Xeros Technology Group plc (XSG) Earnings Call Transcript & Summary

Good morning, and welcome to the Xeros Technology Group plc trading update and Q&A session. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself, although the company can review all the questions posted today and publish responses where it is appropriate to do so. Before we begin, I'd like to [ put ] the following poll. Now I'd like to hand over to Neil Austin, CEO. Good morning to you, sir.

Good morning, and thank you. Good morning to everybody. Thank you for joining us this morning. So for those of you who don't know me, I'm Neil Austin, Chief Exec of Xeros. And also on the line, I have Alex Tristram, FD.

Good morning, all.

Although you can't see them, we also have our Chairman, Klaas De Boer, on the line as well available if any appropriate questions should come, I guess, from a plc perspective as well. 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 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 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, I have to have some sort of a deck. I'm really going to 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 kind of old and new as well. So I will crack on with that now and give a little bit of a 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 who Xeros are. So we are, as we call ourselves, the future of laundry. And when we talk about laundry, we're highlighting the fact there are 2 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. 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 kind of a link between wash performance and degradation of garments, fundamentally, they've not been able to find a solution to that. And so hence, this is where Xeros kind of enters the fray. So our solution, which, as we say, we very much believe, is the future of the laundry industry, is about introducing a new medium, which is what we call XOrbs. You can see with some of 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, will use less energy in terms of the processing of it, less water and less chemistry as well. I will clarify a little bit more on some of the specifics of how that works as we skip through. So we've got 3 kind of applications of that technology, 3 industries that we're targeting. The first being the domestic laundry industry, which I think is fairly intuitive what that is. The second is commercial laundry. So this is, again, washing machines, albeit larger formats for hospitality, for leisure, for industrial line producers as well. And the third is garment manufacture. So 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 using a massive washing machine, which again uses a huge amount of water, energy and kind of finite resources. So I just give you a bit of a top level on that. So from a domestic laundry perspective, what we do is we introduce our technology within that. So the XOrbs is part of that. This is this additional medium, these small beans, which then kind of massively increase the efficiency of that process. But we also introduced a bit of architecture to a preexisting domestic washing machine, which is what we call an XDrum, 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 beans. 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 machine. And that's partly through the architecture with the XDrum, which is also [ through ] cycle development as well. So 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 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 your favorite jumper, and unfortunately, you put it into the wash and it gets shrunk, it pills. The Xeros technology is absolutely a solution to that. And it's not just on woolens, it's on every day fabrics as well. In terms of where we are on that piece, it's a huge market. It's about 100 million units that are sold every single year. We offer those benefits, as I said, on water, energy, chemicals use and indeed garment life extension. And actually, we are now on the cusps 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 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, only 1 million units per annum, but obviously a significantly larger revenue opportunity. And that's partly because we can charge a higher royalty on that. But it's also because the XOrbs 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 blade model. And actually, you can see that, that is a high-vis jacket, which is 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 an industrial laundry over there. And you can see some of the brands that are currently using that technology, Air France, EDF, Renault, SNCF. And the really fabulous news is that not only do we know that those operators [indiscernible] are getting those benefits in terms of the water, energy and chemistry saving, but that customers are reporting back that they are seeing extensive gains in terms of the life of those uniforms. So SNCF reported 20% gains, which is a significant kind of benefit for them from a financial perspective, but also clearly from an environmental perspective as well. 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 kind of final process to create that kind of look and feel as well. And this is the first area that Xeros has focused on. So when they talk about stonewashed jeans, they literally mean it's washed with stone, which is 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, 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 finite resource, which is being used, which unfortunately, after its used as well creates some kind of a chemically contaminated sludge. Smaller unit opportunity again. But bearing the same kind of quid pro quo, we've got 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 2 licenses in place, the most recent of which, Yilmak Makina, 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 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 laundering of clothes, which, when you think about it, makes sense. You could close into this kind of level of agitation with lots of hot water and chemical being fired at it to clean it, and then it causes the shedding of microfibers. We will imminently, so this year, in the summertime, we're going to launch the XF3, is what we call it. It's an 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 rate. So we got up to 99% of the microfibers. It could be placed anywhere with the machine. And as I said, 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 all of the key global markets. So there's that 100 million unit opportunity. Again, those are for new machine sales. But actually, because this can be retrofitted, we see a total addressable market of 1 billion washing machines, which is how many domestic washing machines there are in the world today. 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 entirely royalties, so that flows through quite well to the bottom line. And also, just to draw your attention to the kind of consumer appetite for this product. Some very high percentages in terms of the insight studies that we've conducted, which demonstrate that not only do people think that microfiber capture device should be standard on washing machines, that they'd be willing to pay more for it as well. So we're confident that there will be an addressable market for that product. Okay. Just a really kind of top level. This is something that Alex and I reiterate every single time we have conversations with people. 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. I've been with the business for just over 2 years, although Alex has been with the business a bit longer in a kind of leadership role for about 2 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 as well is starting to see some of the significant traction that we're managing to get in recent months. I won't pause to go through the strategy road map beyond to say that 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 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 whether it be in 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 because they're good for the environment because they make economical sense as well. 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 kind of add a bit of meat on those bones as we said. So the first is those that were 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 U.K. So 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, this is a brand that has full distribution throughout all of the key retail outlets. So we're very confident on the basis of that relationship that we will -- this will see the XF3, 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 is a global opportunity for this product. If you like, this is a U.K.-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. 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 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 over 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 European or European-based, but they are a global brand group. They have agreed that they want to start what we call a tech verification process on the CARE technology. The tech verification process is a very structured approach. And effectively, as I'm saying, all of these wonderful benefits that we can demonstrate, such as that woolen jumper we showed earlier in the presentation, we can do that on your machine. So we asked them to send us their machine. We retrofitted 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 in 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 time lines, because they're very keen so that we can start about a JDA, a full-blown JDA in the summer time. And just to elaborate on that, this is not one. So actually, this European-based brand now takes the total number to 4 of those world's top 10 washing machine brand groups that we're actually having these tech verification processes with. A lot of those, we're pretty confident that 2 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 paid-for joint development agreement. So that they can have an opportunity to reach commercialization in 2026. To give you a bit of a sense of the quantum that we're talking about, any 1 of those 4 that were in that process with right now will be in -- will have annual volumes of at least 5 million. In some cases, over 10 million units that'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. 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 for those guys, but they indicated that they would have to delay to the summer back in Q3 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 as being the viable opportunity for them as well. Okay. Just to give some kind of headlines in terms of the finances, Alex, if you want to run us through that.

