REG - Xeros Tech Grp plc - 2022 Preliminary Results
18/04/2023 07:00
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RNS Number : 5048W Xeros Technology Group plc 18 April 2023
18 April 2023
Xeros Technology Group plc
('Xeros' or the 'Company' or the 'Group')
2022 Preliminary Results
Xeros Technology Group plc (AIM: XSG), the creator of technologies that reduce
the impact of clothing on the planet, today publishes its audited results for
the 12 months ended 31 December 2022.
Operational highlights
· Two further licences won for XFilter technology to increase market
access.
· Major European retailer endorsed trial underway in denim manufacturer
for Finish technology.
· Xeros Care technology now available for use by consumers in homes
following the launch of the 11kg semi-professional machine.
· 90kg Xeros enabled commercial Care machine trial with Indian railways
underway.
· Neil Austin joined the Company as Chief Executive Officer in August
2022.
Filtration
· Post-period end, licensing agreements were signed in March 2023 with
two major European component manufacturers.
· Global legislative agenda moving forward positively, with France
mandating in-machine filtration from 2025.
Finish
· In 2023, brand endorsed trials began for a major European
retailer with a Xeros enabled machine installed at a manufacturing partner for
their denim production.
· In 2022, first revenues from Qualus using Xeros leather
processing technology were received.
Care
· In December 2022 Xeros launched its commercial/consumer
cross-over machines in India.
· In December 2022 trials began with Indian Railways on a 90kg
platform machine.
Financial summary
· Revenue of £0.2m (2021: £0.5m).
· Adjusted EBITDA(1) loss of £7.4m (2021: loss £6.3m).
· Administrative expenses of £7.5m (2021: £7.2m).
· Net cash outflow from operations increased by 19.7% to £7.0m (2021:
£5.8m). Cash at 31 March 2023 £4.5m.
· Delays in domestic Care launch affect forward looking revenue mix
across 2023 and 2024, with revenue lower than previously forecast.
Neil Austin, Chief Executive Officer of Xeros, said:
"I am pleased to report the solid progress made by Xeros during 2022 across
all key areas of the business; Filtration, Finish and Care. The further
agreements won throughout the financial year clearly demonstrate that our
technology is widely regarded globally.
"The Board remains confident in the Group's strategy and its growth prospects,
especially given the global legislative agenda moving forward so positively
and we look forward to updating shareholders on our progress in due course."
1 Adjusted EBITDA is defined as loss on ordinary activities before interest,
tax, share-based payment expense, depreciation and amortisation
Enquiries:
Xeros Technology Group plc Tel: 0114 321 6328
Neil Austin, Chief Executive Officer
Alex Tristram, Director of Finance
finnCap Limited (Nominated Adviser and Broker) Tel: 020 7220 0570
Julian Blunt/Teddy Whiley, Corporate Finance
Andrew Burdis/Sunila de Silva, ECM
Yellow Jersey PR Tel: 020 3004 9512
Sarah Hollins/Annabelle Wills/Jazmine Clemens
Notes to Editors
POWERED BY SCIENCE, XEROS CREATE TECHNOLOGIES ENGINEERED FOR THE FUTURE
Born out of textile research and advancing new standards of performance and
responsibility, Xeros' technologies revolutionise the way we make and clean
our clothes, conserving water and preventing waste. Designed to impact
industries and people on a global scale, Xeros transforms the performance,
impact and economics of the fashion and washing machine industry.
Xeros enables the scaling of its innovations and impact by licencing its
intellectual property to partners across the globe. Their work has, to date,
created 38 patent families.
Xeros' technologies are already in use in major global industries, including
commercial and home laundry and garment manufacture. So far, these
technologies have saved millions of litres of water and could prevent billions
of microfibres from ending in our oceans.
TO THE POWER OF CHANGE
xerostech.com (http://www.xerostech.com/)
Chairman's Statement
At the time of writing this annual statement I find myself in Paris, where the
restoration of the Notre Dame is in full swing. It is very gratifying to think
that the workwear used by the Paris Fire Brigade, who's heroic efforts saved
much of the majestic building, is cleaned and cared for by our long-standing
laundry partner Georges, with Xeros enabled machines supplied by IFB.
Overcoming adversity, with the optimism of what tomorrow may bring, must be
our theme for 2023.
Challenges come in many forms and looking back at 2022, it was a challenging
year for Xeros. We did not yet manage to deliver tangible evidence of market
adoption at scale. Consequently, we had to complete a further £6.3 million
equity fundraise, during the turmoil of the disastrous UK mini-budget.
2022 was also a year of transition in the leadership team. We saw the
departures of Mark Nichols, Chief Executive Officer, and Paul Denney, Chief
Financial Officer. I would like to thank Mark and Paul for their stewardship
of the business and for laying the solid foundation necessary for the next
exciting chapter for the Company. We are very pleased that the Company managed
to attract Neil Austin to succeed Mark in August, ahead of our September
financing. David Baynes, Non-Executive Director, also departed in December
with a replacement expected to be announced in the course of this year. Under
Neil's leadership, a further reorganisation took place in December, making
Xeros now a leaner, more focused business ready to drive forwards.
