Listed cleaning tech group to cut 100 jobs as it transitions to become a licensing organisation

Rotherham-based cleaning company Xeros Technology Group has this morning set out plans to exit all of its direct sales business to transition into a pure licensing organisation; which will see its headcount reduce from 160 to 60. 

Xeros said it plans to exit from all direct sales business by the end of 2019 and that it was now “on course” to have a pure-play licensing organisation in place by end 2019. It is also to spin-out its tanning business. 

The listed business added: “Headcount reduction is on plan to create a licensing organisation comprising less than 60 staff in early 2020. This is down from 160 in September 2018.”

Xeros aims to have a Q1 2020 monthly cash burn run rate of £600,000; reduced from an average monthly cash burn of £2.2m in 2018. It added that it anticipated further reductions as technology transfer to licensees is progressed.

Group cash reserves at the end of July were £5.2m and are expected to fund the business through to early 2020.

Xeros also announced this morning that it intends to raise between £5m and £10m of additional funding, which “will enable it to achieve its objective of reaching cash breakeven”, based on the expected cost base it will need to carry as a pure licensing business and its expectations of the timing of licence royalties.

Xeros added: “In that context, the Group announces today that it is seeking to raise between £5m and £10m of equity funding to continue its progress towards meeting this objective.”

The business also said that having considered a number of options, the Board has approved, subject to contract, the spin-out of its Tanning business (under the Qualus brand) to its management in exchange for future royalty payments. The plan is for Xeros to have no physical involvement in this business by the end of the year.

Mark Nichols, Chief Executive of Xeros, said: “The business case for our technologies continues to increase as the scarcity and pricing of water rises with consumption progressively outstripping availability in many parts of the world.

“With our technologies now proven and much simplified, following the introduction of the XDrum^TM, global scale OEMs are now licensing or testing our products with a view to long term licensing.

“It has been a challenging journey to this point, given the maturity and size of the industry players we have to convince to adopt our technology. However, we have now reached an inflection point in the implementation of our strategy to become an asset light IP rich licensing business.

“Our focus for the rest of the year is to complete our exit from all direct sales businesses, win further licensing contracts and implement those already awarded. Our cost base has and will continue to move down to that required for a successful high margin licensing business.

“Switching to high margin licensing turnover over the next two years against a backdrop of a low-cost licensing organisation provides us with a line of sight to cash breakeven.”

Xeros added that it had won and established the performance of a number of significant contracts based on Xeros technology, both in its High Performance Workwear and Hospitality markets over the last 36 months. It said this had paved the way for the Group to take definitive steps towards its transition to becoming a high margin, “pure-play” licensing business.

The Group plans to have fully completed its migration to a license model by the end of the year and to cease any involvement in direct sales and physical supply chains. This will result in licensees paying Xeros royalties for the use of its extensive intellectual property portfolio.

 In Q1, the Group transferred all the sales and service for its US hospitality industry customers to its channel partners. This was followed by the sale of the majority of US customer lease contracts to channel partners earlier this month. Xeros will receive royalties for the use of its technologies.

Equivalent arrangements are in development for European customers for implementation by the end of 2019.

Following a number of approaches by third parties to acquire Xeros’ high performance workwear cleaning business in the US, the Board has now approved a sales process for this business.

The Group has also been seeking a means to independently fund its Tanning business through to cash breakeven – resulting in the decision to undertake the spin-out of the division.

As part of the Group’s aim to raise further equity funding, Xeros has signed an agreement with Kinetix Critchleys Corporate Finance to act as a Financial Advisor.