Xeros Technology Group (LSE:XSG) — Trading Update - Q&A Session

0:00 Good morning, and welcome to the XEROS TECHNOLOGY GROUP PLC trading update and Q and A session. Throughout this recorded session, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time just by using the Q and A tab that's situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. Now I'd like to hand you over to Neil Austin, CEO. Good morning to you, sir. Morning. Morning. And and thank you. Good morning to everybody. Thank you for joining us this morning. So for those of you that don't know me, I'm Neil Austin, chief exec of of XEROS. And also on the line, I have Alex Tristram, FD. Hello. Although you can't see him, we also have our chairman, Cluster Burr, on the line as well available if if any appropriate questions should come, I guess, from PLC perspective as well.

0:58 So we've got a relatively short session this morning. We thought it would be nice to give the opportunity for those investors that we haven't haven't been able to connect with over the last few days to have a chance to be able to hopefully learn a little bit more about what what we meant with the trading update that we issued earlier this week and, obviously, ask a few questions as well. I have got a deck. As always, have to have some sort of a deck. I'm really gonna skip through that because it's there really, more as a reference point for people that are less familiar with the business. And I guess it will be a mixture of of kind of old and new as well. So, I will crack on with that now and give a little bit of sense of who XEROS are, and then we'll kind of conclude a little bit with a bit more meat on the bones of some of the specifics of the announcement we made earlier this week. So just to give a very kind of a top level view of of who XEROS are.

1:51 So we are, as we call ourselves, the future of laundry. And when we talk about laundry, we're highlighting the fact there are two very specific issues that we're trying to address. One is fast fashion. So there are a number of, additional clothes that are being, manufactured now, put into consumers' hands way more than they were previously. And, unfortunately, they're not always the necessarily the best quality of garments as well. And, unfortunately, a huge amount of those are ending up in landfill because of the degradation that they suffer when they go through the laundering process. Linked to that to a certain degree, we also have a lack of kind of innovation from the laundry industry. So whilst they recognize that there is a a kind of a a a link between wash performance and degradation of garments. Fundamentally, they've not been able to find a solution to that.

2:38 And so hence, this is, this is where XEROS kind of enters the fray. So our solution, which as we say, we very much believe is future of of the laundry industry, is about introducing a new medium, which is what we call XORBS. You can see with some of those, those little stats there, some of the huge benefits that you get as a result of it. So the clothes will last twice as long. We'll, use less energy in terms of the the processing of them, less water, and less chemistry as well. I will I will clarify a little bit more on some of the specifics of how that works, as we skip through. So we've got three kind of applications of that technology, three industries that we're targeting. The first being the domestic laundry industry, which I I I I think, you know, is fairly intuitive what that is.

3:25 The second is commercial laundry. So this is, again, washing machines, albeit larger format for, you know, hospitality, for, leisure, for, industrial laundries as well. And the third is garment manufacturer. So what what a lot of people don't realize is that every single garment that you buy, which is new from the shop, always goes through a final wash process regardless of what it is. And so that process is is using a massive washing machine, which again uses a huge amount of water energy and and kind of find out resources. So they just give you a bit of a top level on that. So from a domestic laundry perspective, what we do is we introduce our our technology within that. So the XORPs is part of that. This is this additional medium, these small beads, which then kind of massively increase the efficiency of that process.

4:17 But we also introduce a bit of architecture to a preexisting domestic washing machine, which is what we call an XTRUM. And that's what enables us to store them at the back of the machine and then harvest them so that from a consumer's perspective, they never come in contact with the beads. They do their work. They do their magic. But at the end of the cycle, they've been collected, and they're in the back of the, the back of the machine. And that's partly through the architecture with the Xstrum, but it's also through cycle development as well. So, you know, we are adding some tech in terms of the software that goes into it. And you can see on the right hand side, this is some of the the the real life benefits that we're able to offer in terms of what we call that garment life extension. So everybody lives this. You have, you have your favorite jumper, and, you put it into the wash and it gets shrunk.

