Xeros Technology Group (LSE:XSG) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the XEROS TECHNOLOGY GROUP PLC Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question it receives during this meeting. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd be so kind as to give your attention to that, we would be most grateful. And I'd now like to hand over to Paul Denny, CFO and Mark Nickel, CEO from XEROS TECHNOLOGY GROUP. Good morning to you both. Thank you, Mark, and good morning to everybody on our call today.

0:52 We'd like to give you a business update and also share our half year results.

1:00 We've previously, I think, covered strategy and plans to some large degree over previous calls. But for those new to us or prospectively looking at us as investors, we will start the presentation with a brief recap as to our purpose and indeed the plans and our technologies. The numbers that Paul will run through, they're fairly small at the moment. As you might expect, as we move to a licensing business, trending the right way and we have expectations clearly of them growing, especially on the news and the announcements we've made over the last three, four months.

1:46 As always, please register your questions as Mark says. We've had some in already, which we will answer, and we'll do our very best at the end of the call to cover off those which perhaps haven't been covered during the course of our presentation. So in terms of our purpose and why we're here, and this is a bit of refresher. We operate in the the garment and fashion value chain, which is one that is seen as probably being as equally damaging to our planet as fossil fuels. And I think the world at large is beginning to understand that. The numbers that we have on the left hand side are actually conservative.

2:34 The number of garments that are manufactured in the world is believed to be somewhat greater than that 100,000,000,000. And as you see on the right hand side, 85% of them end their life in landfill and are not recycled. And you can see that on the bottom left hand side, they're consuming something like 90,000,000,000 meter cubed of water every year, 1,000 liters in every meter cubed. And that in a single year is enough to hydrate the populations of China and India for over forty years. So you get the scale of the consumption of that water, and it is cotton production, which consumes most of that water. And we'll come on to talk about perhaps cotton in the context of microfiber pollution as well because it is as damaging as indeed microplastics are, but we'll cover that a bit later.

3:34 And those microfibers and microplastics, there's currently something in the region of 400,000,000 kilograms of microfibers produced out of our domestic washing machines every year And about two eighty million of those kilograms are finding their way into the aquatic environment. And the remainder, the 120,000,000 kilograms find their way into sewage sludge from wastewater treatment plants. And from there, that sludge is inevitably spread onto fields and then leaches again into the wastewater treatment. And we've got some time devoted today to give a bit of an update, a broader update in that microfiber filtration activities that we've been undertaking in that specific regard.

4:34 And just to give you a sense of the size of the market that we're playing in, again, it's a very conservative estimate. But we are playing in a market of about $1,400,000,000,000 per annum. And just to perhaps put in context the challenges in terms of moving that market, clearly, there are billions of consumers who buy clothing, a 100,000,000 washing machines sold every year for those consumers to wash their clothes. It the clothes come to them through millions of retailers, and then there are millions of intermediaries and brands within that value chain. And upstream, hundreds of thousands of manufacturers.

5:23 And it is the key stakeholders within that value chain who are now engaging with us given the work that is now demonstrating that we have credibility in improving both how our garments are made and also preserving and understanding their life and making them look better in the hands of consumers whilst reducing significant amounts of inputs and on the equal and opposite side, reducing very, very substantial amounts of effluent and pollution. So the two technologies that we have, and we've since we last spoke, we've tried to simplify things in terms of just giving our two platform technologies very specific and separate names, obviously, with the commonality of their X branding.

6:16 But XTend is the technology where we use our round polymers in a rotating drum, and we use them upstream. We've entered the markets of denim finishing, and we've got a bit more on that today than we've previously shared simply because there's been very significant rapid progress in that area. And we're entering that market as a precursor to have our technology deployed more broadly in garment finishing in those many, many hundreds of thousands of manufacturers that exist across the planet. And just to let you know quite clearly, every single garment pretty much that is produced on the planet goes through a washing process to change its texture and remove process contaminants.

7:09 And what we do downstream in commercial and domestic laundry, we can apply those finishes to the garments before they're pressed and packed and do so in a way which has those benefits that I just described in terms of input and cost reduction as well as pollution reduction. And it is those same technologies that we're using downstream in the commercial laundry and the domestic laundry environment, and we'll have updates on those, which we'll move on to shortly. And then in each of those processes, both upstream when garments and fabrics are manufactured and downstream during their life in the hands of consumers and industrial launderers, that is where all these microfibers come off. And that is an area which I think those of those who studied us or have invested in us know that we're probably one of the first, if not the first, company to start to develop a solution for this form of pollution.

8:12 And we currently believe, and obviously, we take great care of looking at our competitors, that we believe that we have the best solution, which is most, let's say, user friendly, lowest cost, and can effectively become the part in inverted commas that becomes universally deployed in every washing machine across the planet. That clearly is our ambition. And today, we've got a little bit more in terms of an explanation of what we're doing and very, very recent news in terms of legislation here in The UK. So a quick summary. Raymond Greaves note this morning from FinCap, which I think was a good reflection of of where we are, He called it pandemic drag. Since our twenty twenty year end announcements that were back in April, which is clearly only five months ago, our licensees, specifically in the commercial applications, have all suffered greatly.

