Xeros Tech Regulatory News (XSG)

30 September 2022

Xeros Technology Group plc

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

2022 Interim Results

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 2022.

Highlights

· First licence of XFilter to leading domestic washing machine component supplier

· Domestic machine technology planned for launch by leading Indian manufacturer in Q4 2022

· Denim Finish technology trialled by multiple major retail brands

· New Xeros brand identity completed and marketing programme planned to drive growth

· Conditional Placing and Open Offer announced earlier today to raise up to £7.0m

· Appointment of Neil Austin as Chief Executive Officer on 1 August 2022 post period end

· XFilter Technology Platform

o Licensing agreement signed in June 2022 with Hanning, a leading component supplier to multiple major domestic washing OEMs

o Development agreement signed in September 2022 with a second large European component supplier to multiple domestic washing machine OEMs

o Independent test results of XFilter's efficacy by Hohenstein, a German textile research and testing institute, in June 2022 confirmed an industry-leading capture rate of 99%

o Test and trial agreement signed in July 2021 with a large Asian domestic washing machine OEM on track and commenced commercial discussions

· XOrb/XDrum Technology Platform:

o Denim Finishing trials successfully completed with three major European retail brands fully validating our sustainability and financial benefits. First denim jeans made with Xeros technology sold to consumers

o Major European retail brand working with Xeros on a proposal to introduce Finishing technology into the supply chain

o Following successful machine and cycles design, IFB is working towards entry into the Indian domestic laundry market in Q4 2022

· Financial:

o Trading in line with expectations

o Adjusted EBITDA1 loss increased by 36.9% to £3.9m (2021: loss £2.8m)

o Net cash outflow from operations increased by 15.1% to £3.9m (2021: £3.4m)

o Cash at 31 August 2022 of £2.6m

o Conditional Placing and Open Offer to raise up to £7.0m announced earlier today

o Monthly cash burn stable at £0.5m per month

o Board comfortable with current forward guidance

1 Adjusted EBITDA is defined as loss on ordinary activities before interest, tax, share-based payment expense, depreciation and amortisation

Neil Austin, Chief Executive Officer of Xeros, said:

"I am pleased to report the progress made during the first half of 2022 on our three product categories of filtration, care and finish. The vital savings in water and energy that our technology can deliver has been recognised and adopted by key licensing and development partners laying a strong foundation for future growth.

"The proceeds from the placing and open offer announced earlier today will be applied to winning additional contracts in each of our application areas. Our marketing investment will amplify the reach of our proposition and accelerate new licence agreements. We look forward to updating shareholders on our progress in due course."

Enquiries: 

Notes to Editors

POWERED BY SCIENCE, XEROS CREATE TECHNOLOGIES ENGINEERED FOR THE FUTURE

Born out of textile research and advancing new standards of performance and responsibility, Xeros' technologies revolutionise the way we make and clean our clothes, conserving water and preventing waste. Designed to impact industries and people on a global scale, Xeros transforms the performance, impact and economics of the fashion and washing machine industry.

Xeros enables the scaling of its innovations and impact by licencing its intellectual property to partners across the globe. Their work has, to date, created 38 patent families.

Xeros' technologies are already in use in major global industries, including commercial and home laundry and garment manufacture. So far, these technologies have saved millions of litres of water and could prevent billions of microfibres from ending in our oceans.

TO THE POWER OF CHANGE 

xerostech.com

Business Update

Business Review - Filtration

XFilter Technology Platform

The Xeros proprietary XFilter product has achieved 90% efficiency in collecting synthetic and natural microfibres from washing machines.

In July 2021, Xeros signed a test and trial agreement with one of the world's largest domestic washing machine manufacturers headquartered in Asia. As part of this programme, the Hohenstein testing institute has accredited Xeros' filtration solution with a capture rate of 99% of microplastics released in a wash cycle.

In June 2022, Hanning Elektro-Werke GmbH & Co. KG ("Hanning") a major supplier of machine parts to the appliance industry market, signed a commercial agreement to produce and sell XFilter units on a global, non-exclusive basis. Hanning will pay Xeros a royalty for each unit sold.

In September 2022, Xeros signed a further development agreement with a second large European component supplier to multiple domestic washing machine OEMs.

In parallel to these activities, our filtration scientists have been working closely with the UK government advising on microfibres filtration within a laundry environment. Legislation is expected to be put in place for the mandatory fitting of filters within domestic and commercial machines sold in the UK from the beginning of 2025, the same timescale as French legislation.

Business Review - Care

Commercial Laundry

The Commercial Laundry market has traditionally been the proving ground of our Care technology platform.

Xeros has partnered with Jiangsu SeaLion Technology Developments Company ("SeaLion") in China and with IFB Industries Limited ("IFB") in India. The market segments they plan to address include hospitality, the performance workwear market, industrial linen launderers and dry cleaners.

In Europe, Georges SA ("Georges") in France now have IFB-manufactured machines working at a number of sites. Georges services the nationwide fleet of SNCF's workwear along with contracts with Air France and other large French workwear garment users.

Domestic Laundry

A scaled-down version of the same Care technologies used in the commercial laundry market offers domestic washing machine consumers a reduction in water, energy and detergent as well as extended garment life.

