Xeros Tech Regulatory News (XSG)

27 September 2023

Xeros Technology Group plc

('Xeros' or the 'Company' or the 'Group')

2023 INTERIM RESULTS

Sharper commercial focus driving momentum

Xeros Technology Group plc (AIM: XSG), the creator of technologies that reduce the impact of clothing on the planet, today announces its unaudited interim results for the six months ended 30 June 2023, which show momentum building in all areas of the business.

Operational highlights

Key financials

Outlook

Neil Austin, CEO said:

"Increasing climate awareness and conducive legislation is creating a groundswell of opportunity for Xeros' technologies. During the Period, the Group has signed three significant licensing agreements taking our total to eight across all technology platforms, as well as widening its product portfolio within filtration."

Enquiries

About Xeros

Xeros Technology plc has developed patented and proven, industry-leading technologies which reduce the environmental impact of how industries make and care for clothes.

The traditional wet processing methods used in industrial and domestic laundry and garment manufacturing consume billions of litres of fresh water and large amounts of energy and chemicals, as well as damaging and weakening clothing fibres and creating rising levels of environmental pollution. It is estimated that washing machines contribute 35% of the 171 trillion microplastic particles in the ocean.

A range of actors, including consumers, the media NGOs and regulators are exerting pressure on these industries, with legislative action beginning to be taken.

Xeros' three main technologies, Filtration, Finish, and Care, facilitate garment manufacturers, industrial laundries, domestic washing machine manufacturers and consumers, to reduce their environmental impact, whilst also significantly improving efficiency in the process.

Xeros' model is to generate revenue from licensing its technologies, generating royalties and the sale of consumables. Currently there are 8 agreements in place. The addressable markets in Filtration, Finish and Care are estimated to be valued at £350m p.a., £132m p.a. and £3bn p.a. respectively.

CEO Statement

I am pleased to report on the significant operational and commercial progress the Group has made in the six months to 30 June 2023.

The macro environment for our technologies continues to strengthen in synchronicity with our commercialisation goals. Global businesses are coming under increasing pressure to improve their environmental practices, and governments are introducing new regulations and legislation to protect against further ecological damage and meet their global obligations.

In the Period under review, the Group signed new licensing agreements in Filtration and Finish with the biggest brands in their respective markets, which leave Xeros in prime position to capitalise on demand for its micro-plastics filtration technology and to lead the world on the delivery of ecological garment processing technology in denim.

When I joined Xeros just over a year ago, I did so because the Group's technologies were not only the right ones ecologically for the planet but the right ones economically. Our technologies actually reduce lifetime costs for the major appliance and garment processing industries.

It is pleasing to note that our environmental contribution was recognised in the Period, when we were awarded the much-prized B-Corp accreditation. The application of this globally recognised standard sets us apart. Xeros is the first in its peer group to receive the accolade and only the second AIM listed company to reach this standard.

The new management team, which has been put in place since I joined, has focused on the singular goal of building commercial partnerships, by promoting the benefits of our technologies to the leading garment processing businesses globally, which can deliver solutions at scale. Internally, there is a real sense of momentum gathering and we look forward to the next 12 months with increasing confidence in our technologies and strategy.

Summary of the results

As part of a sharpening of focus on commercial progression, it was important to review costs within the business. To this end, we reduced our rate of cash burn by £1m in the Period, while still making significant progress on key licensing agreements. We take a prudent and efficient approach, maintaining a keen eye on costs throughout the business and will remain focused on ensuring sufficient liquidity in the Group at all times.

At the time of our fundraising in September 2022, we stated that we anticipated month on month EBITDA and cash breakeven during 2024 and stated that further clarity would emerge during the course of 2023. We believe the commercial progress made during the past 12 months and the significant inflection points expected to be achieved during the second half of our financial year ended 31 December 2024 support this view and our guidance remains unchanged.

