Source - LSE Regulatory
RNS Number : 9799W
Xeros Technology Group plc
29 April 2021
 

29 April 2021

 

Xeros Technology Group plc

 

2020 Audited Results - major licensing progress

 

Xeros Technology Group plc (AIM: XSG, 'the Group', 'Xeros'), the developer and licensor of platform technologies which transform the sustainability and economics of clothing and fabrics during their lifetime, today publishes its audited results for the 12 months ended 31 December 2020.

 

Highlights

 

·    Multiple licensees entering/ready to enter markets with XOrb™/XDrum™ technologies.

·    XFiltra™ filtration technology at the forefront of abating microfibre pollution.

·    Strong progress in spite of Covid-19 pandemic.

·    £9.0m raised to execute current license contracts and win additional contracts in targeted geographies.

·    Cash burn run-rate down to £0.4m per month in second half of 2020.

 

·      Licensing progress of XOrb/XDrum technology platform:

o Ramsons entered Garment Finishing market in South Asia.

o SeaLion and IFB ready to enter Commercial Laundry markets in China and India respectively.

o Subject to any further Covid-19 impacts, IFB planning entry into Indian Domestic Laundry market in 2021.

 

·      Major advances in XFiltra technology platform addressing microfibre pollution from washing machines:

o Leading Commercial Laundry equipment company planning to enter market with industrial version in 2021.

o Product design to address domestic machine market planned for release for field trials by OEMs in mid-2021.

o Increased legislative activity in multiple countries with France committed to domestic machines with filters from 1st January 2025.

o Third party validation of XFiltra as the most efficient microfibre filtration device, with current XFiltra design capture rate greater than 90%.

 

·    Financial:

o Revenue decreased in 2020 by 78.8% to £0.4m (2019: £1.8m) reflecting full year impact of disposal of direct operations and transition to licensing model.

o Adjusted EBITDA1 loss reduced by 53.2% to £6.8m (2019: loss £14.4m).

o Administrative expenses down 54.8%

o Post-tax earnings loss reduced by 66.2% to £7.0m (2019: loss £20.6m).

o Net cash outflow from operations reduced by 54.9% to £6.3m (2019: £14.1m). Cash at 31 March 2021 £11.7m.

 

Mark Nichols, Chief Executive of Xeros, said:

 

"A year of living with the global Covid-19 pandemic has increased the belief among consumers, politicians and business that we must build better for a more sustainable future. Consumers are increasingly choosing products which carry a lower environmental cost while legislators are putting the long-term health of the planet at the heart of policy making.

 

"Together with our licensees, we are making a tangible difference to the sustainability of the clothes and fabrics we wear and use. By minimising the environmental harms caused during their manufacture and care, Xeros is helping the world to 'wear better'.

 

"The launch of our technologies by licensees in South Asia and China will give us a platform to expand into new geographies where there is also an urgent need for the environmental and economic benefits presented by our technologies.

 

"We will do so from a solid financial position with resources in place to win additional license contracts and fully embed our technologies within major supply chains and in the hands of consumers."

 

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

 

 Enquiries

Xeros Technology Group plc

Mark Nichols, Chief Executive Officer

Paul Denney, Chief Financial Officer

Tel: 0114 321 6328

 

finnCap Limited (Nominated Advisor & Broker)

Julian Blunt / Teddy Whiley, Corporate Finance

Andrew Burdis / Sunila de Silva, ECM

Tel: 020 7220 0500

 

Notes to Editors

Xeros Technology Group plc has developed and licenses two platform technologies which transform sustainability, performance and economics in the manufacturing and laundering of garments and fabrics.

Xeros' patented XOrbs™ which are used in conjunction with the company's XDrum™ technology significantly reduce the amount of water and chemistry used in the dyeing, finishing or laundering of garments and fabrics. They increase the efficiency of these processes which require molecules to be either affixed or removed from substrates. In the case of laundry, they are proven to significantly increase the life of clothes and fabrics.  The results being major improvements in economic, operational, product and environmental outcomes.

 

Xeros' XDrum technology is a low-cost machine drum design which enables XOrbs to be introduced into and subsequently removed from process cycles. The design provides Original Equipment Manufacturers with the ability to make simple changes to their products to incorporate the Company's XOrb technology.

The Group has signed multiple license agreements for its XDrum and XOrb technologies with leading OEMs in major commercial and domestic markets.

XFiltra™ is the Company's proprietary washing machine filtration technology which prevents harmful microfibres including microplastics, generated during washing cycles, from being released into the world's rivers and oceans.  Microfibres released into the environment from clothing and fabrics during their laundering, being a major source of pollution in the environment and contamination in the food chain.

 

Chairman's Statement

 

A year ago, when I wrote my first Statement as Chairman, I was contemplating a "new normal", fully expecting that we would have had more, if not full clarity by now of the impacts of the Covid-19 pandemic on Xeros, our license partners and their markets.  Unfortunately, that is not yet the case.  In the UK the roadmap out of the pandemic is now clearer and China's activity levels have largely recovered. India, which together with China is key to Xeros' near term commercial efforts, however, has an alarming rate of infections.

The pandemic has shown humanity's adaptability and ingenuity.  The speed and scale at which societies have adapted is unprecedented. At the same time multiple vaccines were developed, tested, approved, manufactured at scale and distributed in record time.  Throughout this, themes around climate, environment and sustainability have gained prominence.  The massive economic stimulus programmes (like the Green New Deal in the US) currently being prepared are targeting these themes.  This macro external environment is fertile ground for Xeros' commercial acceleration.

Whereas for Xeros, 2019 was about the organisational transition to an asset-light technology licensing business model, 2020 was about the commercial implementation of that business model. In spite of the challenging circumstances, our license partners have made significant progress with one entering its market and others planning to do so in the course of 2021. This progress was achieved by the Xeros team working from home or safely at the Company's Technology Centre in Rotherham, using remote means to help bring our partners to the point of being able to enter their markets.  This way of working is obviously far less efficient than having "boots on the ground". All in all, I would say that the company and its partners have made excellent progress despite the restrictions imposed by pandemic, but inevitably not at the pace that would have been expected in "normal" times.

One of my highlights of the year was the first commercial sale of XOrb/XDrum enabled machines by Xeros' partner Ramsons, selling 9 machines to ABA evidencing this transition.  Another was the publication of the University of Plymouth study clearly ranking Xeros' XFiltra as the best available technology for microfibre capture in domestic washing machines. Encouragingly, following the lead of France, several jurisdictions are now preparing to legislate for mandatory in-machine microfibre filtration.

I would like to thank our commercial partners, all our staff, management and my fellow board members for pulling together in these challenging circumstances and demonstrating the flexibility and adaptability to progress against all our key objectives. Throughout, the company has been uncompromising in terms of our employee well-being and safety.

Thank you also to our investors, who have stayed with the company through a volatile 12 months and have recently expressed their support by means of the £9.0 million oversubscribed placement.

 

This leads me to end on a very positive note.  With the aforementioned £9.0 million (gross) in financing added in March, the company's balance sheet is very healthy. Covid-19 may still throw a few surprises, but our robust balance sheet should see us through those.  Several license partners (IFB, SeaLion and Ramsons) have, or are planning to launch commercial products based on Xeros's technology, and we are looking to add new ones. In parallel, there is a lot of momentum building behind XFiltra; some of the £9.0 million will be deployed to add resources to that programme. Our progress points towards a bright future where our technologies are having a real positive impact at scale on the environment we share.