Despite this challenging year for Xeros, the Company has continued to make
solid progress in all major business areas, and the long-term trends, about
which I have written before and will not repeat this time, remain very
favourable.
· In Filtration, the Company has signed up two further licensing
agreements for its domestic XFilter.
· In Care, licensing partner IFB has launched a first high-end 11kg
machine into the market, and further technical progression continues on the
mass-market 9kg product.
· In Finish, the Company has progressed a brand-endorsed trial with a
major European fashion retailer. A Xeros-enabled machine has been installed in
one of the retailers preferred denim suppliers, with the initial results
showing significant water and energy savings. Commercial conversations have
begun.
· In commercial Care, our licensing partner IFB has adopted the Xeros
technology across four different machine sizes, and is gradually rolling out
machines, as evidenced by my opening comment. We are in continuous dialogue
with IFB to explore how we can support them in accelerating the commercial
roll-out and adoption.
· And finally, in Finish, licensing partner Qualus (a Xeros spin-out),
has started to pay first royalties for its leather finishing technology.
Thank you to everyone (shareholders, management, staff, and partners) who
stayed with us or joined us during this year of transition. Over the course of
this year, we will endeavour to provide sufficient evidence of commercial
traction to encourage many of our warrant holders to exercise the warrants
they obtained as part of the September equity raise. We truly believe Xeros
has much to offer.
Klaas de Boer
Chairman
Chief Executive's Statement
As the world finally seemed ready to fully emerge from lockdown, we have
collectively been faced once again with challenges due to the appalling
invasion of Ukraine. Economic hardship generated by those events has been felt
across the world as rising fuel prices and shortage of goods impacted the
economy and people's lives. In these times of economic downturn, does the
world still feel as strongly about making the changes necessary so that we can
consider how our behaviour is impacting the planet? The answer seems to be a
resounding 'yes'. We receive ever more encouraging signs that when it comes to
their commitment to ESG issues, people have not been deterred by the economic
squeeze. A recent report drawing on research from McKinsey and Nielsen IQ into
FMCG purchases indicated that "Over the past five years, products making
ESG-related claims accounted for 56 per cent of all growth(1)". Indeed, The
Economist suggests that rather than impeding the transition to energy
efficiency and renewables deployments "the war in Ukraine may, in fact, have
fast-tracked the transition by an astonishing five to ten years(2)".
This past year has been one of change for Xeros not least with my arrival in
August and a change of leadership. As well as change though has come
progression. The Xeros mission to bring real environmental transformation to
two of the world's largest industries is on the cusp of something significant.
This sense of purpose has been captured and expressed with the impactful
messaging and visuals introduced in May last year which have clearly signalled
that at our core, Xeros is a collective of innovators bringing visibility to
the issues that matter the most.
That the Company has a clear identity was important to me when I was first
approached about joining Xeros. As Henry Kissinger said, "If you don't know
where you are going, every road will get you nowhere".
As well as 'direction and identity' there were four other reasons that made
the decision to join Xeros an easy one.
Firstly, the maturity of the technology. On our three core propositions of
Care, Finish and Filtration we have either existing technology at work,
whether that be processing denim in Bangladesh, laundering Air France uniforms
in Paris, or prototypes that are proven to offer market-leading solutions, as
evidenced by the Hohenstein Institute on XFilter.
The second area of appeal is market readiness. As confirmed by the McKinsey
report above, consumer sentiment and demand for products that are as efficient
and considerate to the environment has never been stronger: "The overall trend
… was clear … products that made ESG-related claims grew faster than those
that didn't." In the apparel and appliances industry, we see regular reports
and initiatives introduced to answer this growing requirement such as the
Apparel Impact Institute's $250m Fashion Climate Fund, designed to unlock a
total of $2B in blended capital towards verified impact solutions in order to
remove up to 150 million tonnes of CO2 from the apparel supply chain.
The third area of strength relates to business readiness. The licensing
partnerships we have in place with the likes of IFB on Care, Hanning on
Filtration and Ramsons on denim Finish mean Xeros is well positioned for
market adoption. The business processes, particularly on 'technology
transfer', have been honed by several years of working with these industry
leaders and are now lean, efficient, and scalable. Equally as important, the
people within Xeros are some of the brightest and most capable technical and
scientific minds that I have ever encountered. In short, our setup and
partnerships mean we are now in position to maximise the implementation of our
innovative solutions to those receptive apparel and appliance markets.
Finally, and perhaps most importantly, the question I had was, how could I add
value. The implementation of the 'IP rich / Asset light' business model over
the last few years has laid the foundations. The need now is for focus and
commercial execution. After 20 years of leading sales, marketing, and strategy
initiatives, with some of the world's largest consumer electronics and major
domestic appliance brands, I feel well placed to put to use my commercial
know-how, contacts and industry understanding to help guide Xeros through this
crucial commercialisation stage.
To elaborate upon some of the progression we have made in my short term with
the Company, strides have been taken in all three of our core technology
propositions.
FINISH - In our denim processing business we have progressed a brand-endorsed
trial with a major European fashion retailer through a partnership between the
brand and their supply chain. A Xeros enabled machine has been installed in
one of the retailers preferred denim suppliers at their request, and has
demonstrated very positive initial results showing significant water and
energy savings.
