Xeros Technology Group plc
Technology Group plc
Unit 14, Evolution
Advanced Manufacturing Park
Whittle Way
Catcliffe
Rotherham
South Yorkshire
S60 5BL
www.xeroscleaning.com
Annual Report
For the year ended 31 July 2015
DIRECTORS
John Samuel
Mark Nichols
Chris Hanson
Dr Steve Jenkins
Julian Viggars
Dr Maciek Drozdz
Dr Richard Ellis
(Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Chief Science Officer)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY
Chris Hanson
COMPANY WEBSITE
www.xeroscleaning.com
COMPANY NUMBER
08684474 (England and Wales)
REGISTERED OFFICE
Unit 2 Evolution
Advanced Manufacturing Park
Whittle Way
Catcliffe
Rotherham
S60 5BL
REGISTRAR
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
B63 3DA
AUDITOR
LEGAL ADVISER
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Squire Patton Boggs (UK) LLP
7 Devonshire Square
London
EC2M 4YH
NOMINATED ADVISER AND BROKER
Jefferies International Ltd
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Chad Hanson, VP Operations at Witham Family Hotels, a franchisee of
Choice Hotels International with Xeros VP of Field Operations Jim Basler
and Stefano Vio, Chief Engineer for Witham’s property located in Danvers,
Massachusetts. In total the property has installed 3 Xeros washing
systems and 2 Xeros dryers.
The Power of Polymer Cleaning®
www.xeroscleaning.com
Operational Highlights
•
Significant progress made in
Commercial Laundry
o
o
o
Increasing US market take up
with 46% of machine sales from
either repeat or affiliated buyers
Seven of the 10 largest US hotel
chains now customers
Team of seasoned industry
professionals recruited and
forward channel partner network
established
o
At end of September 2015:
— 103 machines installed in US
– further 39 committed to be
installed
— 20 machines installed
in Europe – further 15
committed to be installed
•
Leather Processing – accelerated
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
•
Proposed placing to raise £40m
before expenses to enable the
Group to maintain the momentum
seen since IPO as it seeks to:
o
o
o
accelerate the roll out strategy
of the Commercial Laundry
business in the Americas and
Europe;
continue the development of
technologies for the Domestic
Laundry and Leather Processing
markets; and
increase the scope and scale
of the polymer science and
engineering platforms in order
to capitalise on additional
opportunities to apply polymer
bead innovations
Financial Highlights
At 31 July 2015, cash resources
of £17.5m (2014: £29.5m) and
the Group remains debt free.
Proposed placing of shares to raise
£40m, before expenses, increases
cash resources at
31 July 2015 on a pro-forma basis
to £57.5m
•
•
•
Group earned income increased
by 52% to £480k (2014: £315k),
largely driven by progress in the
US
•
As at 31 July 2015, contracted
future revenues of £1.6m (2014:
£0.8m)
Net cash outflow from operations
increased to £11.8m (2014:
£7.2m) reflecting continued
investment in research &
development programmes
alongside Commercial Laundry
working capital and expansion
costs
Contents
Chairman’s Statement ...................................................... 3
Chief Executive Officer’s Review ......................................... 5
Strategic Report ............................................................... 13
Directors’ Report .............................................................. 16
Directors’ Remuneration Report ......................................... 18
Corporate Governance Statement ...................................... 21
Statement of Directors’ responsibilities ............................... 22
Independent Auditor’s Report to the Members
of Xeros Technology Group plc ........................................... 23
Consolidated Statement of Profit or Loss and
Other Comprehensive Income ........................................... 24
Consolidated Statement of Changes in Equity ...................... 25
Consolidated Statement of Financial Position ....................... 26
Consolidated Statement of Cash Flows ............................... 27
Notes to the Consolidated Financial Statements ................... 28
Company Statement of Changes in Equity........................... 51
Company Statement of Financial Position ............................ 52
Notes to the Company Information .................................... 53
Notice of Annual General Meeting ...................................... 55
Xeros Technology Group plc
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CHairman’S STaTemenT
CHairman’S
STaTemenT
“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.”
John Samuel
Chairman
Overview
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.
In Commercial Laundry we have increased the number of installations of our
current machine and are scaling up our network of forward channel partners
in anticipation of further growth. In Leather Processing, our development
agreement with LANXESS is moving faster than our original expectations and
is showing great promise. We also have a prototype domestic machine, which
is attracting interest from a number of industry leading manufacturers. There
will be further development of this machine using our new generation of beads
and we will be progressing discussions with both manufacturers and detergent
companies in this financial year.
In mid-2016 we will be launching a concept Laundromat store in Boston (USA),
which will showcase both our current 25kg commercial machine and our new
15kg version. The 8kg domestic sized prototype will also be involved in this
programme.
We plan to continue to invest in the development of the commercial laundry
business but also to accelerate the development of other applications of this
technology.
Strategy
We have a disruptive technology, which radically reduces water consumption,
energy usage and effluent output across a number of industries. Commercial
laundry is our first application and in this application we have clearly demonstrated
that we use up to 80% less water, up to 50% less energy and up to 50% less
detergent. We also produce a superior cleaning performance.
We believe these benefits can be made available across a number of industries
and intend to invest in developing the platform.
Fundraising
We announced today our intention to raise £40m before costs via a placing with
institutional shareholders. The proceeds will be used to continue the expansion
of commercial laundry in the USA and other countries; to provide funding for the
exploitation of our Leather Processing application and to provide capital for our
plans to explore broadening the applications for this technology.
The Board
Mark Nichols was appointed Chief Executive Officer on 14 September 2015. He
has more than 20 years’ experience at senior levels in business development,
operational and financial roles in both multinational and technology start-up
businesses.
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CHairman’S
STaTemenT
Financial accounts
We will be changing our financial year end to 31 December and plan to introduce
a more detailed segmental reporting analysis in future reports.
Outlook
In the short term we are focused on driving the commercial laundry business to
meet growing demand. In the medium term we will capitalise on the progress
and momentum we have with leather processing and in domestic laundry. In
the longer term we will be evaluating the value of this platform technology in
other applications.
Thanks to the effort, commitment and enthusiasm of our team I have confidence
that this will be another exciting year of progress.
John Samuel
Chairman
11 November 2015
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Xeros Technology Group plc
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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®.
“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.”
mark nichols
Chief Executive Officer
Hyatt Resort Virginia 25kg Machines
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Title: Inverrary Resort Florida
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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.
8. page 6
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
Insert between paragraphs: “At the end of September ….are now customers” and “The current US
commitments to install of 15. In the US, 46% of sales of machines have been
customer ……..lifetime of 10 years”
from repeat or affiliated buyers and seven out of the 10 largest hotel chains are
now customers.
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Julian Ramirez, Owner of Inverrary
Resorts, Fort Lauderdale, Florida has
installed 2 Xeros washing machines and
1 Xeros branded dryer at this location.
Title: Cumulative US installs*
Cumulative uS installs*
120
100
80
60
40
20
0
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2014
2015
*20 machine installs in Europe as at 30 September 2015
* 20 machine installs in Europe as at 30 September 2015
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.
5
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.
Forward Channel Partners
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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.
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In response to customer feedback, the Commercial Laundry business also
simplifi ed 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 benefi ts of reduced costs of water, effl uent, 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.
Integrated supply, service and support
Integrated supply, service and support
Integrated supply, service and support
Integrated supply, service and support
Utility measurement and rebate
optimisation
Utility measurement and rebate optimisation
Utility measurement and rebate optimisation
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.
Utility measurement and rebate optimisation
Laundry system optimisation
Laundry system optimisation
Laundry system optimisation
Laundry system optimisation
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 fi ts 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.
7
In June 2015, our Chinese machine supplier, Sea-lion, opened a new 300,000 sq.
7
ft. facility, in Zhangjiagang City within which the increasing levels of production
required by Xeros will be manufactured. Following which, a Joint Development
7
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.
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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 the medium
term, we plan to
capitalise on the
excellent progress
we continue to make
with our application
in leather process-
ing. We are also
developing the op-
portunity in the
global domestic
laundry market”.
mark nichols
Chief Executive Officer
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.
Xeros Polymer beads in the Leather
tanning and dyeing industry
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Xeros Technology Group plc
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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.
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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.
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“In the longer term,
we have the oppor-
tunity to commer-
cialise a number of
further applications
in parallel”.
mark nichols
Chief Executive Officer
Cumulative Patent Filings
39
34
27
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2006
2009
2010
2011
2012
2013
2014
2015
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Financial review
Group earned income was generated as follows:
Machine sales
Service income
Lease interest income
Total earned income
audited
Year ended
31 July
2015
£’000
289
177
14
Audited
Year ended
31 July
2014
£’000
284
28
3
480
315
Group earned income increased by 52% to £480,000 in the year ended 31 July
2015 when compared to the prior year (2014: £315,000).
Notably service income from the installed base of Commercial Laundry machines
has increased signifi cantly during the year ended 31 July 2015, to more than six
times the service income generated in the previous year.
The point at which revenue and costs from machine sales can be recognised is
dependent on the completion of a number of stages. These include the installation
of the machine, commissioning of the machine, acceptance of the machine by the
customer, completion of utility incentive formalities, where applicable, and then,
in the case of lease sales, fi nalisation of the lease agreement. The Group does
not recognise revenue and costs from a machine sale until all of these aspects
are complete.
The number of machines installed in the year are as follows:
Year ended
31 July
2015
no.
Year ended
31 July
2014
No.
Machines sold – revenue and costs
taken to P&L statement
Machines commissioned and generating service revenue,
but machine sale revenues and costs not yet recognised
Machines installed but not yet commissioned
Machines installed in the year
16
32
34
82
17
–
–
17
As at 31 July 2015, contracted future revenues amount to £1.6m (2014: £0.8m)
and average contract length is 74 months (2014: 76 months).
Adjusted gross margin improved to £81,000 (17%) from £21,000 (7%) in the
year ended 31 July 2014.
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Xeros Technology Group plc
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The Group has continued to invest in its R&D programme. The Group spent £3.6m
on R&D including staff and patent costs (2014: £3.0m) alongside the Commercial
Laundry working capital and start-up costs, in line with the Board’s expectations.
This has resulted in an Adjusted EBITDA loss of £9.9m (2014: loss £6.3m).
The recent strength of the US$ means that working capital and start-up costs in
the US Commercial Laundry business are proportionally more expensive when
translated into Sterling, the Group’s functional currency. However a strong US$
will benefit the Group financial statements as the US business grows to generate
cash and become profitable.
The Group reported a loss after tax of £10.2m (2014: £6.4m). The loss per share
increased from 12.9p in 2014 to 15.6p in 2015.
The Group expects cash utilisation to continue to accelerate over the coming
years, as we continue to fund our R&D programmes alongside the roll-out in
Commercial Laundry. The increase in net cash outflow from operations to £11.8m
(£7.2m: 2014) for the 12 months to 31 July 2015 reflects these activities and was
in line with the Board’s expectations. The Group had existing cash resources as at
31 July 2015 of £17.5m (2014: £29.5m) and remains debt free.
The Group has tax losses of approximately £19.8m to offset against future taxable
profits (31 July 2014: £11.2m).
accounting reference date change
Historically the Group was predominantly a research and development business
with strong university and academic links. A 31 July year end was therefore
consistent with the business as it then was. The Group has decided to change its
accounting reference date to 31 December, primarily to bring it into line with a
more conventional commercial company reporting timeframe, consistent with the
development of its commercial operations, in order to provide ease of reference
for investors, customers, managers and employees.
The effect of the change to the accounting reference date is to extend the next
accounting period to 31 December 2016, a period of more than 15 months. In
accordance with Rule 18 of the AIM Rules, therefore, the Company will prepare
and notify a second half-yearly report and will have the following reporting dates:
•
•
•
Unaudited results for the five months to 31 December 2015 – to be
announced by 31 March 2016
Unaudited results for the six months to 30 June 2016 – to be announced
by 30 September 2016
Audited results for the 17 month period to 31 December 2016 – to be
announced no later than 18 May 2017
The Group will subsequently publish its half-yearly reports to 30 June and annual
audited accounts to 31 December in accordance with the AIM Rules for Companies.
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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.
