XSG Xeros Technology Group Plc

30 September 2024

XEROS TECHNOLOGY GROUP PLC

("Xeros" or the "Company" or the "Group")

AIM: XSG

INTERIM RESULTS 2024

Commercial momentum building

Xeros, the creator of technologies that reduce the impact of clothing on the planet, announces its unaudited interim results for the six months ended 30 June 2024.

Commercial highlights

Key financials

Outlook

Neil Austin, CEO said:

"The drivers for clean-tech solutions are gaining momentum and we are on track with the globalisation of our technologies. Our recent agreement with Donlim, world-renowned for delivering domestic appliances on a global scale, clearly demonstrates the potential for our technology and the quality of partner the business is now able to attract. In addition to the commercialisation of our technologies through existing licensees, we are in active discussion with some of the world's best known brand manufacturers in laundry care. This is an exciting time for Xeros, and we remain committed to delivering value to all stakeholders."

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 eight 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 progress the Group has made in the six months to 30 June 2024 and to provide an update on the Group's commercial partners and opportunities.

The societal and commercial pressure, being faced by companies across the globe, to deliver effective environmental solutions is a reality. Consumer awareness about the impact of their choices continues to grow, with the negative impact of microplastics on the world becoming more apparent every day. Xeros has the technologies to provide impactful solutions to some of the biggest companies in the world and we continue to work to do so.

Earlier this month, Xeros signed a new licensing agreement with Donlim to manufacture the Xeros' XF3 technology under license. Donlim, which is one of the world's leading domestic appliance manufacturers and owner of the Morphy Richards brand, is ideally placed to support the commercialisation of the Group's external filtration device, XF3.

While the recently announced delay to the launch timetable of our Indian partner, IFB Industries Limited ("IFB"), not related to the Xeros technology, was disappointing, the opportunities we have, to commercialise our technologies at scale through multiple global partners, are significant. This is demonstrated by the interest of a number of major global players in the laundry and garment processing industries, as well as by our existing partner agreements. Their engagement gives me comfort that the technology benefits of our technologies are clear.

The Group has clear commercial objectives, in both the short and medium-term, and remains well placed to execute on the partnerships in hand and to win new, significant commercial contracts.

Summary of the results

The Group continued to focus on cost control during the Period, further reducing its administrative costs and taking measures which it expects to positively impact administrative expenses in future years. 2024 SG&A is expected to be around 60% of the 2022 level, when I joined the Group. Revenue remained static against the prior half year, with revenues from Yilmak, the Group's denim finishing partner, expected to come online in H2 FY24.

The Group's ongoing cash requirement was impacted by the delays in revenue from IFB. However, we continue to expect revenues from a number of partners in the coming months, which will support our cash position. We continue to monitor our cash requirement closely and believe that our existing resources will enable us to reach break-even.

Business update

Care

Xeros' Laundry Care System uses reusable polymer spheres, known as XOrbs, to wash and care for textiles, and is scalable from domestic wash to heavy industrial and commercial use. Using the Xeros Laundry Care System drastically reduces the amount of water, energy and chemistry required by the laundry process, as well as increasing the life of the garments washed by up to 100%.

Xeros reported, earlier in 2024, that the technology transfer process with its Indian licensee, IFB, was complete and that IFB was undergoing field trials ahead of a 2024 mass market launch. The trials generated positive consumer feedback, but IFB has initiated a further change to the specification of the 9kg machine, unrelated to Xeros technology, which has pushed back its expected mass market launch into 2025. This situation has been compounded by the recent announcement of a change in leadership in the Home Appliances Division of IFB. While the delay to mass market launch is clearly disappointing, the progress made by IFB, combined with the feedback received as part of this process, provide compelling evidence of Xeros' technology in a domestic laundry setting.

Xeros is in the process of demonstrating the benefits of its Care technology to a number of global, tier 1 potential partners on both domestic and commercial platforms and expects to be able to communicate the outcome of these discussions in the coming months.

Filtration

The awareness from consumers and from brands of the impact of microfibres, including microplastics, continues to rise, in the face of near-constant environmental studies.

