Xeros Tech Regulatory News (XSG)

14 August 2019

Xeros Technology Group plc

Commercial update and fundraising plans

Xeros Technology Group plc (AIM: XSG, 'Xeros', 'the Group'), the developer and provider of water saving and filtration technologies with multiple commercial applications, today provides an update on its commercial activities and fundraising plans.

Highlights:

o Significant commercial progress year to date across all markets with further progress expected during the rest of the year.

o Planned exit from all direct sales business by the end of 2019.

o On course to have a pure-play licensing organisation in place by end 2019 with a Q1 2020 monthly cash burn run rate of £0.6m. Down from an average monthly cash burn of £2.2m in 2018.

o Group announces today it is seeking to raise between £5m and £10m of equity funding. Raising £10m is expected to fund the business through to cash breakeven.

Mark Nichols, Chief Executive of Xeros, said:

"The business case for our technologies continues to increase as the scarcity and pricing of water rises with consumption progressively outstripping availability in many parts of the world.

"With our technologies now proven and much simplified, following the introduction of the XDrumTM, global scale OEMs are now licensing or testing our products with a view to long term licensing.

"It has been a challenging journey to this point, given the maturity and size of the industry players we have to convince to adopt our technology. However, we have now reached an inflection point in the implementation of our strategy to become an asset light IP rich licensing business.

"Our focus for the rest of the year is to complete our exit from all direct sales businesses, win further licensing contracts and implement those already awarded. Our cost base has and will continue to move down to that required for a successful high margin licensing business.

"Switching to high margin licensing turnover over the next two years against a backdrop of a low-cost licensing organisation provides us with a line of sight to cash breakeven."

Transition to licensing business

Having won and established the performance of a number of significant contracts based on Xeros technology, both in its High Performance Workwear and Hospitality markets over the last 36 months, the Group has now taken definitive steps towards its transition to becoming a high margin, "pure-play" licensing business.

The Group plans to have fully completed its migration to a license model by the end of the year and to cease any involvement in direct sales and physical supply chains. This will result in licensees paying Xeros royalties for the use of its extensive intellectual property portfolio.

Specifically:

o In Q1 2019, the Group transferred all the sales and service for its US hospitality industry customers (under the Hydrofinity brand) to channel partners.

This was followed by the sale of the majority of US customer lease contracts to channel partners in August 2019 with Xeros receiving royalties for the use of its technologies.

Equivalent arrangements are in development for European customers for implementation by the end of 2019.

o Following a number of approaches by third parties to acquire Xeros' high performance workwear cleaning business in the US (Marken), the Board has approved a sales process for this business whilst simultaneously moving to a technology licensing business model across a broad national and segmental coverage in the US.

Xeros' technology has been independently verified by third party experts and is actively being deployed across a broad customer base with the opportunity now to extend the licensing of its technology in the High Performance Workwear market beyond the US.

o As previously announced, the Group has been seeking a means to independently fund its Tanning business through to cash breakeven.

Having considered a number of options, the Board has approved, subject to contract, the spin-out of its Tanning business (under the Qualus brand) to its management in exchange for future royalty payments. The plan is for Xeros to have no physical involvement in this business by the end of the year.

Commercial progress

The Group has and continues to make significant commercial progress in its licensing activities:

o Cleaning Technologies:

o Simpler, lower cost XDrum machines now being manufactured, superseding previous more expensive and complex machine solution enabling licensees to incorporate and sell Xeros' technology with minimal change to their product designs and production processes:

o Tanning technologies

Cash burn and fundraise

The Group has and will continue to reduce its cash burn rate to approximately £0.6m per month in Q1 2020 with further reductions anticipated as technology transfer to licensees is progressed.

Headcount reduction is on plan to create a licensing organisation comprising less than 60 staff in early 2020. This is down from 160 in September 2018.

Group cash reserves at the end of July were £5.2m and are expected to fund the business through to early 2020.

The Group believes that £10m of additional funding will enable it to achieve its objective of reaching cash breakeven, based on the expected cost base it will need to carry as a pure licensing business and its expectations of the timing of licence royalties. In that context, the Group announces today that it is seeking to raise between £5m and £10m of equity funding to continue its progress towards meeting this objective.

Related Party Transaction

As part of the Group's aim to raise further equity funding, Xeros has signed an agreement with Kinetix Critchleys Corporate Finance ("Kinetix") to act as a Financial Advisor.

Kinetix was established in 2010 to provide corporate finance services to companies addressing resource sustainability through technology innovation, and David Armfield, the Group's Chairman, is a founding partner. In the event of a successful fundraising, the Group has agreed to pay a commission on funds raised by Kinetix, in line with market rates.

The independent Directors (being all the Directors save David Armfield), having consulted with the Group's nominated adviser, Jefferies, consider the terms of the agreement to be fair and reasonable insofar as the Group's shareholders are concerned.

Interim results

The Group expects to announce full interim results to 30 June 2019 in early October.

Enquiries:

Notes to Editors

About Xeros

Xeros Technology Group plc (LN: XSG) is a platform technology Group that is reinventing water intensive industrial and commercial processes.

Xeros' patented XOrbTM technologies significantly reduce the amount of water used in a number of major applications with the remaining water becoming far more efficient in either affixing or removing molecules from substrates such as fabrics and garments. The result being significant improvements in economic, operational, product and sustainability outcomes. The Group is applying its technology in the fields of cleaning, tanning and textiles.

Xeros' XDrumTM technology is used to apply XOrbs in world scale commercial and domestic markets and has signed multiple agreements to license its products.

XFiltraTM is Xeros' in machine filtration technology which enables major reductions in the amount of microfibres being released from washing machines into the marine environment.

For more information, please visit - http://www.xerostech.com/