Chairman's Statement and Interim Results for Six Months Ended 30 June 2006

Sept 6, 2006

Stilo International plc ("Stilo" or the "Company"), the AIM quoted software and services company, today announces its Interim Results for the six months ended 30 June 2006.

Highlights

• Profit before taxation, before exceptional items and amortisation of goodwill, of £86,000 (2005: £237,000 loss). The Company has shown a trading profit for the second successive six month period (H2 2005, trading profit £52,000).
• Acquisition of Engineering Solutions business from Proceed Holdings Limited, completed 31 July 2006.
• Sales Revenues increased by 21% to £1,096,000 (2005: £905,000)
• Software licence revenues increased by 18% to £418,000 (2005: £354,000)
• Revenue from professional services increased by 72% to £295,000 (2005: £172,000)
• Operating costs, excluding exceptional items and goodwill amortisation, reduced by 11% to £989,000 (2005: £1,117,000)
• Customers in this period included Boeing, International Atomic Energy Agency, Wolters Kluwer, Hewlett Packard, IBM, Canadian Competition Bureau, Toshiba and the European Parliament.

Barry Welck, Chairman, commenting on the Company's performance, stated,

The Board is pleased to report the second successive six month period of trading profitability, with an increase in sales revenues and reduction in overheads. In the second half of 2006, the Company will make additional investments in sales and marketing in order to promote its growing range of products, professional services and industry solutions.

The recent acquisition of the Engineering Solutions business from Proceed Holdings Limited has got off to a very encouraging start, and we will continue to look to grow the business organically and through further acquisitions.

Enquiries:

Les Burnham, Chief Executive, Stilo International plc +44 (0) 01793 441444

Russell Cook, Charles Stanley & Co. Limited +44 (0) 020 7739 8200

Chairman's Statement

I am pleased to announce Stilo's unaudited interim results for the six months ended 30 June 2006 and to report upon the continued progress made by the Company during the period.

Strategy

Stilo provides leading solutions for Product Lifecycle Management, Document Management and e-Publishing to customers in Aerospace & Defence, Manufacturing, IT, Telecommunications, Publishing and Government.

Stilo e-publishing solutions deliver high quality information that is up-to-date, precisely tailored and widely accessible through online portals, distributed media, high-quality print and mobile devices. These solutions leverage:

• Content engineering services that provide customers with access to Stilo's extensive experience in delivering solutions that deploy XML to enable content re-use and optimised single-source publishing.
• OmniMark, the world's leading content processing platform, that delivers a proven answer to the challenges of large-scale content conversion to XML, complex content integration and advanced multi-format publishing.

The acquisition of the Engineering Solutions business of Proceed Holdings Limited, completed 31 July 2006, has enabled Stilo to establish a specialist capability in the provision of solutions for SAP customers, delivered by IT and engineering experts with a deep understanding of the SAP marketplace, including Product Lifecycle Management, Document Management, Data Migration and SAP Packaged Services.

Operating from offices in the UK, France and North America, we support an extensive list of customers including Boeing, IBM, International Atomic Energy Agency, Wolters Kluwer, Hewlett Packard, Canadian Competition Bureau, Toshiba and the European Parliament

Results

The Company has continued to build upon the trading improvements seen in the second half of 2005.

The interim trading profit before taxation, and before exceptional items and goodwill was £86,000 (2005: £237,000 loss). This was the second successive six month period that Stilo has shown a trading profit (H2 2005: trading profit £52,000 profit).

Total sales revenues for the period increased by 21% to £1,096,000 (2005: £905,000), including a 72% growth in professional services revenues to £295,000 (2005: £172,000). Software licence sales increased by 18% to £418,000 (2005: £354,000) although timing differences between the periods for one large sale accounted for this increase. Total operating costs, excluding exceptional items and goodwill amortisation, have been further reduced by 11% compared to the same period in 2005, following the decision to close the Company's Mechelen office in Belgium.