9:24 And so, for example, in China, there was a number of shutdowns in Sea Lion, and our partners in India, IFB, pretty much were not working on-site through and only came back to work in early August. And in addition to that, they have had to shut down their production lines for critical shortages in components. So they've had a pretty rough ride of it. And of course, we are dependent upon them for the commercialization of our technologies. But and you'll see on the graphic in a minute, I mean, we're probably a year later than pre pandemic plans. But the great news is, is that they're now all in their markets, and they're all now out and selling, and they're looking at, obviously, the important segments within those markets to have the greatest effect.

10:19 But that is not just important for them, but it's really important for us in terms of having the street credibility now in the value chain whereby we can approach other licensees in other jurisdictions. And clearly, we've always had a road map of the geographies that we wanted to follow into, and we have a number of target licensees. And we are really quite confident that the take on rate and their speed to market, obviously, will be a lot quicker than the first movers that we've been working with to date. On the domestic laundry side, I. E, not in the commercial application side, the delay that we've had due to COVID means that we're now butting up against IFB's product development plans and new product release plans, whereby they upgrade their platforms with new features and benefits.

11:19 And there's a decision made, which is quite a simple one that says, what's the point in putting XEROS' technology in the last version that they were putting into the market? And let's wait to put it in the new the new version of the the the conventional machine, which is then adapted to include our technology.

11:38 So it has the best of the best, the best of our technology and the best that IFP have developed and wished to put on offer. We're still working with them on what is the the the final timing and the plan to to work through that. And, course, we've got to do a little bit of work to make sure that we integrate with their new upgrades, which we know very well and we're extremely confident that what they are planning in terms of their conventional upgrade, we will actually improve further still over and above the advantages that we bring. So that's just a timing issue for us. And, of course, that's a really important milestone for the company going forward. And as I mentioned, we'll give a little bit of a presentation later. Then in finishing, it's a massive market, and we are about to transform transform it.

12:29 And the important thing that that is is that whilst there's about four four billion plus pairs of jeans manufactured every year, it does open up that 100,000,000,000 garment finishing market that I alluded to earlier. We get the credibility in the real torture test, the really, really difficult thing, which is denim. And where then we go on to the easy stuff such as, you know, woolens and jumpers and and the such like. So that's where the Xtend platform's got us through to. Xfiltr, we've signed up a number of large and one small OEM manufacturer in terms of testing and trials, and we've also signed up one of the top three component suppliers to the industry in the form of Hanning, a German company with a long standing relationship with a number of go global suppliers, but most notably most notably, Miele and Bosch. And as I mentioned earlier, we'll talk about it a bit more. Clearly, we've got the legislation increasing, and there was a major announcement on Tuesday, Tuesday morning, where the all party parliamentary group made a statement and a proposal to DEFRA, the minister of DEFRA, and we were all together on Tuesday night to have domestic and, importantly, commercial washing machines in The U. K. To be fitted with

13:59 filters and, the case of domestic, inside the machine by the 01/01/2025, and that is a date which is entirely consistent with that that's been legislated in France and the EU are discussing following that French legislation. So that's what we've managed to do in those two platforms that we've got. And in the context of the, you know, the demands that the industry has both now and going forward. And those demands in terms of environmental and cost improvement simply won't change, and they will simply just increase. From consumer pressure, number one. But number two, to give you some numbers, the global population of the world will increase by 1% between now and 2030.

14:52 That's compound growth. And the fiber production in the world will actually increase by two and a half percent compound. So we've got two factors in terms of the market that we're we're addressing with these two technologies. One is that there's a clear and compelling need opposite the market size as it is, you know, defined today,

15:17 but the demands for our technology will only see will only, you know, continue to grow as the volumes that are put into the marketplace grow. So that concludes my introduction and summary. And I'll just ask our CFO, Paul Denny, to give us a summary highlights from his financial report. Thank you, Mark. Good morning, everybody. So from a financial a financial perspective, the key piece of information that everybody quite rightly focuses on is is is our cash position. You know, cash burn and what what's the route to cash breakeven.

16:02 And those of you who've sort of followed us over the last year or so will have seen the journey that we've been on and will know that we raised gross £9,000,000 of equity in March of this year. Now we are well funded. We've got £9,100,000 of cash as of the end of August. Our monthly burn rate, as we signaled when we spoke in August, our monthly cash burn rate is now £500,000 a month. That is higher than where we were at the end of last year, but we signaled that that was going to increase because we are now making investments both in Xfiltras, Mark spoke about. So we we have increased the size of the team working on Xfiltras, and we're also increasing the spend that we're putting into the prototype devices with the partners that we're working with. And Mark will come on to talk about the the partners that we're working with.

