, have not been repeated. These
improvements are reflected in the improved gross margin reported for the second
half of the year which is commented on in more detail in the Finance Review.

Finally, the improved productivity resulting from these changes has released
additional capacity to support future volume growth. The plant is now being
prepared and upgraded for the start-up of the OmniDot range of products.


Underlying royalty fees have been steady, if modest. Xaar continues to work with
its licensees, looking for opportunities to raise volumes and hence royalty
fees. The Olympus Corporation and Riso Kagaku Corporation announcement in
November of its ORPHIS HC5000 machine, referred to in the Chairman's statement,
marks the first potential volume usage of Xaar technology in the 'back office'

Priorities for 2004

Following a painful period, the start of 2004 finds Xaar leaner, fitter and with
a more experienced management team. The key priority for 2004 is to ensure that
the momentum generated in the second half of 2003 is maintained, with existing
products and markets delivering a growing profitable base for the company.
Upgrades to existing products such as the XJ128 Plus will help this growth, with
revenues from the Leopard printhead, the new TTP-designed peripheral products
and application services (Vivid Print Innovations Inc.) also starting to
contribute during the year. We also intend to investigate new geographic
markets; printers incorporating Xaar printheads are already being imported into
areas such as India, South America and Eastern Europe giving a base from which
to build future direct sales.

Finally, production readiness for the OmniDot range will be high on the agenda,
with this product making an impact on growth from 2005 onwards.


I would like to pay a tribute to our staff who have responded excellently to the
challenges and changes of the last 12 months. They should feel proud of what
they have achieved so far, but also hungry for the next level of achievement.

Ian Dinwoodie                                                    16 March 2004
Chief Executive

                                 FINANCE REVIEW

Results for 2003

The Chairman's statement and Chief Executive's review set out in detail the
improvement seen in the group's performance during the second half of the year
and the results for the year overall. In summary, group revenues increased from
£13.6m in the first half to £15.6m in the second half, and the group moved from
an operating loss in the first half to an operating profit of £2.0m in the
second half.

Exceptional costs of £1.8m were incurred in the first half of the year, the
reasons for which were reported in detail in the interim results and earlier
statements; due to the swift action taken to resolve these problems they did not
recur in the second half. These actions also resulted in a significant and
sustainable improvement in gross margin, the benefits of which were clearly
demonstrated in the second half of the year.

The overall gross margin for 2003 was 46%, reflecting the exceptional costs
incurred in the first half of the year, when margins were only 31%. In my review
of the 2002 results, I noted that total operating costs for the group (including
cost of sales, but excluding exceptional costs) were too high and I highlighted
four areas in which savings would be made during 2003; re-engineering of the
XJ500 product, a reduction in XJ500 warranty costs, a headcount saving of at
least 10% and introduction of a continuous review process to improve
efficiencies across the group.

I am pleased to report that significant progress has been made in all these
areas; the MK2 XJ500 product now has yields and margins similar to the group's
best-selling XJ128 printhead and its warranty costs are in line with other
products. In addition, the ongoing review of efficiency improvements resulted in
a final headcount reduction of 27% for the year. Gross profit margin in the
second half of the year reflected these changes with an improvement to over 50%,
coupled with a net reduction in operating expenses of £0.6m when compared to the
first half of the year.

A foreign exchange translation gain of £1.8m was booked on the inter-company
loan between Xaar plc and Xaar Group AB, the group's Swedish holding company.
The restructuring of the group which led to the establishment of this loan was
detailed in my Finance Review in the Annual Report for 2002. After taking this
gain into account, the group reported a profit before taxation of £0.4m.

Finally, the group reported a tax credit for the year due to recognition of
payments received in the year from the Inland Revenue under the R&D tax credit
scheme. These payments related to claims made in respect of prior years.

After the gain on the inter-company loan and the tax credit, the group reported
a profit after taxation of £0.9m (2002: £1.0m) and earnings per share of 1.6p
(2002: 1.7p).

Foreign currency

Profit before tax was adversely affected by foreign currency losses on trading
of £0.6m (2002: £0.3m).

Looking forward, a majority of the group's invoicing is made in US dollars,
leaving it exposed to the current weakness in the US currency. Invoicing is done
by the group's Swedish operation, from where most products are manufactured and
shipped. The group has a policy of hedging US dollar/Swedish kronor and US
dollar/sterling exposures arising from invoiced sales. Towards the end of 2003
this policy was extended to cover budgeted revenues for 2004, utilising a mix of
forward currency contracts and the placing of a 'floor' under both these dollar
rates. In addition, the group implemented a price increase in February 2004 to
all dollar-based customers which will offset some of the dollar's slide down to
the 'floor' rates. These actions will shield the group from some, but not all,
of the dollar's decline and it is the intention to extend this cover into 2005
as and when appropriate.