“The fundraising
announced today
will support the
execution of our
strategies. We look
forward to the future
with confidence.”
mark nichols
Chief Executive Officer
mark nichols
Chief Executive Officer
11 November 2015
12
Xeros Technology Group plc
12
strategic rePort
Principal activity
Xeros has developed a number of patented polymer bead systems with multiple identified potential
commercial applications. The Group has targeted the commercial laundry market and has begun the roll-
out of 25kg capacity washing machines which exclusively use Xeros’s patented polymer bead cleaning
system. In trials with customers, this system has been shown to achieve superior cleaning performance as
well as material reductions in water, energy and chemical usages compared to conventional commercial
laundry methods. The Xeros proprietary polymer bead cleaning system also reduces the carbon footprint of
the entire laundry process. In addition to the commercial laundry market, the Group’s polymer bead
technologies have a range of potential applications in other industries including domestic laundry, leather
processing, garment finishing and metal cleaning. The Group is currently in various stages of development
and preparation for commercialisation of other identified applications, the most advanced of which is for
use in the leather industry.
The Company is incorporated and domiciled in the UK.
Business model
A description of the Group’s activities and how it seeks to add value are included in the Chairman’s statement
and Chief Executive Officer’s review on pages 3 to 12.
Business review and results
A review of the Group’s performance and future prospects is included in the Chairman’s statement and Chief
Executive Officer’s review on pages 3 to 12. The loss for the year attributable to equity holders was
£10,205,000 (2014: £6,379,000). The directors do not recommend the payment of a dividend (2014: nil).
Key performance indicators
As the Group is in the process of development and commercialisation, the director’s consider the key
quantitative performance indicator to be the level of cash and deposits held in the business of £17,452,000
(2014: £29,525,000). The Board performs regular reviews of actual results against budget, and monitors
cash balances on a regular basis to ensure that the business has sufficient resources to enact its current
strategy. Certain qualitative measures, such as the performance of product development initiatives, are
also monitored on a regular basis. The Board will continue to review the KPIs used to assess the business
as it grows.
Key risks
The Board carefully considers the risks facing the Group and endeavours to minimise the impact of those
risks. The key risks are as follows:
Intellectual property
The Group’s success will depend in part on its ability to maintain adequate protection of its intellectual
property, covering its processes and applications. The intellectual property on which the Group’s business
is based is a combination of patent applications and proprietary know-how. No assurance can be given that
any pending patent applications or any future patent applications will result in granted patents, that any
patents will be granted on a timely basis, that the scope of any patent protection will exclude competitors
or provide competitive advantages to the Group, that any of the Group’s patents will be held valid if
challenged, or that third parties will not claim rights in, or ownership of, the patents and other proprietary
rights held by the Group.
There can be no assurance that others have not developed or will not develop similar products, duplicate
any of the Group’s products or design around any patent applications held by the Group. Others may hold
or receive patents which contain claims having a scope that covers products developed by the Group
(whether or not patents are issued to the Group). In addition, no assurance can be given that others will
13
www.xeroscleaning.com
strategic rePort
continued
not independently develop or otherwise acquire substantially equivalent techniques or otherwise gain access
to the Group’s unpatented proprietary technology or disclose such technology or that the Group can
ultimately protect meaningful rights to such unpatented technology.
Any claims made against the Group’s intellectual property rights, even without merit, could be time
consuming and expensive to defend and could have a materially detrimental effect on the Group’s resources.
Third party intellectual property
Although the Board believes that the Group’s current products, products in development and processes do
not infringe the intellectual property rights of any third parties, it is impossible to be aware of all third party
intellectual property. No assurance can be given that third parties will not in the future claim rights in or
ownership of the patents and other proprietary rights from time to time held by the Group.
Research and development risk
The Group is involved in complex scientific areas and new product development. There is no guarantee that
the Group will be successful in its research and product development. Some of the Group’s technology and
intellectual property portfolio is at an early stage of commercial development. The Group may not be able
to develop and exploit its technology sufficiently to enable it to develop commercial and marketable
products. Furthermore, the Group may not be able to develop new applications or identify additional specific
market needs that can be addressed by the Group’s technology.
Risk of competing technology
There is a risk that technological advances in competing technology and/or the lower cost of such technology
may impede the commercial exploitation of the Group’s technology.
Acceptance of the Group’s products
The success of the Group will depend on the market’s acceptance of, and attribution of value to, its core
technology and the benefits of incorporating the same into various applications. There can be no guarantee
that this acceptance will be forthcoming, that an acceptable value will be placed upon such technology or
that the Group’s core technology will succeed as an alternative to other applications.
Commercialisation risk
The Group has, and will continue to enter into, arrangements with third parties in respect of the
development, production and commercialisation of products based on its technology. The Group’s
negotiating position in agreeing terms of either joint development, distribution, service or supply
arrangements may be affected by its size and limited cash resources relative to potential development
partners with substantial cash resources and established levels of commercial success. An inability to enter
into or renew such arrangements on favourable terms, if at all, or disagreements between the Group and
any of its potential partners could lead to delays in the Group’s commercialisation strategy.
Early stage of operations
Whilst the Group has made initial limited product sales, it is still at an early stage of development. There
are a number of operational, strategic and financial risks associated with such early stage companies. In
particular, the Group’s future growth and prospects will depend on its ability to develop products and services
for applications which have sufficient commercial appeal, to manage growth and to continue to develop
operational, financial and quality control systems on a timely basis, whilst at the same time maintaining
effective cost controls. Any failure to develop operational, financial and management information and quality
control systems in line with the Group’s growth could have a material adverse effect on its business, financial
condition and results of operations.
Xeros technology group plc
14
strategic rePort
continued
The Group is currently loss making and there can be no certainty that the Group will achieve increased or
sustained revenues, profitability or positive cash flow from its operating activities within the timeframe
expected by the Board or at all. The development of the Group’s revenues is difficult to predict and there is
no guarantee that it will generate any material revenues in the foreseeable future. The Group has a limited
operating history upon which its performance and prospects can be evaluated.
Competition risk
Given the potentially disruptive nature of the Group’s technology in relation to established markets, the
Group may face significant competition and negative commentary from organisations which have greater
capital resources than it and/or which have a product offering competitive to that of the Group, to the
detriment of the Group.
Supply Chain Risk
The Group is dependent on a limited number of key suppliers in relation to the production of its polymer
bead cleaning system (which includes the production of the machines used in the system). Should any such
key supplier cease to deal with the Group for any reason and/or materially and adversely change the terms
upon which it deals with the Group, difficulties may be experienced by the Group in sourcing alternative
suppliers on acceptable terms.
Dependence on key executives and personnel and the ability to attract and retain appropriately
qualified personnel
The Group’s future success is substantially dependent on the continued services and performance of its
executive Directors and senior management and its ability to attract and retain suitably skilled and
experienced personnel. The Group cannot give assurances that members of the senior management team
and the executive Directors will continue to remain within the Group. Finding and hiring any such
replacements could be costly and might require the Group to grant significant equity awards or other
incentive compensation, which could adversely impact its financial results.
Reduction in government support for environmental-focused technologies
Most states in the US offer energy incentive programs to help offset energy costs, with the Federal Energy
Management Program’s Energy Incentive Program providing information to Federal agencies about the
availability of energy-efficiency and renewable-energy project funding for public purpose programs on a
state-by-state basis. These public purpose programs are administered by utilities, state agencies, or other
third parties and paid for by utility ratepayers. The Group’s existing and prospective customers in the US
are potentially able to benefit from attractive incentives to install Xeros washing machines as a result of
these incentive programs. In the event that the federal government reviews, reduces or withdraws its energy
efficiency and renewable-energy project funding, the Group’s ability to sign up new customers who would
be able to benefit from incentives to install Xeros washing machines could be adversely affected.
Future developments
Future developments are described in the Chairman’s statement and Chief Executive Officer’s Review on
pages 3 to 12.
On behalf of the Board
Mark Nichols
Chief Executive Officer
11 November 2015
15
www.xeroscleaning.com
Directors’ rePort
The Directors hereby present their annual report and audited consolidated and parent company financial
statements for the year ended 31 July 2015.
share capital and funding
Full details of the Group and Company’s share capital movements during the year are given in note 20 of
the financial statements.
Directors and their interests
The following directors held office during the year and up to the date of signing this report:
John Samuel
Bill Westwater
Mark Nichols
Chris Hanson
Dr Steve Jenkins
Julian Viggars
Dr Maciek Drozdz
Dr Richard Ellis
resigned 15 September 2015
appointed 14 September 2015
appointed 22 October 2014
Directors’ interests in the shares of the Company, including family interests are included in the Directors’
Remuneration Report on pages 18 to 20.
Directors’ indemnity insurance
The Group has maintained insurance throughout the year for its directors and officers against the
consequences of actions brought against them in relation to their duties for the Group.
Profile of the current directors
John samuel, Chairman
John joined Xeros as Chairman in September 2011. John has previously held a number of senior finance
positions and was formerly the CEO of the Molnlycke Health Care Group as well as a former partner with
Apax Partners LLP. John is also the Non-Executive Chairman at Tissue Regenix Group plc.
Mark Nichols, Chief Executive Officer
Mark Joined Xeros as Chief Executive Office in September 2015. Mark’s early career was with global
corporates including Total Oil and BOC. Since 2010 Mark has held leadership positions in venture capital
start-ups in the cleantech sector. Mark qualified as a Chartered Certified Accountant in 1987.
chris Hanson, Chief Financial Officer and Company Secretary
Chris joined Xeros as Finance Director in February 2012. Chris has extensive experience as a Finance
Director having held that position with a number of private and listed companies. Chris qualified as a
Chartered Accountant with KPMG in 1982.
Dr steve Jenkins, Chief Science Officer
Steve is a polymer physicist with over 20 years of experience in new product R&D. He joined Xeros in March
2009. His career to date with various blue chip corporations (including DuPont, INVISTA and ICI) has focused
on novel polymer solutions. Over this time he has successfully commercialised new product developments
in Europe, USA, India and the Far East. Steve is the author of multiple patents associated with these
developments and heads Xeros’s Research and Development team.
Julian Viggars, Non-Executive Director
Julian was appointed to the Xeros board in June 2009. Julian is Head of Technology Investment at Enterprise
Ventures, which, through its client funds, is an investor in Xeros. He was previously a Director of BioProjects
International plc, an AIM-traded early stage technology fund and an Associate Partner with accountancy
firm NCL Smith & Williamson in London.
Xeros technology group plc
16
Directors’ rePort
continued
Dr Maciek Drozdz, Non-Executive Director
Maciek was appointed to the Xeros board in October 2013. Maciek is an investment manager at
Entrepreneurs Fund, an investor in Xeros. Before joining Entrepreneurs Fund he was an analyst at Atlas
Venture in Munich and an investment director at MCI Bioventures in Poland. Maciek holds an MSc in
molecular biology from A. Mickiewicz University, and a PhD from Zentrum fur Molekulare Biologie in
Heidelberg. He also has an MBA from Said Business School in Oxford.
richard ellis, Non-Executive Director
Richard joined the board in October 2014. Richard was the Head of Global Research and Development at
Reckitt Benckiser Group plc, and Vice President R&D North America at Diversey Lever, a division of Unilever
plc. He brings international experience of both the industrial and domestic laundry markets. He has a BSc
and PhD in Chemistry from the University of Manchester and is a Fellow of the Royal Society of Chemistry.
substantial shareholders
As at 30 October 2015, shareholders holding more than 3% of the share capital of Xeros Technology Group
plc were:
Name of shareholder
Number of shares % of voting rights
Invesco Asset Management Limited
IP Group plc*
Entrepreneurs Fund LP
Woodford Investment Management
Baillie Gifford & Co
RisingStars Growth Fund II
Finance Yorkshire Seedcorn LP
Parkwalk Advisors Funds
17,620,365
12,093,360
7,350,345
5,521,645
3,939,817
2,798,999
2,249,665
2,106,040
26.9
18.5
11.2
8.4
6.0
4.3
3.4
3.2
*Held through IP2IPO Limited, Techtran Group Limited and IP Venture Fund
employment policies
The Group supports employment of disabled people where possible through recruitment, by retention of
those who become disabled and generally through training, career development and promotion.
The Group is committed to keeping employees as fully-informed as possible with regard to the Group’s
performance and prospects and seeks their views, wherever possible, on matters which affect them as employees.
statement as to disclosure of information to the auditor
The Directors who were in office on the date of approval of these financial statements have confirmed that,
as far as they are aware, that there is no relevant audit information of which the auditor is unaware. Each
of the Directors have confirmed that they have taken all the steps that they ought to have taken as directors
in order to make themselves aware of any relevant audit information and to establish that it has been
communicated to the auditor.
auditor
The board will put KPMG LLP forward to be re-appointed as auditor by the shareholders and a resolution
concerning their appointment will be put to the forthcoming AGM of the Company.
