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Xeros Tech Grp plc (XSG)

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Friday 24 April, 2020

Xeros Tech Grp plc

Unaudited Preliminary Results

RNS Number : 8003K
Xeros Technology Group plc
24 April 2020
 

 

Xeros Technology Group plc

 

Unaudited preliminary results - continued progress in 2019

 

Xeros Technology Group plc (AIM: XSG, 'Xeros', 'the Group'), the developer and provider of water saving and filtration technologies with multiple commercial and domestic applications, today publishes its unaudited preliminary results for the 12 months ended 31 December 2019.

 

Highlights

 

· Implementation of licensing model with reduced cash burn rate

· Acceleration in number of licensing contracts

· First step in microplastic filtration market

· Demand for Xeros' products will endure beyond impacts of Covid-19 but some delays

 

· Implementation of licensing model

o Organisation of 50 personnel dedicated to licensing at 31st March 2020

o Exited majority of direct operations

o Cash burn run-rate down from average of £2.2m per month in 2018 to £1.3m per month in 2019 and now to £0.6m per month in March 2020

o All applications now being commercialised with licensing contracts or being developed under joint development agreements with leading industry players

 

· Acceleration in number of licensing contracts

o Additional commercial laundry contract with major OEM in India

o First contract in domestic laundry with India's leading manufacturer and joint development agreement with one of China's largest brands

o First contract in apparel market with leading equipment manufacturer in South Asia

o 2020 being the year for contract implementation ahead of high margin revenue growth in 2021 and beyond

 

· First step in microplastic filtration market

o Joint development agreement with leading global commercial laundry equipment provider

o Development of domestic washing machine filter completed ahead of European regulations

 

· Demand for Xeros' products will endure beyond impacts of Covid-19

o Secular trends for sustainability will continue to increase after impacts of Covid-19

o End markets for Xeros' products meet human needs - clothing and its cleaning

o Xeros' current contracts are in countries which account for 37% of the world's population1

o Xeros' patents are protected through mid to late 2030s

 

 

· Financial

o Revenue decreased by 32.5% to £1.8m (2018: £2.7m) with move to licensing model and exit from direct operations. First license income received

o Adjusted EBITDA2 loss reduced by 24.2% to £14.4m (2018: loss £19.0m)

o Administrative expenses down 25.6% - with further reductions in 2020

o Post-tax earnings loss reduced by 29.9% to £20.6m (2018: loss £29.4m)

o Net cash outflow from operations reduced by 29.9% to £15.5m (2018: £22.1m). Cash at 31 March 2020 £3.1m

 

· Announcement today of equity placing of £5.7m to further strengthen balance sheet

 

· The statutory accounts for the year ended 31 December 2019 will be finalised based on the information presented in this preliminary announcement

 

Mark Nichols , Chief Executive of Xeros, said:

 

"Improving the sustainability of the clothes we wear and the fabrics we use is no longer an option, it is an imperative. Regulators are increasingly demanding that supply chains reduce the lifetime environmental impact of the products they manufacture and sell. These are demands that Xeros meet by providing major reductions in the consumption of water, energy and chemistry, and the subsequent emissions produced.

 

The license agreements we have signed with leading OEMs in 2019 and since the beginning of this year have validated the substantial benefits our proprietary products deliver. We intend to work with our partners during the rest of the year to provide a platform for high margin growth. Also, we intend to expand selectively on a geographic basis in each of our chosen applications.

 

We will do so from our reduced cost base with the announcement of today's equity placing enabling us to so during the course of the next two years."

 

1  United Nations World Population Prospects 2019

 

2 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 Adviser, Broker)

Julian Blunt / Teddy Whiley, Corporate Finance 

 

Tel: 020 7220 0570

Andrew Burdis/ Sunila de Silva, ECM 

 

 

 

 

 

Notes to Editors:

 

Xeros Technology Group plc is a platform technology Group that is transforming water intensive industrial and commercial processes.

Xeros' patented XOrb™technology significantly reduces the amount of water used in the washing or dyeing of soft substrates such as garments and fabrics. They enable the remaining water to become far more efficient and effective in either affixing or removing molecules, the result being improvements in economic, operational, product and sustainability outcomes. The Group is applying its technology in the fields of cleaning, tanning and textiles.

Xeros' XDrum™ technology is a patented, simple, low cost machine drum design which enables XOrbs to be introduced into and subsequently removed from process cycles in Xeros' chosen markets. The design enables rotating drum machine Original Equipment Manufacturers ("OEMs") in the fields of garment manufacture and cleaning, the ability to make simple and low-cost changes in their production lines to incorporate the Company's XOrb technology.

The Group has signed multiple agreements to develop and license its XDrum and XOrb products in major commercial and domestic markets.

XFiltra™ is a patented in-machine filtration technology which is designed to prevent harmful microplastics generated by washing cycles from being released into the aquacycle. Plastics released from synthetic clothing during washing cycles is one of the single largest sources of primary microplastic pollution.

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

 

 

Chairman's Statement

"It was the best of times, it was the worst of times, …" neatly summarises the situation I find myself in this somewhat surreal Easter weekend under lock-down, as I am reflecting on what to write for my first annual report statement as Chairman.  The whole world has changed in the three months since I joined the Board as Chairman in January and the near-term outlook remains highly uncertain. Yet I am convinced that the longer-term outlook for the Company remains as strong as ever.

Xeros Technology Group has made excellent progress during the year and I will touch upon some of the highlights below. David Armfield, my predecessor, the rest of the Board and the executive team should take great credit for that. However, before discussing last year's achievements, I must first address the potential impacts of the Covid-19 pandemic and how these may affect our business.

As one would expect, in the short term, the Company is taking all possible steps to protect and ensure the continued safety of its own employees, those of its partners, but also to act in the interest of society at large. These social distancing and other measures put in place will cause certain delays, but the company continues to execute against the agreements with its partners to the extent possible. On top of that, the Company is taking appropriate measures to manage its expenditure and extend its cash reach.