16:59 We've also strengthened our marketing team because now that we have our technology in the market, and now that we've got the value chain on a broader basis, understanding what the can do, we really need to amplify that message through marketing. And you'll start to see more more of that becoming more so publicly visible through through next year. So, clearly, with a cash burn rate of 500,000 a month, cash of 9,000,000, on a no growth basis, I. Assuming that the gross margin we get, there is no there is no change. On a no growth basis, there's eighteen months of cash there. As I've mentioned in the past and as I still expect, we we will get £500,000 this year from HMRC tax credit back, £500,000 next year. So another million pounds will take us into q two twenty twenty three, as I said, on a no growth basis.

17:57 So we are well well

18:02 well placed in terms of cash. Now in terms of when do we expect to reach cash breakeven, you will recall that, previously, we we targeted the end of twenty twenty two. But inevitably, with the delays of COVID, predominantly in India, as Mark said, with the impact of the domestic launch for IFB shifting into q two next year, we we now expect target breakeven, cash breakeven to be targeted for early early twenty twenty three, q one twenty twenty three. So those of you who will have seen a Raymond Greaves broker's note that came out this morning, he's making the statement that says that he sees us funded through to breakeven.

18:49 That's a position that we endorse, but, clearly, the room for contingency in there is is not great. And, of course, we are all now in the hands of the shape of the top line curve from our licensees and the progress that they make next year. And, of course, we are always at the mercy of any further lockdowns in India and China. But from where from where we're sat at at the moment, we do generally feel that the worst is behind us. And with the products in in market, we would expect to see growth in the top line coming through next year, which will extend our cash runway further. So with that, I will now hand back to to Mark to talk about the the progress at XTend in more detail.

19:39 So thank you very much, Paul. Look, this slide, I think, has already been covered in large degree in terms of what myself and Paul has covered. So I'm going to move on to the next slide just to give you a flavor of why we are where we are in terms of the timing. So all of our licensees have started off with one machine size SKU, meaning stock keeping unit, as I think most people may well know. Ramsons have entered the market with two machines. One's called a sampling machine, which is the 10 kg machine, which is used to basically test out recipes, and then they move up into a 110 kgs.

20:30 And just to give you a sense that a 110 kg machine is has a drum size in it, which is five cubic meters. So it's a very substantial piece of equipment. And they're about to have a 2,000 liter drum design going to the marketplace. And between those three, which is the 110 and the 40 or the 5,000 liter, the two two thousand liter and the 500 liter machines, you then have a range which is that which is deployed in the marketplace. The size of the opportunity will come on to describe in a minute, but the other thing that is within this particular market is obviously a very significant installed base.

21:19 And whilst the first installations that we're putting in are our new machines, the technology that we have has been designed also to be retrofit, which is around the acceleration. So where we are in Dentin finishing at the moment is I'll come on to in some more detail. Both our partners, IFB and Sea Lion, are entering the market with two sizes of machine. Sea Lion want to address the industrial laundry market and they're building a much bigger machine. But IFP, on the other hand, have identified that there is a need for our technology in terms of large homes and also in the area of the dry cleaning market. So they're entering with an 11 kg, and our expectation is that that will be available in the next three months as well. So they've got the products.

22:13 And, obviously, now what we have, although we've given them some forgiveness in terms of the timing of their minimums to retain exclusivity, they now have the obligations to meet their contractual commitments in terms of the minimums that we signed up previously. When we get to the domestic size machine, quite clearly, identified that we we were on track for q four this year. We announced in August that we knew that COVID was going to take that back a quarter. And then as described, we're now going to integrate with a new upgrade. And as a consequence of that, we think we're going to be in the market towards the end of Q2 as opposed to Q1. And just to give you a refresh on the market size and potential value of the domestic market, which is clearly a major driver in XSGND in the XSGND platform.

23:12 So the 100,000,000 machines across the world sold every year, we have, although I can't for very, you know, specific confidentiality reasons, which are enshrined in our contract, but our plans are that we we would have something in the region about 4% of the sales price for washing machines as a royalty to us. Roughly, roughly, they're about, on average, let's say, $450. And so you can quite clearly see that, you know, there's there's $15 plus available to us in every machine that's sold.

23:59 And, you know, quite clearly, if we manage to get a million of those 100,000,000 machines, then quite clearly, you're looking at a revenue of $15,000,000 every year. And also quite clearly, for us, that is at 100% margin. Now the commercial laundry business doesn't have those similar dynamics, and I won't go into those. But quite clearly, IFB's successful market entry is very important for our company and indeed our investors. But that is the measure of the potential within our company. And in a in a hierarchy of what's the next most valuable in the XTED market, it will be then denim finishing. And then after that, when we get into the market, it will be the rest of garment finishing.

24:48 And then what we will find over time is that commercial laundry will be the lowest of the contributors in the commercial market. But it has been and remains to be a fundamentally important proving point of our technology both in those other commercial applications that I'm talking about, like Garmin finishing it, also in the domestic environment as well and for the domestic OEMs.