On behalf of the Board
Mark Nichols
Chief Executive Officer
11 November 2015
Unit 2, Evolution
Advanced Manufacturing Park
Whittle Way, Catcliffe
Rotherham
S60 5BL
17
www.xeroscleaning.com
Directors’ reMuNeratioN rePort
It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing
for a maximum of six months’ notice. In the event of early termination, the Directors’ contracts provide for
compensation up to a maximum of basic salary for the notice period.
Non-executive Directors are employed on letters of appointment which may be terminated on not less than
one months’ notice.
Companies with securities listed on AIM do not need to comply with the UKLA Listing Rules. The
Remuneration Committee is however committed to maintaining high standards of corporate governance
and disclosure and has applied the guidelines as far as practical given the current size and development of
the Company.
remuneration committee
The Remuneration Committee consists of John Samuel as Chairman, Julian Viggars and Richard Ellis.
The Remuneration Committee will review and make recommendations in respect of the Directors’
remuneration and benefits packages, including share options, and the terms of their appointment. The
remuneration committee will also make recommendations to the Board concerning the allocation of share
options to employees under the share incentive schemes. The Remuneration Committee will meet at least
once a year.
The main elements of the remuneration packages for Executive Directors and senior management are:
Basic annual salary (including directors’ fees)
The base salary is reviewed annually from the beginning of each calendar year. The review process is
undertaken by the Remuneration Committee and takes into account several factors, including the current
position and development of the Group, individual contribution and market salaries for comparable
organisations.
Discretionary annual bonus and Deferred Annual Bonus Plan
All Executive Directors and senior managers are eligible for a discretionary annual bonus which is paid in
accordance with a bonus scheme developed by the Remuneration Committee. This takes into account
individual contribution, business performance and commercial progress, along with financial results.
The Group has a Deferred Annual Bonus plan (the “DAB Plan”). Under the terms of the DAB Plan directors
and senior managers will be given the opportunity to defer up to 50% of any gross cash annual bonus in
exchange for a nominal cost share option over ordinary shares in the Company (the “Deferred Award”),
which can be exercised after 3 years (or earlier if the participant ceases employment). The number of
ordinary shares comprising the Deferred Award (i.e. subject to the option) will be calculated by dividing the
amount of the cash bonus deferred by the closing market value of the ordinary shares of the Company on
the dealing day immediately prior to the date of grant of the award. By participating in the DAB Plan directors
and senior managers will be entitled to receive a matching award at no additional cost (the “Matching
Award”). The Matching Award will also be a nominal cost option over ordinary shares in the Company. The
number of ordinary shares comprising the Matching Award will be equivalent to two times the number of
ordinary shares received in the Deferred Award. Participants will not be entitled to receive the Matching
Award until the vesting date is reached which is three years from the date of grant of the award. The vesting
of a Matching Award will be subject to performance conditions which will be determined by the Remuneration
Committee. The first awards under the DAB took place early in 2015 following confirmation of bonuses for
the calendar year 2014.
Share incentive schemes
The Group operates share option plans, under which certain directors’ and senior management have been
granted options to subscribe for ordinary shares. All options are equity settled. The options are subject to
service and performance conditions, have an exercise price of between 0.15 pence and 164.5 pence and
Xeros technology group plc
18
Directors’ reMuNeratioN rePort
continued
the vesting period is generally 1-3 years. If the options remain unexercised after a period of 10 years from
the date of grant, the options expire. The Group has no legal or constructive obligation to repurchase or
settle the options in cash.
Remuneration Policy for Non-Executive Directors
Remuneration for Non-Executive Directors is set by the Chairman and the Executive Members of the Board.
Non-Executives do not participate in bonus schemes.
Directors’ remuneration
The remuneration of the main Board Directors’ of Xeros Technology Group plc who served from their
appointment to 31 July 2015 was:
John Samuel
Bill Westwater (notes 1&2)
Chris Hanson (note 1)
Dr Steve Jenkins (notes 1&2)
Julian Viggars
Dr Maciek Drozdz
Dr Richard Ellis (note 3)
Charles Winward (note 4)
Total
salary &
fees
£000
Bonus
£000
Benefits
£000
61
236
150
141
10
10
16
–
624
–
70
45
35
–
–
–
–
150
–
–
–
1
–
–
–
–
1
total
2015
£000
61
306
195
177
10
10
16
–
775
Total
2014
£000
44
234
156
152
10
8
–
9
613
Note 1: In addition certain directors hold employee share scheme interests in the company. Fair value share based
payment charges recognised in the consolidated statement of profit or loss and other comprehensive income attributable
to these directors are: John Samuel £31,800 (2014: £8,000), Bill Westwater £242,600 (2014: £75,000), Chris Hanson
£162,600 (2014: £56,000), Dr Steve Jenkins £129,470 (2014: £40,000)
Note 2: Remuneration was paid through the Company’s subsidiary, Xeros Limited
Note 3: Dr Richard Ellis was appointed to the Company on 22 October 2014
Note 4: Charles Winward resigned from the Company on 6 June 2014
Note 5: Mark Nichols was appointed as a director after 31 July 2015 and consequently received no remuneration during
the year.
Directors’ shareholdings
The interests of the Directors holding office at 31 July 2015 in the shares of the Company, including family
interests were:
John Samuel
Bill Westwater
Chris Hanson (note 1)
Dr Steve Jenkins
Julian Viggars
Dr Maciek Drozdz
Dr Richard Ellis
ordinary shares of 0.15p each
2015
%
2015
Number
1,454,966
689,332
376,498
50,833
–
–
–
2.2
1.1
0.6
0.1
–
–
–
Note 1: Includes 83,332 Ordinary Shares held on trust for Chris Hanson’s children
19
www.xeroscleaning.com
Directors’ reMuNeratioN rePort
continued
Directors’ interests in share options
Directors’ interests in share options, granted under either the Xeros Technology Group plc Enterprise
Management Incentive Share Option Scheme or the Xeros Technology Group plc Unapproved Share Option
Scheme, to acquire ordinary shares of 0.15 pence each in the Company at 31 July 2015 were:
At Exercised
during
year
1 August
2014
Lapsed Granted
during
during
year
year
At
31 July
2015
Bill Westwater (note 1)
Bill Westwater (note 2)
Bill Westwater (note 3)
Bill Westwater (note 4)
Bill Westwater (note 7)
Chris Hanson (note 2)
Chris Hanson (note 4)
Chris Hanson (note 7)
Dr Steve Jenkins (note 5)
Dr Steve Jenkins (note 2)
Dr Steve Jenkins (note 6)
Dr Steve Jenkins (note 4)
Dr Steve Jenkins (note 7)
John Samuel (note 4)
366,166
588,500
713,166
609,756
–
891,500
406,504
–
300,333
284,666
427,832
325,204
–
81,300
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 366,166
– 588,500
– 713,166
– 609,756
17,626
– 891,500
– 406,504
11,495
– 300,333
– 284,666
– 427,832
– 325,204
10,729
81,300
17,626
11,495
10,729
–
Exercise price
10.80
12.00
16.20
0.15
160.50
12.00
0.15
160.50
10.80
12.00
16.20
0.15
160.50
0.15
pence
pence
pence
pence
pence
pence
pence
pence
pence
pence
pence
pence
pence
pence
Note 1. There were employment conditions in relation to the 366,166 options granted on 13 May 2010 which allowed for
vesting in six instalments between the date of grant and 17 June 2011.
Note 2. There were employment conditions in relation to the 1,746,666 options granted on 24 April 2013 which allowed
for vesting in nine instalments between the date of grant and 4 March 2016.
Note 3. There were employment conditions in relation to the 375,500 options granted on 18 March 2011 which allowed
for vesting in nine instalments between the date of grant and 11 October 2013, and in relation to the 337,666 options
granted on 19 March 2012 and 20 July 2012 which allowed for vesting in nine instalments between the date of grant and
1 January 2015.
Note 4. There were employment period and performance conditions in relation to the 1,422,764 options granted on 25
March 2014 which allowed for vesting in three equal proportions on or after the Company’s share price reaching 184.5
pence per share, 246 pence per share and 307.5 pence per share. As at the 31 July 2015 the performance conditions
had been met.
Note 5. There were employment conditions in relation to the 300,333 options granted on 13 May 2010 which allowed for
vesting in nine instalments between the date of grant and 9 March 2012.
Note 6. There were employment conditions in relation to 225,166 options granted on 18 March 2011 which allowed for
vesting in nine instalments between the date of grant and 11 October 2013. Additionally a further 202,666 options
granted on 19 March 2012 allowed for vesting in nine instalments between the date of grant and 1 January 2015.
Note 7. There were employment conditions in relation to 39,850 options granted on 30 January 2015 which allowed for
vesting in 16 instalments between the date of grant and 30 January 2019.
On behalf of the Board
John samuel
Chairman of the Remuneration Committee
11 November 2015
Xeros technology group plc
20
corPorate goVerNaNce stateMeNt
corporate governance
The Company is not required to comply with the UK Corporate Governance Code (the “Code”) and does not
voluntarily apply the full requirements of the Code. However, our governance arrangements do meet many
of the requirements of the Code which the directors’ deem most relevant to an AIM listed company having
consideration to the size, nature and scope of the Company and Group’s activities.
the Board
The Board currently comprises three Executive Directors and four Non-Executive Directors.
audit committee
The Audit Committee consists of Julian Viggars as Chairman and John Samuel. The Audit Committee will,
inter alia, determine and examine matters relating to the financial affairs of the Company including the
terms of engagement of the Company’s auditors and, in consultation with the auditors, the scope of the
audit. It will receive and review reports from management and the Company’s auditors relating to the half
yearly and annual accounts and the accounting and the internal control systems in use throughout the
Group. The Audit Committee will meet at least twice a year.
Nominations committee
The Nominations Committee consists of John Samuel as Chairman, Julian Viggars, Maciek Drozdz and
Richard Ellis. The Nominations Committee will monitor the size and composition of the Board and the other
Board Committees, be responsible for identifying suitable candidates for board membership and monitor
the performance and suitability of the current Board on an ongoing basis. The Nominations Committee will
meet at least once a year.
internal control
The Board is responsible for maintaining a sound system of internal control. The Board’s measures are
designed to manage, not eliminate risk, and such a system provides reasonable but not absolute assurance
against material misstatement or loss. Whilst, as a small AIM listed company, the company is not required
to comply with the full provisions of the “Internal Control Guidance for Directors on the Combined Code”
(The Turnbull Report), the Board considers that the internal controls do meet many of those requirements
and are adequate given the size of the company.
Some key features of the internal control system are:
(i)
(ii)
(iii)
(iv)
(v)
Management accounts information, budgets, forecasts and business risk issues are regularly reviewed
by the Board who meet at least seven times per year;
The Company has operational, accounting and employment policies in place;
The Board actively identifies and evaluates the risks inherent in the business and ensures that
appropriate controls and procedures are in place to manage these risks;
There is a clearly defined organisational structure, and
There are well-established financial reporting and control systems.
going concern
At 31 July 2015, the Group had £15,913,000 of cash and cash equivalents available to it, along with
£1,539,000 of cash held in term deposit accounts.
At this stage in its development the Company is reliant on equity share funding. When making their going
concern assessment the directors assess available and committed funds against all non-discretionary
expenditure, and related cash flows, as forecast for the period ended 30 November 2016. These forecasts
indicate that the company is able to settle its liabilities as they fall due in the forecast period.
Accordingly the directors consider that this should enable the company to continue in operational existence
for the foreseeable future and the directors believe that it remains appropriate to prepare the financial
statements on a going concern basis.
Note 3 to this financial information includes the company’s objectives, policies and processes for managing
its capital, its financial risk management objectives, details of its financial instruments and its exposure to
credit, liquidity and market risk.
21
www.xeroscleaning.com
stateMeNt oF Directors’ resPoNsiBilities
statement of Directors’ responsibilities in respect of the annual report, strategic report, the
Directors’ report and the financial statements
The Directors are responsible for preparing the Annual Report, Strategic Report, the Directors’ Report and
the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent Company financial statements for each
financial year. As required by the AIM rules of the London Stock Exchange they are required to prepare the
Group financial statements in accordance with International Financial Reporting Standards as adopted by
the EU and applicable law and have elected to prepare the parent Company financial statements on the
same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group and the parent Company and of their profit
or loss for that period. In preparing each of the Group and the parent Company financial statements, the
Directors are required to:
a.
b.
c.
d.