This brings us closer to our aim of having retail brands specifying the use of
Xeros finishing technology in their supply chain.
The Company's attendance in June 2023 at ITMA in Milan, the world's most
influential textile and garment technology exhibition, will see us further
amplify the Xeros story to the apparel processing machinery manufacturer,
garment manufacturer and fashion brand community.
Qualus, a leather processing spin-out which uses Xeros proprietary technology,
has continued to make good progress with further factory installations in
Mexico, Brazil, India, and South-East Asia for the processing of leather
hides. Although not materially relevant from a revenue perspective, in this
'start-up' phase this further highlights the receptivity of the apparel and
accessory industry adoption for core Xeros technology.
FILTRATION - Further validation of the strength of our XFilter proposition
came with the signing in March 2023 of two commercial development agreements
with two of Europe's largest, most reputable and established component
suppliers to the major domestic appliance industry. Alongside the partnership
with Hanning, Xeros is now perfectly placed to service OEM brand requirements
for filtration.
Last year Xeros co-created a letter sent to the UK Environment Secretary
demanding legislation for filtration in washing machines. This led to a direct
discussion with the Minister and the Department of Environment, Food and Rural
Affairs and Xeros continues to support a UK private members' bill on this very
topic. This year we are readying facts and evidence to coincide with the EU's
recommendations, currently scheduled to be published in May 2023, on 'Measures
to Reduce the Impact of Microplastic Pollution on the Environment'. This
evidence will also be used to support a new bill in California to mandate
microfibre filtration in washing machines that was introduced in February of
this year and has passed the first committee hearing. Xeros are working
closely with the NGO 5 Gyres, who co-authored the bill, to support the
filtration effectiveness and standards. Xeros continue to be recognised for
leading these standards as highlighted by a Washington Post article earlier
this year that referenced the University of Plymouth study concluding that
XFilter is the most effective microfibre capture system for the laundry
industry.
With France having established a precedent by mandating a deadline of 1
January 2025 for a microfibre capture requirement in all washing machines, the
rest of the EU, the UK and California are expected to follow suit. The Xeros
view is that with XFilter partnerships in place, we are well positioned to
respond to an imminent need for five of the leading global washing machine
markets.
CARE - In the Commercial laundry business unit, we announced in December last
year that IFB have commenced a trial of the XDrum and XOrb technology with
Indian Railways in a 90kg capacity machine. This trial is taking learnings
from the successful model used by our partner Georges in France with SNCF. The
ultimate aim is for Indian Railways to use the technology to drive energy and
cost efficiencies to launder the linens used on sleeper trains across India.
Indian Railways is one of the largest organisations in India and is an
established customer of IFB.
The Georges business continues to thrive with six new Xeros-enabled machines
installed in line with Georges tripling their production capacity in 2022.
This demonstrates that Europe's leading businesses, such as SNCF and Air
France, are prepared to commercially back companies like Georges that use the
Xeros technology as part of their proposition.
In Asia, our licensing partner Jiangsu SeaLion Technology Developments Company
("SeaLion"), the largest commercial laundry manufacturer in China, is
cautiously optimistic about a revival of the Chinese hospitality industry
following China's exit from a prolonged Covid-related lockdown in January.
They remain a well-placed partner for that region in the long term.
Our IFB partnership facilitated a significant milestone in December with the
launch of a commercial / consumer cross-over semi-professional 11kg machine.
Fulfilling a long-held aspiration, the Xeros Care technology is now available
for use by consumers in India in their homes.
At the time of writing IFB continue to make technical progression in order to
facilitate a mass market launch to the 280m+ households in India.
OUTLOOK
The £6.3m funds raised in a placing and open offer in October 2022 will be
applied to three main areas: supporting the technical requirements of our
existing partners, seeking out partnerships in new geographies, and crucially
raising awareness and adoption of the solutions our technology offers to all
stakeholders in our target industries.
As a technology licensing business, we have the benefits of low overheads and
an ability to scale up significantly at a high gross margin with minimal cost
increase. The other side of the coin, however, is that we are unable to
directly influence timings and the 'Go to Market' decisions. Indeed, as we are
offering innovation to the market this is further heightened.
The recent signing of two further commercial development agreements for
XFilter has been highly significant and, when combined with the existing
partnership with Hanning, suggests that XFilter represents a very real
opportunity for the Group. Should the global legislative landscape continue to
compel industry adoption of microfibre filtration the company believes this is
becoming an ever more tangible route to yield revenue and contribution. This
positive development offsets the fact that trials with IFB for a mass market
product still remain ongoing, as referenced above.
Whilst we still remain of the view that Xeros will be capable of achieving
month on month EBITDA and cashflow breakeven during 2024, as we said at the
time of last year's fundraising (with the caveat at that time that more
clarity would be provided over the course of coming year), we expect that this
will likely occur during the latter part of the year, with XFilter royalties
(at near 100% gross margin, but a lower per unit value than domestic unit
sales) likely to contribute more to the overall product mix. Whilst all of
this means that near term expectations are lower than previously envisaged, we
would contend they are on a sounder footing and we remain firmly of the view
that there remains a clear path for our early adopter licensing brands to
achieve wider market implementation globally.