25:23 So if I may just talk about the denim finishing market because we've not talked about that a lot before, and I'm not gonna go through everything. So 4,000,000,000 pairs of jeans every every year have average selling price, believe it or not, is about $15. So it's about a $60,000,000,000 market. For example, Levi's have about 5%, 6% global market share. There are very few places on the planet that really produce most of the world's genes. And it's no mistake that we are actually our first OEM is in South Asia because that is where the world's largest amount of genes are produced.

26:13 And it's no mistake that their first customer is in Bangladesh, which is where

26:19 most of the world's well, the highest proportion of the world's genes are produced. And to migrate the the XTEND technology in this market means that we have to find partners in China, Turkey, Mexico and Brazil. China, as you might imagine, is very fragmented in terms of equipment supplies across China, and we're studying who might be the best partner there. But it's a much easier task to find a partner in Turkey, Mexico, and Brazil to take on and then license and sell their sell our technology to their customers. And we have obviously identified our targets within those countries.

27:07 And in one of them in particular, we've already started a series of discussions, which we hope will go on a similar but quicker path than that that we've had in South Asia having proven out the technology there over the last six, nine months. And as I mentioned before, it's a gateway into a much larger market. But over the last six months and over the next three months, what we're doing is proving out the value proposition. And on the left hand side, the bottom left, I won't go through it all, but it is truly revolutionary in terms of a quantified benefit both in terms of an environmental impact and a financial impact.

27:52 And the manufacturers in terms of a pair of jeans, and you'll see a picture in a minute, which is, you know, quite staggering, is that you'll see that those four and a half billion pairs of jeans, about 60% of which are you you use pumice, which our technology avoids, which is quite an egregious material. The manufacturers work on a wafer thin margin. And the financial benefits that our XTEND platform delivers are a very, very substantial increase in the net margin that's available to them. So substantial, in fact, and it's the nature of the industry that they would be able to retain an amount of that whilst passing on an economic benefit to their customers, which is an omnipresent demand that they have upon them. So you can see some of the benefits on the left, which are quite broad and comprehensive both in terms of input and output reduction, but we're also improving the rate of throughput within their denim finishing plants by something like 20, which in the terms of one of one of our in terms of their number of cycles a day is an extra cycle a day, which is obviously a very substantial benefit, which obviously reduces CapEx and reduces operations in terms of number of people required.

29:23 And the other staggering thing about our technology is that the today, they use three machines, three pieces of capital equipment to do what they can do in one of the XEROS enabled machines. So we've made a significant amount of progress with our partner in South Asia, Ramsons, and their customer, ABBA, over the last six months. We've got about another three months' work to do to prove this out and to refine our offer. But as of today,

29:57 in South Asia, we have another dozen companies that we are both speaking to along with our partner, and we are about to ship a machine to our next customer now within South Asia. And our anticipation is obviously for a fairly significant growth. And having done that work, I think what we'll do next time around is for all our applications, work with Raymond Greens here at FinCap so we can actually, with our existing and future contracts, extend the the financial forecast based upon the evidence that we're gonna garner in the meantime. And it's not just a quantitative benefit.

30:45 There is a product outcome benefit in terms of using our technology, which we believe will, to large part, drive brands as hard as anything else given that it is the the finish and the quality, which is extremely important to a denim brand. And so what you have is, you know, these four benefits on the left, which I won't go through. But I just wanna give you a sense of the scale of this industry. So this is a company called XSitex in Vietnam. It is a producer for a number of the denim brands that we have in in the world. That is one floor of many floors in one factory, and the site has a significant number of factories as well.

31:36 I don't think, you know, people necessarily understand just how large this industry is and how potentially valuable it's going to be for XEROS. And as I say, we hope to quantify that further when we next come to invest in the so the other platform technology, think very, very significant rapid progress since we last spoke. We have a product. It's actually been further refined since the one that we've got here. It's now an easy to use product. It's finished. We've worked on simplifying the interface within a domestic washing machine, any domestic washing machine.

32:25 And as you'll see on the next slide, we've signed up a number of OEMs, including

32:33 one of the largest in Asia, and we have prospects. So having signed that up. We've got two more large companies in Europe, which we're we're about to do the same. And similarly, we've signed up with a smaller OEM as well as the one of the largest part parts manufacturers for the industry. We're about to go into testing and trials with a number of these. Clearly, we've done our own testing and have high degree of confidence that we will be successful. And as I mentioned before, and we showed up on the next slide, that quite clearly, The UK has joined the club, joined the French club anyway, of saying that we need to have these in our machines going forward. Commercial filtration, just we've r n s this. XEROS is one of the top three commercial laundry equipment companies on the planet.

33:26 They have operations in 60 countries, and they, having looked at other technologies, not that there's that many out there, selected us two years ago to have a joint development agreement. Having completed that, we signed a contract with them, and they expect to launch this year. And the device that you can see there basically can be scaled up and scaled down such that it works opposite a single washing machine or a whole laundry. The other thing that we we are about to make more of, notably on social media, that XEROS has been selected by the British Antarctic Survey to use its filtration in their research facilities in Antarctica.