5:02 It it pills. XEROS technology is absolutely, a solution to that. And it's not just on woolens, it's on everyday fabrics as well. In terms of where we are on that piece, it's a huge market. It's about a 100,000,000 units that are sold every single year. We offer those benefits, as I said, on water energy, chemicals used, and indeed, GROUP life extension. And actually, we are now, on the cusp of being commercially active. So we have a live licensee who will go live this year, which we'll talk a little bit more about in due course. And there's a kind of an indication of what the kind of XEROS lifetime revenue per unit is on that. Talk a little bit about commercial laundry. So, again, this one is actually live today. Headlines in terms of some of the savings that we offer is a smaller unit opportunity for XEROS, you know, only a million units per annum, but obviously a significantly larger revenue opportunity.

5:58 And that's partly because we can charge a higher royalty on that, but it's also because the egg subs that we supply, which is the second part of our revenue stream, actually needs to be changed out. So it's a bit of this kind of razor razor blade model. And actually, you can see that that is a high vis jacket, which was actually worn by the firefighters, who tackled the Notre Dame fire a few years ago. And that has actually been cleaned on the right hand side using the XEROS technology, and that's representative of the fact that we've got a live test case in France with a, industrial laundry over there. And you can see some of the brands that are currently using that that technology, Air France, ADF, Renault, SNCF. And the really fabulous news is that not only do we know that those operators, Georges, are getting those benefits in terms of the water, energy, and chemistry saving, but their customers are reporting back that they're seeing extensive gains in terms of the life of those uniforms. So SNCF have reported 20% gains, is significant kind of benefit for them from a financial perspective, but also clearly from an environmental perspective as well.

7:10 And then the third piece is garment manufacture. So as I said, every article goes through that final wash. And actually, some of them, particularly denim, also require that that kind of final process to create that kind of look and feel as well. And this is the first area that XEROS is focused on. So, you know, when they talk about stonewashed jeans, they literally mean it's washed with stone, which is a a pumice stone. So what we've worked with our licensees there is that not only does it displace the amount of water and energy, so it gives the savings in the other areas as well. It actually replaces the pumice stone to get that look and feel. So we're removing a kind of finite resource which is being used, which unfortunately, after its use as well, creates a kind of a chemically contaminated sludge.

7:57 Smaller unit opportunity again, but but in the same kind of quid pro quo, we've got a much a much better revenue opportunity. Again, it's the same idea with commercial laundry. We have a royalty on that, but then we also get an ongoing revenue stream on that as well. And as we'll talk about, we have actually two licensees in place, The most recent of which, Yealmack McKenna is the largest of the, garment machinery manufacturers, and we're expecting them to go live imminently within the next few months. Okay. And then the final kind of piece of the jigsaw, which is a, you know, relatively newer part of the XEROS technology is the microfiber filtration. So again, most people know about microfibers. They know about microplastics. What they maybe don't realize is that actually 35% of those that pollution which ends up in the world's oceans comes from the laundry and the clothes, which when you think about it makes sense.

8:53 You put clothes into this kind of level of agitation with lots of hot water and chemicals being fired at it to clean it, and and then it causes the shedding of microfibers. We will imminently so this year, in the summertime, we're gonna launch the x f three is what we call it. It's a external device, which you can see on the image there, and it can be retrofitted to literally any domestic washing machine in the world. It has the highest independently verified capture rates. We get up to 99% of of the microfibers. It can be placed anywhere with machine. And as I said, you know, we are anticipating towards launch. We have got either confirmed or in negotiations with distributors, whether those be washing machine brands, retailers, or consumer electronics brands in in all of the key global markets. So there's that 100,000,000 unit opportunity. Again, those are for new machine sales, but actually because this can be retrofitted, we see a total addressable market of a billion washing machines, which is how many domestic washing machines there are in the world today.

10:03 A little bit of an indication of what the retail is expected to be and what the XEROS revenue will be on that, albeit it's it's entirely royalty. So that flows through quite well to the bottom line. And also just to draw your attention to the kinda consumer appetite for this product, some very high percentages in terms of the inside studies that we've conducted, which demonstrate that not only do people think that a microfiber capture device should be standard on washing machines, that they'd be willing to pay more for it as well. So, you know, we're we're confident that there will be a a an addressable market for that product. Okay. Just a really tough kinda top level. This is something that Alex and I reiterate every single time we have conversations with people.