Neil Austin
Chief Executive Officer
Financial review
Group revenue was generated as follows:
Year ended Year ended
31 December 2022 31 December
2021
£'000 £'000
Service revenue 82 190
Licensing revenue 64 124
Sale of goods 18 155
Other - 5
_______ _______
Total revenue 164 474
The financial results in 2022 reflect a year of transition as the Group
supported early-stage licencing contracts, and the transition of more
established partnerships to new relationships in line with the Group's overall
strategy.
Future revenue growth is dependent on the pace of commercial adoption of
products incorporating the Group's technology platforms in their respective
markets. The Group's licensing business model does not require administrative
expenses to increase in line with revenue growth, thereby creating future
operating leverage to drive the business to profitability as revenue increases
in future years.
Further information on these financial results is provided below.
Group revenue fell by 65.4% to £0.2m in the year ended 31 December 2022
(2021: £0.5m). With the implementation of the Group's licensing model, the
revenue mix is changing with revenue now derived from three principal sources:
Service revenue: reflecting the servicing of existing estate, based
principally in Europe.
Licensing revenue: reflecting royalty payments from licence partners and
up-front fees for access to Group intellectual property.
Sale of goods: reflecting sales of XOrbs to licence partners and sales of
machines in Europe on behalf of license partners.
The Group continues to receive service revenue related to the retained estate
of commercial laundry machines in the UK and Europe. As the licensing model
grows, this service revenue is expected to become a smaller part of the
overall revenue mix.
Licensing revenue in the period was £0.1m (2021: £0.1m), a reduction of
48.4%; revenue from sale of goods was £0.0m in the period (2021: £0.2m), a
decrease of 88.4%. Service revenue in the period was £0.1m (2021: £0.2m), a
reduction of 56.8%.
The timing of third-party sales and contractual customer milestones drove a
decrease in gross profit in the period to £0.1m (2021: £0.3m), resulting in
a gross margin of 51.2% (2021: 59.3%).
The Group increased its adjusted EBITDA loss by 17.3% to £7.4m (2021: loss
£6.3m).
Gross profit/loss and adjusted EBITDA are considered the key financial
performance measures of the Group as they reflect the true nature of our
trading activities. Adjusted EBITDA is defined as the loss on ordinary
activities before interest, tax, share-based payment and warrant expense,
depreciation and amortisation.
Administrative expenses, increased by 4.1% to £7.5m (2021: £7.2m), following
investments in the Group's marketing and communications, as well as a return
of travel to pre-pandemic levels. Headcount was broadly static in the year,
increasing by 2.5% during the year with the average number of operational
staff in the year to 31 December 2022 rising to 41 (2021: 40).
The Group reported an operating loss of £7.4m (2021: loss £6.9m), an
increase of 7.1%. The loss per share was 14.29p (2021: loss 28.11p).
Net cash outflow from operations increased to £7.0m (2021: £5.8m) from a
combination of increased cash used in operations, £7.5m (2021: £6.3m), and
the receipt of £0.5m R&D tax credits from HMRC relating to 2021. Cash
utilisation was in line with the Board's expectations. Cash utilisation is
expected to below £450,000 per month in 2023.
The Group agreed a new ten-year lease on its premises in Sheffield during the
year, leading to the addition of right-of-use assets of £0.8m and
right-of-use liabilities of £0.7m.
The Group had existing cash resources, including cash on deposit, as at 31
December 2022 of £6.5m (2021: £7.8m) and remains debt free. Group cash as at
31 March 2023 was £4.5m. The Going Concern statement on page 22 draws
attention to the Directors' views on the Group's ongoing prospects and the key
assumptions behind the preparation of these accounts on a going concern basis.