34:22 And I'm just gonna check the date. And the boat leaves in seven days. It goes once a year, and it's going to have a XEROSEX filter on it. And we obviously have that under a commercial arrangement as opposed to just a, let's say, a marketing engagement. And just to to refresh and repeat, The UK legislation is for commercial as well as domestic machines. Top left hand side, just very quickly, this is the the timetable that we've got with those companies that I referred to. About the top 10 manufacturers in the world account for something like 90% 90% of all machine manufacturers, although they will have a plethora of bat brands.

35:14 And in addition to those that we've listed there, we're actively engaged with a number of others who are in the top 10. In terms of our view of the competition, we obviously study in a very, let's say, detailed and comprehensive way the intellectual property, the filings once published. There are an increase in the number of filings in the area of filtration for washing machines, but nothing published as yet that we see as being

35:55 of a real competitive threat. We do we do know of other technologies that are in development. But in terms of our own view, and this is not just view which is in a qualitative. We've looked at these things from a quantitative and a, let's say, an operability perspective and also in terms of consumer perspective having done our surveys both in China and now Europe, is that we still believe that we have the product which has the cost profile, the operational profile, the longevity, the reliability and the ease of replacement in terms of that, obviously, needing to be something simple in the hands of the service market, the after sales service market for any and all machines, noting that pumps in washing machines today are the same. They are pretty much an identical unit in every one of the machines that you have meeting those above criteria.

36:59 We're currently working as a team and with our board and with consultants on the licensing strategy for this, having surveyed what we think the price elasticity in the market is to absorb this. And so as a consequence of that, by the end of, you know, middle of q four, we need to have that in place because we're gonna start to have the engagements such that we will need to have license contracts set up with those that we're currently now working with. So I'll hand over to Paul now to give you a quick update on the numbers that we've published today. Okay. Thank you. Look, I won't spend a great deal of time going back on the numbers for the last six months because, you know, a, the numbers are very small, and b, it's reflective of a period when the lion's share of our end markets, say, India and China, were were closed for a large share of those six months. But you can broadly see that the trends are now moving in the right way. We've got revenue growth up 60%.

38:05 And within that, the the licensing revenue elements that had a threefold increase, which is pleasing to see. Margins are EBITDA loss is down. Net net cash flow from cash outflow from operations is down, which is all pleasing to see, which is indicative of the shift away from the old direct model that we had to the indirect licensing model that that we now have. And, you know, clearly, as our end markets come out of lockdown, as our licensees start to really move on the commercialization, we would expect to see growth of this coming forward. And the cash points there, I've all already raised in terms of the the cash breakeven, our best estimate, now targeted for q one twenty twenty three.

38:54 But it's worth just saying on that that, clearly, the major factors around that are all around the shape of the of the top line. And the single biggest element of that that we're all gonna be very closely watching next year is the launch of IFBs domestic machine. That's probably the single biggest factor in determining the shape

39:19 the top line for XEROS next year. And as Mark said, we're all gonna be watching that very, very carefully. But we we you know, and then an an important point to to make around this is that our cost base isn't indexed to the top line. And by that, I mean that with the 45 old heads that we have in the business now, the single site operations that we have just outside of Sheffield, that cost is pretty much fixed now. And so as our as our licensees grow their top lines and as our royalty income increases, we don't have to grow our cost base in accordance. We will maintain our bench strength of the engineering and the the r and d scientific capability.

40:09 We will maintain the

40:13 market development teams. But the pleasing thing is, as Mark referred to earlier, is now that the market development teams can shift away from supporting the licensees in India and China, are now freed up to go and look for licensees in other parts of the world. And, clearly, we're now in a position to start to plan for an expanded portfolio of of licensees so that that revenue starts to come on stream end of twenty twenty two through '23 and beyond. The investment that we're making in XSfiltr, we will maintain that through next year because because the next twelve months, we see that very much as very close working with the JDA partners that Mark spoke about.

41:01 And as he said, we hope to bring on a couple more European majors towards the end of this year. And next year is all about working with those partners. Now that does not preclude the fact that we would get potentially upfront fees and sort of technology fees from these partners through next year. We haven't got any explicitly in the forecast because these are very binary. But from a licensing revenue perspective, we see 2023 as when XSGILTIL revenues are likely to come in. Because although the legislation is all targeted at machines having filters by January 2025, we think that the market is gonna move in advance of that and 2023 being being the year when that changes. So as these royalties start to flow through, we will get to the point where once the cost base is covered, every marginal pound of revenue and gross margin falls straight through to the bottom line. And that's when we get the real leverage.

42:12 And when we think about valuation of the company, it really is in the context of that. It's in the context of get to breakeven first and then real leverage as the top line grows. And as Mark said, if you think of kind of £15 or dollars or euros, depending on which part of the world we're dealing with, royalty per domestic washing machine, when you think about an x field an an x royalty x filter royalty of a number that is gonna be smaller than that. We we haven't quite fixed on what that numb number is. Again, that's pure margin. In the commercial products world, the royalties are structured slight are structured slightly differently.