Yes. So obviously, we finished the year in 2024 with GBP 2.8 million in the bank. We obviously don't carry any debt at this stage. We are kind of a low overhead business, which means that we see that, that is a -- that GBP 2.8 million that we've got is a really good platform for us to go into this year. Neil has run you through kind of some of the commercial highlights of what those technologies can do, and we expect all of them to be providing revenue this year at record levels of margin. And that allows us to see that, by the end of the year, we will be bringing more cash and spend them, and we can move with that operational cash breakeven point. This -- that allows us to make the statements that we've made in the trading update that is we see the cash reserve 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, it's fair to say prudently. And we have kind of trimmed our cost down over the last couple of years, and we see it going to be even lower than it was in 2024 in 2025. So that kind of combination of the commercial breakthroughs that we expect to happen and the cautious management of the funds that we have allow us to feel that we're in a really positive place from a cash platform and to take us to where we need to get to.

Thank you, Alex. Okay. I'm going to kind of skip through these guys because 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 yes, I mean I'm happy to jump into those questions if we feel it's appropriate.

[Operator Instructions] While the company take a few moments for the questions that have been submitted today, I would like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. As you can see, we've received a number of questions, both pre-submitted and throughout today's live event. And now, if I could hand over to you just to read out the question and give response to what's appropriate to do so. I'll pick up from you at the end.

Super. Yes, happy to do so. Okay. So I'll try and rustle through these. So the first question is about what is a realistic time frame on first orders being shipped out. So if I kind of run through each in question. So maybe if I start with the denim and the finished side of it. So that has effectively concluded that. We've added a couple of extra cycle development on the back of the requests from Yilmak in particular. Our anticipation is that first orders for XOrbs will come through imminently within the next few months. On the domestic laundry care side things, as I said, IFB are trending very positively. Again, our anticipation is that we will receive first XOrbs orders from them certainly within the first half of this year. And then on the filtration side, 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 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 this place. So yes, I mean, we will be expecting a ramp up as we kind of 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. I don't know if you want to add anything to that, Alex.

No, I think that's a fair summary. We see that the revenue will start in the first half of this year. We should be able to provide some updates on that as we do our next sort round of communications 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 of filtration. So please update us on the current progress of legislation on filtration in France, the EU and globally. Are countries going back on bringing in legislation? And what is the impact on future sales? So I guess I can kind of give our view on this. So I think it's fair to say, yes, there has been a bit of a pause or a delay to a certain degree on legislation. A 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 investing [ plant's ] brands pushed back on that and highlighted as a major reason why they couldn't do that is there was no standard. There's not only no standard, there was equally no technology out there that could effectively meet what the French government was asking for. The move on our part -- and indeed, I think it's fair to say about a couple of other providers within the space, to introduce technology, which absolutely we know will meet any and all standards that could be set, is a way to effectively answer that question. It's going to 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 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 4 U.S. states at this moment in time. There is a move within federal kind of initiative as well within the U.S. The EU has continued to talk about it. There is a Private Members' bill, which we have supported within the U.K. Parliament. And actually, various other countries. So Canada has been talking about this. Australia has been talking about this. So the timing, I guess, is being clarified, but this has absolutely not gone away. And I think it won't, because the scientific evidence is 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 very reputable institutions highlighting what danger we can get from microfibers and microplastics. It's being found in the human body all over the place -- brain, hearts and so on. This is an issue which clearly is going to have to be addressed. So we -- yes, we don't feel as though that this is a thing that's going to 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 who's very purpose is to effectively establish what their standards are. It moves to a certain degree, but I think it's fair to say that they are establishing a time frame, and that time frame is not decades, it's within the next few years by which that standard will be set. Okay. Next question is, again, pre-submitted. So how confident are we that there'll be no need to raise further equity? I mean, I think, again, what I can say is Xeros has never been closer. And I think we're definitely seeing that the conversations that we're having with people, not just in terms of globalization, but the pre-existing licensees that we have in place. I've mentioned that we're expecting orders within the next few months, not within the next 12 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 where we are. But I think from my perspective, I foresee a very reasonable scenario, whereby we absolutely will be able to manage with the cash that we haven't have on hand today. Alex, I don't know if you want to add to that.

