IP GROUP
Rapidly gaining traction in Commercial Laundry and proposed £40m Placing
Xeros Technology Group plc (AIM: XSG, 'the Group', 'Xeros'), the innovative developer of patented polymer bead systems with multiple identified commercial applications, today published results for the year ended 31 July 2015.
The Group also intends to raise approximately £40 million via a placing of new Ordinary Shares at a price of 225p per with both new and existing institutional investors - see separate announcement.
Highlights
· Significant progress made in Commercial Laundry:
§ Increasing US market take-up - 46% of machine sales repeat or affiliated buyers
§ Seven out of 10 largest US hotel chains now customers
o Team of seasoned industry professionals recruited and forward channel partner network established
o At end of September 2015:
§ 103 machines US customer installations - further 39 committed to be installed
§ 20 machines installed in Europe - further commitments to install of 15
· Leather Processing - accelerating progress towards scale validation
o Phase 2 covering full scale trials started mid-October 2015, due for completion by the end of H1 2016
· Domestic Laundry - market potential greatly in excess of commercial laundry
o Significant activities planned to develop the opportunity
· Earned income up 52% to £480,000 (2014: £315,000)
· As at 31 July 2015, contracted future revenues of £1.6m (2014: £0.8m)
Proposed Placing to raise approximately £40 million
Funds raised will enable the Group to maintain the momentum seen since IPO over approximately the next two and a half years as it seeks:
· to accelerate its roll out strategy of the Commercial Laundry business in the Americas and Europe
· to continue its development of technologies for the domestic laundry and leather processing markets and
· to increase the scope and scale of its polymer science and engineering platforms in order to capitalise on additional opportunities to apply its polymer bead innovations.
Circular to be sent to Shareholders today, appending a Notice of General Meeting
John Samuel, Chairman of Xeros, said:
'I am very pleased with the progress we have made in the year to 31 July 2015 and believe that we are well placed to capitalise upon that progress in the current year. We have made significant advances in our disruptive technology platform and are increasingly confident of its potential in a number of industries. We plan to continue to invest in the development of the commercial laundry business and also to accelerate the development of other applications of this technology.'
Mark Nichols, Chief Executive Officer of Xeros, said:
'In the short term, we are focusing on driving our commercial laundry business to meet the growing demand, particularly in the US, for our energy and water efficient solutions with superior cleaning performance. This is providing us with increasing forward visibility on revenues. As at 31 July 2015, contracted future revenues amount to £1.6m up from £0.8m.
'In the medium term, we plan to capitalise on the excellent progress we continue to make with our application in leather processing. We are also developing the opportunity in the global domestic laundry market.
'In the longer term, we have the opportunity to commercialise a number of further applications in parallel.
'The fundraising announced today will support the execution of our strategies over these horizons. We look forward to the future with confidence.'
For further information, please contact:
Xeros Technology Group plc www.xeroscleaning.com
Via Instinctif Partners
Mark Nichols, Chief Executive Officer
Chris Hanson, Chief Financial Officer
Jefferies International (Nominated Adviser)
Tel: 020 7029 8000
Simon Hardy / Harry Nicholas
Instinctif Partners
Tel: 020 7457 2020
Adrian Duffield / Helen Tarbet / James Gray
Chief Executive's report
Strategic overview
Since my appointment as Chief Executive in September 2015, I have spent time getting to know each aspect of the business and I am very excited by the prospects for the Group. My reviews have provided me with confidence that the business has the potential to evolve new, additional revenue streams.
The excellent progress in Commercial Laundry and the successful trials in Leather Processing provide me with this confidence. There is also increasing evidence that Xeros' polymer bead science is becoming a platform technology, which can be successfully applied across a number of water intensive domestic and commercial processes.
Our aim is to use our patented polymer bead inventions to reduce consumption of both water and energy in these processes whilst simultaneously improving the quality of their outcomes. In so doing, derive high margin revenues for the Group, based upon the savings and performance improvements delivered.
Applications of our technologies are being developed across three horizons. Firstly, Commercial Laundry which is now growing rapidly. Secondly, Leather Processing and Domestic Laundry which are currently being developed actively for commercialisation and thirdly, additional attractive applications which we are in the process of reviewing for inclusion in our development pipeline. Such potential future applications include garment finishing, elements of which are analogous with those found in commercial laundry. Our bead technologies are disruptive in each of these areas and we will continue to be open minded as to the business models and commercial arrangements we deploy to capture the value we create.
Fund raising
The funds raised from the proposed Placing announced today, will enable us to accelerate our roll out strategy in the Commercial Laundry business in the Americas and Europe; to continue our development of technologies for the domestic laundry and leather processing markets and to increase the scope and scale of our polymer science and engineering platforms in order to capitalise on additional opportunities to apply our polymer bead innovations.