43:01 They're a function of a royalty for the sale of the machine, which in the commercial laundry world can be around a thousand pounds royalty coming to us per machine sold. In a denim world, the royalty coming to us can be about £4,000 per a machine sold. But the really attractive element of that model is then the ongoing annual royalty for us providing XSORPs into these partners. And that that can be for the commercial laundry world anywhere between 800 to £1,200 per annum per machine. And in the denim world, anywhere between about three to four and £500 per machine per annum. So in a business that is inherently at the moment quite hard to nail down a forecast, that hopefully kind of gives you a a flavor of what the unit measurements are and what the kind of volumes could be o over a fixed cost base.

44:00 So with that, I'll now hand back to Mark to summarize and to close. Thanks very much, Paul. So, yeah, I I you know, we've given a an indication, Paul and I, about the the value potential value of the domestic washing machine market. As we say, we haven't quite, you know, worked through going in negotiating position for the X filter in the domestic world. Obviously, we've got the contract sorted in the in the commercial world. But whatever whatever we agree per device, you know, you've heard me talk about a 100,000,000 machines. Well, the important thing to know is that, quite clear, it's Europe that goes first and The UK. The UK is about 3,000,000 machines a year, and Europe is 25,000 machines a year. So that would be the first mover. But we do expect, you know, the rest of the world to move and move reasonably quickly.

45:02 We've already had discussions with Indian regulators opposite, you know, their desire to move in this. The rest of the rest of the market demographic, that 100,000,000, 50,000,000 machines are sold in China every year, which leaves the rest of the world 25,000,000. So the addressable market in the short term is going to be The UK and at a minimum France, which does actually mean Europe because nobody makes a machine that isn't sold universally across Europe or indeed beyond Europe. And as a consequence of that, you know, we should be we said it before, if we were if we got a dollar or a euro per device and we got half of the market in Europe, that would be $12,500,000.

45:53 And, again, of course, we're not in any of the manufacturing process of these devices. We haven't worked out our go to market strategy, whether it will be through a part supplier or indeed directly to OEMs, and that is something that will evolve. But quite clearly, we engage with entities in both sides of that equation. So before we move, just we've to to summarize and perhaps I'd best not read out, you know, what's what's on the left hand side. That's easy to read, and it's being recorded so it can be referred to. But we we just meet the secular trends in a breathtakingly large market with major, major issues which we can help resolve.

46:42 And the quantum of benefits that that we create both environmentally are in great demand by the whole value chain and all its stakeholders. And the economic benefits that we create are sufficient to reward stakeholders in the key parts of that value chain in order to adopt it. So it's quite a virtuous thing that we're doing. We still have to, you know, do what we say we're going to do. We've made progress to date. We've got delayed, obviously, pandemic drag in terms of the implementations that our licensees have made, but we now have increasing empirical evidence that what I just said is true.

47:28 And the level of stakeholder engagement with brands both in denim and elsewhere now being engaged such that they will start to work with us to influence that value chain as towards adoption. So next year this year, the remainder is obviously vitally important, but next year is vitally important to grow this business and to have agreements in the next three, six months for the adoption and commercialization of XSGILTRA. So that concludes our presentation. We're delighted now to run through the questions. That's great, Mark, and thank you both to Mark and to Paul for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. But just while Mark Paul will take a few moments to review those questions submitted already, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q and A, will be made available to you, and we will notify you when they're ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, we'll redirect you in order that you can provide the company with your views and expectations.

48:38 Mark Pool investors did have the ability to pre submit questions. We received a couple of those. So before really addressing the live Q and A, I could start with the first one, which comes from Doctor. Reed, references about novel technology and the route to market. His question then goes on to say, given the difficulties experienced by XEROS in getting its technology accepted, is there a lot to be said for collaborating with the likes of Dyson? Well, thanks for the question. That's a very good question. Dyson did indeed try to develop a washing machine. And his concept or his firm's concept was to have one rotating drum rotating in an opposite direction to an outer drum to create very significant mechanical action.

49:34 And that mechanical action he found out was good mechanical action, but bad in terms of the impact it had on the garments and fabrics that it was working upon, and therefore, he abandoned that. But early in the development of the new solution that we have in the x XTend platform called XDrum as opposed to the machine that was initially developed some eight, nine years ago. We brought in a number of ex Dyson engineers under a consulting agreement to work with us on a new solution. So indirectly, Dyson has had some impact on what we have been working on.

50:24 And then the other thing is, and obviously in these agreements, we we use them as consultants and own all the intellectual property as as we should. And then the second thing is is that six six plus years ago when we started to to look at the Xfiltron, we went to the United Nations Ocean Ocean Conference and made a voluntary commitment that we'd come up with a solution. We got those ex Dyson engineers back in and they've helped us with, you know, a number of the ideas we went through. And quite clearly, you can see in our XSfiltr device, both commercial and domestic, that it works on a centrifuge idea, and it's the integrated filtration and drying of the field tried that one of the ideas that we worked on together. So, yeah, we have we have done some, you know, I suppose liaison with Dyson indirectly, but we certainly weren't gonna pick up on his or evolve his washing machine idea.