It is too early to tell how society will revert to a "new normal", and what that "new normal" will mean for the Company. Under nearly all scenarios, the medium to longer term prospects for the Company remain very strong, as the secular trends driving the adoption of the Company's technologies are here to stay, and the company's extensive patent estate reaches into the second half of the 2030s.  The apparel industry will continue to be under pressure to improve its sustainability, which is one of the main reasons why Entrepreneurs Fund stepped up its investment in November. Demands for a more responsible stewardship of planet Earth's limited resources will continue; Xeros addresses these by extending garment life and by saving water and energy. And finally, governments will increasingly restrict microplastic pollution, as evidenced by France's recent announcement mandating filtration devices from 2025. Domestic laundry is globally the single largest source of micro plastics pollution.

During the past 12 months, we materially completed our transition to an asset light technology licensing business by materially exiting all direct business operations and announced a number of significant new licensing agreements. In November 2019 we raised £5m before fees and with the placing of £5.7m announced today, this brings the total raised in the last 6 months to £10.7m providing the funding required to execute current contracts and agreements and also to add to these in other targeted geographies.

In terms of new agreements, in 2019 we signed our second contract in commercial laundry to license our technology in India and our first contract in the domestic laundry market, also in India. The Company also signed a Joint Development Agreement for domestic laundry with one of the world's largest appliance manufacturers in China. This momentum has continued into 2020 with the signing of our first licensing contract in the apparel market in South East Asia, and with our first agreement in the area of filtration in commercial laundry. All of our partners are market leaders in their respective fields and geographies.

With the transition complete, the cost base now commensurate with an IP licensing business, 4 licensing agreements signed and 2 JDAs in place the Company is very well positioned for the future.  The focus this year will be on supporting our partners in adopting our technology into their products and taking it to market.  In parallel the company will seek to bring further partners on board.

Finally, I would like to thank our investors who have been supportive of Xeros since its inception in 2006, and to welcome those who have given us their support more recently. And to the employees of Xeros whose dedication and tireless efforts have brought along the Company's transition to a point where we can now rapidly scale.

 

Klaas de Boer

Chairman
 

Chief Executive's Statement

 

Strategy execution

In 2019 we materially completed our planned migration to that of an asset-light company with a strategy of licensing our extensive intellectual property ('IP') portfolio. Our IP is comprised of know-how, trademarks and nearly 40 patent families, either granted or in application, covering inventions which dramatically improve the performance, economics and sustainability of water and energy intensive industrial and domestic processes. Our IP transforms and creates new value in two areas of significant size and importance: firstly, in the global scale industries of finishing, dyeing and cleaning of garments and fabrics and secondly, in the reduction of the largest source of primary microplastic pollution which results from these processes.

Xeros has developed two proven proprietary product platforms, firstly, XOrbs™ that are used within XDrums™ for the finishing, dyeing and cleaning of garments and fabrics. Working in combination they deliver major improvements in sustainability, at a reduced cost, whilst often improving process outcomes. One example being that clothes and fabrics washed in a Xeros-enabled washing machine look better and last longer and need less ironing than those washed using conventional technologies. The XDrum design is a simple and inexpensive enhancement to conventional machines currently used in these applications. The second platform product is XFiltra™ which reduces the largest source of primary microplastic pollution which is created from the washing of clothes and fabrics. This form of plastic pollution is now ubiquitous in our rivers, oceans and food chains.

At a time when OEMs ('Original Equipment Manufacturers') face increasing demands from both regulators and consumers to reduce resource consumption and pollution, Xeros' platform products enable them to take material steps to meeting these demands, whilst simultaneously lowering costs. As a result, licensees of Xeros' products and their customers will enjoy significant benefits.

During the reporting period, our licensing progress accelerated with the Company winning a number of new long-term license contracts. In India we signed a license agreement with a leading OEM in the field of commercial laundry. Also in India we were awarded our first licensing contract in the domestic laundry market and, in March 2020 we signed our first licensing agreement for garment finishing applications. In addition, we signed a joint development agreement ('JDA') with one of the world's largest domestic laundry machine manufacturers in China. Finally, in April 2020 we signed our first JDA with a major commercial laundry solutions provider with the objective of installing our XFiltra product across their range of commercial washing machines.

Our business model is to license our innovations to leading OEMs, under long term commercial arrangements, in exchange for royalties. For finishing, dyeing and commercial laundering of garments and fabrics, royalties are to be received for each XDrum machine sold by OEM licensees as well as a royalty for the ongoing use of XOrbs by their customers. For XDrum machines sold into the domestic market, royalties are to be received for each machine sold by OEMs with a similar model envisaged for sales of our XFiltra products when they enter the market. Where appropriate, we look to receive upfront payments from development partners and licensees for access to our technology and for exclusivity, if granted. We also seek to agree contractual minimums in terms of XDrum machine volumes.

Our transition to a license model has been enabled by the knowledge, certifications and accreditations accumulated by our direct participation in commercial laundry and specialist cleaning markets, mainly in the US. With these in place and a physical presence no longer required, in August 2018 we commenced a programme to exit all direct operations in these markets. This programme is now materially complete with the Company having sold the vast majority of its commercial laundry contracts and their obligations to former channel partners, with the servicing of the few still retained undertaken by third parties. As at the date of this report the company is in the process of fulfilling the closing conditions for the sale of the two remaining sites of Marken which serves the US firefighter market. In September 2019, Xeros licensed its IP in leather tanning and sold the brand name "Qualus" to ESTR Ltd, a company established by the former management team. Following these exits, our organisation has reduced from 150 to close to 50 personnel at the end of March 2020. These remaining employees are dedicated to winning, implementing and executing license contracts in our chosen markets.

As a result of the planned exits from direct business operations, revenue from continuing operations reduced in 2019 to £1.8m from £2.7m in the previous year. Going forward, we expect our license revenues to grow starting towards the end of 2020 in accordance with the contracts we have won and to be supplemented by others we anticipate winning in the future. The nature of these contracts is that they are high margin reflecting return on our intellectual property as opposed to margins on physical goods sold.

In 2019, we continued to file key patents and ended the year with nearly 40 patent families either granted or in application. Our key patent families extend into the mid to late 2030s providing security for all current and future licensees of our products.