Klaas de Boer

Chairman

 

Chief Executive's Statement

 

Our clothes are a personal statement. They reflect our personality, potentially our status, sometimes our beliefs and they can also make us look good. But not enough of us perhaps appreciate that during their manufacture and ongoing care, the 100 billion[1] or so garments purchased every year consume significant amounts of the world's finite resources and cause pollution, exacting a significant toll on the environment. Conventional washing machines are one of the biggest culprits using large amounts of water and detergent whilst also creating pollution. They damage fabrics, shortening their life leading to waste and over-production.

The production of textiles, including those which go into making our clothes, consumes around 93 billion cubic metres of water annually[2]. By our calculations, this is enough water to keep the combined populations of India and China hydrated for nearly 42 years. These countries produce much of the world's fibre and today, have significant water stress in many areas.

Soaring population growth and the increasing wealth of many of the world's citizens will place an unbearable burden on our already over-stretched, vital resources. The imperative for the world to "wear better" is now and Xeros is playing major role to help it do so. The technologies we have developed are now being adopted by major enterprises in the garment and fabric value chain, dramatically reducing their environmental and financial cost.

Our technologies are in two distinct but complementary areas, both with comprehensive intellectual property portfolios surrounding them. Our XOrb/XDrum platform is applied to garments and fabrics from the point when they are formed through to the end of their life with consumers and users. This platform significantly reduces the input and consumption of materials and resources, and lowers effluent emissions, whilst extending the life of these items. Our XFiltra platform dramatically reduces microfibre emissions over the entire garment and fabric lifecycle, minimising pollution and the environmental harm they create.

The current plans of our licensees and partners will see our XOrb/XDrum technologies commercialised in each of our targeted application areas within the geographies that they are contractually entitled to. Our initial geographic focus being India and China which not only represent large commercial opportunities but have the most urgent need of the resource consumption reductions that Xeros technologies deliver. Once progressed in these countries, we plan to win and execute contracts with licensees to cover other areas of the globe facing these same challenges. 

Whilst the Covid-19 pandemic has somewhat delayed the timing for each of our licensees entering their markets, their progress has brought them to the point where they either have launched or plan to launch Xeros enabled products by the end 2021. The first machines featuring Xeros' XOrb/XDrum technologies were sold in late 2020 into the Denim Finishing market by Ramsons in South Asia. Delays could have been far worse without the commitment of our partners and our own teams to make products ready for the marketplace, working remotely to do so. Flexibility is key with each party having to respond to changing pandemic conditions and regulations. Disruptions are likely to continue until such time as effective vaccines reach high levels of penetration in the world's population.

Our licensees have also continued to produce independent verification that Xeros' technologies deliver what we say they do, proving out major economic and environmental benefits that will accrue to their customers. A share of their savings will be paid to Xeros, by our licensees, in the form of royalties.

We have witnessed increasing awareness and action among major fashion brands and retailers of the urgent need to minimise the impact of clothing. The benefits that Xeros' technologies bestow upon large parts of their value chains are increasingly being understood as having a major role to play. Our plan is for our technologies to become recommended by these enterprises to their supply chain partners for both environmental and economic benefit. In pursuance of this objective, based upon the progress of our licensees, we have entered into discussions with a number of well-known global fashion brands.

Our XFiltra technology, which addresses microfibre pollution from laundry processes, a major source of contamination in both marine and terrestrial environments, is expected to enter the commercial laundry market in 2021 with the domestic market targeted for 2022. To achieve this, a highly effective, low cost and user-friendly product design is now close to completion ahead of sharing it with domestic machine OEMs for field trials as a pre-cursor to incorporation in their washing machines.

Synthetic and non-synthetic microfibres released from our clothes when we wash them pose a significant threat to the health of aquatic environments and the wildlife that inhabit them. Microfibres are frequently ingested by all forms of wildlife and are subsequently found across the entire food chain where they are proven to be hazardous to the health of organisms and animals. Filtration within washing machines is the simplest and most cost-effective way to mitigate this form of pollution and our ambition is for XFiltra to become the industry standard for in-machine microfibre filtration for both appliance manufacturers and regulators.

Since the beginning of 2020, the Company has raised £15.0m, before expenses, from strategic and financial investors with the funds applied to winning and executing XDrum/XOrb license contracts and to fully commercialise our XFiltra technology in both domestic and commercial markets.

As of 31st March 2021, the Group held cash of £11.7m with our ongoing rate of cash expenditure fully reflective of that of the asset-light and IP-rich licensing company that we are. We believe that this level of funding is sufficient to reach month on month cash breakeven by the end of 2022, assuming current and future prospective license partners activities go to plan without further major disruption from the Covid-19 pandemic.

 

Business Review

XOrb/XDrum Technology Platform

Garment Finishing

After development and extensive testing of our XOrb/XDrum platform, our first license partner in this field, Ramsons Garment Finishing Equipments Ltd ('Ramsons'), made its first sales under license in the last quarter of 2020 into the denim finishing market in South Asia. The denim market is of global scale with 1.2 billion pairs of jeans manufactured each year with multiple different finishes required to meet consumer expectations. Each pair of jeans exacts a heavy toll in terms of high levels of water consumption with many still made using pumice stone which has a very short life in the manufacturing process. Xeros' solution simplifies the finishing process by completing all steps within one machine using no pumice, less chemistry and water with a commensurate reduction in effluent. Our solution thereby meets the secular trends of this industry to make the manufacturing process of these garments better, greener, quicker and cheaper.

The production of garments including denim is concentrated in a limited number of geographic regions with South Asia being one major hub. Ramsons is ideally placed within it as an innovative market leader and their license covers this region with an option to extend into South East Asia.

Xeros intends to enter into contracts in additional key territories with leading equipment OEMs during 2021 with the ultimate aim of addressing much of the denim finishing market and in due course, extending the reach of our technology to address many other garment types.

 

Commercial Laundry

The most significant impacts from Covid-19 have been experienced in this application area with our Chinese and Indian license partners' launch dates both delayed to Q2 2021. With machine and cycle development completed and with significant independent validation, both Jiangsu SeaLion Technology Developments Company ('SeaLion') in China, and IFB Industries Limited ('IFB') in India are in a position to make their market entries. Whilst the market segments they address include hospitality, which will continue to be impacted until travel returns to previous levels, other sectors offer high growth opportunities for them including the performance workwear market, industrial linen launderers and dry cleaners. These markets value greatly the improved wash efficacy, lower input costs and the reduction in waste from our XOrb/XDrum platform.

Just as in Garment Finishing, it is our intention to increase the geographic coverage of this application during 2021 including Europe where our partner Georges SAS is servicing the laundry needs of major industries and clients including SNCF and Air France as well as the specialist workwear required for the restoration of Notre Dame.

 

Domestic Laundry

We address the domestic laundry market using a scaled down version of the same XOrb/XDrum technologies used in the commercial laundry market. Whilst the 100 million domestic machines sold each year are used far less often than industrial equivalents, consumers have very high expectations in terms of their ease of use and performance.