51:42 Thanks ever so much indeed. Just moving on to the other pre submitted question, interesting one relating to the all party parliamentary group that commented on microplastics and called for new rules requiring manufacturers to fit microplastic filters to all washing machines sold in The UK from 2025. Are they aware of XEROS and that they have the best solution for this? Yeah. Another another good question. Yeah. So I was with our team in Westminster on Tuesday night with Alberto Costa, who's the chair of the all party parliamentary group, and also Rebecca Powell, the minister for DEFRA. We had our XSG filter and a and a presentation there, And we were surrounded by, obviously, a number of other stakeholders and indeed others try who are trying to develop filtration technologies.

52:43 We have been omnipresent on the the panel, which has been advising the minister. And I like to think, the credibility of the device that we've shown was gave the APPG, let's say, the confidence to promote that a solution could be put in place by the 01/01/2025. So we have been integrally involved and the the byproduct of it is, I'm pleased to say that we've all all been able to have a good squint at what other people are trying to achieve as well. So yes is the answer. We've been very much involved. And in parallel, we are similarly on the equivalent, but actually it's not it's not a group promoting legislation.

53:36 But in implementing the in the legislation in France, we're similarly involved and also have been called in separately outside of the regular meetings of the French process to present our solution, again, such that the the government representatives have confidence that a solution will be available because you can't legislate if there's no solution. And the other thing that the the French government and indeed the European government has done, which is interesting. The, you know, the latest regulations in terms of appliance, environmental efficiencies were actually constructed without the help of the industry because the the European Union did not want the industry setting their own standards and said that what they were gonna do was to define and set the standards for the industry.

54:36 And I think that's what we're going to see within both appliance development going forward and also Xfiltr is that governments are not going to wait and see what the industry can do. They are actually going to say the industry needs to achieve x by a certain date, and certainly the EU has done that. France is doing it on Xfiltr or sorry, filtration that we've now got is happening in The UK, and it's a trend that's going to continue. In our last presentation, we gave a list of all the different activities going across the world. And, of course, we think that California is moving at a pace as well, and they have legislation been tabled that the commercial laundry market in California should all have filtration by the end of twenty twenty three from memory. So I don't think that will happen in that timescale.

55:28 But quite clearly, it's a trend that we think is going to continue. That's great. Thank you very much indeed. Well, look, that takes care of the pre submitted questions. So thank you for the investors that have taken time to submit the questions ahead of today's event. And also, if I could ask you to open up the Q and A tab, you'll see a number of questions from investors during this live event. Again, thank you to you for your engagement. Perhaps I could hand back to you, Mark and Paul, if I could ask you just to read out the question and give a response where it's appropriate to do so, and I'll pick up from you at the end. Okay. So we have a question. How robust is the protection of our IP in Asia? I assume we carry insurance against counterfeiting and reverse engineering. I'll give you the summary answer.

56:17 We have, obviously, very significant IP portfolio. This year, we have had an extensive exercise to make sure that our intellectual property beyond the published patents that we we cannot have our systems infiltrated or indeed there's exfiltration of our our trade secrets. I mean, that's one thing that we have. The second thing is that we have engaged in a patent defense strategy piece of work with our advisers and not only looking at the defense strategies that we've got in terms of, let's say, litigation opposite parties who do infringe.

57:09 What we have done is obviously made sure that there is other forms of protection that we can have. So if anything was produced in a country and then shipped to a country where we do have a patent, We've obviously got rights to in that country of where it's been shipped to to to defend our IP. And we're also making sure that in terms of our shipments of our XORPs, for example, they're going through jurisdictions whereby we know that we can defend our intellectual property. We also have patent defense insurance whereby should we have any infringement that we wish to take action on, then we have a very, very substantial financial resources at our disposal.

58:07 And then another example of one of our defense strategies is that we have in development, and we we we know it works. We're putting trace elements, detectable trace elements in their exports so we can establish whether parties have counterfeited their production. And that's just a, you know, a quick summary of what we've got. The other the other thing that I'd probably say is to make sure that we work with very substantial enterprises in these countries where you might encounter issues, and they then have a very, very vested interest in making sure that within their country, there is defense.

58:53 And in certain jurisdictions, the the the our licensees customers are actually given a license to use their technology, which has a number of conditions, obviously, prevent copying confidentiality, release, and the such like. So there's no one piece of defense that we have, but what we have is a whole series of layers opposite protecting our intellectual property both in the public domain and not in the public domain. And, obviously, that's something we will continue to work hard on. There's another question here. To clarify, can the XTend be retrofitted into most existing commercial laundry units?