Domestic laundry is the second largest contributor, with up to 700,000 fibres released in every wash. The Group's microfibre pollution filter can be fitted as an accessory to washing machines at home (XF3) or integrated during manufacture (XF1), removing 99% of microfibres from laundry wastewater for safe disposal.

The Group's licensing and strategic partnership with the Donlim, signed after the Period end, provides Xeros with a strong and heavyweight route to market for the external device, the XF3. It also added a further licensee for the internal XF1, increasing the Group's geographic supply coverage for potential global laundry partners. Donlim is a world leader in the manufacture of electrical appliances, with three manufacturing sites and over $2bn of revenue, and ideally placed to support Xeros developing a new market for microfibre filtration solutions.

The Group showcased its external filtration technology together with Donlim, at IFA Berlin, Europe's largest consumer electronics fair, in September 2024. The industry consensus at IFA was that the market for washing machine filtration is coming in the short term, even without legislation, but that it remains in development.

The awareness of the widening impacts of microplastics extends beyond consumers and the media into global organisations and governments. The filtration industry is still awaiting clarification from the French Government as to the standards and efficacies required by its 2025-dated legislation. Frustratingly, this has delayed previously expected demand for filtration products, but the issue remains on the agenda across the globe, with progress being made at both an EU and State level in the US, including California.

Finish

The finishing process undergone by denim garments is a process which uses large amounts of water and chemistry and produces huge volumes of effluent, often contaminated with chemicals. Xeros' Garment Finishing System allows manufacturers to achieve equivalent finishes on their garments, while reducing the energy, chemistry, and water needs of the process by up to 50%.

Yilmak launched a Xeros enabled range of denim finishing machines at ITM, a leading garment finishing trade show, in July 2024.  It is working through the initial sales leads, with the expectation of machines being in full production within the current calendar year. The company is a tier 1 OEM within the global garment finishing market and represents a meaningful revenue opportunity for the Group.  Revenue generation for Xeros from this licensing agreement remains on track to commence in the current financial year.

Strategy

The industries in which the Xeros technologies could have impact include the $2.5 trillion fashion industry and the $55 billion domestic laundry market, which are some of the largest markets in the world. Xeros considers that its addressable markets within these industries total £350 million, £392 million, and £2.3 billion for Filtration, Finish, and Care respectively.

The Group's strength lies in its IP portfolio and the deep technology transfer-knowhow with the business. The Group's strategy remains to license this portfolio of proprietary solutions to multiple scale industries, all of which are relevant for the Group's core technologies. It is through the commercialization of the Group's technology, through those best placed to do so, that the Group will generate revenue and return. The Group has partners around the globe with the market position and the knowhow to maximise the impact of its technology and is in active commercial processes with others with the potential to do the same.

A number of these partners have successfully deployed Xeros-enabled products into demanding markets and have shown the benefits in a real-world environment. The Group's strategy over the coming months is to develop its partnerships further to allow the Xeros technologies to be adopted on the widest possible scale.

Drivers for growth

The industries in which the Xeros technologies are relevant have traditionally been slow moving and slow to innovate. The conflict of this inertia with the drive from consumers, industry bodies, and governments for environmental progress means that the opportunities for our technologies remain significant. The underlying demand for our products was highlighted at Europe's largest consumer electronics show, IFA, in Berlin, at which Xeros exhibited. The resounding message from [laundry] manufacturers and OEMS at the event was to use less and prolonging the life of garments. However, the technical innovations to support a step change was lacking. Against this background, we [are approaching and engaging / can approach and engage] with some of the largest companies in the world - with genuine innovation that the industry is ready for.

The same is true of the fashion industry, which continues to come under the microscope for the impact that its production has on the world. Fashion retailers, and the garment producers that serve them, are grappling with the need to keep costs down in an increasingly competitive market, whilst reducing their carbon footprint and the waste they create. Some forward-thinking producers are taking the lead and will be at the forefront of the coming change to the industry, with a focus on sustainability, quality, and supply chain transparency. We are working with a number of fashion brands to demonstrate the impact of our garment finishing technology and are confident that proving out the benefits to them, both from a cost and sustainability point of view, is key in establishing the early market for Xeros enable garment finishing machines.