Our license partner in India, IFB, has completed the engineering development of its Xeros-enabled domestic washing machine. Cycle development is currently meeting every objective that has been set including a significant reduction in water consumption. This is of strategic significance in India where the market penetration of domestic laundry machines is increasing and water stress ranks among the highest in the world. Based on the progress to date, IFB plan to launch their Xeros-enabled domestic washing machine in late 2021, subject to any future potential delays caused by the Covid-19 pandemic. 

The results from our development with IFB are increasing our levels of confidence that additional manufacturers will seek to adopt our technology and our plans are to further extend its reach in 2022. In this context, following a number of Covid related delays, our Joint Development programme with Midea in China continues with an extended testing programme which is a pre-cursor to a decision by them on moving to commercialisation.

 

XFiltra Technology Platform

Following significant media exposure and lobbying of politicians, the world now understands and is reacting to the extreme threat caused by microfibres entering the environment and that its largest source is from the washing of clothes at home. Although Xeros' XOrb/XDrum technology platform reduces the production of microfibres in garment finishing and laundry processes, the Company made a decision in early 2017 to work on a solution to reduce their release from all washing and finishing machines to the highest degree possible. The result is our proprietary XFiltra product design which is over 90% efficient in collecting these fibres from the effluent streams for all sizes of machines with the resultant filtride disposed of easily and simply into commercial or household solid waste.

In July 2020, an early version of XFiltra was judged by the University of Plymouth's Institute of Marine Litter as the most effective technology to capture microfibres in domestic washing machines. Our most recent design is equally adept at capturing both synthetic and non-synthetic fibres with the latter also now known to be of harm to our food chain.

In order to provide the appliance industry with a standardised microfibre filtration solution that can work and be easily incorporated within any domestic washing machine, Xeros has commenced work on a comprehensive product design for a high performance/low cost XFiltra which also meets customer expectations. Once completed, in Q2 2021, the Company plans to share this design under formal agreements with a number of leading washing machine manufacturers for them to undertake field trials ahead of its incorporation within their products under license.

Our joint development agreement with one of the world's leading commercial laundry equipment companies to develop and license an industrial size version of XFiltra is on track to be completed in 2021.

We continue to work with governments and NGOs to educate and support moves for the abatement of microfibre pollution. Development of such legislation is increasing in Europe and the US with our ambition being that the performance and operational standards that XFiltra achieves become those that are enshrined in law.

Success in these endeavours would be a major achievement for our planet and its food chain.

 

Intellectual Property

The IP-rich and asset-light commercialisation business model that we operate is founded upon a strong and defendable patent portfolio which provides freedom to operate and protection for us and for our license partners. Our technologies are protected by close to 40 patent families which are in application or have been granted with key patent lives extending through mid to late 2030s. The Company policy is to file its patents in countries with large potential markets and where it believes it can successfully defend its intellectual property. In overall terms, our core patents are filed in countries which represent 90% of global GDP. Most recently, the majority of our filing activities have been in the area of XFiltra, the design of which has been enhanced significantly to manage both non-synthetic as well as microplastic fibres.

In order to have the financial capacity to defend its patent portfolio, the Company carries significant levels of patent defence and litigation insurance. To date, the Company has not identified any infringements of intellectual property that could materially affect future revenues.

 

Outlook

2020 was a year in which the Company's license partners made significant progress in spite of the impacts of the Covid pandemic. Their market launches have either been achieved or are planned for 2021. In November 2020 we achieved a notable landmark with our XDrum/XOrb technologies being licensed for the first time. With evidence of this success, the Group plans to enter into additional license agreements with leading incumbents in geographies with great need of the benefits that our intellectual property bestows.

 

Since the beginning of 2020 we have raised £15.0m of new equity including an oversubscribed placing and open offer of £9.0m in March 2021. These funds will be deployed to win additional contracts, complete the commercialisation of XFiltra and to provide a contingency for further disruption from the Covid-19 pandemic. The expectation is that current funds are sufficient to move the Group to month-on-month cash breakeven by the end of 2022.

Overall, the Group is trading in line with the Board's expectations.

 

Mark Nichols

Chief Executive Officer

 

Financial Review

Group revenue from continuing operations was generated as follows:

 

Year ended

31 December 2020

Year ended

31 December

2019

 

£'000

£'000

 

 

 

Service revenue

314

1,018

Licensing revenue

58

123

Machine sales

8

652

Other

5

21

 

 

 

Total revenue

385

 

1,814

 

The financial results in 2020 reflect a year in which the Group completed its migration to a pure-play licensing business, having exited those business which it previously operated directly. The reduction in revenue in 2020 reflects the change to our business model with the Hydrofinity business sold to regional distributors in 2019 and the disposal of Marken in 2020. High margin licensing revenues are expected to commence in 2021 as current licensees enter their target markets.

The reduction in operating expenses in 2020 also reflects the implementation of a licensing business structure with the net effect being a major reduction in operating losses for the second year in succession.

The Group expects to move to month on month cash breakeven by the end of 2022 as licensing income increases progressively from 2021.

Further information on these financial results is provided below.

Group revenue from continuing operations reduced by 78.8% to £0.4m in the year ended 31 December 2020 (2019: £1.8m). This revenue reduction of £1.4m arises from the full year impact of the sale of the majority of the US Hydrofinity commercial washing machine contracts to third party channel partners in 2019. Revenue in 2020 was principally derived from a small number of continuing commercial laundry customers in the UK, Europe and the US, generating £0.3m of service revenue (2019: £1.0m). In addition, the Group received £0.1m of licensing revenue in the period (2019: £0.1m) reflecting payments from a joint development partner for access to the Group's intellectual property.

After a sale process which began in 2019, the Group announced the sale of the four Marken specialist cleaning sites in North America, in line with previously communicated Group strategy. The completion of the sale was announced in June 2020. Consequently, in the years ended 31 December 2020 and 31 December 2019 the revenue of £0.2m (2019: £0.8m) and the operating loss of £0.0m (2019: £3.0m) related to Marken has been shown as a discontinued operation (see note 7).

Gross loss on continuing operations in the period was £0.0m (2019: £0.3m). This includes a charge to cost of sales of £0.2m for the write-down of old commercial laundry equipment held by the Group which has been made obsolete by the Company's new XOrb/XDrum platform technology. Gross margin excluding this write down charge is a gross profit of £0.2m (2019: gross loss of £0.3m), giving a margin of 46.9% (2019: -17.1%).

The Group reduced its adjusted EBITDA loss on continuing operations by 53.2% to £6.8m (2019: loss £14.4m).

Gross profit/loss and adjusted EBITDA are considered the key financial performance measures of the Group as they reflect 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.

Administrative expenses, before exceptional items, reduced by 54.8% to £7.6m (2019: £16.8m). This reduction reflects the change in headcount during the year to execute the licensing business model with the average number of employees in the year to 31 December 2020 falling by 53.5% to 53 (2019: 114).

Exceptional administrative expenses of £1.3m were included in total administrative expenses in the year ended 31 December 2019 reflecting an exceptional loss on sale of lease receivables following the sale of the US Hydrofinity lease estate during the year. No exceptional administrative expenses have been recorded in the year ended 31 December 2020.