59:45 No in commercial laundry per se. Yes in, denim finishing. The machines are so large. What one can do is our technology is such a simple change to the core machine that we can take out old drums and put in the the extra. And the reason it works well in terms of a retrofit in the denim finish market as opposed to commercial laundry market is that those drums only have a two year, three year life at the moment because the pumice stones that they use within them basically destroy the drum over time. So it's the denim finishing industry where retrofit would be appropriate, and that is something that we our licensees is, you know, working on. And then there's often a question about retrofitting X filter into washing machines.

1:00:49 You can't fit. Nobody can retrofit a filter inside a domestic washing machine because you'd have to replumb the machine, and you'd also have to reprogram the program logic controller, I. E, the l o LED display buttons that you you have. Yes. So next question, Qualys. The leather treatment spin off, do we have an economic interest in it still? Or would you license agreement on sales? Is Qualys progressing at all? Yeah. So we're we're a company that does actually work in the fashion value chain from top to toe. Yeah. We we have a license with Qualys. They've obviously had the challenges, especially in the geographies that they work in in terms of growing.

1:01:38 They have been successful now in raising funds. And in terms of the reporting they share with us, you know, they are having revenue growth. And so, yes, we do. But the reason we spun it out is that we thought that it wasn't just so close to everything else that we're doing and that we thought the management team would have the ability to raise funds and grow the business outside of XEROS as opposed to being within, hence, the logic of the spin out. But, they are progressing. Yes. We do have a license agreement. In terms of the scale of what it might contribute, it would be, we believe, the smallest contribution out of out of all of the above that we've been discussing and describing today.

1:02:29 Yeah. Okay. Thanks. Thanks. That's Mark. So I think I think we've probably got time for just one more. So there's there are a couple of questions around understanding sort of the understanding the size of the revenue opportunity and royalties. I addressed that during during the presentation earlier, and there's also a question asking for clarification and a repeat of that. But this presentation is gonna be available on the investment based company website afterwards. So rather than repeat them, then if you can play play that back. So final final question I'll take is question around other than another equity fundraise, are there other choices open to us in terms of bridging potential funding gap in q one twenty twenty three?

1:03:23 So that's a good question, and sort of let me address that. First of all, talk about potential funding gap referenced in in in the question. The cash that we've got at the moment on a no growth scenario takes us comfortably into q two twenty twenty three. But I must stress the importance of that being a scenario because that's basically off a run rate where there's a very small amount of royalty revenue flowing into us at the moment. So, basically, any increase that we get in q four of this year and through next year from products coming to market, especially in domestic world. That will obviously extend the run rate because it'll bring down the monthly cash burn.

1:04:11 So that could take us comfortably through q two twenty twenty three into the second half of twenty twenty three. So from where we're sat at the moment, we don't see a potential funding gap. However, being prudent, one one must always be aware of of of the need for this. And I referenced earlier the inherent uncertainty over trying to predict the top line. So I think the way I would think about potential other sources of fundraising, Albeit, we do have an incredibly loyal and supportive shareholder base, which we're incredibly grateful. And I think all our shareholders, certainly the large institutional holders we talk to, understand that it's a long term investment in XEROS. It's not about the performance of one quarter versus the other. So we don't see any reason to for our long term shareholders to to change their view.

1:05:07 But in terms of other sources of cash, yes, we are well aware that there are forms of kind of venture debts out there and forms of kind of other funding that we could get as our contracted cash flow gets a little more sort of visible. I think you'd all understand that at the moment, a company with relatively few assets with future cash flows being relatively uncertain, without the track record of cash flows, traditional bank debt is not gonna be an avenue open to us, and it's not one that we would want to entertain anyway. But the financial markets are pretty wide and broad, and we are aware of other sources of cash, but we don't have any active plans plans for for other other alternative sources of financing at at the moment. And the focus is very much on driving the top line growth and controlling our costs so that we don't have a funding gap.

1:06:01 So with that, I don't know, Mark, whether you want to take any more or whether we're I think we're probably timed out. So That's great. Well, let me just jump in and, obviously, any questions that we do receive that come in from this point onwards, we can make available available to you after the meeting for your review anyway. Well, perhaps, guys, you're right. We're coming up to the hour. I know investor feedback is important to you guys, and I'll shortly redirect investors to provide you with their thoughts and expectations. But perhaps, Mark, before doing so, I could just ask you for a summary just to wrap up a few closing comments, and then I'll redirect investors. Well, thank you very much, Mark, and thanks, everybody, for being on the call today. I think we have taken quite a lot of time. And thank you for your patience. And quite clearly, we very much for look forward to giving you a further update, you know, with our year end results. But also, we obviously have some expectations of bringing some news flow in the interim. But thank you very much for your time, and indeed, if you are investors, thank you very much for your, commitment to XEROS, which, as Paul said, not just our large investors. We do value every one of our investors, and we do enjoy and value our time with you today.

1:07:15 Thank you. Mark, Paul, thank you once again for updating investors this morning. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of XEROS TECHNOLOGY PLC, we'd like to thank you very much for attending today's presentation. That now concludes today's session. Good morning to you all.