At the time of publishing this report, much of the world is trying to understand and respond to the consequences of the Covid-19 virus. The impact on individuals, families, all forms of government and enterprises, as well national and global economies, is unprecedented. It is impossible at present to predict the longer term effects of the Covid-19 pandemic. Few, if any, industries and countries have been unaffected, including those of our license partners, and so some delays in our future revenues are inevitable. We assume that revenue delays will be commensurate with the periods of substantial lock-down in these countries, which, in the case of India, could be 3 months or more.

We currently have no reasons to believe that there will be broader impacts on the Company given that our commercial agreements are long term and the demand for products from the markets they address, such as clothing and washing machines, are unlikely to reduce in the medium to long term. Our inventions also address the secular demands of increasing sustainability and reducing costs which will continue to be placed upon our licensees and their customers. In summary, whilst it is hard for anyone to judge, we believe that demand for our products and what they deliver will continue to be needed after the impacts of Covid-19 virus have run their course. 

The total of £10.7m of funding received, before fees, from investors in November 2019 and to be received in May 2020 enables the Company to execute its licensing strategy with a much stronger balance sheet.

 

Operational Review

 

Commercial Markets

Apparel

In 2016, we commenced a development and patenting programme to address the demands for greater sustainability and cost reduction confronting the apparel industry. The apparel industry is the second largest consumer of water globally after agriculture. Our XOrb/XDrum products are capable of not only reducing water consumption in garment dyeing and finishing, but also significantly reducing the volume of chemistry used, and effluent produced, in these processes.  Following trials in 2019 with leading manufacturers and brands, which validated the performance of our products, Xeros signed in March 2020, its first licensing agreement in this market with Ramsons Garment Finishing Equipments Limited ('Ramsons'), a leading full range supplier of equipment solutions to the apparel industry in South and East Asia.

 

Denim finishing, which is applied to an estimated 1.2bn pairs of jeans produced annually across the world, is the first application to be addressed under the agreement with Ramsons. Entry to the market in India and South Asia is expected in late 2020, assuming Covid-19 delays are not substantially more than 3 months. To date, three denim finishing XDrum machine prototypes have been developed in close collaboration between Xeros and Ramsons at 500, 2,000 and 5,000 litre capacity, with cycle development and testing now also having commenced on the largest of these.

Our plan is to expand geographically once the technology is adopted and working well in South Asia. Further apparel applications in development by the Company, include garment dyeing and the finishing of non-denim garments. 2020 is the year to establish a solid platform of market validation and acceptance ahead of growth in 2021 and beyond.

Commercial Laundry

In 2019, we completed the development of the XOrb/XDrum product designs for commercial washing machines. The first units were produced by Jiangsu SeaLion Technology Development Company ('SeaLion'), in China in September. SeaLion's plan is to complete production-line engineering in the first half of 2020 ahead of broader customer trials and sales later in the year.

Following the signing of a licensing agreement covering India and other nearby territories, IFB Industries Limited ('IFB') have produced a prototype XDrum machine upon which testing will take place ahead of adapting their production line.  The timing of IFB's market entry is expected to be similar to that of SeaLion.

During the period of our ownership of Marken we obtained market acceptance and independent verification of the efficacy of the cleaning and garment life extension capabilities of our technology for expensive and life protecting personal protective equipment ('PPE'). The ability, in specialist cleaning, to effectively remove harmful substances such as heavy metals and asbestos from these types of garments, was further demonstrated by the garment fleet management company Georges SAS in France. Georges is now using Xeros technology to serve SNCF, PSA Peugeot Citroen, Air France and the Paris fire brigade as well as cleaning the PPE of those working on the Notre Dame and Eiffel Tower restoration projects.

With the pending sale of Marken and following the sale of the majority of our direct customer contracts in the US, Xeros now has minimal direct physical involvement in the commercial laundry industry. We currently retain a small number of direct customers in the UK and it is our intention to transfer these to third party partners in 2020. Our licensees are now responsible for manufacturing XDrum washing machines and the sales of these along with a "closed-loop" supply of XOrbs to their customers. 2020 is planned to be a year of establishing our XOrb/XDrum products in the Indian and Chinese commercial laundry market with 2021 targeted for high margin growth in these countries with additional license agreements to be developed and signed for other key territories.

Tanning

In September 2019, Xeros spun out its tanning business and sold its "Qualus" brand name to ESTR Ltd ('ESTR'), a company formed by the former management team. Having proven out its process in multiple trials in Europe and Latin America and won its first contract with Le Farc SA de CV in September 2018, ESTR plans to raise equity to fund its expansion. As announced in September, Xeros provided a capped convertible loan facility to ESTR to fund the business to December 2019. On the basis of prudence, the Directors have decided to make a full provision against this loan in the event that ESTR is unable meet its obligations under their contract with the Company.

 

Domestic Markets

Domestic Laundry

Xeros signed its first license agreement for its XOrb/XDrum products for use in domestic washing machines with IFB in April 2019. IFB, a leading appliance manufacturer in India, plans to bring Xeros-enabled domestic machines to market in 2021. Xeros-enabled products make garments look better for longer whilst reducing water, energy and detergent bills. Reducing water consumption in India is a national objective with 12% of its 1.3 billion population having no access to clean water. Prototype machines have now been produced ahead of moving to testing prior to production prototyping which is required for the manufacturing process.

In January 2019, we signed a joint development agreement with one of the world's largest domestic washing machine manufacturers, Wuxi Little Swan Company Limited, a subsidiary of Midea Group. With feasibility studies now complete, prototype machines have been produced for a testing programme to be completed ahead of entering commercial discussions later in 2020.

Filtration

In line with Xeros' mission to improve the sustainability and environmental impact of water intensive processes, we materially completed the development of our proprietary filtration product, XFiltra, which is designed to prevent microplastics being released into wastewater from domestic and commercial laundry cycles. Plastic released from synthetic clothing during washing is the largest source of primary microplastics entering our oceans every year. We also completed internal studies of microplastic emissions from our own XOrb/XDrum machines when compared to conventional machine cycles. These confirm that, without the addition of any filtration, Xeros' XDrum machines produce significantly less microplastic pollution due to their reduced water consumption and gentler, but highly effective, mechanical action.