The Group reported an operating loss of £7.6m (2019: loss £17.1m), a reduction of 55.3%. The loss per share was 45.12p (2019: loss 652.83p). Xeros expects cash utilisation to further reduce as the Group benefits from a reduced direct cost base resulting from its move to a full licensing business model.

Net cash outflow from operations reduced to £6.3m (2019: £14.1m) from a combination of reduced cash used in operations, £6.9m (2019: £13.8m) and the receipt of £0.7m R&D tax credits from HMRC relating to 2019. Cash utilisation was in line with the Board's expectations.

The Group had existing cash resources as at 31 December 2020 of £5.2m (2019: £5.6m) and remains debt free. Group cash as at 31 March 2021 was £11.7m following the completion of a £9.0m equity placing in March 2021 to strengthen its balance sheet.

 

Paul Denney

Chief Financial Officer

 

 

 

Consolidated statement of profit or less and other comprehensive income

For the year ended 31 December 2020

 

 

Year

Year

 

 

ended

ended

 

 

31 December

31 December

 

 

2020

2019

 

Notes

£'000

£'000

Continuing operations

 

 

 

REVENUE

3

385

1,814

Cost of sales

 

(434)

(2,125)

GROSS LOSS

 

(49)

(311)

 

 

 

 

Administrative expenses

5

(7,586)

(16,773)

 

 

 

 

Adjusted EBITDA*

 

(6,761)

(14,433)

Share based payment expense

 

(653)

(826)

Exceptional administrative expenses

5

-

(1,252)

Depreciation of tangible fixed assets

 

(221)

(573)

 

 

 

 

OPERATING LOSS

 

(7,635)

(17,084)

Net finance income/(expense)

 

3

(1,442)

LOSS BEFORE TAX

 

(7,632)

(18,526)

Taxation

7

698

898

LOSS AFTER TAX FROM CONTINUING OPERATIONS

 

(6,934)

(17,628)

Loss from discontinued operations

6

(37)

(3,015)

LOSS FOR THE PERIOD

 

(6,971)

(20,643)

 

 

 

 

OTHER COMPREHENSIVE (EXPENSE)/(INCOME):

 

 

 

Items that are or may be reclassified to profit or loss:

 

 

 

Foreign currency translation differences - foreign operations

 

44

227

TOTAL COMPREHENSIVE EXPENSE FOR THE PERIOD

 

(6,927)

(20,416)

 

 

 

 

LOSS PER SHARE

 

 

 

Basic and diluted on loss from continuing operations

8

(44.88)p

(557.48)p

Basic and diluted on total loss for the period

8

(45.12)p

(652.83)p

 

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

 

 

Consolidated statement of changes in equity

For the year ended 31 December 2020

 

 

Share

capital

Share premium

Merger reserve

Foreign currency translation reserve

Retained

earnings

deficit

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Balance at 31 December 2018

386

105,184

15,443

(2,473)

(98,651)

19,889

Loss for the year

-

-

-

-

(20,643)

(20,643)

Other comprehensive expense

-

-

-

227

-

227

Loss and total comprehensive expense for the period

-

-

-

227

(20,643)

(20,416)

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

Issue of shares following placing and open offer

790

4,477

-

-

-

5,267

Costs of share issues

-

(435)

-

-

-

(435)

Share based payment

expense

-

-

-

 

-

826

826

Total contributions by and distributions to owners

790

4,042

-

 

-

826

5,637

At 31 December 2019

1,176

109,226

15,443

(2,246)

(118,468)

5,131

Loss for the year

-

-

-

-

(6,971)

(6,971)

Other comprehensive expense

-

-

-

41

-

41

Loss and total comprehensive

 expense for the year

-

-

-

41

(6,971)

(6,930)

Transactions with owners,

 recorded directly in equity:

 

 

 

 

 

 

Issue of shares following

 placing and open offer

1,800

4,200

-

 

-

-

6,000

Exercise of share options

21

74

-

-

-

95

Costs of share issues

-

(427)

-

-

-

(427)

Share based payment

expense

-

-

-

 

-

653

653

Total contributions by and

 distributions to owners

1,821

3,847

-

 

-

653

6,321

At 31 December 2020

2,997

113,073

15,443

(2,205)

(124,786)

4,522

 

Consolidated statement of financial position

As at 31 December 2020

 

 

 

At

At

 

 

31 December

31 December

 

 

2020

2019

 

Notes

£'000

£'000

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

204

357

Right of use assets

 

68

283

Trade and other receivables

 

63

143

TOTAL NON-CURRENT ASSETS

 

335

783

Current assets

 

 

 

Inventories

 

96

341

Trade and other receivables

 

475

584

Assets classified as held for sale

6

-

252

Cash and cash equivalents

 

5,158

5,625

TOTAL CURRENT ASSETS

 

5,729

6,802

TOTAL ASSETS

 

6,064

7,585

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Right of use liabilities

 

(19)

(287)

Deferred tax

 

(38)

(38)

TOTAL NON-CURRENT LIABILITIES

 

(57)

(325)

Current liabilities

 

 

 

Trade and other payables

 

(1,485)

(2,129)

TOTAL CURRENT LIABILITIES

 

(1,485)

(2,129)

TOTAL LIABILITIES

 

(1,542)

(2,454)

NET ASSETS

 

4,522

5,131

 

EQUITY

 

 

 

Share capital

9

2,997

1,176

Share premium

9

113,073

109,226

Merger reserve

 

15,443

15,443

Foreign currency translation reserve

 

(2,205)

(2,246)

Accumulated losses

 

(124,786)

(118,468)

TOTAL EQUITY

 

4,522

5,131

 

 

Consolidated statement of cashflows

For the year ended 31 December 2020

 

 

 

Year ended 31 December

Year ended 31 December

 

 

2020

2019

 

Notes

£'000

£'000

Operating activities

 

 

 

Loss before tax

 

(7,632)

(18,526)

Adjustment for non-cash items:

 

 

 

Depreciation of property, plant and equipment

 

221

573

Share based payment

 

653

826

Decrease in inventories

 

246

546

Decrease in trade and other receivables

 

3

2,850

Decrease in trade and other payables

 

(342)

(2,090)

Impairment of fixed assets

 

-

583

Finance income

 

(9)

(60)

Finance expense

 

6

1,502

Cash used in operations

 

(6,854)

(13,796)

Tax receipts

7

698

898

Cashflow from discontinued operations

6

(195)

(1,183)

Net cash outflow from operations

 

(6,351)

(14,081)

 

 

 

 

INVESTING ACTIVITIES

 

 

 

Finance income

 

9

60

Finance expense

 

(6)

(1,502)

Purchases of property, plant and equipment

 

(13)

(147)

Sale of property, plant and equipment

 

-

127

Cashflow from discontinued operations

6

193

(23)

Net cash inflow/(outflow) from investing activities

 

183

(1,485)

 

 

 

 

FINANCING ACTIVITIES

 

 

 

Proceeds from issue of share capital, net of costs

9

5,667

4,833

Net cash inflow from financing activities

 

5,667

4,833

 

 

 

 

(Decrease) in cash and cash equivalents

 

(501)

(10,733)

Cash and cash equivalents at start of year/period

 

5,625

16,001

Effect of exchange rate fluctuations on cash held

 

34

357

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

5,158

5,625

 

 

Notes to the consolidated financial statements

For the year ended 31 December 2020

 

1) BASIS OF PREPARATION

 

The financial information has been prepared in accordance with the recognition and measurement principles of International Accounting Standards in conformity with the requirements of the Companies Act 2006 and in accordance with the AIM rules. The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2019 annual report.