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRS as adopted by the EU; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume
that the Group and the parent company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the parent Company and to enable them to ensure that the financial statements comply with the
Companies Act 2006. They have a general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Xeros technology group plc
22
iNDePeNDeNt auDitor’s rePort to tHe MeMBers oF Xeros
tecHNology grouP Plc
We have audited the financial statements of Xeros Technology Group plc for the year ended 31 July 2015 set
out on pages 24 to 54. The financial reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 22, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
opinion on financial statements
In our opinion
(cid:0)
(cid:0)
(cid:0)
(cid:0)
the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 July 2015 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by
the EU;
the parent company’s financial statements have been properly prepared in accordance with IFRSs as
adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
opinion on other matter prescribed by the companies act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year
for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us
to report to you if, in our opinion:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and
returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
claire Needham (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
11 November 2015
23
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ConsolidaTed sTaTemenT of ProfiT or loss and oTher
ComPrehensive inCome
for the year ended 31 July 2015
Earned income
Less: lease interest income
revenUe
Cost of sales
Gross ProfiT
lease interest income
adjusted gross margin
Administrative expenses
Other operating income
adjusted eBiTda*
Share based payment expense
Non operating exceptional costs
Depreciation of tangible fixed assets
oPeraTinG loss
Finance income
loss Before TaXaTion
Taxation
loss afTer TaX
oTher ComPrehensive inCome:
items that are or may be reclassified to profit or loss:
Foreign currency translation differences – foreign operations
ToTal ComPrehensive eXPense for The Year
Notes
9
4
9
7
8
23
7
12
9
10
2015
£000
480
(14)
2014
£000
315
(3)
466
312
(399)
(294)
67
14
81
18
3
21
(11,102)
174
(6,793)
–
(9,868)
(916)
–
(77)
(10,861)
192
(10,669)
464
(6,335)
(210)
(163)
(67)
(6,775)
113
(6,662)
283
(10,205)
(6,379)
16
(38)
(10,189)
(6,417)
loss Per share
Basic and diluted on loss from continuing operations
11
(15.62)p
(12.92)p
*Adjusted EBITDA comprises loss on ordinary activities before interest, tax, share-based payment expense,
non operating exceptional costs, depreciation and amortisation.
Xeros Technology Group plc
24
ConsolidaTed sTaTemenT of ChanGes in eQUiTY
for the year ended 31 July 2015
share
capital
£000
share
premium
£000
foreign
currency
merger translation
reserve
reserve
£000
£000
retained
earnings
deficit
£000
15,449
–
–
–
–
(38)
(6,968)
(6,379)
–
Total
£000
8,542
(6,379)
(38)
–
(38)
(6,379)
(6,417)
–
(6)
–
–
(6)
–
–
–
–
–
–
–
–
210
30,000
(1,848)
11
210
210
28,373
–
–
–
–
29,963
(1,842)
11
–
28,132
28,132
15,443
(38)
(13,137)
30,498
–
–
–
46
–
–
46
–
–
–
–
–
–
–
–
16
(10,205)
–
(10,205)
16
16
(10,205)
(10,189)
–
–
–
–
–
–
916
46
–
916
916
962
At 31 July 2013
Loss for the year
Other comprehensive expense
Loss and total comprehensive
expense for the year
Transactions with owners, recorded
directly in equity:
Issue of shares
Costs of share issues
Exercise of share options
Share based payment expense
Total contributions by and
distributions to owners
at 31 July 2014
Loss for the year
Other comprehensive expense
Loss and total comprehensive
expense for the year
Transactions with owners, recorded
directly in equity:
Issue of shares
Exercise of share options
Share based payment expense
Total contributions by and
distributions to owners
61
–
–
–
37
–
–
–
37
98
–
–
–
–
–
–
–
at 31 July 2015
98
28,178
15,443
(22)
(22,426)
21,271
25
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ConsolidaTed sTaTemenT of finanCial PosiTion
as at 31 July 2015
asseTs
non-current assets
Property, plant and equipment
Trade and other receivables
ToTal non-CUrrenT asseTs
Current assets
Inventories
Trade and other receivables
Current tax asset
Investments – bank deposits
Cash and cash equivalents
ToTal CUrrenT asseTs
ToTal asseTs
liaBiliTies
non-current liabilities
Deferred tax
ToTal non-CUrrenT liaBiliTies
Current liabilities
Trade and other payables
ToTal CUrrenT liaBiliTies
ToTal liaBiliTies
neT asseTs
eQUiTY
Share capital
Share premium
Merger reserve
Foreign currency translation reserve
Accumulated losses
ToTal eQUiTY
Notes
2015
£000
2014
£000
12
14
13
14
10
15
16
19
18
20
20
20
21
21
577
363
940
2,909
578
477
1,539
15,913
121
177
298
747
654
–
1,526
27,999
21,416
30,926
22,356
31,224
(22)
(22)
(1,063)
(1,063)
(1,085)
(17)
(17)
(709)
(709)
(726)
21,271
30,498
98
28,178
15,443
(22)
(22,426)
98
28,132
15,443
(38)
(13,137)
21,271
30,498
Approved by the Board of Directors and authorised for issue on 11 November 2015.
John samuel
Chairman
Chris hanson
Chief Financial Officer
Company number: 08684474
Xeros Technology Group plc
26
ConsolidaTed sTaTemenT of Cash floWs
for the year ended 31 July 2015
operating activities
Loss before tax
Adjustment for non-cash items:
Depreciation of property, plant and equipment
Share based payment
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Finance income
Cash used in operations
Taxes (paid)/refunded
net cash outflow from operations
invesTinG aCTiviTies
Finance income
Cash (placed on)/withdrawn from deposits with more than
3 months maturity
Purchases of property, plant and equipment
net cash (outflow)/inflow from investing activities
finanCinG aCTiviTies
Proceeds from issue of share capital, net of costs
net cash inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Effect of exchange rate fluctuations on cash held
Notes
12
23
12
20
2015
£000
2014
£000
(10,669)
(6,662)
77
916
(2,110)
(90)
288
(192)
67
210
(876)
(312)
251
(113)
(11,780)
(8)
(7,435)
284
(11,788)
(7,151)
192
113
(13)
(532)
4,479
(75)
(353)
4,517
46
46
28,163
28,163
(12,095)
27,999
9
25,529
2,472
(2)
Cash and Cash eQUivalenTs aT end of Year
16
15,913
27,999
27
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noTes To The finanCial sTaTemenTs
for the year ended 31 July 2015
(1) Basis of PreParaTion
Xeros Technology Group plc is a public limited company domiciled in the United Kingdom. The financial
statements of Xeros Technology Group plc are audited consolidated financial statements for the year
to 31 July 2015. These include comparatives for the year to 31 July 2014. The level of rounding for
financial information is the nearest thousand pounds.
The Company’s registered office is Unit 2, Evolution, Advanced Manufacturing Park, Whittle Way,
Catcliffe, Rotherham S60 5BL.
Business combinations and basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. In assessing control, potential voting rights that presently are exercisable or convertible
are taken into account. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
Where the acquisition is treated as a business combination, the purchase method of accounting is
used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued
and liabilities incurred or assumed at the date of exchange. Acquisition costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. The excess of the cost
of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded
as goodwill. If the cost of the acquisition is less than the fair value of net assets of the subsidiary
acquired, the difference is recognised directly in the income statement.
All intra-group balances and transactions, including unrealised profits arising from intra-group
transactions, are eliminated fully on consolidation.
On 17 March 2014, Xeros Technology Group Limited entered into a share for share exchange
agreement with the shareholders of Xeros Limited, whereby Xeros Technology Group Limited acquired
the entire issued share capital of Xeros Limited and its subsidiary, the consideration being satisfied
by the allotment of ordinary shares in Xeros Technology Group Limited to the shareholders of Xeros
Limited. On 18 March 2014 the Company was re-registered as a public limited company under the
name of Xeros Technology Group plc.
The acquisition was accounted for by applying the principals of reverse acquisition accounting under
IFRS 3, as if the group (as currently constituted) had been in place throughout the whole of the period
covered by these financial statements. As such, the results for the year ended 31 July 2014 have
been presented as a continuation of the previously existing Xeros Limited group.
Going Concern
At this stage in its development the company is reliant on equity share funding. When making their
going concern assessment the directors assess available and committed funds against all non-
discretionary expenditure, and related cash flows, as forecast for the period ended 30 November
2016. These forecasts indicate that the company is able to settle its liabilities as they fall due in the
forecast period.
Accordingly the directors consider that this should enable the company to continue in operational
existence for the foreseeable future and the directors believe that it remains appropriate to prepare
the financial statements on a going concern basis.
Note 3 to this financial information includes the company’s objectives, policies and processes for
managing its capital, its financial risk management objectives, details of its financial instruments and
its exposure to credit, liquidity and market risk.
Xeros Technology Group plc
28
noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies
The consolidated financial statements have been prepared under the historical cost convention in
accordance with International Financial Reporting Standards as adopted by the European Union (EU
IFRS).
The principal accounting policies applied are set out below.
revenUe reCoGniTion
Revenue is recognised at the fair value of the consideration received or receivable for the sale of
goods and services in the ordinary course of business and is shown net of Value Added Tax. The Group
primarily earns revenues from the sale/provision of polymer bead cleaning equipment, consumables
and services.
Where products are sold outright, product sales revenues are recognised once the goods have been
despatched. Where sales are made through the Xeros Sbeadycare® service, the contract is separated
into the element relating to the initial sale of equipment (where relevant), and the ongoing service
element. Consideration is allocated to the different components based on their relative fair values.
Service income is recognised pro-rata over the life of the contract. Equipment revenue is recognised
in accordance with the stated policy for lessor accounting.
The difference between the amount of income recognised and the amount invoiced on a particular
contract is included in the statement of financial position as deferred income. Amounts included in
deferred income due within one year are expected to be recognised within one year and are included
within current liabilities.
foreiGn CUrrenCies
The individual financial statements of each Group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purposes of the
consolidated financial statements, the results and the financial position of each Group entity are
expressed in Pounds Sterling, which is the functional currency of the Company and the presentational
currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than
the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing
at the dates of the transactions. At each balance sheet date, monetary items denominated on foreign
currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing
at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in foreign currency are not
retranslated.
The assets and liabilities of foreign operations are translated using exchange rates at the balance
sheet date. The components of shareholders’ equity are started at historical value. An average
exchange rate for the period is used to translate the results and cash flows of foreign operations.
Exchange differences arising on translating the results and net assets of foreign operation are taken
to the translation reserve in equity until the disposal of the investment. The gain or loss in the
statement of profit or loss and other comprehensive income on the disposal of foreign operations
includes the release of the translation reserve relating to the operation that is being sold.
29
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noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
GovernmenT GranTs
Government grants are recognised where there is reasonable assurance that the grant will be received
and all attached conditions will be complied with. When the grant relates to an expense item, it is
recognised as income on a systematic basis over the periods that the costs, which it is intended to
compensate, are expensed. Where the grant relates to an asset, it is recognised as income in equal
amounts over the expected useful life of the related asset.
Income from grants is allocated to ‘cost of sales’ and ‘administrative expenses’ in the Consolidated
statement of profit or loss and other comprehensive income to match it against the underlying
expenditure incurred.
researCh and develoPmenT
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development costs are only capitalised when the related products meet the recognition criteria of an
internally generated intangible asset, the key criteria being as follows:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
technical feasibility of the completed intangible asset;
the probability of future economic benefits;
the reliable measurement of costs;
the ability and intention of the Group to use or sell the intangible asset.
Such intangible assets are amortised on a straight-line basis from the point at which the assets are
ready for use over the period of the expected benefit, and are reviewed for an indication of impairment
at each reporting date. Other development costs are charged against profit or loss as incurred since
the criteria for their recognition as an asset are not met.
The costs of an internally generated intangible asset comprise all directly attributable costs necessary
to create, produce and prepare the asset to be capable of operating in the manner intended by
management. Directly attributable costs include employee costs incurred on technical development,
testing and certification, materials consumed and any relevant third party cost. The costs of internally
generated developments are recognised as intangible assets and are subsequently measured in the
same way as externally acquired intangible assets. However, until completion of the development
project, the assets are subject to impairment testing only.
No development costs to date have been capitalised as intangible assets as it is deemed that the
probability of future economic benefit is currently uncertain.
leases
As a lessee
At the current time, the Group only partakes of lease arrangements where all of the risks and rewards
incidental to ownership are not transferred to the Group (an ‘operating lease’), the total rentals
payable under the lease are charged to the consolidated statement of profit or loss and other
comprehensive income on a straight line basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction in the rental expense over the lease term.
As a lessor
As the Company transfers substantially all the risks and benefits of ownership of the asset, the
arrangement is classified as a finance lease and a receivable is recognised for the initial direct costs
of the lease and the present value of the minimum lease payments. As payments fall due, finance
income is recognised in the income statement so as to achieve a constant rate of return on the
remaining net investment in the lease.