We also witnessed strong evidence that regulatory demand for microplastic filtration will become widespread. In February 2020 France became the first country in the world to mandate the fitting of microplastic filters in all domestic washing machines sold in the country from 2025.

XFiltra, which was featured on BBC television in March 2019, captures 99% of microplastic fibres released from a load of laundry. In March 2020 the Company signed its first joint development agreement with one of the world's leading commercial laundry equipment manufacturers.  Following the successful completion of the joint development programme they intend to incorporate XFiltra within their full product range.

Intellectual Property

The IP rich and asset light commercialisation business model that we now have in place is founded upon a strong and defendable patent portfolio which provides freedom to operate and protection for us and for our license partners. Our products 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. Whilst we do not expect historical levels of new patent filings to continue, we will continue to selectively make applications based upon their ability to secure future high margin license revenue.

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

2019 was a pivotal year in creating the platform for Xeros to become a world leader in the sustainability of water intensive processes both in industry and the home. We are now a low-cost, licensing organisation focussed upon executing the contracts we have won and winning others in our targeted markets and geographies. Consequently, whilst the impacts of Covid-19 may cause a temporary delay in some areas, we anticipate 2020 being the year we create the platform for substantial future growth.

In November 2019 we raised £5m, before expenses, in order to continue and expand the commercialisation of our proprietary products with leading OEMs. At the time, we identified that we believed that we required £10m in total to enable the execution of our strategy and today's announcement of a further £5.7m equity raise completes the funding requirement.

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

Year

 Ended

 

31 December

31 December

 

2019

2018

 

£'000

£'000

 

 

 

Machine sales

652

1,058

Service revenue

1,018

1,616

Consumables

Licensing revenue

21

123

12

-

 

___  ___

_______

Total revenue

1,814

2,686

 

 

 

 

 

 

 

Group revenue from continuing operations reduced by 32.5% to £1.8m in the year ended 31 December 2019 (2018: £2.7m). This revenue reduction of £0.9m arises from the sale of the majority of the US Hydrofinity commercial washing machine contracts to third party channel partners.

 

After a sale process which began in 2019, following the period end the Group announced the sale of the four Marken specialist cleaning sites in North America, in line with previously communicated Group strategy. Consequently, in the year ended 31 December 2019 the revenue of £0.8m (2018: £.0.9m) and the operating loss of £3.0m (2018: £1.9m) related to Marken has been shown as a discontinued operation (see Note 7).

 

As at 31 December 2018, the Group's Hydrofinity business reported a total revenue generating estate of 397 machines. In August 2019 the Group announced the sale of the lease contracts for 164 machines to Wash IQ and ELS in North America. In addition, a further 168 machines were sold to other channel partners or direct to customers in exchange for one-off payments during the year, leaving a balance of 65 revenue generating machines at 31 December 2019. In line with previously communicated strategy, the Group intends to sell this balance of machines to channel partners or customers during 2020. Going forward, all new XDrum commercial washing machines will be sold by regional license partners in exchange for royalty payments.

 

The disposal of these Hydrofinity customer contracts resulted in the reduction of continuing operations service revenue by 37.0% to £1.0m (2018: £1.6m) and the reduction of continuing operations machine revenue by 38.3% to £0.7m (2018: £1.1m). The Group recognised £0.1m (2018: nil) of license revenue from license partners and the Group expects this revenue to grow as a proportion of revenue as license partners bring XDrum machines to market in future years.

 

The Group reduced its adjusted EBITDA loss on continuing operations by 24.2% to £14.4m (2018: loss £19.0m).

 

Gross loss on continuing operations was £0.3m (2018: £5.2m). This loss reflected the on-going cost of servicing North American Hydrofinity customers prior to the sale of the customer contracts to channel partners. In the year to 31 December 2018 the Group reported adjusted gross profit of £0.2m before an exceptional charge of £5.4m related to the write down of Hydrofinity commercial washing machine inventory.

 

Adjusted 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 gross profit is defined as gross profit before exceptional cost of sales items.  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 25.6% to £15.5m (2018: £20.9m). This reduction reflects the reduction in headcount during the year with the average number of employees in the year to 31 December 2019 falling by 28.8% to 114 (2018:160).

 

Exceptional administrative expenses of £2.7m are included in total administrative expenses (2018: £2.5m). An exceptional charge of £1.5m against the loan issued to ESTR Ltd relates to a provision made against amounts loaned as part of the spin out of the Qualus division. The Directors believe this loan may be irrecoverable and therefore a full provision against this amount has been made. There is an exceptional loss on sale of £1.2m for lease receivables following the sale of the US Hydrofinity lease estate during the year. As part of the deal the Group sold the rights to future contractual cashflows to third parties and as such a loss on sale was recognised on completion.

 

Total administrative expenses, after exceptional items, reduced by 21.9% to £18.2m (2018: £23.4m).

 

The Group reported an operating loss of £18.6m (2018: loss £28.6m), a reduction of 35.0%. The loss per share was 6.53p (2018: loss 28.24p). 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 £15.5m (2018: £22.1m) from a combination of a reduced cash used in operations, £15.2m (2018: £22.6m), cash used in discontinued operations of £1.2m and the receipt of £0.9m R&D tax credits from HMRC relating to 2018. Cash utilisation was in line with the Board's expectations.

 

The Group had existing cash resources as at 31 December 2019 of £5.6m (2018: £16.0m) and remains debt free. Group cash as at 31 March 2020 is £3.1m and today the Group announced a £5.7m equity placing to strengthen the balance sheet.

 

The Directors expect to sign the statutory financial statements for the Group on the basis of the information included within this preliminary announcement with no material changes.