 

The financial information has been prepared under the historical cost convention and is presented in Sterling, rounded to the nearest thousand.

 

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The financial information for the period ended 31 December 2020 was approved by the Board on 28 April 2021 and has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include a statement under section 498(2) or (3) of the Companies Act 2006.

 

The statutory accounts for the period ended 31 December 2020 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.xerostech.com. In due course, they will be delivered to the Registrar of Companies. The statutory accounts for the period ended 31 December 2019 have been delivered to the Registrar of Companies.

 

The preparation of financial statements in conformity with International Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

In preparing the financial information, management are required to make accounting assumptions and estimates. The assumptions and estimation methods are consistent with those applied to the annual report and financial statements for the year ended 31 December 2019. Additionally, the principal risks and uncertainties that may have a material impact on activities and results of the Group remain materially unchanged from those described in that annual report.

 

Business combinations and basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases.

 

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.

 

Where the acquisition is treated as a business combination, the purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.

 

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.  Acquisition costs are expensed as incurred.  Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.  The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.  If the cost of the acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

 

All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated fully on consolidation.

 

Going Concern

At 31 December 2020, the Group had £5.2m of cash and cash equivalents. At this stage in its development the Group incurs operating cash outflows and is reliant on existing cash resources. During March 2021, the Group completed an equity placing and open offer which provided an additional £9.0m before fees. The Directors believe that following the conclusion of this fundraise, the Group has sufficient cash resources to allow it to implement its commercialisation plans and reach the point of cash break even.

 

The Group is subject to a number of risks. These risks include the global macro-economic conditions, such as the impact of the COVID-19 on both the Group and the environment in which it operates. The going concern assessment as carried out by the directors has taken the impact of these into account as far as possible. While this inclusion does not change the assessment of the directors in respect of going concern, any repeated significant disruption may have a negative impact upon the Group's ability to work closely with international license partners and therefore execute the Group's strategy.

 

When making their going concern assessment the directors assess available and committed funds against all non-discretionary expenditure, and related cash flows, as forecast for the period ended 30 April 2022. These forecasts indicate that the Group is able to settle its liabilities as they fall due in the forecast period. In these forecasts the directors have considered appropriate sensitivities, including the progress of the Group's commercial contracts. The Directors believe that the successful completion of the fundraise provides the Group certainty in its short and medium term forecasting. Accordingly, the Directors continue to believe that the going concern assumption is appropriate for the Group and the financial statements have been prepared on that basis.

 

2) SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied are set out below.

 

REVENUE RECOGNITION

Revenue on machines sales is recognised once the machine has been installed at the customer site in line with the contract agreed. Service revenue is recognised in line with the profile of the delivery of the service to the customer and consumable revenue is recognised when the product is delivered to the customer.

 

When assessing the revenue recognition against IFRS15, the Group assess the contract against the five steps of IFRS15. This process includes the assessment of the performance obligations within the contract and the allocation of contract revenue across these performance obligations once identified. This is particularly relevant where customer contracts are agreed with more than one performance obligation, such as those sales where a machine is sold in a bundle with an ongoing service contract, and revenue is allocated according to the value of consideration expected to be received for the transfer of the relevant goods or services to the customer. This consideration is calculated on an inputs basis using cost data and an appropriate margin.

 

Revenue is shown net of Value Added Tax or Sales Tax as appropriate.

 

The difference between the amount of income recognised and the amount invoiced on a particular contract is included in the statement of financial position as deferred income. Amounts included in deferred income due within one year are expected to be recognised within one year and are included within current liabilities.

 

Where licence revenue is based on sales by the licensee, the Group recognises revenue at the time of that sale. The Group has recognised some licencing revenue in the year, the amount of which is not material.

 

FOREIGN CURRENCIES

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency).  For the purposes of the consolidated financial statements, the results and the financial position of each Group entity are expressed in Pounds Sterling, which is the functional currency of the Company and the presentational currency for the consolidated financial statements.

 

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions.  At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.

 

Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated.

 

The assets and liabilities of foreign operations are translated using exchange rates at the balance sheet date.  The components of shareholders' equity are started at historical value.  An average exchange rate for the period is used to translate the results and cash flows of foreign operations.

Exchange differences arising on translating the results and net assets of foreign operations are taken to the translation reserve in equity until the disposal of the investment.  The gain or loss in the statement of profit or loss and other comprehensive income on the disposal of foreign operations includes the release of the translation reserve relating to the operation that is being sold.

 

EXCEPTIONAL ITEMS

One off items with a material effect on results are disclosed separately on the face of the Consolidated Statement of Profit and Loss and Other Comprehensive Income. The Directors apply judgement in assessing the particular items which, by virtue of their scale and nature, should be classified as exceptional items. The Directors consider that separate disclosure of these items is relevant to an understanding of the Group's financial performance.

 

RESEARCH AND DEVELOPMENT

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Development costs are only capitalised when the related products meet the recognition criteria of an internally generated intangible asset, the key criteria being as follows:

·      it is probable that the future economic benefits that are attributable to the asset will flow to the Group;

·      the project is technically and commercially feasible;

·      the Group intends to and has sufficient resources to complete the project;

·      the Group has the ability to use or sell the asset; and

·      the cost of the asset can be measured reliably.

 

Such intangible assets are amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit and are reviewed for an indication of impairment at each reporting date.  Other development costs are charged against profit or loss as incurred since the criteria for their recognition as an asset are not met.

 

The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management.  Directly attributable costs include employee costs incurred on technical development, testing and certification, materials consumed and any relevant third-party cost.  The costs of internally generated developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets.  However, until completion of the development project, the assets are subject to impairment testing only.

 

No development costs to date have been capitalised as intangible assets as it was deemed that the probability of future economic benefit is was uncertain at the time the costs were incurred.

 

LEASES

As a lessee

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains, a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration'. To apply this definition the Group assesses whether the contract meets three key evaluations, which are whether:

·      the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

·      The Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract.

·      The Group has the right to direct the use of the identified asset throughout the period of use.

Measurement and recognition of leases as a lessee

At the lease commencement date, the Group recognises a right-of-use asset and a lease liability in the statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the lease commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available of the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments, variable payments based on an index or rate, amounts expected to be payable under a residual guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect and reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities within trade and other payables.

 

As a lessor

The Group's accounting policy under IFRS 16 has not changed from the comparative period.

 

As the Group transfers substantially all the risks and benefits of ownership of the asset, a receivable is recognised for the initial direct costs of the lease and the present value of the minimum lease payments. As payments fall due, finance income is recognised in the income statement so as to achieve a constant rate of return on the remaining net investment in the lease. Assets held for rentals to customers under which the customer does not take substantially all the risks and rewards of ownership are recorded as fixed assets and are depreciated on a straight-line basis to their estimated residual values over their estimated useful lives. Operating lease income is recognised within revenue on a straight-line basis over the term of the rental period. Depreciation on machines leased to customers which are held in fixed assets is charged to administrative expenses as it is not directly related to sales.