Xeros Technology Group plc
30
noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
ProPerTY, PlanT and eQUiPmenT
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment
losses. Cost includes the original purchase price of the asset and the costs attributable to bringing
the asset to its working condition for its intended use. Depreciation is charged so as to write off the
costs of assets over their estimated useful lives, on the following basis:
Leasehold improvements
Plant and machinery
Fixtures and fittings
Computer equipment
– over the term of the lease on a straight line basis
– 20 per cent. on cost on a straight line basis
– 20 per cent. on cost on a straight line basis
– 33 per cent. on cost on a straight line basis
The gain or loss arising on the disposal of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in the statement of profit or loss
and other comprehensive income.
imPairmenT of ProPerTY, PlanT and eQUiPmenT
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment
assets to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense immediately.
invenTories
Inventories are valued at the lower of cost and net realisable value. Cost incurred in bringing each
product to its present location and condition is accounted for as follows:
Raw materials, work in progress and finished goods – Purchase cost on a first-in, first out basis.
Net realisable value is the estimated selling price in the ordinary course of business.
share Based PaYmenTs
Certain employees and consultants (including Directors and senior executives) of the Group receive
remuneration in the form of share-based payment transactions, whereby employees render services
as consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions with employees is measured by reference to the fair value at
the date on which they are granted. The fair value is determined by using an appropriate pricing
model. The cost of equity-settled transactions is recognised, together with a corresponding increase
in equity, over the period in which the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees become fully entitled to the award (“the vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate
of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a
period represents the movement in cumulative expense recognised as at the beginning and end of
that period.
31
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noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
share Based PaYmenTs continued
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance and/or service conditions are
satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised
is the expense as if the terms had not been modified. An additional expense is recognised for any
modification, which increases the total fair value of the share-based payment arrangement, or is
otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation
and any expense not yet recognised for the award is recognised immediately. However, if a new award
is substituted for the cancelled award and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification of the original
award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected
as additional share dilution in the computation of earnings per share.
finanCial asseTs and liaBiliTies
Financial assets and financial liabilities are recognised in the consolidated statement of financial
position when the Group becomes party to the contractual provisions of the instrument. Financial
assets are de-recognised when the contractual rights to the cash flows from the financial asset expire
or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised
when the obligation specified in the contract is discharged, cancelled or expired.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost
less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are
recognised in the statement of profit or loss and other comprehensive income when there is objective
evidence that the assets are impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
investments – bank deposits
Comprise bank deposits maturing more than three months after the balance sheet date.
equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
Trade and other payables
Trade payables are initially measured at their fair value and are subsequently measured at their
amortised cost using the effective interest rate method; this method allocates interest expense over
the relevant period by applying the “effective interest rate” to the carrying amount of the liability.
Xeros Technology Group plc
32
noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
TaXaTion
The tax expense/(credit) represents the sum of the tax currently payable or recoverable and the
movement in deferred tax assets and liabilities.
Current tax is based upon taxable profit/(loss) for the year. Taxable profit/(loss) differs from net
profit/(loss) as reported in the statement of profit or loss and other comprehensive income because
it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated by using tax rates that have been enacted or
substantively enacted by the reporting date.
Credit is taken in the accounting period for research and development tax credits, which have been
claimed from HM Revenue and Customs, in respect of qualifying research and development costs
incurred. Research and development tax credits have been accounted for on either a cash receipts
basis or an accruals basis depending on the level of certainty regarding repayments of the claims
made.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled based upon tax rates that have been enacted or substantively enacted
by the reporting date. Deferred tax is charged or credited in the statement of profit or loss and other
comprehensive income, except when it relates to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred tax assets are recognised
to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the profit nor the accounting period.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
CriTiCal aCCoUnTinG esTimaTes and areas of JUdGemenT
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The estimates and assumptions that
have the most significant effects on the carrying amounts of the assets and liabilities in the financial
information are discussed below:
revenue recognition
The Group offers an integrated service and care package, marketed under Xeros Sbeadycare®. This
package includes the transfer of equipment and an ongoing commitment to service and support. As
part of determining the appropriate revenue recognition policy for such packages, the Group is
required to determine the relative fair values of the various elements of revenue. The Group is also
required to make judgements as to the market rate of interest used in the calculations. Due to the
unique nature of the product and the stage of development of the Group, such assessment is based
on limited historical information and requires a level of judgement. These judgements may be revised
in future years.
33
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noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
equity settled share-based payments
The estimation of share-based payment costs requires the selection of an appropriate valuation
method, consideration as to the inputs necessary for the valuation model chosen and the estimation
of the number of awards that will ultimately vest. Inputs subject to judgement relate to the future
volatility of the share price of comparable companies, the Group’s expected dividend yields, risk free
interest rates and expected lives of the options. The Directors draw on a variety of sources to aid in
the determination of the appropriate data to use in such calculations. The share based payment
charge for the year was £916,000 (31 July 2014: £210,000)
research and development costs
Careful judgement by the Directors is applied when deciding whether the recognition requirements
for capitalising development costs have been met. This is necessary as the economic success of any
product development is uncertain and may be subject to future technical problems. Judgements are
based on the information available at each reporting date which includes the progress with testing
and certification and progress on, for example, establishment of commercial arrangements with third
parties. In addition, all internal activities related to research and development of new products are
continuously monitored by the Directors. To date, no development costs have been capitalised.
recoverability of deferred tax assets
Deferred tax assets are recognised only to the extent that it is considered probable that those assets
will be recoverable. This involves an assessment of when those deferred tax assets are likely to
reverse and a judgement as to whether or not there will be sufficient taxable profits available to offset
the tax assets when they do reverse. This requires assumptions regarding future probability and is
therefore inherently uncertain. To the extent that assumptions regarding future probability change,
there can be an increase or decrease in the level of deferred tax assets recognised which can result
in a charge or credit to the statement of profit and loss and other comprehensive income in the period
in which the change occurs.
neW aCCoUnTinG sTandards and inTerPreTaTions aPPlied in The Year
The following new and amended IFRS and IFRIC interpretations are mandatory as of 1 August 2014
unless otherwise stated and the impact of adoption is described below. There are no other changes
to IFRS effective in the year which have a material impact on the Group.
(cid:0)
(cid:0)
(cid:0)
IFRS 13 Fair Value Measurement: IFRS 13 does not affect when fair value is used, but rather
describes how to measure fair value where fair value is required or permitted by IFRS. There
was no impact on the Group from the adoption of IFRS 13.
IAS 19 Employee Benefits (Revised): The revised standard includes a number of amendments
that range from fundamental changes to simple clarifications and re-wording. There was no
impact on the Group from the adoption of IAS 19 (Revised).
IAS 1 (Amendment): The amendment to IAS 1 concerns presentation of items of Other
Comprehensive Income. There is no impact from the adoption of the amendment.
Xeros Technology Group plc
34
noTes To The finanCial sTaTemenTs
continued
(2) siGnifiCanT aCCoUnTinG PoliCies continued
aCCoUnTinG sTandards and inTerPreTaTions noT aPPlied
At the date of authorisation of these financial statements, the following IFRSs, IASs and
Interpretations were in issue but not yet effective. Their adoption is not expected to have a material
effect on the financial statements unless otherwise indicated:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
IAS 1: Disclosure Initiative (effective date 1 January 2016);
IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation
(effective date 1 January 2016);
AIP IFRS 7: Applicability of the offsetting disclosures to condensed interim financial statements
(effective 1 January 2016);
AIP IAS 19: Discount rate: Regional market issue (effective 1 January 2016);
AIP IAS 34: Disclosure of information ‘elsewhere in the interim financial report’ (effective 1
January 2016);
IFRS 15: Revenue from contracts with customers (effective 1 January 2017); and
IFRS 9: Financial Instruments (effective 1 January 2018)
(3) finanCial risK manaGemenT
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as
possible without unduly affecting the Group’s competitiveness and flexibility. The Group does not use
derivative financial instruments such as forward currency contracts or similar instruments. The Group
does not issue or use financial instruments of a speculative nature.
The Group is exposed to the following financial risks:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
Credit risk
Liquidity risk
Market risk
Foreign currency risk
To the extent that financial instruments are not carried at fair value in the consolidated statement of
financial position, book value approximates to fair value at 31 July 2013, 31 July 2014 and 31 July
2015.
Trade and other receivables are measured at fair value and amortised cost. Book values and expected
cash flows are reviewed by the Board and any impairment charged to the consolidated statement of
profit or loss and other comprehensive income in the relevant period.
Cash and cash equivalents and investments (in the form of term deposits) are held in either UK
Sterling or US dollars and are placed on deposits in UK or US banks. Trade and other payables are
measured at book value and amortised cost.
35
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noTes To The finanCial sTaTemenTs
continued
(3) finanCial risK manaGemenT continued
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. The Group is potentially exposed to credit risk
from credit sales, but the Directors consider this to be a low risk. At 31 July 2015, the Group had
trade receivables outstanding of £42,000 (2014: £20,000).
The Group is exposed to credit risk in respect of these balances such that, if one or more customers
or a counterparty to a financial instrument encounters financial difficulties, this could materially and
adversely affect the Group’s financial results. The Group attempts to mitigate credit risk by assessing
the credit rating of new customers and financial counterparties prior to entering into contracts and
by entering into contracts with customers on agreed credit terms.
The Directors are not aware of any factors affecting the recoverability of outstanding balances at
31 July 2015 and consequently no provisions have been made for bad and doubtful debts.
The Group is potentially exposed to credit risk in respect of its bank deposits in the event of failure
of the respective banks. The Group attempts to mitigate this risk by spreading its cash deposits across
a number of different banks and through ongoing monitoring of the credit ratings of those banks.
Further details are set out in note 16. At 31 July 2015 the Directors were not aware of any factors
affecting the recoverability of the Group’s bank balances.
liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group
will encounter difficulty in meeting its future obligations as they fall due. The Group’s policy is to
ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
To achieve this aim, it seeks to maintain cash balances to meet its expected cash requirements.
market risk
Market risk is the risk that changes in market prices, such as interest rates or foreign exchange rates
will affect the Group’s income. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters. Market interest rate risk arises from the Group’s
holding of cash and cash equivalent balances and from cash held on term deposit accounts (see notes
15 and 16). The Board make ad hoc decisions at their regular Board meetings, as to whether to hold
funds in instant access accounts or longer term deposits. All accounts are held with reputable banks.
These policies are considered to be appropriate to the current stage of development of the group,
and will be kept under review in future years.
Based on the Group’s cash balances at 31 July 2015, if interest rates had been 5 per cent higher,
then the impact on the results for the year would be a reduction in the loss for the year of
approximately £1,175,000 with a corresponding increase in the Group’s net assets. If the interest
rate had reduced to zero per cent, then the impact on the results for the year would be an increase
in the loss for the year of £178,000 with a corresponding decrease in the Group’s net assets.
foreign currency risk
The Group is exposed to currency risk on sales and purchase transactions and cash held on deposit
accounts that are denominated in a currency other than the respective functional currencies of group
entities, primarily Pound Sterling (GBP), the US Dollars (USD) and the Euro (EUR). In respect of other
monetary assets and liabilities denominated in foreign currencies, the Group’s policy is to ensure that
its net exposure is kept to an acceptable level by buying foreign currencies at spot rates when
necessary to meet working capital requirements in each of the Group’s entities.
Xeros Technology Group plc
36
noTes To The finanCial sTaTemenTs
continued
(3) finanCial risK manaGemenT continued
Capital risk management
The Group’s capital is made up of share capital, share premium and retained losses, totalling
£5,850,000 at 31 July 2015 (31 July 2014: £15,093,000).
The Group’s objectives when managing capital are:
(cid:0)
(cid:0)
to safeguard the entity’s ability to continue as a going concern, so that it can provide returns
for shareholders and benefits for other stakeholders; and
to provide an adequate return to shareholders by pricing products and services commensurately
with the level of risk.
The capital structure of the Group consists of shareholders’ equity as set out in the consolidated
statement of changes in equity. All working capital requirements are financed from existing cash
resources. There are no externally imposed capital requirements. Financing decisions are made by
the Board of Directors based on forecasts of the expected timing and level of capital and operating
expenditure required to meet the Group’s commitments and development plans.
(4) seGmenTal rePorTinG
The information that is presented to the Chief Executive Officer, who is considered to be the Chief
Operating Decision Maker (“CODM”), for the purposes of resource allocation and assessment of
performance, is based wholly on the overall activities of the Group. Due to the current size and
activities of the Group, there is a high degree of centralisation of activities. The Directors therefore
consider that there is one operating, and hence one reportable segment for the purposes of presenting
information under IFRS8; that of “Development and commercialisation of polymer bead cleaning
technologies”. There are no differences between the segment results and the consolidated statement
of comprehensive income. The assets and liabilities information presented to the CODM is consistent
with the consolidated statement of financial position.