Non-recurring exceptional costs for the period totalled £39,000, comprising staff redundancy costs.

The goodwill amortisation of £147,000 relates to the purchase of OmniMark Techologies Corporation in 2001, and to the purchase of Xia Systems Corporation, Content Engineering Division, in 2004.

Annual maintenance revenues, now comprising 153 contracts, were sustained at £383,000.

The Company had a cash balance of £321,000 as at 30 June 2006 (30 June 2005: £340,000).

Acquisition of Engineering Solutions business

On 31 July 2006, the Company completed the acquisition of the Engineering Solutions business from Proceed Holdings Limited in the UK.

Engineering Solutions provides Product Lifecycle Management, Data Migration and Document Management solutions to a number of major customers of SAP enterprise software.

Following the acquisition, Stilo has employed five full-time Engineering Solutions staff, as well as obtaining access to Engineering Solution's established base of sub-contractors. In addition Stilo acquired certain existing customer contracts, solutions IP and a pipeline of prospective business.

Financial Consideration

The maximum total consideration will be £440,000 of which £100,000 was paid on completion, comprising £100,000 cash of which £50,000 was applied by Proceed Holdings to subscribe for 2,500,000 new Stilo 1p ordinary shares (the "Completion Shares") at 2.0p per share, compared with a closing mid-market price on 31 July 2006 of 2.125p per share. The Company will pay up to a further £90,000 by way of Initial Deferred Consideration on or before 25th August 2007, subject to the turnover of Engineering Solutions for the year to 31st July 2007 being not less than £750,000. All of the Initial Deferred Consideration will be applied by Proceed Holdings to subscribe for up to a further 4,500,000 new 1p ordinary Stilo shares at 2.0p per share. The Company will pay a Final Deferred Consideration on or before 20th August 2008 comprising a maximum cash consideration of £250,000 subject to the Engineering Solutions achieving a combined profit before tax in the two years to 31st July 2008 of not less than £300,000. Of the Final Deferred Consideration, up to £100,000 will be applied by Proceed Holdings to subscribe for up to 5,000,000 new Stilo 1p ordinary shares at 2.0p per share.

Stilo Products

OmniMark

OmniMark provides an application development and high performance run-time environment for XML content processing applications. Users of OmniMark products are able to reduce significantly the time and costs of developing and maintaining new content processing applications, whilst ensuring high-performance levels of execution which is especially critical to major web applications.

Stilo Industry e-Publishing Solutions

Interactive Technical Information Publisher (iTIP)

The iTIP solution has evolved over a 10 year period as a proven approach to distributing complex technical information to large and widely-distributed user communities. iTIP is an integrated approach to delivering technical documentation using simple web browsers and low-cost add-on components so that organizations can maximize the benefits of electronic distribution while keeping costs as low as possible. Stilo has implemented this solution for mission-critical equipment systems across the Aerospace & Defence sector and has adapted its use in performance support applications for others sectors such as Transportation.

Conversion Factory

The Stilo Conversion Factory reduces cost, improves quality, mitigates risk and shortens schedules for content conversion projects. As an increasing number of enterprise applications come to rely on rich content, encoded in XML, the need grows for a scalable and adaptable conversion capability that can be tightly integrated with existing processes and tools.

The Stilo Conversion Factory meets this requirement with the proven combination of a robust conversion platform, process best practices, and implementation services guided by almost 20 years of data conversion experience.

Outlook

The Board is pleased to report the second successive six month period of trading profitability, with an increase in sales revenues and reduction in overheads. In the second half of 2006, the Company will make additional investments in sales and marketing in order to promote its growing range of products, professional services and industry solutions.

The recent acquisition of the Engineering Solutions business from Proceed Holdings Limited has got off to a very encouraging start, and we will continue to look to grow the business organically and through further acquisitions.

Barry Welck
Chairman
6 September 2006