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LONDON (Alliance News) - Xeros Technology Group PLC Wednesday said its revenue nearly quintrupled in its last financial year, as it made progress in getting cleaning machines with its patented polymer bead cleaning system installed, particularly in the US, although its loss widened due to a rise in the costs associated with that push.
Xeros reported a pretax loss of GBP6.8 million for the year to July 31, wider than the GBP3.5 million loss it reported a year earlier, mainly due to a sharp increase in administrative expenses and cost of sales.
The company, which listed on AIM in March after launching its first commercial washer in June 2013, is starting to gain traction with its cleaning technology, which it claims reduces water, energy and chemical usage compared with traditional industrial washing machines as well as improving the cleaning performance. It says it now counts four out of the world's top five hotel groups as customers in the US, its priority market, and last week saw its shares rise after it said two more US utility companies had launched energy incentive programmes for customers who commit to reducing their energy and water consumption through the use of a Xeros Commercial Laundry System.
Xeros reported revenue of GBP312,000 for its last financial year, up from just GBP65,000 a year earlier, as it made progress in expanding its installations. It said it had 37 installed and committed machines in the US at the end of July, and seven in Europe. It expects to have more than 80 installed and committed machines by end of calendar 2014, and will focus on accelerating installations in 2015.
Other sectors in which it has installed machines include retail dry cleaning, fitness centres and the US military. It recently got a EUR700,000 Eco-Innovation grant to help drive early adoption in Europe.
Xeros Technology was created to commercialize a discovery by the University of Leeds that nylon was an ideal substance for removing stains from textiles because it becomes highly absorbent in humid conditions and is resilient.
Its primary focus for the time being is on expanding in the US commercial laundry market, but also thinks the technology has potential applications in other industries including domestic laundry, leather processing, garment finishing and metal cleaning.
Chief Executive Bill Westwater told Alliance News that the company is now talking with the big utility companies on the West Coast of the US after its success on the East Coast. The company likes the incentive scheme deals, which typically offer early adopters a discount of up to 50% on installed machines, because it helps with the marketing of its product and helps validate the claims about the advantages of its technology.
It is also talking to the fifth of the world's largest hotel companies, amidst many other potential customers.
Xeros will continue with its strategy of selling its own machines that include the polymer bead technology, rather than licensing the technology, Westwater said. The aim is to earn revenue not just from machine sales, but from ongoing five year service contracts that include providing new beads and disposing of old ones.
The company makes money from selling the used beads back into the polymer market, where they are used for things like making nylon car dashboards.
Westwater is also excited about the potential use of the technology in the leather industry, saying it reduces the heavy water requirement in leather production, reduces the need for what he describes as "dodgy chemistry", and results in a better leather finish.
The big goal for the company is to eventually get the technology developed for, and accepted in, the domestic laundry market.
The CEO said the company will again focus on the US market initially, as its technology better suits large drum washing machines that are popular with consumers there. US consumers also tend to buy washing machines matched with a separate drier, an additional benefit. Westwater explains that if some 500,000 beads are used in a domestic wash, some 100 or so may be left after washing stuck in seams or pockets, and a drier would remove those. The beads could potentially be used hundreds of times in a domestic machine, before Xeros would replace them and take away the old ones.
The company's IPO sparked a lot of increased interest, and it is now working on putting together a matrix of partners that could lead to its entrance into the domestic laundry market, the CEO said. It is now talking with half the world's 10 biggest domestic washing machine manufacturers, and has also been approached by major traditional detergent manufacturers looking to see if they can work together to provide an enhanced cleaning performance, Westwater said, declining to name any companies.
Its cash balances stood at GBP29.5 million at the end of the last financial year, an improvement from GBP8.5 million a year earlier, and it remained debt free. Cash burn during the year was GBP7.2 million, up from GBP3.2 million a year earlier, as it invested in research and development, its machines, and start-up costs.
It spent money on developing its supply chain and sales team, opening new offices in the US and increasing headcount to 62 people worldwide.
"In 2015, we will be focused on extending our installed base in the US with existing and new customers, geographic expansion in Commercial Laundry, product development and continued innovation in bead cleaning," Xeros Chairman John Samuel said in a statement.
Chief Financial Officer Chris Hanson said the company said it expects cash burn to increase slightly this year. The current rate is about GBP850,000 a month, and it will rise to about GBP1 million a month, before slowing in fiscal 2016.
Fiscal 2016 will be the year the company takes a decision on future funding, he said, because it will have much better visibility on future revenue and cash flow.
It is expected that its commercial laundry business will become profitable at the back end of 2016, it will cover its central research and development costs in 2017, and will become cash flow positive slightly after that, due to the lag in returns after a machine is installed.
Ultimately, the company will likely raise debt funding, Hanson said.
Xeros added that it had strengthened its patent portfolio with five new patent filings in the last financial year, bringing the total to 33 patent families covering 33 inventions.
Its shares were down 0.4% at 124.00 pence Thursday morning. The stock hit its highest level since listing at 130.00 pence last week in the wake of the news about the latest US utility incentive programmes.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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