Our first licence partner for this application is IFB in India, the second largest domestic washing machine company in India by sales volume which is expected to launch in Q4 of 2022.

A successful launch in India of our domestic XC technology will be a pivotal moment for Xeros, not just in giving a clear line of sight to a significant future revenue stream but, as importantly, it will be key to unlocking wider adoption by the industry and share of the 100 million units per annum market.

Business Review - Finish

Denim Finishing

Xeros offers a radical solution to this 1.2 billion units per annum industry. Our technology simplifies the finishing process by completing all finishing steps within one machine, eradicating the use of pumice and reducing chemistry, water and energy use. Garments produced are greener, quicker and cheaper to manufacture.

In early 2022, Xeros and our OEM licence partner, Ramsons Garment Finishing Equipments PVT Ltd ("Ramsons") conducted trials. These trials not only validated the quality of denim finishing for retail brands but also validated all our stated resources and cost reductions.

One of those major European retail brands has now taken the next step of asking Xeros to make a proposal for the widescale implementation of our Finishing technology into their supply chain.

Outlook

During the first half of 2022, our licence and development partners made continued progress. In June 2022 we achieved a notable landmark with our XFilter technology being licensed for the first time into the domestic washing machine market. The evidence from the adoption and commercialisation of both our Care and Filtration platforms will unlock further licence agreements and deliver the substantial benefits that our intellectual property bestows.

The proceeds from the placing and open offer of up to £7.0m announced today will be applied to winning additional contracts in each of our application areas. Our marketing investment will amplify the reach of our proposition and accelerate new licence agreements.

Whilst it is difficult to predict with certainty the timeframe to cash breakeven due to the nature of our business model, we estimate that with existing and targeted contracts, Xeros will achieve EBITDA profitability and cash breakeven in 2024.

As of 31 August 2022, the Group held cash of £2.6m. In our preliminary annual results to 31 December 2021, published on 22 June 2022 we stated that Xeros expect to require further investment to fund the business through to cash breakeven. The conditional placing and open offer announced today will achieve this end.

Neil Austin

Chief Executive Officer

Financial review

Group revenue was generated as follows:

The Group financial results for the six months ended 30 June 2022 reflect the timing and periodic nature of the Group's early-stage licensing contracts, though remain in line with Board expectations, with an 88.3% reduction in revenue to £0.04m (2021: £0.3m) and a 15.1% increase in net cash outflow from operations to £3.9m in the period (2021: £3.4m). In the period the Group recorded an adjusted EBITDA loss on continuing operations of £3.9m (2021: loss £2.8m), an increase of 36.9%.

Group revenue of £0.04m is comprised of £0.01m of licensing revenue, which has fallen by 91.7% (2021: £0.1m), and £0.03m of service income and machine sales, which, on a combined basis have fallen by 86.3% (2021: £0.2m). Licensing income represents royalties from licence partners for the sale of XDrum machines and revenue to Xeros for the sale of XOrbs. The fall in licensing revenue in the year is a result of the timing and number of machines sold by Xeros' licence partners. Service income and machine sales represents payments from existing Xeros customers in the UK and Europe.

Gross profit for the six months ended 30 June 2022 fell by 101.3% to £0.0m (2021: £0.2m) in line with the decrease in revenue.

Administrative expenses increased by 16.3% to £4.2m (2021: £3.6m) reflecting increased investment in IP, marketing and the Group's XFilter technology as disclosed previously. Headcount fell in comparison with the previous year, with 42 employees as of 31 August 2022 (2021: 45).

As a result of the above, the Group's EBITDA loss increased by 36.4% to £3.9m (2021: loss £2.8m).

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 increased its operating loss to £4.2m (2021: £3.4m), an increase of 24.2%. The loss per share was 17.51p (2021: loss 15.24p).

Net cash outflow from operations increased to £3.9m (2021: £3.4m), an increase of 15.1% in line with the increase of adjusted EBITDA in the period, with minimal change in the working capital position over the prior period. The Group had existing cash resources (including cash on deposit) as at 30 June 2022 of £3.8m (2021: £10.2m) and remains debt free. Group cash as at 31 August 2021 is £2.6m. Today the Group announced the conditional placing and open offer to raise up to £7.0m with completion expected on 21 October 2022.

Overall cash utilisation remains in line with the Board's expectations at £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. Overall, the Board remains comfortable with current forward guidance.

Paul Denney

Chief Financial Officer 

Consolidated statement of profit or loss and other comprehensive income

For the six months ended 30 June 2022

*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 2022

Consolidated statement of financial position

As at 30 June 2022

Consolidated statement of cash flows

For the six months ended 30 June 2022

Notes to the interim financial information

for the six months ended 30 June 2022

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 30 September 2022.

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 2022. 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 2021. The principal risks and uncertainties are materially unchanged and are as disclosed in the Annual Report for the year ended 31 December 2021.

The interim financial information for the six months ended 30 June 2022 and for the six months ended 30 June 2021 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 2021 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 2021. The Directors believe that the conditional placing and open offer of up to £7.0m announced on 30 September 2022 provides certainty over the short-term financing of the Group. This will be reviewed as part of the annual reporting process for the year ended 31 December 2022.

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 2021 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 2022 and 30 June 2021 and also for the year ended 31 December 2021. 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 a 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.