 

INTANGIBLE ASSETS AND GOODWILL

Recognition and measurement

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

 

Other intangible assets, including customer relationships and brands, that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

 

Amortisation

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognised in profit or loss.  Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows:

 

·      Customer lists   -          5 years

·      Brands             -          5 years

·      Software          -          3 years

 

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Assets considered to have indefinite useful economic lives, such as goodwill, are tested annually for impairment.

 

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis:

 

Leasehold improvements            - over the term of the lease on a straight-line basis

Plant and machinery                   - 20% on cost on a straight-line basis

Fixtures and fittings                    - 20% on cost on a straight-line basis

Computer equipment                  - 33% on cost on a straight-line basis

Vehicles                                    - 20% on cost on a straight-line basis

 

 

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of profit or loss and other comprehensive income.

 

IMPAIRMENT OF NON-CURRENT ASSETS

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.

 

INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost incurred in bringing each product to its present location and condition is accounted for as follows:

 

Raw materials, work in progress and finished goods - Purchase cost on a first-in, first-out basis.

 

Net realisable value is the estimated selling price in the ordinary course of business.

 

SHARE BASED PAYMENTS

Certain employees and consultants (including Directors and senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions"). This policy applies to all schemes, including the Deferred Annual Bonus scheme open to certain management personnel.

 

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using an appropriate pricing model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ("the vesting date"). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

 

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

 

FURLOUGH CREDITS

Where the Group has claimed a credit in respect of employees furloughed in accordance with the relevant government support schemes, the credit is recognised in the statement of profit or loss and other comprehensive income in the period to which the credit relates and is netted off against staff costs.

 

FINANCIAL ASSETS AND LIABILITIES

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired.

 

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

·      amortised cost

·      fair value through profit or loss (FVTPL)

·      fair value through other comprehensive income (FVOCI)

 

In the periods presented the Group does not have any financial assets categorised as FVTPL or FVOCI.

 

After initial recognition, these are measured at amortised cost using the effective interest rate method. Discounting is omitted where the effect is immaterial. All of the Group's financial assets fall into this category.

 

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less expected credit losses. Appropriate provisions for estimated irrecoverable amounts are recognised in the statement of profit or loss and other comprehensive income when there is objective evidence that the assets are impaired.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

 

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Trade and other payables

Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the "effective interest rate" to the carrying amount of the liability.

 

Impairment of financial assets

The Group accounts for impairment of financial assets using the expected credit loss model as required by IFRS 9. The Group considers a broad range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

 

TAXATION

The tax expense/(credit) represents the sum of the tax currently payable or recoverable and the movement in deferred tax assets and liabilities.

 

Current tax is based upon taxable profit/(loss) for the year. Taxable profit/(loss) differs from net profit/(loss) as reported in the statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

 

The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the reporting date.

 

Credit is taken in the accounting period for research and development tax credits, which have been claimed from HM Revenue and Customs, in respect of qualifying research and development costs incurred. Research and development tax credits are recognised on an accruals basis with reference to the level of certainty regarding acceptance of the claims by HMRC.

 

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the reporting date.  Deferred tax is charged or credited in the statement of profit or loss and other comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the profit nor the accounting period.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

DISPOSAL GROUPS AND DISCONTINUED OPERATIONS

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

 

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the noncurrent asset (or disposal group) is recognised at the date of derecognition.

 

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

 

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

 

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit or loss.

 

CRITICAL ACCOUNTING ESTIMATES AND AREAS OF JUDGEMENT

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial information are discussed below. Both points listed are considered to be areas of judgement.

 

Revenue recognition

The Group offers an integrated service and care package to its direct customers.  This package includes the transfer of equipment and an ongoing commitment to service and support. Where appropriate, the Group accounts for the sales under these packages as finance leases. As part of determining the appropriate revenue recognition policy for such packages, the Group is required to allocate the total contract revenue between the various contract elements in line with IFRS 15. Due to the unique nature of the product and the stage of development of the Group, such assessment is based on limited historical information and requires a level of judgement. These judgements may be revised in future years.

 

During the year ended 31 December 2020 the Group recognised revenue in respect of fees received from licence partners. The Group accounts for licence revenue under IFRS 15, allocating revenue between the performance obligations in the contract. Where a contract contains elements of variable consideration, the Group estimates these revenues at the amount where it considers that that it is highly probable that a significant reversal of recognised revenue will not occur. Given the complexity and the early stages of the contracts, revenue recognition requires a degree of judgement. These judgements may be revised in future years. Where licence revenue is based on sales by the licensee, the Group recognises revenue at the time of that sale.

 

Research and development costs

Careful judgement by the Directors is applied when deciding whether the recognition requirements for capitalising development costs have been met.  This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems.  Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. Specifically, the Directors consider production scale evidence of commercial operation of the Group's technology. In addition, all internal activities related to research and development of new products are continuously monitored by the Directors.  To date, no development costs have been capitalised.

 

ACCOUNTING STANDARDS AND INTERPRETATIONS NOT APPLIED

At the date of authorisation of these financial statements, the following IFRSs, IASs and Interpretations were in issue but not yet effective. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated:

 

IFRS 17

Insurance Contracts

1 January 2023

Amendments to IFRS 3, IAS 16 and IAS 37 and Annual Improvements 2018 - 2020

 

1 January 2022

Amendments to IAS 1 and IAS 8

Definition of Material

1 January 2023

 

3) SEGMENTAL REPORTING

The financial information by segment detailed below is frequently reviewed by the Chief Executive Officer, who has been identified as the Chief Operating Decision Maker ("CODM"). The segments are distinct due to the markets they serve. The all other activities segment contains supporting functions and activities in respect of applications that have not yet been fully commercialised.

 

The Marken segment is classified as a discontinued operation for the year ended 31 December 2020 and the 31 December 2019 and as such is not included in the below analysis.

 

For the year ended 31 December 2020:

 

 

Hydrofinity

All Other

Activities

Total

 

£'000

£'000

£'000

Machine sales

8

-

8

Service Income

314

-

314

Consumables

5

-

5

Licencing revenue

-

58

58

Total revenue

327

58

385

Gross (loss)/profit

(107)

58

(49)

Adjusted EBITDA

(807)

(5,954)

(6,761)

Operating loss

(886)

(6,749)

(7,635)

Net finance income

8

(5)

3

Loss before tax

(878)

(6,754)

(7,632)

 

Segmental net assets

 

212

 

4,310

 

4,522

 

Other segmental information:

 

 

 

Capital expenditure

-

13

13

Depreciation

-

221

221

 

For the year ended 31 December 2019:

 

 

Hydrofinity

All Other

Activities

Total

 

£'000

£'000

£'000

Machine Sales

Service Income

Consumables

652

1,018

21

-

-

-

652

1,018

21

Licencing revenue

-

123

123

Total revenue

1,691

123

1,814

Gross Loss/(profit)

Adjusted EBITDA

(433)

(4,274)

122

(10,159)

(311)

(14,433)

Operating loss

(4,306)

(12,778)

(17,084)

Net finance income

59

(1,501)

(1,442)

Loss before tax

(4,247)

(14,279)

(18,526)

 

Segmental net assets

 

560

 

4,571

 

5,131

 

Other segmental information:

 

 

 

Capital expenditure

-

147

147

Depreciation

-

573

573

 

An analysis of revenues by type is set out below:

 

 

Year

Year

ended

Ended

31 December

31 December

2020

2019

 

£'000

£'000

Sale of goods

13

673

Rendering of services

314

1,018

Licencing revenue

58

123

 

385

1,814

 

The Group's largest customer, which sits within the Hydrofinity segment, was responsible for 19% of Group revenue in the year to 31 December 2020.