Business update

Filtration

Even on an eco-setting, washing our clothes release 700,000 microfibres with every wash. Those tiny fibres can have a lasting impact. They end up in our oceans, in our food chain and in our water supply. Our filtration technology, XFilter, can be integrated into a washing machine for the home or built at a large scale for industry. It removes 99% of micro plastics from wastewater during a washing machine cycle.

In the Period, we signed two further licensing agreements with major European component manufacturers. These complement the Hanning agreement, signed in June 2022, for the licensed manufacture of Xeros' XF1 technology. We now have multiple approved manufacturing options for all of the major global washing machine brands, capable of delivering 99 million units per annum.

The legislative environment, which supports the take up of our Filtration technology, continues to advance. There have been further developments on legislative landscape in the Period, with the mandated French deadline of 2025 set to be complemented by movements, most notably, in the EU, the UK and California.

Post the Period end, we launched a new external filtration product, called XF³, for the domestic market. This is an 'outside-of-machine' microplastic filtration device, which can be retrofitted to the existing domestic install base. The device debuted at IFA Berlin, which is the largest OEM exhibition in the world. The feedback from our customer base was excellent with clear recognition of the product's ideal combination of price, efficacy, and flexibility on positioning. XF³ is the first product to come from our Gen 2 XFilter platform, which is set to deliver new propositions for the commercial laundry and Industrial manufacturing sectors in future years.

Care

Our care technology uses XOrbs, reusable polymer spheres, to wash and care for clothes. The technology is scalable for domestic washes to heavy industrial use. It is designed to save tens of millions of litres of water every year, use half the energy and chemicals of traditional laundry processes and prolong the life of fabrics.

IFB Appliances' new mass 9kg washing machine platform featuring Xeros technology continues to progress for full scale launch for domestic consumers across India. IFB is also continuing progress with Indian Railways commercial laundry partnership.

Leading environmental solutions provider, Ecoprod, has been appointed as a UK distributor for Xeros enabled products. Ecoprod offers water management solutions to several thousand facilities in five major industries - healthcare, hotels, the care market, laundry companies and sports clubs.

Finish

Making one pair of jeans can use up to 10 years' worth of drinking water for one person. Chemicals used in the process escape with wastewater polluting our planet. Today, jeans are still made using pumice stone, which constantly needs replacing and creates chemically contaminated sludge. Our XFN1 technology uses patented reusable XOrbs as a pumice alternative and reduces water and chemistry use by up to 50%.

The new Xeros-enabled denim processing machine was launched by our new partner Yilmak at ITMA, the foremost global garment manufacturer trade show, in June 2023. We signed a licensing agreement with Yilmak Makina / KRM, one of the World's largest and best respected garment finishing manufacturers and distributors respectively, in the Period. This complements our existing licensing agreement with Ramsons, based in India. Trials of our technology with multiple manufacturers are underway, making samples and jeans for a number of high-street denim brands.

In denim finishing, Xeros has established its technology in centres of excellence in Turkey, Bangladesh and the UK for regional partner engagement in live production environment.

Multiple fashion brand collaborations using Xeros technology are expected to develop further in the forthcoming period.

Strategy

Our technology provides cost-effective solutions for garment manufacture and clothing care within the $2.5 trillion fashion industry and the $55 billion domestic washing machine market. Our annual addressable markets in Filtration, Finish and Care are estimated to be £350 million, £132 million and £3 billion respectively.

Our strategy to become an IP-rich, capital-light licensor of proprietary technology solutions to multiple scale industries, all of which deploy the same Xeros core technologies remains. We identify and select partners across the globe with significant market share, who are able to demonstrate a strategic intent to deliver increased levels of sustainability, empowering them to scale our innovations.

Our technologies are already in application in major global industries through eight licensing and partner agreements, covering commercial and home laundry, the cleaning of specialist workwear, and garment manufacture. So far, our technology has saved millions of litres of water and is proven to significantly increase the life of clothes and fabrics. The implementation of our technologies delivers major improvements in economic, operational, product and environmental outcomes.