The single operating segment includes revenue by category as follows:
Sale of goods
Rendering of services
Year to
31 July
2015
£000
289
177
466
Year to
31 July
2014
£000
284
28
312
During the year ended 31 July 2015 the Group had no customers who individually generated more
than 10 per cent. of total revenue.
During the year ended 31 July 2014 the Group had six customers who generated more than 10 per
cent. of total revenue. These customers generated 16%, 14%, 12%, 12%, 10% and 10% of revenue
respectively.
An analysis of revenues by geographic location of customers is set out below:
Europe
North America
Year to
31 July
2015
£000
88
378
466
Year to
31 July
2014
£000
55
257
312
37
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noTes To The finanCial sTaTemenTs
continued
(4) seGmenTal rePorTinG continued
An analysis of non-current assets by location is set out below:
Europe
North America
(5) loss from oPeraTions
Loss from operations is stated after crediting:
Grant income
Foreign exchange gains
Loss from operations is stated after charging to
administrative expenses:
Depreciation of plant and equipment (see note 12)
Operating lease rentals – land and buildings
Staff costs (excluding share based payment charge)
Research and development (excluding staff and patent costs)
auditors remuneration:
- Audit of these financial statements
- Audit of financial statements of subsidiaries of the company
- all other services
Total auditor’s remuneration
Year to
31 July
2015
£000
Year to
31 July
2014
£000
517
423
940
130
168
298
Year to
31 July
2015
£000
Year to
31 July
2014
£000
74
174
–
–
77
104
4,334
1,401
8
12
6
26
67
42
2,534
1,324
8
7
154
169
Other services in the prior year related to transaction services in relation to the IPO.
(6) sTaff CosTs
The average monthly number of persons (including directors)
employed by the Group during the year was:
Directors
Operational staff
Year to
31 July
2015
number
Year to
31 July
2014
Number
7
58
65
7
36
43
Xeros Technology Group plc
38
noTes To The finanCial sTaTemenTs
continued
(6) sTaff CosTs continued
The aggregate remuneration, including directors, comprised:
Wages and salaries
Share based expense (see note 23)
Social security costs
Directors’ remuneration comprised:
Emoluments for qualifying services
Year to
31 July
2015
£000
Year to
31 July
2014
£000
3,952
916
382
5,250
2,286
210
248
2,744
775
613
Directors’ emoluments disclosed above include £306,000 paid to the highest paid director (2014:
£234,000). There are no pension benefits for directors. Please see Directors’ Remuneration Report
on pages 18 to 20 for further information on directors’ emoluments.
(7) eXPenses BY naTUre
The administrative expenses charge by nature is as follows:
Staff costs, recruitment and other HR
Share-based payment expense
Premises and establishment costs
Research and development costs
Patent and IP costs
Legal, professional and consultancy fees
IT, telecoms and office costs
Depreciation charge
Travelling, subsistence and entertaining
Advertising, conferences and exhibitions
Foreign exchange (gains)/losses
Other expenses
Less: grants receivable
Total operating administrative expenses
Non operating administrative exceptional items:
AIM flotation costs
Total administrative expenses
Year to
31 July
2015
£000
Year to
31 July
2014
£000
4,647
916
222
1,401
655
1,196
203
77
950
637
–
263
(65)
2,717
210
73
1,324
423
700
151
67
482
376
(21)
128
–
11,102
6,630
–
163
11,102
6,793
Staff costs, recruitment and other HR include £1,588,000 (2014: £1,275,000) that is deemed to be
directly related to research and development activity.
39
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noTes To The finanCial sTaTemenTs
continued
(8) oTher oPeraTinG inCome
Foreign exchange gains
(9) finanCe inCome
Bank interest receivable
Finance income from lease receivables
(10) TaXaTion
Tax on loss on ordinary activities
Current tax:
UK Tax credits received in respect of prior periods
Foreign taxes paid
deferred tax:
Origination and reversal of temporary timing differences
Tax credit on loss on ordinary activities
Year to
31 July
2015
£000
174
174
Year to
31 July
2014
£000
–
–
Year to
31 July
2015
£000
Year to
31 July
2014
£000
178
14
192
110
3
113
Year to
31 July
2015
£000
Year to
31 July
2014
£000
(477)
8
(469)
(284)
–
(284)
5
1
(464)
(283)
The credit for the year can be reconciled to the loss before tax per the statement of profit or loss and
other comprehensive Income as follows:
Xeros Technology Group plc
40
noTes To The finanCial sTaTemenTs
continued
(10) TaXaTion continued
factors affecting the current tax charges
The tax assessed for the year varies from the small company rate of corporation tax as explained
below:
The tax assessed for the period varies from the main company rate
of corporation tax as explained below:
Loss on ordinary activities before tax
Year to
31 July
2015
£000
Year to
31 July
2014
£000
(10,669)
(6,662)
Tax at the standard rate of corporation tax 20% (2014: 20%)
(2,134)
(1,332)
Effects of:
Expenses not deductable for tax purposes
Research and development tax credits receivable
Unutilised tax losses
Foreign taxes paid
Tax credit for the year
202
(477)
1,937
8
(464)
55
(283)
1,277
–
(283)
At 31 July 2015 the group had an amount of £477,000 (2014: £nil) receivable from HM Revenue and
Customs in respect of Research and Development tax credits. This is included as a current tax asset
in the Consolidated Statement of Financial Position.
(11) loss Per share (BasiC and dilUTed)
Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by
the weighted average number of ordinary shares in issue during the year. Diluted loss per share is
calculated by adjusting the weighted average number of ordinary shares in issue during the year to
assume conversion of all dilutive potential ordinary shares.
Year to
31 July
2015
£000
Year to
31 July
2014
£000
Total loss attributable to the equity holders of the parent
(10,205)
(6,379)
Weighted average number of ordinary shares in issue during the year
loss per share
Basic and diluted on loss for the year
No.
65,336,459 49,360,625
no.
(15.62)p (12.92)p
Adjusted earnings per share has been calculated so as to exclude the effect of non operating
exceptional costs including related tax charges and credits. Adjusted earnings used in the calculation
of basic and diluted earnings per share reconciles to basic earnings as follows:
Basic earnings
Non operating exceptional costs
Adjusted earnings
adjusted loss per share
Basic and diluted on loss for the year
£000
(10,205)
–
£000
(6,379)
163
(10,205)
(6,216)
(15.62)p (12.59)p
41
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noTes To The finanCial sTaTemenTs
continued
(11) loss Per share (BasiC and dilUTed) continued
The weighted average number of shares in issue throughout the period is as follows:
Issued ordinary shares at 1 August *
Effect of shares issued for cash
Weighted average number of shares at 31 July
Year to
31 July
2015
Year to
31 July
2014
65,173,549 40,683,333
162,910 8,677,292
65,336,459 49,360,625
* The comparative figures are based on the number of shares that would have been in issue had the
capital structure of the new parent company always been in place.
The Company has issued employee options over 7,368,901 (2014: 6,232,589) ordinary shares which
are potentially dilutive. There is however, no dilutive effect of these issued options as there is a loss
for each of the years concerned.
(12) ProPerTY, PlanT and eQUiPmenT
assets
under
leasehold
Plant
and
Computer
construction improvements
equipment
equipment
£000
£000
£000
£000
fixtures
and
fittings
£000
Cost
at 31 July 2013
Additions
–
–
at 31 July 2014
Additions
Foreign currency differences
at 31 July 2015
–
360
–
360
depreciation
at 31 July 2013
Charge for the year
at 31 July 2014
Charge for the year
at 31 July 2015
net book value
at 31 July 2015
at 31 July 2014
at 31 July 2013
–
–
–
–
–
360
–
–
66
25
91
39
–
130
32
31
63
24
87
43
28
34
74
18
92
59
–
151
26
15
41
24
65
86
51
48
28
29
57
27
1
85
12
12
24
20
44
41
33
16
41
3
44
47
–
91
26
9
35
9
44
47
9
15
Total
£000
209
75
284
532
1
817
96
67
163
77
240
577
121
113
Assets under construction consist of leasehold improvements at the Company’s new Technology
Centre at the Advanced Manufacturing Park. The new premises were not completed until August 2015
Xeros Technology Group plc
42
noTes To The finanCial sTaTemenTs
continued
(13) invenTories
Finished goods
31 July
2015
£000
31 July
2014
£000
2,909
747
In the year end 31 July 2015, changes in finished goods recognised as cost of sales amounted to
£345,000 (2014: £273,000).
(14) Trade and oTher reCeivaBles
due within 12 months
Trade debtors
Other receivables
Prepayments and accrued income
due after more than 12 months
Other receivables
31 July
2015
£000
31 July
2014
£000
42
159
377
578
20
269
365
654
363
177
There is no material difference between the lease receivables amounts included in other receivables
noted above, the minimum lease payments or gross investment in the lease as defined by IAS17.
The minimum lease payment is receivable as follows:
Not later than one year
Later than one year not later than five years
Later than five years
31 July
2015
£000
31 July
2014
£000
50
218
145
413
23
100
77
200
Contractual payment terms with the Group’s customers are typically 30 to 60 days.
There are no amounts of overdue debts for which no allowance has been made. There are no
provisions for impairment losses in respect of trade and other receivables. There are no receivables
at any of the period ends which were considered to be past due. The Directors believe that the
carrying value of trade and other receivables represents their fair value. In determining the
recoverability of trade receivables the Board considers any change in the credit quality of the
receivable from the date credit was granted up to the reporting date. For details on credit risk
management policies, refer to note 3.
Other receivables of £363,000 (2014: £177,000) due after more than one year comprise the long
term portion of finance leases where the Group acts as lessor.
43
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noTes To The finanCial sTaTemenTs
continued
(15) invesTmenTs – BanK dePos iTs
Bank deposits maturing between 3 and 12 months
31 July
2015
£000
31 July
2014
£000
1,539
1,526
At 31 July 2015 the company held £1,539,000 (2014: £1,526,000) in a 95 day deposit account. This
balance is denominated in UK Sterling (£). The Directors consider that the carrying value of cash and
cash equivalents approximates to their fair value. For details of credit risk management policies, refer
to note 3.
(16) Cash and Cash eQUivalenTs
A
BBB+
Cash and cash equivalents
31 July
2015
£000
14,200
1,713
31 July
2014
£000
27,999
–
15,913
27,999
The above has been split by the Fitch rating system and gives an analysis of the long term credit
rating of the financial institutions where cash balances are held.
All of the Group’s cash and cash equivalents at 31 July 2015 are at floating interest rates. Balances
are denominated in UK Sterling (£), US Dollars ($) and Euros as follows:
Denominated in Pound Sterling
Denominated in US Dollars
Denominated in Euros
Cash and cash equivalents
31 July
2015
£000
15,537
316
60
31 July
2014
£000
25,719
2,255
25
15,913
27,999
The Directors consider that the carrying value of cash and cash equivalents approximates to their fair
value. For details of credit risk management policies, refer to note 3.
(17) finanCial insTrUmenTs
non-derivative financial assets
At the reporting date, the Group held the following non-derivative financial assets which best
represent the maximum exposure to credit risk at the balance sheet date:
due within 3 months
Cash and cash equivalents
Trade receivables
Other receivables
Income tax receivable
Xeros Technology Group plc
44
31 July
2015
£000
15,913
42
536
477
31 July
2014
£000
27,999
20
634
–
16,968
28,653
noTes To The finanCial sTaTemenTs
continued
(17) finanCial insTrUmenTs continued
due between 3 months and 12 months
Investments: fixed rate bonds and cash deposits
due after more than 12 months
Other receivables
31 July
2015
£000
31 July
2014
£000
1,539
1,526
363
177
The concentration of credit risk for trade and other receivables at the balance sheet date by
geographic region was:
United Kingdom
United States of America
non-derivative financial liabilities
31 July
2015
£000
453
125
578
31 July
2014
£000
568
86
654
At the reporting date, the Group held the following financial liabilities, all of which were classified as
other non-derivative financial liabilities:
due within 3 months
Trade payables
Other payables
interest rate sensitivity
31 July
2015
£000
31 July
2014
£000
287
776
1,063
379
330
709
The principal impact to the Company is the result of interest-bearing cash and cash equivalent
balances and investment accounts held as set out below:
Cash and cash equivalents
Investments: Cash deposits
Cash and cash equivalents
Investments: Cash deposits
31 July 2015
floating
rate
£000
fixed
rate
£000
–
–
15,913
1,539
31 July 2014
Fixed
rate
£000
–
–
Floating
rate
£000
27,999
1,526
Total
£000
15,913
1,539
Total
£000
27,999
1,526
Based on the Group’s above balances at 31 July 2015, if interest rates had been 5 per cent higher,
then the impact on the results for the year would be a reduction in the loss for the year of
approximately £1,175,000 with a corresponding increase in the Group’s net assets. If the interest
rate had reduced to zero per cent, then the impact on the results for the year would be an increase
in the loss for the year of £178,000 with a corresponding decrease in the Group’s net assets.