10:50 You know, this is a new a new approach. This is a new management team in place for XEROS. So although the business has been relatively long standing, we are new to the business side. I've been with the business for just over two years, although Alex has been with the business a bit longer in a kind of leadership role for about two years as well. Our approach is different. We have brought in completely new people within the business. We are very focused on commercialization. We have that industry expertise as well, and that is what's starting to see some of the significant traction that we're managing to get in in in recent months. I won't pause to go through the strategy road map beyond to say that the the vision that we have for this business is not about what we do this year. That's obviously important, but we absolutely have a logical line which will see us to a significant level of adoption. I mean, if you can scan right to the end of those lines, whether it be on the laundry care, whether it be on the microfiber filtration, or indeed on the garment finishing, we absolutely see the technology that we are introducing should and can has the opportunity to become a standard, to become a default within the industry. So some of those big numbers that we talked about in future years, we would say that those are eminently achievable, not not not because they're good for the environment, because they make economical sense as well.

12:14 Okay. So just to pause for a second. So we obviously issued an RNS to update on some of the progress that we've made recently to to kind of add a add a bit of meat onto those bones as we said. So the first of those that we're talking about filtration is that we have got the first the first of what we are confident will be many. The first agreement for a distributor brand to take that product for distribution primarily within The UK. So the the aforementioned brand wants to keep their powder dry so they can have most impact when they launch. But I think it's safe to say that this is absolutely a brand everyone will have heard of and not just as a brand that everybody will have heard of.

12:59 This is a brand that has full distribution through all throughout all of the key retail outlets. So we're very confident in the basis of that relationship that we will this will see the XS three, the external filtration device, available for sale in those key retailers when the product launches later this year. I think just to elaborate though, this is not the end by any means whatsoever. Our vision has been very much that there's a global opportunity for this product. If you like, this is a UK centric one, but we are also in advanced negotiations with either washing machine brands, retailers, or consumer electronics brands in the other key markets being North America, Mainland Europe, Southeast Asia.

13:46 And as we work towards the readiness of that product, which will be in the summer, we're absolutely anticipating that we'll have further good news about some of those distribution agreements in the forthcoming months. The second piece that we announced is relative related to our fabric care technology. It's actually on the domestic laundry platform. So some of you will know this is my background. This is where I spent many happy years. And I think it's fair to say that the last couple of years, I've been bringing in industry expertise and leveraging network as well, and we're really starting to see the benefits of that as well. So what we announced this week is that one of the leading I say, it's a European, they're European based, but they are a global brand group. They have agreed that they want to start what we call our tech verification process on the care technology.

14:38 The tech verification process is a very structured approach and effectively as us saying, all of these wonderful benefits that we can demonstrate such as that woman jumper we showed earlier in the presentation, we can do that on your machine. So we ask them to send us their machine. We retrofit their machine. It's a bit rough and ready, but we do it so we can demonstrate some of those fabric care benefits. It's a real kind of proof of concept for them and demonstrates that this is not some kind of alchemy and that we're pulling the wool over their eyes. So these guys have absolutely recognized that this is something that they see a huge potential for. And as such, they've entered into a paid for tech verification process under quite strict timelines because they're very keen so that we can start about a a JDA, a full blown JDA, in the summertime.

15:28 And just to elaborate upon that, this is not one. So, actually, this European based brand now takes the total number to four of those world's top 10 washing machine brand groups that we're actually having these tech verification processes with. And of those, we're pretty confident the two of them will turn into JDAs pretty quickly. And in particular, on one of those, they want to turn it into JDA very quickly, which again will be a paid for joint development agreement so that they can have an opportunity to reach commercialization in 2026. To give you a bit of sense of the quantums that we're talking about, any one of those four that we're in that process with right now will be in a in a will have annual volumes of at least 5,000,000. In some cases, over 10,000,000 units that they'll sell every single year. It's not to say that all of those will be converted to XEROS technology immediately overnight, but that's absolutely what we're playing with.