Drivers for growth

As the climate emergency continues to unfold, consumer sentiment and demand for responsible products have never been stronger, creating an urgency for manufacturers to react. A recent McKinsey report stated: "The overall trend ... was clear ... products that made ESG-related claims grew faster than those that didn't." 

The realisation of the impact of clothing on the climate is strong and growing. Garment production is a high energy and water consumer, whilst also polluting air and water supplies during the textile creation processes. "Fast fashion" is synonymous with landfill problems and throw-away society, and narrative has shifted towards sustainability and ethics, with a focus on slow fashion, circular economy, transparency, and supply chain traceability. The rental and second-hand fashion markets have grown and are predicted to make up a significant percentage of apparel sales in the future.

Xeros is actively involved with lobbying governments and supporting NGOs lobbying for change in the UK, EU and US. Last year we led the co-creation of a letter sent to the UK Environment Secretary demanding legislation for filtration in washing machines. This led to a direct discussion with the Minister and the Department of Environment, Food and Rural Affairs and Xeros continues to support a UK private members' bill on this topic. This year we have provided evidence to coincide with the EU's recommendations, currently scheduled to be published in Q4 2023, on 'Measures to Reduce the Impact of Microplastic Pollution on the Environment'. This evidence is also being used to support a bill in California to mandate microfibre filtration technology in washing machines, and was introduced in February 2023 and has reached the desk of Governor Gavin Newsom for approval. Xeros is working closely with the NGO 5 Gyres, who co-authored the bill, to support the filtration effectiveness and standards. 

In addition, United Nations Environment Program is attempting to bring about a global plastics treaty (initial draft published Sept '23) in which: 'Nations should aim for the prevention, progressive reduction and elimination of plastic pollution throughout the lifecycle of plastic. Their approaches should be comprehensive and cover all parts of the lifecycle.' which refers to the limitation of microplastic pollution.

Xeros continues to be recognised for leading filtration standards as highlighted by a Washington Post article earlier this year that referenced the University of Plymouth study concluding that XFilter is the most effective microfibre capture system for the global laundry industry.

With France having established a precedent by mandating a deadline of 1 January 2025 for a microfibre capture requirement for all washing machines, the rest of the EU, the UK and California are expected to follow suit. The Xeros view is that with XFilter partnerships in place, we are well-positioned to respond to an imminent need for five of the leading global washing machine markets.

In addition to specific washing machine filtration legislation, there are a number of other policies that highlight an accelerating trend towards lower-impact goods and services, including extended producer responsibility, consumer protection laws and environmental labeling. 

Sales pipeline

The Company's goal is mass implementation of its three technologies and we have a clear strategy in place to help us achieve this. 

We are currently in active discussion with a number of retail brands, garment manufacturers and OEMs, all of which have the potential to lead to further agreements. Most recently, our engagement with major domestic appliance washing machine brands has escalated with active engagement with four of the 10 leading global brands on both the Care and Filtration technologies.

We have plans to launch a domestic application in both Care (XC1) and Filtration (XF1 and XF3) for the major markets in Europe and Asia with several brands in the next 24-36 month period.

Our manufacturing partnerships with Yilmak and Ramsons provide the platform for the technology to permeate the market and our extensive engagement and testing with multiple apparel brands creates awareness and demand for the technology within the industry. The expectation is that several of these brands will prescribe that the Xeros Finish technology can be used for the production of their core fashion ranges in the next 12-24 months.

Outlook

We are buoyed internally by the momentum gathering in our markets. This, combined with the new licensing agreements and progress made with pre-existing partnerships place us in a strong position to deliver the successful commercialisation of our technologies. The Group expects month on month EBITDA and cash breakeven during the second half of our financial year to 2024.