Excellent progress in Commercial Laundry
Commercial Laundry, the first market in which we chose to commercialise our bead technology, has made significant progress during the year. In April 2015, we established the global Commercial Laundry business led by Jonathan Benjamin, based in the US. Jonathan has responsibility for product development, sales, marketing, and operations on a worldwide basis.
Recent senior appointments include a General Manager for North America, a Vice President of Operational Excellence and a North American Director of Sales. These appointments, when combined with the balance of senior management, result in a leadership team with an average of 20 years of relevant experience with which to implement our Commercial Laundry business plan.
In addition, the business has grown its sales team with the recruitment of regional sales heads for the West Coast, South East and Mid-Atlantic. A Senior Vice President of Information Technology has also joined to lead initiatives in this area including the development and commercialisation of our remote machine monitoring systems. The Commercial Laundry business now has a total number of 41 employees worldwide with 30 based in the US.
Our Commercial Laundry business currently targets the commercial and industrial laundry equipment segments within the 'On-Premise Laundry' (OPL) market. The business model is founded on offering customers an integrated washing machine purchase and service package, known as Xeros Sbeadycare®.
Our growth in these target segments has accelerated significantly. When the Group announced its results for the last financial year in October 2014, the Commercial Laundry business had 37 installed and committed machines in the US and counted four out of the five largest hotel groups as customers with machines either installed or committed to be installed in the US.
As at the end of September 2015, there were 103 machines installed at US customers' premises with commitments to install a further 39. In addition, there were a further 20 machines installed with European customers with further commitments to install of 15. In the US, 46% of sales of machines have been from repeat or affiliated buyers and seven out of the 10 largest hotel chains are now customers.
The current US customer base is now comprised of Hotel and Lodging with 59%, Retail Laundry with 35%, Industrial Laundry with 3% and others with 3%. Progress to date in the US is against a potential addressable replacement market size of circa 10,000 machines per annum with an estimated machine useful lifetime of 10 years.
In the US, Xeros machines are now installed with customers in 26 of the 50 States with multiple installations in a number of states including Georgia, Rhode Island, Missouri and California where high energy and water costs or water scarcity are particular features.
Growth in the US has been achieved by our highly experienced management team working in partnership with our Forward Channel Partners ('FCPs'), a large number of whom were brought on board in April 2015 following Xeros' exhibiting at the biennial Clean Show in Atlanta, Georgia. In combination, these resources are now providing customers with increasing numbers of Xeros machines and the high quality Xeros Sbeadycare® service.
Following the announcement in August 2015 of the recruitment of FCPs serving areas of Canada, Mexico and the Caribbean, the Commercial Laundry business intends to extend its model into additional countries during 2016 focussing on those with market structures and needs which make entry attractive.
In response to customer feedback, the Commercial Laundry business also simplified and restructured its US commercial arrangements. Customers now pay the same price for Xeros machines as they would for a conventional machine of the same size and can either buy them outright under the 'Perform' contract or through a leasing arrangement, the 'Complete' contract.
The benefits of reduced costs of water, effluent, energy, maintenance and chemicals that the Xeros machines and Sbeadycare® service deliver are now also being calculated and communicated to customers using our 'Global Controller' machine management system and our signal processing and transmission technology, Sbeadycare® Pulse. These two technologies, which work together in an integrated manner, enable remote monitoring, analysis and diagnostics with the information received used to improve the customer's laundry performance, schedule maintenance and validate savings. The ability to provide this evidence to customers is expected to further enhance adoption rates.
The business has continued to respond to water scarcity and energy conservation being an increasing focus for government, municipal authorities and utility companies in the US. By way of example, the business continues to run targeted promotions and campaigns in California with the result that eight FCPs now serve the state and four utility companies provide incentives for the use of Xeros technology. Across the US, 19 utility companies now offer incentives to Xeros customers in 24 states and in one province in Canada.
In 2015, we commenced development of a 15kg (35lb) machine as a complement to our 25kg (55lb) machine in order to broaden the offering within targeted OPL market segments. This smaller size also fits well within the Laundromat market which is the largest commercial laundry segment in the US. This addition, combined with Xeros-branded dryers added to the range during 2015, will position the Commercial Laundry business to be capable of accessing a wide customer base. This increase in market reach will be further supported by the planned opening of a Xeros-branded laundromat concept store in Boston in mid-2016.
In June 2015, our Chinese machine supplier, Sea-lion, opened a new 300,000 sq. ft. facility, in Zhangjiagang City within which the increasing levels of production required by Xeros will be manufactured. Following which, a Joint Development Agreement was signed with Sea-Lion in September 2015 to complete the development and subsequent production of the aforementioned 15kg (35lb) machine.
Domestic Laundry
Discussions continue with major machine manufacturers on three continents as we determine a suitable route and business model through which to generate an appropriate return on our intellectual property. In support of our ambitions in this market, independent, nationwide research amongst US consumers has yielded positive results when comparing the Xeros machine and technology to a leading conventional brand.