 

 

Paul Denney

 

Chief Financial Officer

 

 

 

Unaudited consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December 2019

 

 

 

Unaudited year

Audited year

 

 

ended

ended

 

 

31 December

31 December

 

 

2019

2018

 

Notes

£'000

£'000

Continuing operations

 

 

 

REVENUE

3

1,814

2,686

Cost of sales

 

(2,125)

(2,505)

ADJUSTED GROSS PROFIT/(LOSS)**

 

(311)

181

Exceptional cost of sales

5

-

(5,396)

GROSS LOSS

 

(311)

(5,215)

 

 

 

 

Administrative expenses

6

(18,251)

(23,366)

 

 

 

 

Adjusted EBITDA***

 

(14,433)

Exceptional cost of sales

5

-

Share based payment expense

 

(826)

Exceptional administrative expenses

6

(2,730)

Amortisation of intangible fixed assets

 

-

Depreciation of tangible fixed assets

 

(573)

(713)

 

 

 

 

OPERATING LOSS

 

(18,562)

(28,581)

Net finance (expense)/income

 

36

134

LOSS BEFORE TAX

 

(18,526)

(28,447)

Taxation

8

898

1,012

LOSS AFTER TAX FROM CONTINUING OPERATIONS

 

(17,628)

(27,435)

Loss from discontinued operations

7

(3,015)

(1,933)

LOSS FOR THE PERIOD

 

(20,643)

(29,368)

 

 

 

 

OTHER COMPREHENSIVE (EXPENSE)/(INCOME):

 

 

 

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

 

 

 

Foreign currency translation differences - foreign operations

 

248

(2,458)

TOTAL COMPREHENSIVE EXPENSE FOR THE PERIOD

 

(20,395)

(31,826)

 

 

 

 

LOSS PER SHARE

 

 

 

Basic and diluted on loss from continuing operations

9

(5.57)p

(26.38)p

Basic and diluted on total loss for the period

9

(6.53)p

(28.24)p

 

*  The Group has applied IFRS 16 in 2019 using the modified retrospective method. Under this method, the comparative information is not restated. See note 4 for further details.

** Adjusted gross profit/loss comprises gross profit/loss before exceptional cost of sales items

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

 

Unaudited consolidated statement of changes in equity

For the year ended 31 December 2019

 

 

Share

capital

Share premium

Merger reserve

Foreign currency translation reserve

Retained

earnings

deficit

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

At 31 December 2017 (audited)

149

90,382

15,443

 

(15)

(70,290)

35,669

Loss for the year

-

-

-

-

(29,368)

(29,368)

Other comprehensive expense

-

-

-

(2,458)

-

(2,458)

Loss and total comprehensive expense for the period

-

-

-

(2,458)

(29,368)

(31,826)

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

Issue of shares

237

15,549

-

-

-

15,786

Exercise of share options

 

7

-

-

-

7

Costs of share issues

-

(754)

-

-

-

(754)

Share based payment

expense

-

-

-

 

-

1,090

1,090

Total contributions by and distributions to owners

237

14,802

-

 

-

1,090

16,129

At 31 December 2018 (audited)

386

105,184

15,443

(2,473)

(98,568)

19,972

Impact of change in accounting policy

-

-

-

-

(83)

(83)

Adjusted 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

-

-

-

248

-

248

Loss and total comprehensive

 expense for the year

-

-

-

248

(20,643)

(20,395)

Transactions with owners,

 recorded directly in equity:

 

 

 

 

 

 

Issue of shares following

 placing and open offer

790

4,477

-

 

-

-

5,267

Exercise of share options

-

-

-

-

-

-

Costs of share issues

-

(435)

-

-

-

(435)

Share based payment

expense

-

-

-

 

-

805

805

Total contributions by and

 distributions to owners

790

4,042

-

 

-

805

5,637

At 31 December 2019 (unaudited)

1,176

109,226

15,443

(2,225)

(118,489)

5,131

 

*  The Group has applied IFRS 16 in 2019 using the modified retrospective method. Under this method, the comparative information is not restated. See note 4 for further details.

 

 

 

Unaudited consolidated statement of financial position

For the year ended 31 December 2019

 

 

 

 Unaudited at

Audited at

 

 

31 December

31 December

 

 

2019

2018

 

Notes

£'000

£'000

ASSETS

 

 

 

Non-current assets

 

 

 

Intangible assets

 

-

1,290

Property, plant and equipment

 

357

1,954

Right of use assets

 

283

-

Trade and other receivables

 

143

1,292

TOTAL NON-CURRENT ASSETS

 

783

4,536

Current assets

 

 

 

Inventories

 

341

945

Trade and other receivables

 

584

2,402

Assets classified as held for sale

 

252

-

Cash and cash equivalents

 

5,625

16,001

TOTAL CURRENT ASSETS

 

6,802

19,348

TOTAL ASSETS

 

7,585

23,884

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Right of use liabilities

 

(287)

-

Deferred tax

 

(38)

(38)

TOTAL NON-CURRENT LIABILITIES

 

(325)

(38)

Current liabilities

 

 

 

Trade and other payables

 

(2,129)

(3,874)

TOTAL CURRENT LIABILITIES

 

(2,129)

(3,874)

TOTAL LIABILITIES

 

(2,454)

(3,912)

NET ASSETS

 

5,131

19,972

 

EQUITY

 

 

 

Share capital

10

1,176

386

Share premium

10

109,226

105,184

Merger reserve

10

15,443

15,443

Foreign currency translation reserve

 

(2,225)

(2,473)

Accumulated losses

 

(118,489)

(98,568)

TOTAL EQUITY

 

5,131

19,972

 

Unaudited consolidated statement of cash flows

For the year ended 31 December 2019

 

 

 

 Unaudited year

Audited year

 

 

ended

ended

 

 

31 December

31 December

 

 

2019

2018

 

Notes

£'000

£'000

Operating activities

 

 

 

Loss before tax

 

(18,526)

(28,851)

Adjustment for non-cash items:

 

 

 

Amortisation of intangible assets

 

-

-

Depreciation of property, plant and equipment

 

573

705

Share based payment

 

826

1,090

Decrease in inventories

 

546

5,852

Decrease/(increase) in trade and other receivables

 

2,850

(104)

Decrease in trade and other payables

 

(2,090)

(3,691)

Release of deferred consideration

 

-

-

Impairment of fixed assets

 

583

2,523

Finance income

 

(13)

(135)

Finance expense

 

10

-

Cash used in operations

 