Neil Austin

CEO

Financial review

Group revenue was generated as follows:

The Group financial results for the six months ended 30 June 2023 reflect the reduction in costs over the previous 12 months, alongside the periodic nature of the Group's contracts with licensing partners, and remain in line with Board expectations, reflecting Xeros' status as pre-revenue in its volume markets pending the final stages of commercialisation. The Group recorded a 25.9% decrease in net cash outflow from operations to £2.9m in the period (H1 2022: £3.9m). In the period the Group recorded an adjusted EBITDA loss on continuing operations of £2.6m (2022: loss £3.9m), a decrease of 32.2%.

Licensing income represents royalties from licence partners for the sale of XDrum machines and revenue to Xeros for the sale of XOrbs, which has remained broadly static against the previous period. Service income and machine sales represents payments from existing Xeros customers in the UK and Europe. The Group expects that future revenues will be comprised mostly of licensing revenue and revenue from the sale of goods, as it supplies XOrbs to customers.

Gross profit for the six months ended 30 June 2023 rose to £0.1m (2022: £0.0m) due to increased contribution from service income and the sale of goods.

Administrative expenses decreased by 32.9% to £2.8m (2022: £4.2m) reflecting a reduction in headcount alongside the timing of the Group's major costs. Headcount fell in comparison with the previous year, with 32 employees as of 31 August 2023 (2022: 42).

Adjusted EBITDA is considered one of the key financial performance measures of the Group as it reflects the true nature of our continuing trading activities. Adjusted EBITDA is defined as the loss on ordinary activities before interest, tax, share-based payment expense, non-operating exceptional costs, depreciation and amortisation.

The Group decreased its operating loss to £2.7m (2022: £4.2m), a decrease of 35.0%. The loss per share was 1.81p (2022: loss 17.51p).

Net cash outflow from operations decreased to £2.9m (H1 2022: £3.9m), a decrease of 25.8% in line with the decrease in adjusted EBITDA in the period, with a small working capital outflow over the prior period. The Group had existing cash resources (including cash on deposit) as at 30 June 2023 of £3.5m (2022: £3.8m) and remains debt free. Group cash as at 31 August 2023 is £2.6m.

Overall cash utilisation remains in line with the Board's expectations at below £0.5m per month. The directors expect cash utilisation to remain at the current level until such time as higher licensing revenue is generated from our licence partners and the Board will remain vigilant to ensure adequate liquidity in the business until such time as the Group becomes cash generative which, as stated above, we now believe will occur during the second half of our financial year to 31 December 2024.

Alex Tristram

Director of Finance 

Consolidated statement of profit or loss and other comprehensive income

For the six months ended 30 June 2023

*Adjusted EBITDA comprises loss on ordinary activities before interest, tax, share-based payment expense, depreciation and amortisation.

Consolidated statement of changes in equity

For the six months ended 30 June 2023

Consolidated statement of financial position

As at 30 June 2023

Consolidated statement of cash flows

For the six months ended 30 June 2023

Notes to the interim financial information

for the six months ended 30 June 2023

1. General information

The principal activity of Xeros Technology Group plc ("the Company") and its subsidiary companies (together "Xeros" or the "Group") is the development and licensing of platform technologies which transform the sustainability and economics of clothing and fabrics during their manufacture and over their lifetime of use.

Xeros Technology Group plc is domiciled in the UK and incorporated in England and Wales (registered number 8684474), and its registered office address is Unit 2 Evolution, Advanced Manufacturing Park, Whittle Way, Catcliffe, Rotherham, S60 5BL. The Company's principal activity is that of a holding company.

The interim financial information was approved for issue on 27 September 2023.

2. Basis of preparation

The interim financial information has been prepared under the historical cost convention and in accordance with the recognition and measurement principles of UK-adopted International Accounting Standards ("IFRSs").

The interim financial information has been prepared on a going concern basis and is presented in Sterling to the nearest £'000.

The accounting policies used in the interim financial information are consistent with those used in the prior year.