Alex Tristram
Director of Finance
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December 2022
Year Year
ended ended
31 December 31 December
2022 2021
Notes £'000 £'000
Continuing operations
REVENUE 3 164 474
Cost of sales (80) (193)
GROSS PROFIT/(LOSS) 84 281
Administrative expenses 5 (7,518) (7,225)
Adjusted EBITDA* (7,368) (6,281)
Share based payment credit/(expense) 79 (463)
Depreciation of tangible fixed assets (145) (200)
OPERATING LOSS (7,434) (6,944)
Net finance expense/(income) (14) 14
LOSS BEFORE TAX (7,448) (6,930)
Taxation 6 515 492
LOSS FOR THE PERIOD (6,933) (6,438)
OTHER COMPREHENSIVE (EXPENSE)/INCOME:
Items that are or may be reclassified to profit or loss:
Foreign currency translation differences - foreign operations (3) (1)
TOTAL COMPREHENSIVE EXPENSE FOR THE PERIOD (6,936) (6,439)
LOSS PER SHARE
Basic and diluted on loss from continuing operations 7 (14.29)p (28.11)p
Basic and diluted on total loss for the period 7 (14.29)p (28.11)p
Consolidated statement of changes in equity
For the year ended 31 December 2022
Share Share premium Deferred share capital Warrant reserve Merger reserve Foreign currency translation reserve Retained Total
Capital earnings
deficit
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 December 2020 2,997 113,073 - - 15,443 (2,205) (124,786) 4,522
Loss for the year - - - - - - (6,438) (6,438)
Other comprehensive income - - - - - (1) - (1)
Loss and total comprehensive expense for the period - - - - - (1) (6,438) (6,439)
Transactions with owners, recorded directly in equity:
Issue of shares following placing and open offer 562 8,438 - - - - 9,000
-
Exercise of share options 9 32 - - - - - 41
Costs of share issues - (525) - - - - - (525)
Share-based payment - - - - - 463 463
Expense -
Total contributions by and distributions to owners 571 7,945 - - - 463 8,979
-
At 31 December 2021 3,568 121,018 - - 15,443 (2,206) (130,761) 7,062
Loss for the year - - - - - - (6,933) (6,933)
Other comprehensive expense - - - - - (3) - (3)
Loss and total comprehensive - - - - - (3) (6,933) (6,936)
expense for the year
Transactions with owners,
recorded directly in equity:
Change in nominal value of ordinary shares (3,544) - 3,544 - - - - =
Issue of shares following 127 6,234 - - - - - 6,361
placing and open offer
Costs of share issues - (539) - - - - - (539)
Warrant expense - 947 - (947) - - - -
Share-based payment - - - - - - (79) (79)
Expense
Total contributions by and (3,417) 6,642 3,544 (947) - - (79) 5,743
distributions to owners
At 31 December 2022 151 127,660 3,544 (947) 15,443 (2,209) (137,773) 5,869
Consolidated statement of financial position
As at 31 December 2022
31 December 31 December
2022 2021
Notes £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 104 114
Right of use assets 717 14
Trade and other receivables 6 30
TOTAL NON-CURRENT ASSETS 827 158
Current assets
Inventories 164 108
Trade and other receivables 387 346
Cash on deposit 4 5,323
Cash and cash equivalents 6,465 2,483
TOTAL CURRENT ASSETS 7,020 8,260
TOTAL ASSETS 7,847 8,418
LIABILITIES
Non-current liabilities
Right of use liabilities (624) -
Deferred tax (38) (38)
TOTAL NON-CURRENT LIABILITIES (662) (38)
Current liabilities
Trade and other payables (1,316) (1,318)
TOTAL CURRENT LIABILITIES (1,316) (1,318)
TOTAL LIABILITIES (1,978) (1,356)
NET ASSETS 5,869 7,062
EQUITY
Share capital 8 151 3,568
Share premium 8 127,660 121,018
Deferred share capital 3,544
Warrant reserve (947)
Merger reserve 8 15,443 15,443
Foreign currency translation reserve (2,209) (2,206)
Accumulated losses (137,773) (130,761)
TOTAL EQUITY 5,869 7,062
Consolidated statement of cash flows
For the year ended 31 December 2022
Year Year
ended ended
31 December 31 December
2022 2021
Notes £'000 £'000
Operating activities
Loss before tax (7,448) (6,930)
Adjustment for non-cash items:
Depreciation of property, plant and equipment 145 200
Share-based payment (79) 463
Increase in inventories (56) (12)
Increase/(decrease) in trade and other receivables (15) 161
Decrease in trade and other payables (46) (184)
Finance income (16) (17)
Finance expense 30 3
Cash used in operations (7,485) (6,316)
Tax receipts 6 515 492
Net cash outflow from operations (6,970) (5,824)
INVESTING ACTIVITIES
Finance income 15 17
Finance expense (30) (3)
Purchases of property, plant and equipment (63) (56)
Cash removed from/(placed on) deposit 5,319 (5,323)
Net cash inflow/(outflow) from investing activities 5,241 (5,365)
FINANCING ACTIVITIES
Proceeds from issue of share capital, net of costs 8 5,821 8,515
Payment of lease liabilities (113)
Net cash inflow from financing activities 5,708 8,515
Increase/(decrease) in cash and cash equivalents 3,979 (2,674)
Cash and cash equivalents at start of year/period 2,483 5,158
Effect of exchange rate fluctuations on cash held 3 (1)
CASH AND CASH EQUIVALENTS AT END OF YEAR 6,465 2,483
Notes to the consolidated financial statements
For the year ended 31 December 2022
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 2021 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 2022 was
approved by the Board on 17 April 2023 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,
but does include an emphasis of matter regarding the material uncertainty
related to going concern described below.
The statutory accounts for the period ended 31 December 2022 will be posted to
shareholders at least 21 days before the Annual General Meeting and made
available on our website www.xerostech.com (http://www.xerostech.com) . In due
course, they will be delivered to the Registrar of Companies. The statutory
accounts for the period ended 31 December 2021 have been delivered to the
Registrar of Companies.