Yes, just to kind of follow up from what Neil was saying there. We -- this is clearly -- it won't surprise anybody, this is what I spend most of my time thinking about. And we are kind of comfortable with the position we're at the moment. We have kind of made those changes to the cost base to allow us to have the longest runway we possibly can, and we are confident that the things we're doing with our customers will allow us to bring in the relevant revenues this year. So we're as confident as we can be. As we move into full commercialization, we'll see the full breadth of opportunities that open up to us. But yes, 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 were they consider doing so on the back of this positive outlook? So I think, clearly, there are restrictions in terms of when we can trade and when we can go into the market. This is something that we we'll have a conversation with our brokers about. And for sure, obviously, as and when that should come, we'll be obliged to announce that as well. So I think kind of -- yes, watch 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 XF3 filtration technology? I think we've kind of answered that one. I mean I would just highlight again that, for sure, it's about demonstrating that our tech is good enough, and we're very confident it can be. We want to 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 opportunity for effectively an attachment sale or a stand-alone sale to it being part of the bill of materials of the machine. And absolutely, the washing machine brands are indicating that's something that they know they're going to have to do. Okay. Next question is, is there any future ambition to place further shares or dilute in any way? I think, again, we've kind of addressed that one at this moment in time. We can confidently say no. We're working to survive with what we have. Next one is, the delay in XOrbs 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 now complete? So I think this is a specific reference to the Yilmak bit. So this was -- this is the reality. You get new technology out there. Yilmak actually took it to their customers and they came back and said, ideally, we'd like it as a pumice replacement. 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 B2B model. We never have full control of these things. But at this moment in time, no, I think we're confident that there shouldn't be any further delays on that. Next question submitted. Xeros in the past has been very wide of 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 we have spent a long time going through this. We've put numbers in the market which we feel give us good confidence to be able to beat them. I think if it gives people confidence this is not all of our opportunity -- our total opportunity. From a sales front perspective, it's significantly above that. But that's absolutely what we're aiming to do. Second question is about partnerships with Chinese manufacturers. I think it's fair to say that our focus at this moment of time is on domestic laundry. The key Chinese manufacturer in that space for us is Donlim. And clearly, on an XF3 perspective, we absolutely see that, that will be a solution for us to give people some kind of confidence on them as a global manufacturer those. So they're the app manufacturer in China. They also have it in various other countries. Indonesia have been another key area for them. So it doesn't inhibit if we're trying to do stuff within the U.S. Question about manufacturing partners with Ramsons. Leather tanneries never came back with large new orders. So Ramsons are still very much there. And actually the anticipation is that on the back of Yilmak kind of resurgence, there will be opportunity for Ramsons. The leather piece is still very much there. We don't talk about it so much, but actually, it's still live very much so. And they are continuing to raise interest in what they do. And further question about it. 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 will come back to later on in this year as we start to get a better sense. But we won't leave a blank. One aspect of the business, most promising? That they all are. We absolutely see all of them will contribute. Just struggling to try and get to all these questions. And then, confident of being able to get the 2024 annual report signed off on a going concern basis without a further fund raise. Alex, I'll give back on to you.

Thank you. Yes. So I mean, I can't speak to the details of the audit process, which is obviously ongoing at the moment. I would imagine the going concern status of the group that we have this year will be similar to how it's been disclosed in previous years. We've had no -- kind of no significant change to how we work from last year in that. So those conversations are continuing with Crowe, our auditors, and they are supportive of what we do. But yes, I can't speak to the outcome of that until we [ do, I'm afraid ].

Okay. Super. Super. Okay. I think that's all the questions answered.

Perfect. Thank you very much for answering those questions as you can from 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. 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.

Yes. I mean, listen, all I'll say, guys, is that there's been [ worse at ] Xeros a lot in previous years to a certain degree. Alex and myself, I think, let our actions speak for ourselves this year. We're very confident that we're going to start to make the progress that we've talked about since my vision, since I came onboard a couple of years ago. We really see that's going to happen this year. So watch this space, and we're very confident we'll deliver further good news flow and pay back kind of our investors for their support over the years.

That's great. No, Alex. Thank you once again for updating investors today. Could I please ask investors not to close the session as you now will be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This is only going to take a few moments to complete, which I'm sure will be greatly valued by the company. On behalf of the management team Xeros Technology Group plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thank you.