 

During the year ended 31 December 2019 the Group had no customers who individually generated more than 10% of revenue. 

 

An analysis of revenues by geographic location of customers is set out below:

 

 

Year

Year

ended

Ended

31 December

31 December

2020

2019

 

£'000

£'000

Europe

230

483

North America

145

1,208

Rest of the World

10

123

 

385

1,814

 

An analysis of non-current assets by location is set out below:

 

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Europe

272

593

North America

-

190

 

272

783

 

4)  LOSS FROM OPERATIONS

 

Year

Year

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Loss from operations is stated after charging to

administrative expenses:

 

 

   Foreign exchange losses

60

214

   Depreciation of plant and equipment                           

221

573

   Operating lease rentals - land and buildings

40

10

   Staff costs (excluding share-based payment charge)

4,010

6,960

   Research and development

144

1,074

 

 

 

 

 

Auditors remuneration:

 

 

-        Audit of these financial statements

21

19

-        Audit of financial statements of subsidiaries of the company

20

22

-        All other services

4

4

Total auditor's remuneration

45

45

 

5) EXPENSES BY NATURE

The administrative expenses charge by nature is as follows:

 

 

Year

Year

ended

ended

31 December

31 December

2020

2019

 

£'000

£'000

Staff costs, recruitment and other HR

4,235

7,313

Share-based payment expense

653

826

Premises and establishment costs

176

612

Research and development costs

144

440

Patent and IP costs

635

697

Engineering and operational costs

2

34

Legal, professional and consultancy fees

895

2,005

IT, telecoms and office costs

458

653

Depreciation charge

221

573

Travelling, subsistence and entertaining

130

815

Advertising, conferences and exhibitions

63

102

Bad debt expense

52

105

Other expenses

(16)

1,132

Foreign exchange losses/(gains)

60

214

Furlough credit

(122)

-

Total operating administrative expenses

7,586

15,521

   Loss on sale of lease receivables following sale of US estate

-

1,252

Total administrative expenses

7,586

16,773

 

The exceptional loss on sale of lease receivables follows the sale of the US lease estate during the prior year. As part of the deal the Group sold the rights to future income to third parties and as such a loss was recognised on sale.

 

6) DISCONTINUED OPERATIONS

In the financial statements for the year ended 31 December 2019, the Group confirm its intention to dispose of the Marken operating segment. Consequently, the associated assets and liabilities were presented as held for sale in the 2019 financial statements

 

During the year ended 31 December 2020, the Marken sites were sold or closed and as such the segment is again presented as a discontinued operation in accordance with IFRS 5. The loss for the year ended 31 December 2020 related to this operating segment was £37,000 (2019: £3,015,000)

 

Financial performance and cash flow information

The results of the discontinued operations are shown below for the year ended 31 December 2020 and the year ended 31 December 2019.

 

 

Year

Year

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Revenue

238

754

Expenses

(507)

(3,242)

Impairment of assets held for sale

-

(527)

Profit on sale of assets

116

-

Gain on termination of lease

116

-

Loss before and after income tax from discontinued operations

(37)

(3,015)

 

 

 

Exchange differences on translation of discontinued operations

14

(85)

Other comprehensive income from discontinued operations

14

(85)

 

 

 

Net cash outflow from operating activities

(195)

(1,183)

Net cash inflow/(outflow) from investing activities

193

(23)

Net cash inflow from financing activities

-

-

Net decrease in cash generated by the subsidiary

(2)

(1,206)

 

Details of the sale of the business unit

 

Year

Year

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Cash received

193

-

Total consideration

193

-

Carrying amount of assets sold

(77)

-

Profit on sale

116

-

 

The carrying amounts of assets and liabilities as at the date of sale were:

 

 

30 May

 

2020

 

£'000

Assets classified as held for sale

 

   Property, plant and equipment

191

   Inventories

77

Total assets held for sale

268

 

 

Liabilities directly associated with assets classified as held for sale

 

Right of use lease liabilities

(191)

Total liabilities associated with assets held for sale

(191)

 

There were no assets or liabilities classified as held for sale as at 31 December 2020. The following assets and liabilities were reclassified as held for sale in relation to the discontinued operation as at 31 December 2019.

 

 

31 December

 

2019

 

£'000

Assets classified as held for sale

 

   Property, plant and equipment

179

   Inventories

77

Total assets held for sale

252

 

 

Liabilities directly associated with assets classified as held for sale

 

Right of use lease liabilities

-

Total liabilities associated with assets held for sale

-

 

7) TAXATION

 

Tax on loss on ordinary activities

 

Year

Year

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Current tax:

 

 

UK Tax credits received in respect of prior periods

(698)

(898)

Foreign taxes paid

-

-

 

(698)

(898)

Deferred tax:

 

 

Origination and reversal of temporary timing differences 

-

-

Tax credit on loss on ordinary activities

(698)

(898)

 

The credit for the year/period can be reconciled to the loss before tax per the statement of profit or loss and other comprehensive income as follows:

 

Factors affecting the current tax charges

The tax assessed for the year varies from the main company rate of corporation tax as explained below:

 

 

Year

Year

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

The tax assessed for the period varies from the main company rate of corporation tax as explained below:

 

 

Loss on ordinary activities before tax 

(7,669)

(21,541)

 

 

 

Tax at the standard rate of corporation tax 19% (2019: 19%)

(1,457)

(4,093)

 

 

Effects of:

 

 

Expenses not deductible for tax purposes

124

157

Research and development tax credits receivable

(698)

(898)

Unutilised tax losses for which no deferred tax asset is

 recognised

1,333

3,936

Employee share acquisition adjustment

-

-

Foreign taxes paid

-

-

Tax credit for the year/period

(698)

(898)

 

The Group accounts for Research and Development tax credits where there is certainty regarding HMRC approval.  The Group has received a tax credit in respect of the year ended 31 December 2019. There is no certainty regarding the claim for the year ended 31 December 2020 and as such no relevant credit or asset is recognised.

 

8) LOSS PER SHARE (BASIC AND DILUTED)

 

Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares.

 

 

Year

Year

 

ended

ended

 

31 December

31 December

 

2020

2019

 

£'000

£'000

Total loss from continuing operations

(6,934)

(17,628)

Total loss from discontinued operations

(37)

(3,015)

Total loss attributable to the equity holders of the parent

(6,971)

(20,643)

 

 

 

 

No.

No.

Weighted average number of ordinary shares in issue during the year (note 1)

15,449,084

3,162,062

 

 

 

Loss per share

 

 

Basic and diluted on loss from continuing operations

(44.88)p

(557.48)p

Basic and diluted on loss from discontinued operations

(0.24)p

(95.35)p

Basic and diluted on total loss for the year

(45.12)p

(652.83)p

The Group underwent a 100:1 share consolidation during the year ended 31 December 2020. The weighted average number of ordinary shares in issue has been calculated assuming that the 100:1 consolidation was in effect throughout the period. The prior year figure has been restated, and is calculated on the basis that the 100:1 share consolidation was in effect throughout the year ended 31 December 2019.