45
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noTes To The finanCial sTaTemenTs
continued
(17) finanCial insTrUmenTs continued
market risk – foreign currency risk
The Group’s exposure to foreign currency risk as at 31 July 2015 is as follows. This is based on the
carrying amount for monetary financial instruments.
sterling Us dollar
£000
£000
euro
£000
500
15,537
1,539
453
(765)
2,409
316
–
125
(284)
–
60
–
–
(14)
Total
£000
2,909
15,913
1,539
578
(1,063)
17,264
2,566
46
19,876
Inventories
Cash and cash equivalents
Investments: Cash deposits
Trade and other receivables
Trade and other payables
Balance sheet exposure
(18) Trade and oTher PaYaBles
Trade payables
Taxes and social security
Other creditors
Accruals and deferred income
31 July
2015
£000
287
79
26
671
1,063
31 July
2014
£000
379
68
34
228
709
31 July
2015
£000
31 July
2014
£000
216
56
15
287
257
115
7
379
Trade payables, split by the currency they will be settled are shown below:
Sterling
US Dollars
Euros
Trade payables
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing
costs. They are non-interest bearing and are normally settled on 30 to 45 day terms. The Directors
consider that the carrying value of trade and other payables approximate their fair value.
The Group has financial risk management policies in place to ensure that all payables are paid within
the credit timeframe and no interest has been charged by any suppliers as a result of late payment
of invoices during the year.
Xeros Technology Group plc
46
noTes To The finanCial sTaTemenTs
continued
(19) deferred TaX
Accelerated depreciation for tax purposes
Deferred tax expense
At beginning of year
Tax expense
At end of year
31 July
2015
£000
31 July
2014
£000
22
5
17
1
31 July
2015
£000
31 July
2014
£000
17
5
22
16
1
17
As at 31 July 2015, the Group had unrecognised deferred tax assets totalling approximately
£4,014,000 (31 July 2014: £2,319,000), which primarily relate to losses and the IFRS 2 share based
payment charge. The Group has not recognised this as an asset in the Statement of Financial Position
due to the uncertainty in the timing of its crystallisation.
(20) share CaPiTal
Total ordinary shares of
0.15p each as at 10 september 2013
(date of incorporation)
–
number
Issue of ordinary shares
Issue of ordinary shares on
exercise of share options
Costs of share issues
Total ordinary shares of
0.15p each as at 31 July 2014
Issue of ordinary shares on
exercise of share options
Total ordinary shares of
0.15p each as at 31 July 2015
share
merger
share
capital premium reserve
£000
£000
£000
Total
£000
–
98
–
–
–
–
–
29,963
15,449
45,510
11
(1,842)
–
(6)
11
(1,848)
65,073,549
100,000
–
65,173,549
98
28,132
15,443
43,673
331,330
–
46
–
46
65,504,879
98
28,178
15,443
43,719
As permitted by the provisions of the Companies Act 2006, the Company does not have an upper
limit to its authorised share capital.
The following is a summary of the changes in the issued share capital of the Company during the
year ended 31 July 2015:
(a)
(b)
(c)
On 28 January 2015, 183,332 Ordinary Shares were allotted at a price of 12 pence per share,
for total cash consideration of £22,000, upon the exercise of share options granted in the
Company’s EMI share option scheme.
On 30 January 2015, 132,999 Ordinary Shares were allotted at a price of 16.2 pence per share,
for total cash consideration of £21,546, upon the exercise of share options granted in the
Company’s EMI and Unapproved share option schemes.
Between 11 May 2015 and 15 May 2015, 14,999 Ordinary Shares were allotted at a price of
16.2 pence per share, for total cash consideration of £2,430, upon the exercise of share options
granted in the Company’s EMI share option scheme.
At 31 July 2015, the Company had only one class of share, being Ordinary Shares of 0.15p each.
47
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noTes To The finanCial sTaTemenTs
continued
(21) movemenT in reTained earninGs and foreiGn CUrrenCY TranslaTion reserve
at 31 July 2013
Loss for the year
Other comprehensive income/(expenses) – Foreign currency
translation differences – foreign operation
Shared based payment charge
at 31 July 2014
Loss for the year
Other comprehensive income/(expenses) – Foreign currency
translation differences – foreign operation
Shared based payment charge
foreign
currency
accumulated translation
reserve
£000
losses
£000
(6,968)
(6,379)
–
210
(13,137)
(10,205)
–
916
–
–
(38)
–
(38)
–
16
–
at 31 July 2015
(22,426)
(22)
(22) CommiTmenTs
Operating lease commitments
The Group leases premises under non-cancellable operating lease agreements. The future aggregate
minimum lease and service charge payments under non-cancellable operating leases are as follows:
Land and buildings:
Amounts due within one year
Amounts due between one and five years
31 July
2015
£000
31 July
2014
£000
93
171
264
4
6
10
On 19 October 2014 the company entered into a five year lease arrangement in respect of a property.
The company has an annual rent commitment of £17,185 on this lease. This lease expires on 18
October 2019. On the same date the company entered into a five year lease arrangement in respect
of another property. The company has an annual rent commitment of £25,487 on this lease. This
lease also expires on 18 October 2019.
On 13 February 2015 the company entered into an arrangement assigning to it a 10 year lease in
respect of a property. The lease commenced on 2 April 2012, expires on 1 April 2022 and contains a
break clause allowing termination of the lease after 5 years. The company has an annual rent
commitment of £50,160 on this lease.
Other commitments
Under the terms of a manufacturing agreement between Xeros Limited and Jiangsu Sea-lion
Machinery Group, Xeros Limited is committed to acquire machines at a total cost of approximately
$1.1 million by the end of 2015.
Xeros Technology Group plc
48
noTes To The finanCial sTaTemenTs
continued
(23) share Based PaYmenTs
share options
The Company has share option plans (The Xeros Technology Group plc Unapproved Share Option
Scheme and The Xeros Technology Group plc Enterprise Management Incentive Share Option Scheme)
under which it grants options over ordinary shares to certain Directors, employees and consultants
of the Group. Options under these plans are exercisable at a range of exercise prices ranging from
the nominal value of the Company’s shares to the market price of the Company’s shares on the date
of the grant. The vesting period for shares is usually over a period of three years. The options are
settled in equity once exercised. If the options remain unexercised for a period after 10 years from
the date of grant, the options expire. Options are forfeited if the employee leaves the Group before
the options vest.
The number and weighted average exercise prices of share options are as follows:
number of share interests
Unapproved
deferred
annual
options Bonus plan
emi options
Total
Weighted
average
exercise
price per
share (£)
3,861,493
–
221,333
(100,000)
555,036 1,694,727
– 4,082,826
–
(100,000)
– 2,249,763
0.134
(0.108)
0.045
4,416,529 1,816,060
– 6,232,589
0.102
(209,999)
(183,332)
(121,333)
–
92,665 1,496,334
–
–
(331,332)
(183,332)
61,977 1,650,976
(0.139)
(0.120)
1.490
4,115,863 3,191,061
61,977 7,368,901
0.411
at 31 July 2013
Exercised in the year
Issued in the year
at 31 July 2014
Exercised in the year
Lapsed in the year
Issued in the year
at 31 July 2015
There were 5,980,343 share options outstanding at 31 July 2015 which were eligible to be exercised.
The remaining options were not eligible to be exercised as these are subject to employment period
and market based vesting conditions, some of which had not been met at 31 July 2015. Options have
a range of exercise prices from 0.15 pence per share to 164.5 pence per share and have a weighted
contractual life of 7.78 years (2014: 8.32 years).
Dividend yield
Expected volatility*
Risk free interest rate (%)
Expected vesting life of options (years)
Weighted average share price (£)
Options
granted on
17 December
2014
Options
granted on
30 January
2015
Options
granted on
4 February
2015
0%
40.00%
2.02%
6
1.300
0%
40.00%
2.02%
6
1.605
0%
40.00%
2.02%
6
1.645
* Expected volatility is based upon the Company’s historical share price.
Any share options which are not exercised within 10 years from the date of grant will expire.
A charge has been recognised in the consolidated statement of profit or loss and other comprehensive
income for each year as follows:
Share options
Year to
31 July
2015
£000
916
Year to
31 July
2014
£000
210
49
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noTes To The finanCial sTaTemenTs
continued
(24) relaTed ParTY TransaCTions
During the year the group entered into transactions, in the ordinary course of business, with other
related parties. Those transactions with directors are disclosed below. Transactions entered into, along
with trading balances outstanding at 31 July with other related parties, are as follows:
Related party:
IP2IPO Limited
Top Technology
Ventures Limited
relationship
Shareholder
(note 1)
Connected to
IP2IPO Limited
Enterprise Ventures Limited
Fund manager for certain
shareholders (note 2)
Entrepreneurs’ Fund
Management LLP
Fund manager for
a shareholder (note 3)
Purchases amounts
from owed to
related
party
2015
£000
related
party
2015
£000
Purchases
from
related
party
2014
£000
Amounts
owed to
related
party
2014
£000
–
–
10
10
–
–
–
–
9
1
10
10
–
–
–
–
Note 1: IP2IPO Limited provided the services of Charles Winward as a director of the Company, until his resignation
on 17 June 2014 and invoiced the Group for associated director’s fees.
Note 2: Enterprise Ventures Limited provides the services of Julian Viggars as a director for the Company and
invoiced the Group for associated director’s fees.
Note 3: Entrepreneurs’ Fund Management LLP provides the services of Dr Maciek Drozdz a director for the
Company and invoiced the Group for associated director’s fees.
Terms and conditions of transactions with related parties
Purchases between related parties are made on an arm’s length basis. Outstanding balances are
unsecured, interest free and cash settlement is expected within 60 days of invoice.
Transactions with Key management Personnel
The Company’s key management personnel comprise only the Directors of the Company. During the
year the Company entered into the following transactions in which the Directors had an interest:
Directors’ remuneration:
Remuneration received by the Directors from the Company is set out below. Further detail is provided
within the Directors’ Remuneration Report:
Short-term employment benefits*
Year to
31 July
2015
£000
Year to
31 July
2014
£000
775
613
*In addition, certain directors hold share options in the Company for which a fair value share based
charge of £566,470 has been recognised in the consolidated statement of profit or loss and other
comprehensive income (2014: £179,000).
During the year ended 31 July 2015, the Company entered into numerous transactions with its
subsidiary company which net off on consolidation – these have not been shown above.
Xeros Technology Group plc
50
ComPanY sTaTemenT of ChanGes in eQUiTY
for the period ended 31 July 2015
attributable to the equity holders of the Company
share
share
Capital Premium reserve
£000
£000
£000
retained
merger earnings
reserve
£000
Total
£000
at 10 september 2013
(date of incorporation)
Total expense and other comprehensive
loss for the period
Transactions with owners, recorded
directly in equity:
Share capital issued
Arising on acquisition
Costs of share issues
Exercise of share options
Share based payment expense in
respect of services provided to
subsidiary undertaking
Total contributions by and distributions
to owners
at 31 July 2014
Total expense and other comprehensive
loss for the period
Transactions with owners, recorded
directly in equity:
Exercise of share options
Share based payment expense
Share based payment expense in
respect of services provided to
subsidiary undertaking
Total contributions by and distributions
to owners
–
–
37
61
–
–
–
98
98
–
–
–
–
–
–
–
–
–
–
–
(134)
(134)
29,963
–
(1,842)
11
–
6,625
–
–
–
–
–
–
30,000
6,686
(1,842)
11
–
–
165
165
28,132
6,625
28,132
6,625
165
31
35,020
34,886
–
46
–
–
46
–
–
–
–
–
(390)
(390)
–
316
46
316
600
600
916
557
962
35,458
at 31 July 2015
98
28,178
6,625
51
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ComPanY sTaTemenT of finanCial PosiTion
as at 31 July 2015
asseTs
non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Intercompany loan balance
Cash and cash equivalents
Total current assets
ToTal asseTs
liaBiliTies
Current liabilities
Trade and other payables
ToTal liaBiliTies
neT asseTs
eQUiTY
Share capital
Share premium
Merger reserve
Retained earnings
ToTal eQUiTY
Notes
2015
£000
2014
£000
C3
C4
C5
C6
20
20
7,451
7,451
6,851
6,851
44
19,954
8,146
91
19,880
8,101
28,144
28,072
35,595
34,923
(137)
(137)
(37)
(37)
35,458
34,886
98
28,178
6,625
557
98
28,132
6,625
31
35,458
34,886
Approved by the Board of Directors and authorised for issue on 11 November 2015.