(15,241)

(22,611)

Tax (payments)/receipts

 

898

2,318

Cashflow from discontinued operations

 

(1,183)

(1,840)

Net cash outflow from operations

 

(15,526)

(22,133)

 

 

 

 

INVESTING ACTIVITIES

 

 

 

Finance income

 

13

134

Finance expense

 

(10)

-

Purchases of property, plant and equipment

 

(147)

(917)

Sale of property, plant and equipment

 

127

-

Cashflow form discontinued operations

 

(23)

(1,117)

Net cash inflow/(outflow) from investing activities

 

(40)

(1,900)

 

 

 

 

FINANCING ACTIVITIES

 

 

 

Proceeds from issue of share capital, net of costs

10

4,833

14,916

Net cash inflow from financing activities

 

4,833

14,916

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

(10,733)

(9,117)

Cash and cash equivalents at start of year/period

 

16,001

25,149

Effect of exchange rate fluctuations on cash held

 

357

(31)

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

5,625

16,001

 

 

Unaudited notes to the consolidated financial statements

For the year ended 31 December 2019

 

1) BASIS OF PREPARATION

 

The financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS. IFRS 16 has been adopted in the current year. The other principle accounts policies of the Group have remained unchanged from those set out in the Group's 2018 annual report.

 

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

 

The preparation of financial statements in conformity with IFRS 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 2018. 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 except as noted with regard to the adoption of IFRS 16.

 

The statutory accounts for the year ended 31 December 2019 will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the Annual General Meeting of Xeros Technology Group plc.

 

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 2019, the Group had £5.6m of cash and cash equivalents. At this stage in its development the Group is loss making and incurs operating cash outflows. It is therefore reliant on equity share funding to continue its development operations. The Group has previously communicated its intention to execute a fundraise of £5m in 2020. The Directors intend to use the funds raised to continue towards the stated objective of becoming cash breakeven. Given the proposed fundraise and its importance to the future strategic direction of the Group, the Directors recognise that while it remains uncompleted there is a material uncertainty that may cast significant doubt regarding the ability of the Group to continue as a going concern. 

 

While the Directors have concluded that these circumstances represent a material uncertainty, they also believe the fundraise will be successful and have prepared forecasts and future plans on this basis. Therefore, after making enquiries and considering the uncertainties as described above, the Directors have a reasonable expectation that the Group has adequate resources to continues in operational existence for the foreseeable future. For these reasons, they continue to adopt the going basis of accounting in preparing this financial information.

 

 

 2) SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies applied are set out below.

 

REVENUE RECOGNITION

Revenue on machine 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 multiple elements, such as those sales where a machine is sold in a bundle with an ongoing service contract, is split according to the amount of consideration expected to be received for the transfer of the relevant goods or services to the customer. This consideration is calculated 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.

 

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 is deemed that the probability of future economic benefit is currently uncertain.

 

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.

For further details on the transition to IFRS 16, please see note 4.

 

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.

 

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 provision for impairment. 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:

 

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 2019 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 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.

 

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:

 

Amendments to IFRS9, IAS 39 and IFRS 7

Interest Rate Benchmark Reform

 

1 January 2020

 

Amendments to IAS 1 and IAS 8

Definition of Material

1 January 2019

Amendments to References to the Conceptual Framework in IFRS standards

 

1 January 2020

 

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 2019 and as such is not included in the below analysis.

 

Unaudited for the year ended 31 December 2019:

 

 

Hydrofinity

All Other

Activities

Total

 

£'000

£'000

£'000

Machine sales

652

-

652

Service Income

1,018

-

1,018

Consumables

21

-

21

Licensing revenue

-

123

123

Total revenue

1,691

123

1,814

Gross (loss)/profit

(433)

122

(311)

Adjusted EBITDA

(4,274)

(10,159)

(14,433)

Operating loss

(4,306)

(14,256)

(18,562)

Net finance income

59

(23)

36

Loss before tax

(4,215)

(14,311)

(18,526)

 

Segmental net assets

 

560

 

4,571

 

5,131

 

Other segmental information:

 

 

 

Capital expenditure

-

147

147

Depreciation

-

573

573

 

Audited for the year ended 31 December 2018:

 

 

Hydrofinity

All Other

Activities

Total

 

£'000

£'000

£'000

Machine Sales

Service Income

Consumables

Total revenue

1,058

1,616

12

2,686

-

-

-

-

1,058

1,616

12

2,686

Adjusted Gross profit/(loss)

 

181

 

-

 

181

Gross Loss

Adjusted EBITDA

(5,215)

(5,027)

-

(14,015)

(5,215)

(19,042)

Operating loss

(12,656)

(15,925)

(28,581)

Net finance income

93

 

41

134

Loss before tax

(12,563)

(15,884)

(28,447)

 

Segmental net assets

 

2,324

 

17,648

 

19,972

 

Other segmental information:

 

 

 

Capital expenditure

-

924

924

Depreciation

323

390

713

Amortisation

-

-

-

 

 

 

An analysis of revenues by type is set out below:

 

 

Unaudited year

Audited year

ended

Ended

31 December

31 December

2019

2018

 

£'000

£'000

Sale of goods

673

438

Rendering of services

1,018

2,248

Licencing revenue

123

-

 

1,814

2,686

 

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

 

During the year ended 31 December 2018 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:

 

 

Unaudited year

Audited year

ended

Ended

31 December

31 December

2019

2018

 

£'000

£'000

Europe

483

416

North America

1,208

2,270

Rest of the World

123

-

 

1,814

2,686

 

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

 

 

Unaudited 31 December

Audited 31 December

 

2019

2018

 

£'000

£'000

Europe

593

672

North America

190

3,864

 

783

4,536

 

4) CHANGES IN ACCOUNTING POLICIES

Except for the changes below, the Group has consistently applied the accounting policies to all periods presented in this consolidated financial information.

 

IFRS 16 'Leases'

IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Lease Form of a Lease').

 

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having an initial lease term of less than 12 months from the date of initial application.

 

The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.

 

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as a lease under IAS 17 and IFRIC 4.

 

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

 

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

 

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.

 

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.