 

Adjusted earnings per share has been calculated so as to exclude the effect of exceptional costs including related tax charges and credits. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

 

Basic earnings

(6,971)

(20,643)

Exceptional costs

-

1,252

Adjusted earnings

(6,971)

(19,391)

 

Adjusted loss per share

 

 

Basic and diluted on loss for the year

(0.45)p

(613.24)p

 

The weighted average number of shares in issue throughout the period is as follows. Both the 2020 and 2019 calculations assume the 100:1 share consolidation performed in the year was in place throughout the year.

 

 

Year

Year

 

Ended

ended

 

31 December

31 December

 

2020

2019

Issued ordinary shares at 1 January 2020/1 January 2019

7,837,621

2,570,391

Effect of shares issued for cash

7,611,462

591,671

Weighted average number of shares at 31 December

15,449,084

3,162,062

 

The Company has issued employee options over 1,447,324 (31 December 2019: 10,198,621) ordinary shares which are potentially dilutive. There is however, no dilutive effect of these issued options as there is a loss for each of the periods concerned.

 

9)  SHARE CAPITAL AND RESERVES

 

 

Share capital

Share premium

Merger reserve

Total

 

Number

£'000

£'000

£'000

£'000

Total Ordinary shares of 0.15p each as at 31 December 2018

257,039,151

386

105,184

15,443

121,013

Issue of ordinary shares following placing and open offer

526,690,502

790

4,477

-

5,267

Issue of ordinary shares on exercise of share options

32,478

-

-

-

-

Costs of share issues

-

-

(435)

-

(435)

Total Ordinary shares of 0.15p each as at 31 December 2019

783,762,131

1,176

109,226

15,443

125,845

Issue of ordinary shares following placing and open offer

1,200,000,000

1,800

4,200

-

6,000

Issue of ordinary shares on exercise of share options prior to share consolidation

10,325,966

15

55

-

70

Issue of shares immediately prior to share consolidation

3

-

-

-

-

Effect of share consolidation

(1,974,147,219)

-

-

-

-

Issue of ordinary shares on exercise of share options after the share consolidation

35,209

5

19

-

24

Costs of share issues

-

-

(427)

-

(427)

Total Ordinary shares of 15p each as at 31 December 2020

19,976,090

2,996

113,073

15,443

131,512

 

The Group undertook a share capital reorganisation exercise during the year, reducing the number of shares in issue by a factor of 100 and increasing the nominal value of the share by an equivalent factor.

 

As permitted by the provisions of the Companies Act 2006, the Company does not have an upper limit to its authorised share capital.

 

The following is a summary of the changes in the issued share capital of the Company during the period ended 31 December 2020:

 

(a)     Ordinary Shares of 0.15p per share were allotted at a price of 0.15 pence per share, for total cash consideration of £577, upon the exercise of share options granted in the Company's share option schemes, prior to the share capital reorganisation process.

(b)     1,200,000,000 Ordinary Shares of 0.15p per share were allotted at a price of 0.5 pence per share, for total cash consideration of £6,000,000 upon the placing and open offer of the Company's shares in May 2020, prior to the share capital reorganisation process.  

 

(c)      9,941,202 Ordinary Shares of 0.15p per share were allotted at a price of 0.7 pence per share, for total cash consideration of £69,588, upon the exercise of share options granted in the Company's share option schemes, prior to the share capital reorganisation process.

 

(d)     3 Ordinary Shares of 0.15p per share were allotted at a price of 1.465 pence per share, for total cash consideration of £nil, as part of the share capital reorganisation process.

 

(e)     1,974,147,219 Ordinary Shares of 0.15p were cancelled as part of the share capital reorganisation process, as the nominal value of Ordinary Shares was converted to 15p

 

(f)      482 Ordinary Shares of 15p per share were allotted at a price of 15p per share, upon the exercise of share options granted in the Company's share option schemes, after the share capital reorganisation process.

 

(g)     34,727 Ordinary Shares of 15p per share were allotted at a price of 70p per share, upon the exercise of share options granted in the Company's share option schemes, after the share capital reorganisation.

 

At 31 December 2020, the Company had only one class of share, being Ordinary Shares of 15p each. 

 

The Group's Share Capital reserve represents the nominal value of the shares in issue. The Group's Share Premium Reserve represents the premium the Group received on issue if its shares. The Merger Reserve arose on the combination of companies within the Group prior to the flotation on AIM.

 

10)  RELATED PARTY TRANSACTIONS

 

During the year, the Group entered into transactions, in the ordinary course of business, with other related parties.  Those transactions with directors are disclosed below.  Transactions entered into, along with trading balances outstanding at each period end with other related parties, are as follows:

 

 

 

 

 

 

Purchases from related party

 

Amounts owed to related party

Purchases from related party

Amounts owed to related party

 

 

31 December

31 December

31 December

31 December

 

 

2020

2020

2019

2019

Related party

Relationship

£000

£000

£000

£000

 

 

 

 

 

 

Kinetix Critchleys Corporate Finance LLP

Corporate finance advisor (note 1)

-

-

53

-

IP Group plc

Fund manager for certain shareholders (note 2)

30

48

18

18

Note 1: Kinetix Critchleys Corporate Finance LLP provided corporate finance services for the new equity issue in November 2019. David Armfield, a Director of the Company, controls a company which is a designated member of Kinetix Critchleys Corporate Finance LLP.

Note 2: IP Group plc provide the services of David Baynes, who is a director of the Company, and invoice the Group for related fees.

 

Terms and conditions of transactions with related parties

Purchases between related parties are made on an arm's length basis.  Outstanding balances are unsecured, interest free and cash settlement is expected within 60 days of invoice. 

 

Transactions with Key Management Personnel

The Company's key management personnel comprise only the Directors of the Company.  During the period, the Company entered into the following transactions in which the Directors had an interest:

 

Directors' remuneration:

Remuneration received by the Directors from the Company is set out below. Further detail is provided within the Directors' Remuneration Report:

 

 

Year

Year

 

ended

Ended

 

31 December

31 December

 

2020

2019

 

£000

£000

Short-term employment benefits*

730

654

 

*In addition, certain directors hold share options in the Company for which a fair value share based charge of £155,000 has been recognised in the consolidated statement of profit or loss and other comprehensive income (Year ended 31 December 2019: £678,000).

 

The highest paid Director in the year received total remuneration of £364,000 (Year ended 31 December 2019: £304,000). During the year ended 31 December 2020, the Company entered into numerous transactions with its subsidiary companies which net off on consolidation - these have not been shown above.

           

11)  EVENTS AFTER THE REPORTING PERIOD

 

In March 2021, and in line with previously communicated strategy, the Group completed an equity placing of 3,749,919 ordinary shares of 15p each, raising £9.0m before fees.

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.

 

 

 

[1] https://www.mckinsey.com/business-functions/sustainability/our-insights/style-thats-sustainable-a-new-fast-fashion-formula

[2] https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medio-ambiente

 

 

 

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