The preparation of financial statements in conformity with UK-adopted
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 2021. 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 2022, the Group had £6.5m 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 October 2022, the Group completed
an equity placing and open offer which provided £6.3m before fees, which also
included the issue of warrants which, if exercised, would provide a further
£6.3m. The Directors consider that the Group's existing cash resources
provide the Group with sufficient cash to meet its obligations as they fall
due for least twelve months following the date of this report, with some
changes to discretionary expenditure, if necessary. The Directors also believe
that these financial resources, alongside the Group's existing and anticipated
customer contracts, provide the Group with a platform to reach cash breakeven
in the latter part of 2024. While the Group actively manages key customer
stakeholders where appropriate, the revenue generated by these contracts is
reliant on the actions of third parties and there remains risk that progress
is not forthcoming in the timeframes anticipated by the Directors. Should
there be significant delays in the receipt of this revenue, the Group's
existing cash balance may not be sufficient to support the Group's expenditure
until the point the Group generates sufficient revenue to reach cash
breakeven. The Directors expect that the Group will incur operating cash
outflows during the 12 months following the signing of this report.
The Directors consider that they have options in place that may allow them to
reach this breakeven point, including existing and potential commercial
agreements and further restrictions on discretionary spending. Given the lack
of certainty around these scenarios, the Directors consider the Group's
current funding position constitutes a material uncertainty as to the going
concern status of the Group, as, in the absence of significant customer
revenue, the Group's cash resources will run out. The Directors also believe,
however, that they have sufficient options in place in order to allow the
Group to continue trading in the short and medium term. Therefore, after
making enquiries and considering the uncertainties as described above, the
Directors have a reasonable expectation that the Group has and will have
adequate resources to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going basis of
accounting in preparing this financial information.
The Group is subject to a number of risks. These risks include the global
macro-economic conditions, particularly in the global markets in which the
Group and its partners operate. 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, the Group remains reliant on the progress of
international licence partners in order for it to execute the
commercialisation 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 31 March 2024. 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. Accordingly, the Directors continue to believe that the going
concern assumption is appropriate for the Group and this financial information
been prepared on that basis.
2) SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied are set out below.
REVENUE RECOGNITION
Licence revenue
When the Group receives payments in the form of upfront payments or technology
fees, the Group assesses those payments against the contacts in accordance
with the provisions of IFRS 15, and allocates the revenue against the
performance obligations accordingly.
Where licence revenue is based on sales of equipment by the licensee, the
Group recognises revenue at the time of that sale.
Sale of goods
Where the Group sells either equipment or consumables to a customer directly,
revenue is recognised when the product in question is delivered to the
customer, and, if required, any installation or setup of the equipment has
been performed.
Service contracts
Where the Group has a service contract in place, revenue is recognised in line
with the profile of the delivery of the service to the customer on an outputs
basis.
Linked contracts
When the Group sells equipment, services and consumables in a package under a
single contract, the Group assess the contract against the five steps of IFRS
15. This process includes the assessment of the performance obligations within
the contract and the allocation of contract revenue across these performance
obligations once identified. 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.
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 was uncertain at
the time the costs were incurred.
LEASES
As a lessee
Where the Group enters a new contract, the Group considers whether this
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; and
· 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 any 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 are shown
separately and are included in property, plant and equipment notes for
disclosure purposes. Lease liabilities are shown separately.
As a lessor
If 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.
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 from 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.
CASH ON DEPOSIT
Bank deposits where maturity is greater than three months from the date of
investment, the Group cannot access the funds prior to the maturity date and
the Group is not relying on the funds to meet its short-term operating
requirements are disclosed as cash on deposit.
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.
WARRANTS
The cost of equity-settled transactions with shareholders, in the form of
warrants, is measured by reference to the fair value on the date on which they
are granted. The fair value is determined by using an appropriate pricing
model. The warrant charge is recognised over the vesting period of the
warrants, if appropriate. Where warrants are issued to shareholders in their
capacity as such, the warrant charge is recognised directly in equity.
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 derecognised
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 derecognised 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 and financial liabilities 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. The Group accounts for
R&D tax credits as an investment tax credit accounted for on a flow
through basis - R&D tax credits, while investment tax credits, are not
considered to be substantially different from other tax credits and they are
recognised when the conditions required to receive the credit are met and they
are claimed on the Group's tax return.
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 non-current 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. The point listed below is
considered to be an area of judgement.
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.
Recognition of revenue from and the loan issued to ESTR Ltd
The Directors apply judgement in respect of the relationship that the Group
holds with ESTR Ltd. The Group has an outstanding loan owed by ESTR Ltd,
against which the Group recorded an expected credit loss in accordance with
IFRS 9 in a prior period. The Directors review this loan on at least an annual
basis and apply judgement as to the recoverability or otherwise of the loan.
At the date of this report, the Directors believe there remains significant
doubt regarding the recoverability of this loan and therefore the expected
credit loss remains in place.
In addition, the Group has a technology licence with the same entity. The
Directors consider the revenue recognition with respect to this licence
against the criteria of IFRS 15 and assess at which point the revenue
receivable under this licence is to be recognised. The licence contains
minimum annual royalty payments for the duration of the licence, and under
IFRS 15, given the Group's performance obligations under the contract, these
minimum royalty payments could meet the criteria for recognition. However,
given the commercial circumstances, the Directors consider that payment of
these minimum royalties is not probable and future contractual revenue is not
recognised.