 

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 5%.

 

The Group has benefitted from the use of hindsight for determining the lease term when considering options to extend and terminate leases.

 

The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 January 2019:

 

 

Carrying amount at 31 December 2018

£'000

Remeasurement

 

 

£'000

IFRS 16 carrying amount at 1 January 2019

£'000

Property, plant and equipment

6,487

969

7,456

Lease liabilities

-

(1,052)

(1,052)

 

6,487

(83)

6,404

 

 

The following is a reconciliation of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to 31 December 2018) to the lease liabilities recognised at 1 January 2019:

 

 

 

Total operating lease commitments disclosed at 31 December 2018

 

1,033

Recognition exemptions:

 

 

Leases with remaining lease terms of less than 12 months:

(34)

 

 

(34)

 

Operating lease liabilities before discounting

 

999

Discounted using incremental borrowing rate

 

(80)

Variances due to lease extension assumptions

 

133

Total lease liabilities recognised under IFRS 16 at 1 January 2019

 

1,052

 

 

5)  LOSS FROM OPERATIONS

 

Unaudited year

Audited year

ended

ended

 

31 December

31 December

 

2019

2018

 

£'000

£'000

Loss from operations is stated after charging to cost of sales:

 

 

Exceptional cost of sales

-

5,396

Loss from operations is stated after (crediting):

 

 

  Foreign exchange expense/(gains)

-

(2,786)

Loss from operations is stated after charging to

administrative expenses:

 

 

  Foreign exchange losses

214

-

  Depreciation of plant and equipment (note 12) 

573

769

  Amortisation of intangible assets (note 11)

-

194

  Operating lease rentals - land and buildings

10

431

  Staff costs (excluding share-based payment charge)

6,960

10,658

  Research and development

1,074

1,565

 

 

 

Auditors remuneration:

 

 

Audit of these financial statements

19

19

Audit of financial statements of subsidiaries of the company

22

25

All other services

-

-

Total auditor's remuneration

41

44

 

The exceptional write down of inventory in the prior year relates to provisions made against the value of inventory held by the Group. The value of this inventory has fallen as the technology used within the Group's products and inventory develops. The provision is made in accordance with IAS2.

 

 

6) EXPENSES BY NATURE

 

The administrative expenses charge by nature is as follows:

 

 

Unaudited year

Audited year

ended

ended

31 December

31 December

2019

2018

 

£'000

£'000

Staff costs, recruitment and other HR

7,313

10,886

Share-based payment expense

826

926

Premises and establishment costs

612

921

Research and development costs

440

1,485

Patent and IP costs

697

1,265

Engineering and operational costs

34

895

Legal, professional and consultancy fees

2,005

2,146

IT, telecoms and office costs

653

901

Depreciation charge

573

713

Amortisation charge

-

-

Travelling, subsistence and entertaining

815

1,866

Advertising, conferences and exhibitions

102

861

Bad debt expense

105

457

Other expenses

1,132

326

Foreign exchange losses/(gains)

214

(2,786)

Total operating administrative expenses

15,521

20,862

Operating administrative exceptional items:

  Costs of placing of ordinary shares

-

114

  Exceptional impairment of Property Plant & Equipment

-

2,390

 

 

 

  Release of deferred consideration

-

-

  Provision against loan issued to ESTR Ltd

1,478

-

  Loss on sale of US lease receivables

1,252

-

Total administrative expenses

18,251

23,366

 

The exceptional provision against the loan issued to ESTR Ltd related to a provision made against amounts loaned as part of the spin out of the Qualus division to management. The Directors believe this loan may be irrecoverable and therefore a full provision has been made against the value of the loan.

 

The exceptional loss on sale of lease receivables follows the sale of the US lease estate during the 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.

 

The exceptional impairment to property plant and equipment relate to the write off of machines leased to customers across the Group as the technology used in the Group's products develops. These write offs are made in accordance with IAS16.

 

The exceptional release of deferred consideration in 2018 relates to the release of deferred consideration on acquisitions which management no longer believed would become payable.

 

7) DISCONTINUED OPERATIONS

As at the year end, the Group classified the Marken operating segment of the business as held for sale, and also considered that the operating segment met the criteria for a discontinued operation in accordance with IFRS 5. The loss for the year ended 31 December 2019 relating to this operating segment was £3,015,000 (2018: £1,933,000)

 

The results of the discontinued operations are shown below for the year ended 31 December 2019 and the year ended 31 December 2018

 

 

Unaudited year

Audited year

ended

ended

 

31 December

31 December

 

2019

2018

 

£'000

£'000

Revenue

754

858

Expenses

(3,242)

(2,791)

Impairment of assets held for sale

(527)

-

Loss before and after income tax from discontinued operation

(3,015)

(1,933)

 

 

 

Exchange differences on translation of discontinued operations

(85)

(28)

Other comprehensive income from discontinued operations

(85)

(28)

 

 

 

Net cash inflow from operating activities

(1,183)

(1,840)

Net cash inflow from investing activities

(23)

(1,117)

Net cash outflow from financing activities

-

-

Net decrease in cash generated by the subsidiary

(1,206)

(2,957)

 

The following assets and liabilities were reclassified as held for sale in relation to the discontinued operation as at 31 December 2019. There were no assets or liabilities classified as held for sale as at 31 December 2018.

 

 

31 December

 

2019

 

£'000

Assets classified as held for sale

 

  Property, plant and equipment

180

  Inventories

72

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

-

 

8) TAXATION

 

Tax on loss on ordinary activities

 

Unaudited year

Audited year

ended

ended

 

31 December

31 December

 

2019

2018

 

£'000

£'000

Current tax:

 

 

UK Tax credits received in respect of prior periods

(898)

(1,035)

Foreign taxes paid

-

23

 

(898)

(1,012)

Deferred tax:

 

 

Origination and reversal of temporary timing differences 

-

-

Tax credit on loss on ordinary activities

(898)

(1,012)

 

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:

 

 

Unaudited year

Audited year

ended

ended

 

31 December

31 December

 

2019

2018

 

£'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 

(20,116)

(30,380)

 

 

 

Tax at the standard rate of corporation tax 19% (2018: 19.25%)

(3,822)

(5,772)

 

 

 

Effects of:

 

 

Expenses not deductible for tax purposes

157

229

Research and development tax credits receivable

(898)

(1,035)

Unutilised tax losses for which no deferred tax asset is

 recognised

3,665

5,544

Employee share acquisition adjustment

-

(1)

Foreign taxes paid

-

23

Tax credit for the year/period

(898)

(1,012)

 

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 2018. There is no certainty regarding the claim for the year ended 31 December 2019 and as such no relevant credit or asset is recognised.