16:26 Just to pause and say also about our current licensee, IFB, which people always like to know about, They are actually trending very positively as well. There is, unfortunately, a little bit of a history of delays with those guys, but they indicated that they would have to delay to the summer. Back in q three of last year, the good news is that that has not slipped. So we still see the summer, based on the conversations we're having with them, has been the viable opportunity for them as well. Okay. Just to give some kind of headlines in terms of the finances, Alex, if you wanna run us through that? Yeah. So, obviously, we we finished the year in 2024 with with with 2,800,000 in the bank. We we obviously don't don't carry any debt at this stage. We we are kind of a a low overhead business, which means that we we see that that is a that 2,800,000 that we've got is a really good platform for us to to go into this year.

17:21 Neil's running through kind of some of the commercial highlights of of what those technologies can do. We expect all of them to be providing revenue this year at at very good levels of margin, and that allows us to see that by the end of the year, we will be bringing in more cash than we spend, and we can we can move with an operational cash cash breakeven point. This this that that that allows us to to to make make the statements that we've made in the trading update that that is we see the cash reserves that we have at the moment being sufficient to get us to where we need to be. We have managed the cash that we've had, or it's fair to say, prudently, and we have kind of trimmed our costs down over the last couple of years. And we see it gonna be even even lower than it was in 2024 in in in 2025. So that that kind of combination of the commercial breakthroughs that we expect to happen and the and the the cautious management of the of the funds that we have allow us to to feel that we're in a really positive place from a from a cash platform and to take us to where we need to get to.

18:20 Thank you, Alex. Okay. I'm gonna I'm gonna kinda skip through these guys because I'm I'm I'm mindful that there's more questions coming through, which is obviously the primary reason why we're here so that we can address some of those. So, yeah, I mean, I'm happy to jump into those questions if we feel it's appropriate. Perfect, Neil. Well, Alex, thank you very much for the presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do that just by using the q and a tab that's situated on the right hand corner of your screen. While the company take a few minutes through the questions that have been submitted today, I'd like to remind you the recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions, both pre submitted and throughout today's live event. And, Neil, if I could hand over to you just to read out the question and give response to us appropriate to do so, I'll pick up from you at the end.

19:08 Super. Yeah. Happy to do so. Okay. So I'll I'll I'll try and rustle through these. So the the the first question is about, what is a realistic time frame on first orders being shipped out? So, if I kinda run run through each in question, so maybe if I start with the, the denim and the the the finished side of it. So that is effectively con concluded now. We we've added a couple of extra cycle development on the back of the requests from from Yealmak in particular. Our anticipation is that first orders for XEROS will come through, you know, imminently within the next the next few months. On the domestic laundry care side of things, as I said, so IFB are trending very positively. Again, our anticipation is that we will receive first XO reporters from them certainly within the first half of this year.

19:55 And then on the filtration side of it, as I said, we've always been clear that the product will launch in the summertime. So although we don't actually receive orders from that, rather that we will receive royalty payments from those those sales as they come off the production line. And the work, as I said, has been very much about lining up those preorders and those brand partners in in this place. So, yeah, I mean, we will be expecting a ramp up as we kinda get get kind of progression through the year, but we are absolutely anticipating that we'll start to see that revenue come through in the first half of this year. Don't know if you wanna add anything to that, Alex. No. I I think that's that's that's the first summary. We we see that the revenue, will start in the first half this year.

20:40 We we should be able to provide some updates on that as we do our next sort of round of, of communications in in in the annual report, which is scheduled for kind of May time. Excellent. Okay. And second question, which is, again, pre submitted is relative to, legislation on filtration. So please update us on the current progress of legislation on filtration in France, the EU, and globally. Our country is rolling back on bringing in legislation. What is the impact on future sales. So I I guess I can kinda give our our our view upon this. So I I think it's fair to say, yes, there has been a a bit of a pause or a delay to a certain degree on legislation. You know, couple of years ago, we were firmly of the view that this would be the year, when France would first go. What actually happened is that, not surprisingly, the, major domestic appliance brands pushed back on that and highlighted as a major reason why they couldn't do it, that there was no standard.