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:
Amendments to IFRS 17 Insurance Contracts 1 January 2023
Amendments to IAS 12 Income taxes 1 January 2023
Amendments to IAS 1 Presentation of Financial Statements 1 January 2023
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and 1 January 2023
Errors
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 Group's transition to a licensing organisation
has led to a change to how the results of the Group are reviewed internally.
The results are no longer split by segment but are reviewed in terms of the
type of revenue. As such, the analysis below does not split the Group's
results into separate operating segments and instead reports results as one
single segment.
An analysis of revenues by type is set out below:
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Sale of goods 18 160
Rendering of services 82 190
Licencing revenue 64 124
164 474
The Group's largest customer was responsible for 31% of Group revenue in the
year to 31 December 2022.
During the year ended 31 December 2021 the Group's largest customer was
responsible for 19% of Group revenue.
An analysis of revenues by geographic location of customers is set out below:
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Europe 120 271
North America 31 61
Rest of the World 13 142
164 474
An analysis of non-current assets by location is set out below:
31 December 31 December
2022 2021
£'000 £'000
Europe 821 158
North America - -
821 158
4) LOSS FROM OPERATIONS
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Loss from operations is stated after charging to
administrative expenses:
Foreign exchange losses 16 7
Depreciation of plant and equipment (note 145 200
12)
Operating lease rentals - land and buildings 42 42
Staff costs (excluding share-based payment charge) 4,009 3,711
Research and development 837 316
Auditors remuneration:
- Audit of these financial statements 38 24
- Audit of financial statements of subsidiaries of the company 30 23
- Audit related assurance services 5 4
Total auditor's remuneration 73 51
5) EXPENSES BY NATURE
The administrative expenses charge by nature is as follows:
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Staff costs, recruitment and other HR 4,221 3,908
Share-based payment expense (79) 463
Premises and establishment costs 157 150
Research and development costs 259 316
Patent and IP costs 687 476
Legal, professional and consultancy fees 1,088 910
IT, telecoms and office costs 265 213
Depreciation charge 145 200
Travelling, subsistence and entertaining 329 124
Advertising, conferences and exhibitions 360 299
Bad debt expense 64 161
Other expenses 6 13
Foreign exchange losses/(gains) 16 7
Furlough credit - (15)
Total administrative expenses 5,518 7,225
6) TAXATION
Tax on loss on ordinary activities
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Current tax:
UK Tax credits received in respect of prior periods (517) (505)
Foreign taxes paid 2 13
(515) (492)
Deferred tax:
Origination and reversal of temporary timing differences - -
Tax credit on loss on ordinary activities (515) (492)
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
2022 2021
£'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 (7,448) (6,929)
Tax at the standard rate of corporation tax 19% (2021: 19%) (1,415) (1,317)
Effects of:
Expenses not deductible for tax purposes (15) 88
Research and development tax credits receivable (517) (505)
Unutilised tax losses for which no deferred tax asset is 1,430 1,229
recognised
Foreign taxes paid 2 13
Tax credit for the year/period (515) (492)
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 2021. There is no certainty regarding
the claim for the year ended 31 December 2022 and as such no relevant credit
or asset is recognised.
7) 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
2022 2021
£'000 £'000
Total loss from continuing operations (6,933) (6,438)
Total loss from discontinued operations - -
Total loss attributable to the equity holders of the parent (6,933) (6,438)
No. No.
Weighted average number of ordinary shares in issue during the year 48,526,649 22,898,879
Loss per share
Basic and diluted on loss from continuing operations (14.29)p (28.11)p
Basic and diluted on loss from discontinued operations - -p
Basic and diluted on total loss for the year (14.29)p (28.11)p
The weighted average number of shares in issue throughout the period is as
follows.
Year Year
ended ended
31 December 31 December
2022 2021
Issued ordinary shares at 1 January 2022/1 January 2021 23,784,483 19,976,090
Effect of shares issued for cash 24,742,166 2,922,789
Weighted average number of shares at 31 December 48,526,649 22,898,879
The Company has issued employee options over 10,852,514 (31 December 2021:
2,087,895) 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.
The share options in issue were amended in the year following the Group's
share capital reorganisation. Options over ordinary shares of 15p were amended
to be options over ordinary shares of 0.1p and over deferred shares of 14.9p.
There was no impact on the share option numbers or charge as a result of this
change.
8) SHARE CAPITAL AND WARRANTS
Share capital Share premium Deferred share capital Merger reserve Total
Number £'000 £'000 £'000 £'000 £'000
Total ordinary shares of 15p each as at 31 December 2020 19,976,090 2,997 113,073 - 15,443 131,513
Issue of ordinary shares following placing and open offer 3,749,919 562 8,438 - - 9,000
Issue of ordinary shares on exercise of share options 58,474 9 32 - - 41
Costs of share issues - - (525) - (525)
Total ordinary shares of 15p each as at 31 December 2021 23,784,483 3,568 121,018 - 15,443 140,029
Change in nominal value of ordinary shares - (3,544) - 3,544 - -
Issue of ordinary shares following placing and open offer 127,195,640 127 6,233 - - 6,360
Costs of share issues - - (418) - (418)
Total ordinary shares of 0.1p each as at 31 December 2022 150,980,123 151 126,833 3,544 15,443 145,971
The Group undertook a share capital reorganisation exercise during the year
ended 31 December 2022, splitting the ordinary shares with a nominal value of
15p into ordinary shares of 0.1p and deferred shares of 14.9p. The new
deferred shares have no significant rights attached to them and carry no
right to vote or participate in distribution of surplus assets and have not
been admitted to trading on the AIM market of the London Stock Exchange plc,
nor will they in the future. Accordingly, deferred shares are excluded from
the calculation of earnings per share in note 7.