The laundromat concept store in the US will enable additional consumer engagement and feedback on Xeros' latest domestic prototypes, their performance, control systems and operability. We also intend to use the store as a marketing tool to create a widespread awareness and create broad consumer interest and demand for our polymer bead cleaning technology. This, in turn, is expected to increase momentum with manufacturers, retailers and distributors, as well as create further interest from other stakeholders such as regional and national governments.
Leather Processing
Since the establishment by Xeros of a facility at The Institute of Creative Leather Technologies ('ICLT') at The University of Northampton, we have successfully completed a number of feasibility studies using polymer bead technology instead of conventional processes in the preparation, tanning and dyeing of leather. The Group has filed six patents covering the use of its polymer bead technology in leather processing; a market which is estimated to have an annual chemical demand in the region of $2.5 billion.
On 28 April 2015, we entered into a multi-phase Joint Development Agreement with LANXESS which aimed to demonstrate that the Group's patented technology could be viably deployed in large scale tanneries. LANXESS is a DAX listed specialty chemicals business headquartered in Germany with sales of €8.3bn and is a leading supplier of specialty chemicals to the leather industry on a worldwide basis.
Small scale trials were successfully completed under Phase 1 of the agreement one month early in July 2015. The Phase 2 scale-up validation stage agreement was signed in September 2015, covering progressive full scale production trials in a tannery with completion planned by the end of the first half of 2016.
We are planning to increase our resources to support broad market penetration and to work with tanneries to assist them in adopting our bead technology. We are also working hard to identify the value Xeros brings to leather processing and to develop a commercial strategy whereby we materially benefit from the value our technology creates.
Polymer bead development
The Group continues to develop and enhance its polymer bead technology for use across a range of applications. The physical design of 'Gen 1' beads (i.e. their shape, size and density) for application in laundry has enabled excellent cleaning outcomes. Further development work on 'Gen 2' beads is being undertaken as part of our Development Agreement with BASF as well as research conducted independently within the Group, and in collaboration with academic institutions. The design of 'Gen 2' bead enables the incorporation of chemistry to improve laundry outcomes yet further still. We anticipate that the development and introduction of beads with this active chemistry for enhanced effects will further increase the appeal and demand for Xeros' technology.
In conjunction with ICLT, the Group has finalised the physical design of a bead for application in leather processing. The design is now being used in the Phase 2 scale-up trials with LANXESS.
Further applications development
In addition to Laundry and Leather Processing, the Group sees further significant opportunities for the beneficial application of its technology within other industrial and domestic aqueous processes. We plan to undertake the assessment and determination of additional potential applications in the first half of 2016 and select particularly attractive applications for further development. Such potential applications include garment finishing, which has physical production processes analogous with those found in commercial laundry.
To meet the increasing development demands, we will continue to grow the scope and scale of our polymer science and engineering capabilities. These teams which have grown, in aggregate, to the present level of 29 are now housed in the Xeros Technology Centre, a specially designed 11,000 sq. ft. facility opened in August 2015.
Investment in our polymer science and applications engineering teams will be used to complete the commercial laundry product range, support potential entry into the domestic laundry market and to speed up the commercialisation of the technology in leather processing.
Intellectual Property protection
The Group's proprietary technologies are protected by a library of patents, which in aggregate, form a comprehensive intellectual property portfolio and present a substantial barrier to entry for potential competitors.
During the year, the Group expanded its patent portfolio and now comprises 39 patent families 'pending' and 'granted' whose coverage includes bead technologies in commercial and domestic laundry, leather processing, metal surface treatment and garment finishing. The grant of two patents covering the Group's core process in March/April of 2015 now means that this coverage has now been achieved in each of our targeted major markets.
The future
Looking ahead, we have a number of opportunities in our current and future growth horizons.
By 30 September 2015, the Group had 123 machines installed with commercial laundry customers in the Americas and Europe with 54 further commitments for installations in the coming months. 103 of these installations were in the US where it is the Group's ambition for the Commercial Laundry business to achieve significant market share over the next five years in its areas of focus within the US OPL machine replacement market.
The Group anticipates taking measured growth steps in Commercial Laundry which, whilst stretching, is predicated on the requirement to continually deliver the highest levels of customer service. The resultant customer satisfaction should help to broaden and deepen market acceptance as customers' positive experiences endorse the cost and performance benefits of our Commercial Laundry business' full service offering. The next phase of growth over the coming 12 months will be enabled by the continued training and accreditation of the first wave of FCPs, following their recruitment in April 2015. Further growth is anticipated with further additions to our FCP network.
We seek to continue the progress in the Leather Processing market at a pace similar to that experienced over the last year and to progress our strategy for participation in Domestic Laundry by increasing engagement with machine and detergent suppliers.
We also look forward to concluding our appraisal of further viable applications and building our teams to deliver them.
For full announcement, please click here.
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