John samuel
Chairman
Chris hanson
Chief Financial Officer
Company number: 08684474
Xeros Technology Group plc
52
noTes To The ComPanY informaTion
for the period ended 31 July 2015
C1. Principal accounting policies
The financial statements of the Company are presented as required by the Companies Act 2006 and
in accordance with IFRS.
The principal accounting policies adopted are the same as for those set out in the Group’s financial
statements.
C2. Company results
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not
to present the parent company’s statement of profit or loss and other comprehensive income. The
parent company’s result for the period ended 31 July 2015 was a loss of £390,000 (2014: £134,000).
The audit fee for the company is set out in note 5 of the Group’s financial statements.
C3.
investment in subsidiary companies
At 31 July 2015, the Company held the following investments in subsidiaries;
Undertaking
sector
share of issued
capital and voting rights
2015
Xeros Limited
Xeros Inc*
Research, development and commercialisation of polymer
bead alternatives to traditional aqueous based technologies
Commercialisation of polymer bead alternatives to
traditional aqueous based technologies
100%
100%
* Held through Xeros Limited
Xeros Limited, is incorporated in England and Wales as a private limited company under registered
number 05933013. Xeros Inc. is incorporated in Delaware, USA.
Cost
At 10 September 2013 (date of incorporation)
Additions
at 31 July 2014
Additions
at 31 July 2015
impairment
At 10 September 2013 (date of incorporation )
at 31 July 2014 and 31 July 2015
net book value
at 31 July 2015
At 31 July 2014
£000
–
6,851
6,851
600
7,451
–
–
7,451
6,851
Included within additions of £600,000 (2014: £6,851,000) is an amount of £600,000 (2014:
£165,000) in respect of the IFRS 2 share based payment contribution relating to options granted to
employees of the Company’s subsidiaries.
53
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noTes To The ComPanY informaTion
continued
C4. Trade and other receivables
Prepayments and accrued income
Other debtors
C5. Current assets
Intercompany loan
31 July
2015
£000
31 July
2014
£000
22
22
44
12
79
91
31 July
2015
£000
31 July
2014
£000
19,954
19,880
Loans comprise a loan of £19,600,000 (2014: £19,855,000) to Xeros Limited and a loan of £354,000
(2014: £25,000) to Xeros Inc. No interest was payable on these loans. All intercompany loans are
repayable on demand.
C6. Trade and other payables
Trade payables
Social security and other taxes
Accruals
31 July
2015
£000
32
15
90
31 July
2014
£000
–
13
2
137
37
Xeros Technology Group plc
54
noTiCe of annUal General meeTinG
Notice is given that the 2015 annual general meeting of Xeros Technology Group plc (“the Company”) will
be held at the offices of Squire Patton Boggs (UK) LLP, 7 Devonshire Square, London EC2M 4YH on
11 December 2015 at 10am for the following purposes:
To consider and, if thought fit, to pass the following resolutions as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
8.
To receive the Company’s annual accounts, strategic report and directors’ and auditors’ reports for
the year ended 31 July 2015.
To elect as a Director, Mark Nichols, who was appointed to the Board on 14 September 2015
To re-elect as a Director, Chris Hanson who retires from the Board in accordance with the Company’s
Articles
To re-elect as a Director, Steve Jenkins who retires from the Board in accordance with the Company’s
Articles
To re-elect as a Director, Julian Viggars who retires from the Board in accordance with the Company’s
Articles
To appoint KPMG LLP as auditors of the Company.
To authorise the directors to determine the remuneration of the auditors.
That, pursuant to section 551 of the Companies Act 2006 (“Act”), the directors be and are generally
and unconditionally authorised to exercise all powers of the Company to allot Relevant Securities:
8.1
comprising equity securities (as defined in section 560(1) of the Act) up to an aggregate
nominal amount of £83,000 (such amount to be reduced by the aggregate nominal amount of
Relevant Securities allotted pursuant to paragraph 8.2 of this resolution) in connection with a
rights issue:
8.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as
practicable) to the respective numbers of ordinary shares held by them; and
8.1.2 to holders of other equity securities in the capital of the Company, as required by the
rights of those securities or, subject to such rights, as the directors otherwise consider
necessary,
but subject to such exclusions or other arrangements as the directors may deem necessary or
expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical
problems under the laws of any territory or the requirements of any regulatory body or stock
exchange; and
8.2
otherwise than pursuant to paragraph 8.1 of this resolution, up to an aggregate nominal
amount of £41,500 (such amount to be reduced by the aggregate nominal amount of Relevant
Securities allotted pursuant to paragraph 8.1 of this resolution in excess of £41,500),
provided that (unless previously revoked, varied or renewed) these authorities shall expire at
the conclusion of the next annual general meeting of the Company after the passing of this
resolution or on 30 June 2017 (whichever is the earlier), save that, in each case, the Company
may make an offer or agreement before the authority expires which would or might require
Relevant Securities to be allotted after the authority expires and the directors may allot
Relevant Securities pursuant to any such offer or agreement as if the authority had not expired.
In this resolution, “relevant securities” means shares in the Company or rights to subscribe
for or to convert any security into shares in the Company; a reference to the allotment of
Relevant Securities includes the grant of such a right; and a reference to the nominal amount
of a Relevant Security which is a right to subscribe for or to convert any security into shares in
the Company is to the nominal amount of the shares which may be allotted pursuant to that
right.
55
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noTiCe of annUal General meeTinG
continued
These authorities are in substitution for all existing authorities under section 551 of the Act (which,
to the extent unused at the date of this resolution, are revoked with immediate effect).
To consider and, if thought fit, to pass the following resolutions as special resolutions:
9.
That, subject to the passing of resolution 8 and pursuant to section 570 of the Act, the directors be
and are generally empowered to allot equity securities (within the meaning of section 560 of the Act)
for cash pursuant to the authorities granted by resolution 8 as if section 561(1) of the Act did not
apply to any such allotment, provided that this power shall be limited to:
9.1
the allotment of equity securities in connection with an offer of equity securities (whether by
way of a rights issue, open offer or otherwise, but, in the case of an allotment pursuant to the
authority granted by paragraph 8.1 of resolution 8, such power shall be limited to the allotment
of equity securities in connection with a rights issue):
9.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as
practicable) to the respective numbers of ordinary shares held by them; and
9.1.2 to holders of other equity securities in the capital of the Company, as required by the
rights of those securities or, subject to such rights, as the directors otherwise consider
necessary,
but subject to such exclusions or other arrangements as the directors may deem necessary or
expedient in relation to treasury shares, fractional entitlements, record dates or any legal or
practical problems under the laws of any territory or the requirements of any regulatory body
or stock exchange; and
9.2
the allotment of equity securities pursuant to the authority granted by paragraph 8.2 of
resolution 8 (otherwise than pursuant to paragraph 9.1 of this resolution) up to an aggregate
nominal amount of £6,250,
and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of
the next annual general meeting of the Company after the passing of this resolution or on 30
June 2017 (whichever is the earlier), save that the Company may make an offer or agreement
before this power expires which would or might require equity securities to be allotted for cash
after this power expires and the directors may allot equity securities for cash pursuant to any
such offer or agreement as if this power had not expired.
This power is in substitution for all existing powers under section 570 of the Act (which, to the
extent unused at the date of this resolution, are revoked with immediate effect).
By order of the board
...……..................................
Chris hanson
Company Secretary
11 November 2015
registered office
Unit 2 Evolution
Advanced Manufacturing Park
Whittle Way
Catcliffe
Rotherham
S60 5BL
registered in england and Wales no. 08684474
Xeros Technology Group plc
56
noTes
Entitlement to attend and vote
1.
The right to vote at the meeting is determined by reference to the register of members. Only those
shareholders registered in the register of members of the Company as at 6.00pm on 9 December
2015 (or, if the meeting is adjourned, 6.00pm on the date which is two working days before the date
of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number
of shares registered in their name at that time. Changes to entries in the register of members after
that time shall be disregarded in determining the rights of any person to attend or vote (and the
number of votes they may cast) at the meeting.
Proxies
2.
A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or
her rights to attend and to speak and vote at the meeting. A proxy need not be a shareholder of the
Company.
3.
4.
A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy
is appointed to exercise the rights attached to a different share or shares held by that shareholder.
Failure to specify the number of shares each proxy appointment relates to or specifying a number
which when taken together with the numbers of shares set out in the other proxy appointments is in
excess of the number of shares held by the shareholder may result in the proxy appointment being
invalid.
A proxy may only be appointed in accordance with the procedures set out in notes 3 and 4 below and
the notes to the proxy form.
The appointment of a proxy will not preclude a shareholder from attending and voting in person at
the meeting.
A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form
in relation to each appointment. Additional proxy forms may be obtained by contacting the Company’s
registrar on 0121 585 1131. State clearly on each proxy form the number of shares in relation to
which the proxy is appointed.
To be valid, a proxy form must be received by post or (during normal business hours only) by hand
at the offices of the Company’s registrar, Neville Registrars Limited, Neville House, 18 Laurel Lane,
Halesowen, West Midlands B63 3DA, no later than 10am on 9 December 2015 (or, if the meeting is
adjourned, no later than 48 hours before the time of any adjourned meeting).
CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it)
through the CREST electronic proxy appointment service may do so by using the procedures described
in the CREST Manual. CREST personal members or other CREST sponsored members, and those
CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor
or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the
appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in
accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information
required for such instructions, as described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously
appointed proxy, must, in order to be valid, be transmitted so as to be received by Neville Registrars
(ID 7RA11) no later than 10am on 9 December 2015 (or, if the meeting is adjourned, no later than
48 hours before the time of any adjourned meeting). For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by the CREST
Applications Host) from which Neville Registrars is able to retrieve the message by enquiry to CREST
in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other means.
57
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noTes
continued
CREST members and, where applicable, their CREST sponsors or voting service providers should note
that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any
particular messages. Normal system timings and limitations will therefore apply in relation to the
input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member or sponsored member or has appointed a
voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s)
take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in
Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Corporate representatives
5.
A shareholder which is a corporation may authorise one or more persons to act as its representative(s)
at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers
as the corporation could exercise if it were an individual shareholder, provided that (where there is
more than one representative and the vote is otherwise than on a show of hands) they do not do so
in relation to the same shares.
Documents available for inspection
6.
The following documents will be available for inspection during normal business hours at the
registered office of the Company from the date of this notice until the time of the meeting. They will
also be available for inspection at the place of the meeting from at least 15 minutes before the
meeting until it ends.
a.
b.
Copies of the service contracts of the executive directors.
Copies of the letters of appointment of the non executive directors.
Biographical details of directors
7.
Biographical details of all those directors who are offering themselves for reappointment at the
meeting are set out on pages 16 and 17 of the enclosed annual report and accounts.
Xeros Technology Group plc
58
DIRECTORS
John Samuel
Mark Nichols
Chris Hanson
Dr Steve Jenkins
Julian Viggars
Dr Maciek Drozdz
Dr Richard Ellis
(Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Chief Science Officer)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY
Chris Hanson
COMPANY WEBSITE
www.xeroscleaning.com
COMPANY NUMBER
08684474 (England and Wales)
REGISTERED OFFICE
Unit 2 Evolution
Advanced Manufacturing Park
Whittle Way
Catcliffe
Rotherham
S60 5BL
REGISTRAR
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
B63 3DA
AUDITOR
LEGAL ADVISER
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Squire Patton Boggs (UK) LLP
7 Devonshire Square
London
EC2M 4YH
NOMINATED ADVISER AND BROKER
Jefferies International Ltd
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Chad Hanson, VP Operations at Witham Family Hotels (Choice Hotel
owners), with Xeros VP of Operations Jim Basler and Comfort Inn Chief
Engineer Stefano Vio. Chad has installed 3 Xeros Washing machines and 2
Xeros branded dryers.
The Power of Polymer Cleaning®
www.xeroscleaning.com
Xeros Technology Group plc
Technology Group plc
Unit 2, Evolution
Advanced Manufacturing Park
Whittle Way
Catcliffe
Rotherham
South Yorkshire
S60 5BL
www.xeroscleaning.com
Annual Report
For the year ended 31 July 2015