Number
Total deferred shares of 14.9p each as at 31 December 2020 -
Total deferred shares of 14.9p each as at 31 December 2021 -
Issue of deferred shares as part of share capital reorganisation 23,784,483
Total deferred shares of 14.9p each as at 31 December 2022 23,784,483
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 2022:
(a) The Group underwent a share capital reorganisation during the
period, with the Group's ordinary shares of 15p being split into two classes
of shares, ordinary shares of 0.1p and deferred shares of 14.9p.
(b) 127,195,640 ordinary shares of 0.1p per share were allotted at a price
of 5p per share, for total cash consideration of £6,360,000 upon the placing
and open offer of the Company's shares in October 2022.
At 31 December 2022, the Company had two classes of share, being ordinary
shares of 0.1p each and deferred shares of 14.9p each.
The Group's Share Capital reserve represents the nominal value of the ordinary
shares in issue. The Group's Share Premium Reserve represents the premium the
Group received on issue if its shares. The Group's Deferred Share Capital
reserve represents the nominal value of the deferred shares in issue. The
Merger Reserve arose on the combination of companies within the Group prior to
the flotation on AIM.
As part of the placing completed in October 2022 the Group issued warrants to
purchase ordinary shares of 0.1p for a fixed fee of 5p per share.
Number of warrants Weighted average exercise price (p) Weighted average contractual life (years)
At 31 December 2020 - - -
At 31 December 2021 - - -
Issued in the period 127,195,640 5 1.5
At 31 December 2022 127,195,640 5 1.5
9) 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 balance sheet as a
right-of-use asset and a lease liability. The Group classifies its
right-of-use assets in a consistent manner to its property, plant and
equipment.
Leases of buildings end within ten years. Lease payments are generally fixed.
Each lease generally imposes a 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. Some leases
contain an option to extend the lease for a further term. The Group is
prohibited from selling or pledging the underlying leased assets as security.
For leases over office buildings and factory premises, 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 balance sheet:
Right-of-use asset No. of right-of-use assets leased Remaining range of term Average remaining lease term No. of leases with termination options
Land and buildings 1 112 months 112 months 1
Right-of-use assets
Additional information on the right-of-use assets by class is as follows:
Land and buildings
£'000
Balances as at 31 December 2020 68
Depreciation charged in the year (54)
Disposals in the year -
Foreign exchange differences -
Balance as at 31 December 2021 14
Additions in the year 775
Depreciation charged in the year (72)
Balance as at 31 December 2022 718
Lease liabilities
Lease liabilities are presented in the statement of financial position as
follows:
31 December 31 December
2022 2021
£'000 £'000
Current 57 19
Non-current 624 -
681 19
There is one lease with a termination option and no leases with extension
options.
The lease liabilities are secured by the related underlying assets. The
undiscounted maturity analysis of the lease liabilities at 31 December 2022 is
as follows:
Within 1 year 1-2 years 2-3 years 3-4 years 5+ years Total
Lease payments (92) (92) (92) (92) (483) (851)
Finance charges 35 31 27 23 54 170
Net present value (57) (61) (65) (69) (429) (681)
Lease payments not recognised as a liability
The Group has elected not to recognise a liability for short-term leases (12
months or less) or for leases of low-value assets. Payments made under such
leases are expensed on a straight-line basis.
The expense relating to payments not included in the measurement of the lease
liability is as follows:
£'000
Short-term leases 42
42
At 31 December 2022 the Group was committed to short-term leases and the total
commitment at that date was £9,000 (2021: £21,000).
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
2022 2022 2021 2021
Related party Relationship £000 £000 £000 £000
IP Group plc Fund manager for certain shareholders (note) 35 4 30 13
Note: IP Group plc provide the services of David Baynes, who was a director of
the Company until 31 December 2022, and invoice the Group for related fees.
David Baynes was a Director of both the Company and of IP Group plc.
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
2022 2021
£000 £000
Short-term employment benefits* 968 744
*In addition, certain directors hold share options in the Company for which a
fair value share based charge of £93,000 has been recognised in the
consolidated statement of profit or loss and other comprehensive income (year
ended 31 December 2021: £153,000).
On 18 March 2022 it was announced that Mark Nichols would step down from his
role as CEO. He subsequently resigned from the Board, with effect from 1
August 2022. Remuneration for Mark includes £71,000 in respect of payment in
lieu of contractual notice and £71,000 as a severance payment.
The highest paid Director in the year received a total remuneration of
£405,000 (year ended 31 December 2021: £335,000). During the year ended 31
December 2022, the Company entered into numerous transactions with its
subsidiary companies which net off on consolidation - these have not been
shown above.
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.
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