21:32 There's not only no standard. There was a equally no technology out there that could, you know, effectively meet what the French government was asking for. The move on our part, and indeed, I think it's fair to say by a couple of other, providers within the space to introduce technology, which absolutely we know will meet will meet any and all standards that could be set, is a way to effectively answer that question. It's gonna be very difficult for, MDA brands to push back and say, what do you want us to work towards when there is clearly a XEROS product out there, which is, you know, performing well, meeting consumer needs, and actually providing a very high level of filtration. I mean, I would say broadly that whilst there has been, clearly a delay to a certain degree, it has not gone away. So there are, moves in, I think, it's four US, states at this moment in time. There is a move within federal federal kind of initiative as well, within The US.

22:31 The EU has continued to to talk about it. There is a private members bill which we have supported within the UK parliament and and actually various other countries. So Canada has been has been talking about this. Australia has been talking about this. So, you know, the the the timing, I guess, is is is being clarified, this has absolutely not gone away. And I I think it it won't because the scientific evidence is so overwhelming, not only about the fact that it comes from laundry, but increasingly, it feels as if there's not a day or a week that goes by without there being further publications from, you know, very reputable institutions highlighting what danger we can get from microfibers and microplastics. You know, it's been found in the human body all over the place, brain, hearts, and and and so on. This is an issue, which clearly is is gonna have to be addressed. So we, yeah, we don't feel as though that this is a thing that's gonna go away. And I guess the final bit on that is to say that we, as a kind of an expert within this field, as well as others, are contributing to an IEC, working body whose very purpose is to effectively establish what their standards are.

23:39 It moves to a certain degree, but, know, I think it's fair to say that they are establishing a time frame, and that time frame is is is not decades. It's within the next few years by which that standard will be set. Okay. Next question is, again, pretty submitted. So it's how confident are we that there'll be no need to raise further equity? I mean, I I think, again, what I can say is, you know, XEROS has never never been closer, and and and I I I think we're definitely seeing that in the conversations that we're having with people, not just in terms of the globalization, but, you know, the preexisting licenses that we have in place. You know, I've mentioned that we're expecting orders within the next few months, not, you know, within the next twelve months. We've been very prudent when it's come to management of our finances. We, as a board, have also really spent an awful long time thinking about what the opportunities are and and and where we are.

24:29 But I think from from my perspective, you know, I I foresee an an, a very reasonable scenario whereby we absolutely will be able to to to manage with the the cash that we have in hand today. Alex, I don't know if you wanna add to that. Yeah. Just just to kind of follow-up from what Neil's saying there, we this is clearly you won't won't surprise anybody. This is this is what I spend most of my time thinking about, and we are kinda comfortable with the position we're at at the moment. We we have kind of made those changes to the cost base to allow us to to have the longest run moment as we can, and we are confident that the things we're doing with our customers will allow us to bring in bring in the relevant the relevant revenues this year. So we, you know, we're we're as confident as we can be.

25:14 As as we move into full commercialization, we'll we'll see the full breadth of opportunities that open up to us. But but, yeah, we we are we're in a good spot, and I'm confident we'll get to where we need to get to. Okay. Very good. Next question is, have the management team bought any shares recently, or would they consider doing so on the back of this positive outlook? So I think clear clearly, there are restrictions in terms of when we can try them, when we can go into the market. This is something that we will have conversation with our brokers about. And and for sure, obviously, as and when that should come, we'll be obliged to announce that as well. So I think I think kind of yeah. What what what's the space on that one? Next question is related to, again, the kind of regulatory environment. So given the increasing regulatory focus on microplastic pollution, do you anticipate any mandates for regulations that could accelerate adoption of your XS three filtration technology? I think we've kind of answered that one. I I mean, I would just highlight again that, you you know, for sure, it's it's about demonstrating that our tech is is is good enough. We're very confident it can be. We wanna put it in consumers' hands, which we'll be able to do this year. We are actually having conversations with some brands still about an integrated solution, which we know fundamentally is what people want and what the brands want as well. So, again, you go from it being an opportune opportunity for effectively an attachment sale or a stand alone sale to it being part of the billet materials of the machine.