 

9) 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

 

2019

2018

 

£'000

£'000

Total loss from continuing operations

(17,628)

(27,435)

Total loss attributable to the equity holders of the parent

(20,643)

(29,368)

 

 

 

 

No.

No.

Weighted average number of ordinary shares in issue during the year

316,206,303

103,990,542

 

 

 

Loss per share

 

 

Basic and diluted on loss from continuing operations

(5.57)p

(26.38)p

Basic and diluted on loss from discontinued operations

(0.95)p

(1.86)p

Basic and diluted on total loss for the year

(6.53)p

(28.24)p

 

 

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

(20,643)

(29,722)

Exceptional costs

2,730

7,935

Adjusted earnings

(17,913)

(21,787)

 

Adjusted loss per share

 

 

Basic and diluted on loss for the year

(5.66)p

(20.95)p

 

The weighted average number of shares in issue throughout the period is as follows:

 

 

Year

Year

 

Ended

ended

 

31 December

31 December

 

2019

2018

Issued ordinary shares at 1 January 2019/1 January 2018

257,039,151

99,169,956

Effect of shares issued for cash

59,167,152

4,820,586

Weighted average number of shares at 31 December

316,206,303

103,990,542

 

The Company has issued employee options over 10,198,621 (31 December 2018: 8,120,803) 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.

 

10)  SHARE CAPITAL

 

Share capital

Share premium

Merger reserve

Total

 

Number

£'000

£'000

£'000

£'000

Total Ordinary shares of 0.15p each as at 31 December 2017 (audited)

99,169,956

149

90,382

15,443

105,974

157,861,209

237

15,549

-

15,786

7,986

-

7

-

7

-

-

(754)

-

(754)

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

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

32,478

-

-

-

-

Costs of share issues

-

-

(435)

-

(435)

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

783,762,131

1,176

109,266

15,443

125,845

 

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 2019:

 

(a)  17,094 Ordinary Shares were allotted at a price of 0.15 pence per share, for total cash consideration of £26, upon the exercise of share options granted in the Company's share option schemes.

(b)  526,690,502 Ordinary Shares were allotted at a price of 1 pence per share, for total cash consideration of £5,266,905 upon the placing and open offer of the Company's shares in December 2018. 

 

(c)  15,384 Ordinary Shares were allotted at a price of 0.15 pence per share, for total cash consideration of £23, upon the exercise of share options granted in the Company's share option schemes.

 

At 31 December 2019, the Company had only one class of share, being Ordinary Shares of 0.15p 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.

 

11) 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 range from between 1 and 7 years. Lease payments are generally fixed but some leases are subject to periodic rent reviews.

 

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 extension options

Land and buildings

6

1 - 7 years

2 years

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 2018 (audited)

-

Additions on change in accounting policy

969

Depreciation charged in the year

(371)

Transfer to assets held for sale in the year

(296)

Foreign exchange differences

(19)

Balance as at 31 December 2019 (unaudited)

283

 

Lease liabilities

Lease liabilities are presented in the statement of financial position as follows:

 

 

Unaudited 31 December

Audited 31 December

 

2019

2018

 

£'000

£'000

Current

380

-

Non-current

287

-

 

667

-

 

There are no leases with termination options and one lease with an extension option, which is assumed not to be activated in the lease liability shown. Since the year end notice has been given on this lease and the lease will not be extended. The Group has no commitments to leases which have not yet commenced.

 

The lease liabilities are secured by the related underlying assets. The undiscounted maturity analysis of the lease liabilities at 31 December 2019 is as follows:

 

 

Within 1 year

1 - 2 years

2 - 3 years

3 - 4 years

5+ years

Total

Lease payments

(409)

(152)

(52)

(31)

(78)

(722)

Finance charges

29

10

6

5

5

55

Net present value

(380)

(142)

(46)

(26)

(73)

(667)

 

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

155

 

155

 

At 31 December 2019 the Group was committed to short term leases and the total commitment at that date was £20,000.

 

12)  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:

 

 

 

 

 

 

 

Unaudited purchases from related party

 

Unaudited amounts owed to related party

Audited purchases from related party

Audited amounts owed to related party

 

 

31 December

31 December

31 December

31 December

 

 

2019

2019

2018

2018

Related party

Relationship

£000

£000

£000

£000

 

 

 

 

 

 

Enterprise Ventures Limited

Fund manager for certain shareholders (note 1)

-

-

12

-

Kinetix Critchleys Corporate Finance LLP

Corporate finance advisor (note 2)

53

-

-

-

IP Group plc

Fund manager for certain shareholders (note 3)

18

18

-

-

Note 1: Enterprise Ventures Limited provided the services of Julian Viggars, who was a director of the Company until 23 May 2018 and invoiced the Group for associated director's fees.

Note 2: Kinetix Critchleys Corporate Finance LLP provided corporate finance services for the new equity issue in November 2019. David Armfield, a Director of the Company, is a Partner employed by Kinetix Critchleys Corporate Finance LLP.

Note 3: 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, in addition to the related party transactions disclosed in the table above, 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:

 

 

Unaudited year

Audited year

 

ended

Ended

 

31 December

31 December

 

2019

2018

 

£000

£000

Short-term employment benefits*

654

657

*In addition, certain directors hold share options in the Company for which a fair value share based charge of £677,809 has been recognised in the consolidated statement of profit or loss and other comprehensive income (Year ended 31 December 2018: £658,601).

 

The highest paid Director in the year received total remuneration of £304,000 (Year ended 31 December 2018: £300,000). During the year ended 31 December 2019, 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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