The market for microplastic filtration continues to develop, albeit at a slower pace than we previously expected, for the reasons mentioned above. It is, however, clear from our interactions with the industry that legislation will eventually compel filtration in washing machines, but this will take time. We believe that consumers will take the first steps in tackling the menace of microplastics, installing external filters to their machines. This view is supported by the consumer insight studies that we have conducted and the discussions we have held with other stakeholders.

Sales pipeline

We remain focused on mass-market adoption of Xeros' key technologies, and the licences we have in hand. The high-quality, active discussions and processes we are currently having, with global, tier 1 potential partners, provide confidence that we are moving in the right direction.

The Company is currently working through a number of significant opportunities on both its Care and Filtration technologies. We are in active processes with three tier 1 OEMs in relation to our domestic care technology and with a further tier 1 OEM in relation to commercial care technology. The Group's recent licensing agreement with Donlim provides a short-term route to market for the XF3 filter, as well as having the potential for longer-term strategic alignment.

The full market launch of our denim finishing technology by Yilmak, alongside the existing market development done by Ramsons, provides a meaningful revenue opportunity, as well as allowing us to make connections with global fashion brands who see the positive consumer perception impact of our technology and the manufacturers who can ensure the supply of sustainable garments into the market. IFB remain committed to the mass market launch of a Xeros enabled domestic machine and we expect this to take place in 2025.

Outlook

We remain encouraged by the significant pipeline of opportunities in play for Xeros, and by the breadth of interest in all the Group's core technologies. The outcome of our current round of commercial discussions and processes will be crucial for the future of the Group, and we look forward to providing further updates in due course.

Neil Austin

CEO

FINANCIAL REVIEW

Group revenue was generated as follows:

The Group financial results for the six months ended 30 June 2024 reflect further consolidation of the Group's cost base, as we work towards a step change in revenue driven by the mass-market launches of Xeros technologies. The Group recorded a 6.6% decrease in operating loss to £2.5m (H1 2023: £2.7m.)

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 H1 2023. 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 2024 remained static at £0.1m (2023: £0.1m).

Administrative expenses decreased by 7.1% to £2.6m (H1 2023: £2.8m), driven by further close management of the Group's cost base. Headcount fell in comparison with the previous year, with 24 employees as of 31 August 2024 (2023: 32). As a consequence, the Group's adjusted EBIDTA fell by 8.2% to £2.4m (H1 2023: £2.6m).

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 £2.5m (H1 2023: £2.7m), a decrease of 6.6%. The loss per share was 1.69p (2023: loss 1.81p).

Net cash outflow from operations decreased 8.5% to £2.6m (H1 2023: £2.9m), reflecting the timing of some of the Group's significant invoices. The Group had existing cash resources (including cash on deposit) as at 30 June 2024 of £4.7m (2023: £3.5m) and remains debt free. Group cash as at 31 August 2023 was £4.0m.

Overall cash utilisation remains in line with the Board's expectations at below £0.5m per month. The directors expect cash utilisation to be lower in the second half of 2024 and 2025, and that these lower levels will continue as the Group moves into full commercialisation with licence partners. The Board considers the Group's current cash reserves to be sufficient to support the Group through to month-on-month cashflow breakeven, expected in 2025.

Alex Tristram

Director of Finance 

Consolidated statement of profit or loss and other comprehensive income

For the six months ended 30 June 2024

*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 2024

Consolidated statement of financial position

As at 30 June 2024

Consolidated statement of cash flows

For the six months ended 30 June 2024

Notes to the interim financial information

for the six months ended 30 June 2024

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 2024.

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 2024. 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 2023. The principal risks and uncertainties are materially unchanged and are as disclosed in the Annual Report for the year ended 31 December 2023.

The interim financial information for the six months ended 30 June 2024 and for the six months ended 30 June 2023 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 2023 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 2023. 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 2023, 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 2023 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 2024 and 30 June 2023 and also for the year ended 31 December 2023.  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.