26:42 And, absolutely, the washing machine brands are are indicating that's something that they know they're gonna have to do. Okay. Next question is, is there any future ambition to place further shares or dilute in any way? I I think, again, we we we kind of addressed that one at this moment in time. We can confidently say, no. No. We're we're we're working to to survive with what we have. Next one is the delay in XSGORP's revenue pushed some expected revenue from '24 into '25. Do you see further risk of slippage in this segment, or is this cycle development process not complete? So I think this is a specific reference to the the Yealmak bit. So this was, this is the reality. You get new technology out there. Yelmak actually took it to their customers and they came back and said, ideally, we'd like it as a pumice replacement.

27:28 The pumice cycle is shorter, So hence, there was a need to create a new cycle for that. We've now done that. So, I mean, we are a licensing company. We operate in a b two b model. We never have full control of these things. But at this moment in time, you know what? I think I think we're confident that there shouldn't be any further delays on that. Next question, Samantha, put up by XEROS in the past. It's been very wide at what's going to happen. Is this week's news different? I think that's a fair question. Again, I can just repeat, which is that, you know, we have spent a long time going through this. We've put the numbers in the market, which we feel gives good confidence to be able to beat them. I think if it gives that people confidence, this is not all of our opportune our total opportunity from a sales funnel perspective is significantly above that, but that's absolutely what what we're aiming to do.

28:18 Second question is about partnerships with Chinese manufacturers. I think it's fair to say that, you know, our focus at this moment of time is on domestic laundry. The key Chinese manufacturer in that space for us is Donlin. And, you know, clearly, the next f three perspective, we we absolutely see that that will be a solution for us to give people some kind of confidence. Donlin is a global manufacturer though, so they're though they have manufacture in China, they also have it in various other countries. Indonesia being another key area for them. So it doesn't inhibit if we're trying to do stuff within The US. Question about manufacturing partners with rumsons. Leather tanneries never came back with large new orders. So Ramsons are still very much there, and actually, anticipation is that on the back of YieldMAX kind of resurgence, there will be opportunity for Ramsons.

29:06 The leather piece is still very much there. We don't talk about it so much, but then, actually, it's still live very much so. And they are, you know, continuing to to to raise interest in what they do. Further question about if you win any commercial orders, will you need to raise funds to support them? No. Those will be self funding. So any JDA that we agree to effectively will have a cost associated with it, so it pays for itself. Question related to revenues for 2026, that is something that we'll come back to later on in this year as we start to get a better sense. But, you know, we won't leave that blank. One aspect of the business, most promising that they all are. You know, we absolutely see all of them will contribute.

29:54 Just struggling to try and get through all these questions, and then confident being able to get the 2024 annual report signed off on a going concern basis without a further fundraise. Alex, I'll give that one to you. Thank you. Yeah. So I I mean, can't speak to the to the to the details of the order process, which is obviously ongoing at the moment. I would imagine the going concern states the group that we have this year will be similar to how it's how it's been disclosed in previous years. We've had no no kind of no no significant change to how we were from last year in that. So those conversations are are continuing with with GROUP, our auditors, and they are supportive of what we do. But but, yeah, I'll speak to the the outcome of that until we talk you, I'm afraid. Super. Super. Okay. I think I think that's all the questions answered. Perfect. Thank you very much for answering those questions. You can for investors. Of course, the company can review the questions submitted today. And as mentioned, we will publish those responses on the Investor Meet company platform.

30:48 Just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Neil, could I just ask you for a few closing comments? Yeah. I mean, listen, all I'll say, guys, is that, you know, there's been words out of XEROS a lot in previous years to a certain degree, Alex and myself. I think let let let our actions speak for ourselves this year. We're very confident that we're gonna start to make the progress that we've talked about since since my my vision, since I came on board a couple of years ago. We really see that's gonna happen this year. So, you know, watch this space. We we're very confident we'll deliver further good news flow and and pay back kind of our investors with their support over the years. That's great. Neil, Alex, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations.

31:39 This will only take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of XEROS TECHNOLOGY GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you. Thanks for