With the increasing proportion of sales to Asia over the past two to three years
the group's business has become seasonal. This is due to the incidence of
Chinese New Year in the first quarter of the year, when the group's major
customers in Asia effectively closedown for anything up to four weeks. Combined
with traditional softness in western markets during early January, as operations
gear up after the Christmas break, the first half of the year is now likely to
report a result below the second half of the year.

Cash and capital expenditure

Cash and short-term investments recovered from a low point of £5.9m at the
half-year (2002: £10.9m) to finish the year at £8.5m (2002: £9.9m). This was
after total capital expenditure, before lease financing, of £3.1m (2002: £1.9m)
and £1.1m (2002: £1.1m) net of lease financing.

Xaar plc - share premium account

At the end of the year, Xaar plc had a share premium account of £11.1m (2002:
£11.1m) and negative distributable reserves of £1.1m (2002: £3.3m). It is the
company's intention to seek shareholder approval at the 2004 Annual General
Meeting to approach the courts under sections 135 to 138 of the Companies Act
1985 and request that a part of the company's share premium account be offset
against these negative reserves.

This is a relatively standard procedure and will allow the group greater
flexibility with respect to the use of future retained profits. If shareholder
approval is granted, the application will be made with an effective date of 29
February 2004 at which point the negative balance on distributable reserves
stood at £2.6m due to exchange rate movements on the inter-company loan between
Xaar plc and Xaar Group AB in the first two months of 2004.

Group share option scheme

The group currently operates only one share option scheme, the 1997 Xaar plc
Share Option Plan, introduced at the time of the group's flotation in 1997.
Almost all existing options issued to group employees and executives have been
made from this scheme.

The scheme expired during February 2004 and it is the board's intention to seek
shareholder approval at the 2004 Annual General Meeting for the introduction of
a new share option scheme. The new option scheme has been drawn up by the
group's lawyers in accordance with appropriate ABI guidelines, and has been
recommended to the board by the Remuneration Committee. It will once again cover
both employees and executives and a more detailed explanation of the new scheme
is included in the Directors' Report.

Business development

During the second half of 2003 I was asked by the board to take on
responsibility for new business development. This is a crucial area for the
group if it is to grow sales and profitability over the longer-term. Although
the group's core graphic arts market still has good growth prospects,
particularly in Asia, there are large markets in the packaging and industrial
sectors which the group has not yet addressed, but for which it increasingly has
the products to do so. In particular, the new OmniDot product, jointly developed
with Agfa and due for release at the Drupa tradeshow in May 2004 and the new HSS
product, scheduled for initial customer trials during 2005, both have
performance specifications which match more closely the demanding requirements
of these new markets.

Three market segments stand out as areas where the advantages of digital inkjet
in general, and the new Xaar products in particular, could allow profitable
revenue development; packaging labels, packaging cartons and new industrial
technologies. The first two applications, labels and cartons, both fit the
overall market trends discussed by the Chairman in his statement; shorter
run-lengths, greater personalisation and often a need for rapid response times.
They are also areas where digital printing could effectively sit alongside and
work hand-in-hand with traditional printing processes.

In the area of new technologies, the production of printed circuit boards, where
inkjet can possibly be used to replace certain existing processing steps, and
the developing market for organic semiconductors are both of considerable
interest. Finally, there may be opportunities in the area of biotechnology,
where the accurate deposition of precise amounts of liquid is also required.

It will be the role of the business development team to open up these
opportunities and to build appropriate partnerships to successfully exploit
them. As part of this process we have recruited managers with specialist
industry experience in the three market sectors identified.

Nigel Berry                                                      16 March 2004
Finance Director and Deputy Chief Executive

for the year ended 31 December 2003

                                                       ---------       ---------
                                                          2003            2002
                                                         £'000           £'000
                                                       ---------       ---------

Turnover                                                29,230          30,870

Cost of sales
Exceptional XJ500 cost                                  (1,068)              -
Exceptional production cost                               (767)              -
Non-exceptional cost of sales                          (13,920)        (16,770)
                                                      ----------       ---------
Total cost of sales                                    (15,755)        (16,770)
                                                      ----------      ----------

Gross profit                                            13,475          14,100
Other operating expenses (net)                         (14,775)        (13,315)
                                                      ----------      ----------

Operating (loss)/profit on ordinary activities          (1,300)            785

Interest receivable and similar income
Foreign exchange gain on inter-company loan              1,791               -
Interest receivable                                        135             275
                                                      ----------      ----------
Total interest receivable and similar income             1,926             275
Interest payable                                          (180)           (135)
                                                      ----------      ----------

Profit on ordinary activities before taxation              446             925
                                                      ----------      ----------
Tax on profit on ordinary activities                       501              86
                                                      ----------      ----------

Retained profit for the financial year                     947           1,011
                                                      ==========      ==========