The following adopted IFRSs have been issued but have not been applied by the Group in this financial information. Their adoption is not expected to have a material effect on the financial information unless otherwise indicated:

Further IFRS standards or interpretations may be issued that could apply to the Group's financial statements for the year ending 31 December 2023. If any such amendments, new standards or interpretations are issued then these may require the financial information provided in this report to be changed. The Group will continue to review its accounting policies in light of emerging industry consensus on the practical application of IFRS.

The preparation of financial information in conformity with the recognition and measurement requirements of IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.

The interim financial information does not include all financial risk management information and disclosures required in annual financial statements. There have been no significant changes in any risk or risk management policies since 31 December 2022. The principal risks and uncertainties are materially unchanged and are as disclosed in the Annual Report for the year ended 31 December 2022.

The interim financial information for the six months ended 30 June 2023 and for the six months ended 30 June 2022 does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006 and is neither reviewed nor audited. The comparative figures for the year ended 31 December 2022 are not the Group's consolidated statutory accounts for that financial year. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unmodified, (ii) did not contain a statement under Sections 498(2) or 498(3) of the Companies Act 2006. The report did contain an emphasis of matter paragraph in relation to a material uncertainty in respect of the going concern status of the Group as at 31 December 2022. The circumstances that gave rise to this emphasis of matter paragraph are unchanged as at the date of this report.

The half year condensed consolidated financial statements do not include all of the information and disclosures required for full annual financial statements and should be read in conjunction with the group's annual financial statements as at 31 December 2022, which have been prepared in accordance with UK adopted International Accounting Standards (IFRS).

IAS 34 'Interim financial reporting' is not applicable to these half year condensed consolidated financial statements and has therefore not been applied.

3. Taxation

The Group accounts for Research and Development tax credits where there is certainty regarding HMRC approval. There is no certainty regarding the claim for the year ended 31 December 2022 and as such no relevant credit or asset is recognised.

4. Trade and other receivables

There is no material difference between the lease receivable amounts as in other receivables noted above and the minimum lease payments or gross investments in the lease as defined by IFRS 16.

The minimum lease payment is receivables as follows:

Contractual payment terms with the Group's customers are typically 30 to 60 days. The Directors believe that the carrying value of trade and other receivables represents their fair value. In determining the recoverability of trade receivables the Directors consider and change in the credit quality of the receivable from the date credit was granted up to the reporting date.

5. Trade and other payables

6. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders by the weighted average number of shares in issue during the period. The Group was loss-making for the 6-month periods ended 30 June 2023 and 30 June 2022 and also for the year ended 31 December 2022. Therefore, the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share, since this would decrease the loss per share reported for each of the periods reported.

The calculation of basic and diluted loss per ordinary share is based on the loss for the period, as set out below. Calculations of loss per share are calculated to two decimal places.

7. Leases

The Group has leases for office buildings and associated warehousing and operational space. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the statement of financial position as a right-of-use asset and a lease liability. The Group classifies its right-of-use-assets in a manner consistent with its property, plant and equipment.

Each lease generally imposes and restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use-asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. The Group is prohibited from selling of pledging the underlying leased assets as security. For leases over office buildings and warehousing and operations space, the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.

The table below describes the nature of the Group's leasing activities by type of right-of-use asset recognised on the statement of financial position:

Right-of-use assets

Additional information on the right-of-use assets by class is as follows:

Lease liabilities

Lease liabilities are presented in the statement of financial position as follows:

8. Seasonality

The Group experiences no material variations due to seasonality.

9. Availability of interim statement

This interim statement will be available on Xeros' website at www.xerostech.com.

Forward-looking statements

This announcement may include certain forward-looking statements, beliefs or opinions, including statements with respect to Xeros' business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Xeros Directors in good faith based on the information available to them at the date of this announcement and reflect the Xeros Directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in government policies, spending and procurement methodologies, and failure in health, safety or environmental policies.

No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and Xeros and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. No statement in the announcement is intended to be, or intended to be construed as, a profit forecast or to be interpreted to mean that earnings per Xeros share for the current or future financial years will necessarily match or exceed the historical earnings. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.