Earnings per share - basic                                 1.6p            1.7p
                                                      ---------        ---------

Earnings per share - diluted                               1.6p            1.7p
                                                      ----------       ---------

for the year ended 31 December 2003

                                                         ---------     ---------
                                                            2003          2002
                                                           £'000         £'000
                                                         ---------     ---------

Retained profit for the financial year                       947         1,011
(Loss)/gain on foreign currency translation               (1,290)          718
                                                         ---------     ---------

Total recognised gains and losses relating
to the financial year                                       (343)        1,729
                                                        ==========     =========

as at 31 December 2003
                                                         ---------     ---------
                                                            2003          2002
                                                           £'000         £'000
                                                         ---------     ---------
Fixed assets
Intangible assets                                          1,576         1,260
Tangible assets                                            6,090         4,733
Investments                                                   20            20
                                                         ---------     ---------

                                                           7,686         6,013
                                                         ---------     ---------
Current assets
Stocks                                                     2,592         1,967
Debtors                                                    6,424         6,801
Short term investments                                     2,325             -
Cash at bank and in hand                                   6,133         9,852
                                                         ---------     ---------

                                                          17,474        18,620

Creditors: amounts falling due within one year            (5,968)       (6,388)
                                                         ---------     ---------

Net current assets                                        11,506        12,232
                                                        ----------    ----------

Total assets less current liabilities                     19,192        18,245
amounts falling due after more than one year              (1,833)         (906)
Provisions for liabilities and charges                      (345)            -
                                                        ----------    ----------

Net assets                                                17,014        17,339
                                                        ----------    ----------

Capital and reserves
Called-up share capital                                    5,983         5,971
Share premium account                                     11,129        11,129
Other reserves                                             1,105         1,099
Accumulated deficit                                       (1,203)         (860)
                                                        ----------    ----------

Shareholders' funds - all equity                          17,014        17,339
                                                        ==========    ==========

for the year ended 31 December 2003
                                                         ---------     ---------
                                                            2003          2002
                                                           £'000         £'000
                                                         ---------     ---------

Net cash inflow from operating activities                    182           540
                                                         ---------     ---------

Returns on investments and servicing of finance              (49)          149
Taxation                                                    (564)            -
Acquisitions and disposals                                    (5)            -
Capital expenditure and financial investment              (1,083)       (1,090)
                                                        ----------     ---------

Cash outflow before management
of liquid resources and financing                         (1,519)         (401)
                                                        ----------    ----------

Management of liquid resources                            (2,325)        2,875
Financing                                                   (587)         (141)
                                                        ----------    ----------

(Decrease)/Increase in cash in the year                   (4,431)        2,333
                                                        ==========    ==========


1.    Segmental information
                                                  ---------            ---------
                                                     2003                 2002
                                                    £'000                £'000
                                                  ---------            ---------

Turnover by class of business:

Printheads and related products                    26,577               28,477
Development fees                                    1,107                1,227
Licence fees and royalties                          1,546                1,166
                                                  ---------            ---------
                                                   29,230               30,870
                                                  =========            =========

Turnover by geographical segment:

Europe & Middle East                               11,148                9,641
Asia                                               14,875               17,071
Americas                                            3,207                4,158
                                              -------------        -------------
                                                   29,230               30,870
                                              =============        =============

Gross profit by class of business:

Printheads and related products                    10,913               11,859
Development fees                                    1,087                1,227
Licence fees and royalties                          1,475                1,014
                                              ------------          ------------
                                                   13,475               14,100
                                              ============          ============

2.    Earnings per ordinary share - basic and diluted

The calculation of earnings per share is based upon the profit for the year
after taxation and on the weighted average number of ordinary shares in issue
during the year. For basic earnings per share, this is 59,783,345 (2002:
59,603,709) and for diluted earnings per share, this is 60,027,840 (2002:
59,842,670), the only difference being in relation to movements in share

3.    Financial information

The financial information contained in this preliminary announcement of audited
results does not constitute the group's statutory accounts for the years ended
31 December 2003 or 31 December 2002. The accounting policies that have been
applied are consistent with those applied in the preceding annual accounts. The
accounts for the year ended 31 December 2002 have been delivered to the
Registrar of Companies.

The statutory accounts for the years ended 31 December 2003 and 2002 have been
reported on by the company's auditors; the reports on these accounts were
unqualified and they did not contain any statement under section 237(2) or (3)
of the Companies Act 1985.

The accounts for the year ended 31 December 2003 are expected to be posted to
shareholders in due course and will be delivered to the Registrar of Companies
after they have been laid before the company at the annual general meeting on 28
April 2004.

Copies will also be available from the registered office of the company, Science
Park, Cambridge, CB4 0XR. The registered number of Xaar plc is 3320972.

                      This information is provided by RNS
            The company news service from the London Stock Exchange

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