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Xeros Technology Group Plc LSE:XSG London Ordinary Share GB00BJFLLV84 ORD 0.15P
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  -0.21p -2.09% 9.825p 9.30p 10.35p 10.35p 10.35p 10.35p 214,921 16:35:00
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Alternative Energy 3.5 -30.4 -28.2 - 25

Xeros Technology Group plc Year end results

30/04/2019 7:01am

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Xeros Technology Group plc

30 April 2019

30 April 2019

Xeros Technology Group plc

Year end results - good progress towards licensing model

Xeros Technology Group plc (AIM: XSG, 'the Group', 'Xeros'), the developer and provider of water saving technologies with multiple commercial applications, today publishes its final results for the 12 months ended 31 December 2018.

Highlights

   --      Domestic Laundry 

o Exclusive development and licensing agreement signed with the leading Indian appliance manufacturer

   o   Development agreement signed with largest Chinese washing machine OEM 
   --      High Performance Workwear 

o Increasing adoption of Xeros technology by US fire departments to remove harmful contaminants from protective garments

   --      Commercial Laundry 

o Exclusive licensing agreements signed with largest OEMs in China and India to manufacture and sell machines incorporating XDrum technology

   o   RSA, Dubai, and North America markets now served by channel partners 
   --      Tanning - 10 year contract signed with tannery to use Xeros' technology 

-- Textile - successful tests with major Chinese manufacturers in texturing and colouration of garments

   --      Financial 
   o   Revenue increased by 62% to GBP3.5m (2017: GBP2.2m) 
   o   Adjusted EBITDA(1) loss reduced by 27.3% to GBP20.9m (2017: loss GBP28.7m) 

o Administration expenses, after exceptional items and FX, down 9.2% - expected to further reduce in 2019

   o   Post-tax earnings loss reduced to GBP29.4m (2017: loss GBP30.6m) 

o Net cash outflow from operations reduced by 18.4% to GBP22.1m (2017: GBP27.1m). Cash at 31 March 2019 GBP10.8m

   o   Rapidly reducing cost base as development phase nears completion 
   o   Expect to raise equity from investors in 2019 to further strengthen balance sheet 

Mark Nichols, Chief Executive of Xeros, said:

"Having completed the lion's share of our development our disruptive water saving technologies are now firmly on a path to commercialisation under an IP rich and asset light business model in global scale industries.

"We see the demand for our technology increasing as environmental and societal pressures continue to put intense strain on finite water resources - both in terms of pricing and consumption. Manufacturers, consumers and regulators are increasingly demanding that supply chains improve their sustainability credentials with a particular focus on reducing water usage. Demands that we can help meet.

"We have achieved a number of major inflection points with others expected to follow in 2019, each of which have the capacity to generate significant value. As we end the development phase, our cost base will continue to decline ahead of the implementation of the contracts we have won which are expected to generate high margin royalty revenues."

[1] Adjusted EBITDA is defined as loss on ordinary activities before interest, tax, share-based payment expense, exceptional costs, depreciation and amortisation

Enquiries:

 
  Xeros Technology Group plc                           Tel: 0114 321 
   Mark Nichols, Chief Executive Officer                        6328 
   Paul Denney, Chief Financial Officer 
 
   Jefferies International Limited (Nominated          Tel: 020 7029 
   Adviser and Joint Broker)                                    8000 
   Simon Hardy / Will Soutar 
  Berenberg (Joint Broker)                             Tel: 020 3207 
   Chris Bowman / Ben Wright / Laure Fine                       7800 
  Instinctif Partners (Financial PR)                   Tel: 020 7457 
   Adrian Duffield / Kay Larsen / Chantal Woolcock              2020 
 

Notes to Editors

About Xeros

Xeros Technology Group plc (LN: XSG) is a platform technology company that is reinventing water intensive industrial and commercial processes.

Xeros' uses its patented XOrb(TM) technologies to significantly reduce the amount of water used in a number of major applications with the remaining water becoming far more efficient in either affixing or removing molecules from substrates such as fabrics and garments. The result being significant improvements in economic, operational and sustainability outcomes.

Xeros has three divisions working in the garment finishing (Textile Technologies), tanning (Tanning Technologies, branded Qualus) and cleaning/laundry (Cleaning Technologies) markets. In cleaning/laundry, the company has three applications covering domestic laundry, commercial laundry (branded "Hydrofinity") and the cleaning of high-performance workwear (branded "Marken").

For more information, please visit - http://www.xerostech.com/

Strategy execution

Xeros' technologies drastically increase the effectiveness of water in affixing or removing molecules in large scale industrial and domestic processes. The results are radical improvements in the sustainability, performance and economics of water intensive processes, dramatically reducing the consumption of water, chemistry and energy, so reducing effluent, whilst either meeting or exceeding the conventional quality standards for the materials being processed.

Xeros has made significant progress through 2018, meeting a number of critical milestones, having spent many years developing our technologies and applications. We are now entering the key commercialisation phase with our focus on pursuing each technology application, progressing Xeros' IP rich, asset-light licensing and royalty business model and accelerating the winning of license contracts.

There is increasing evidence that accelerating changes in our climate, global population growth and increasingly affluent, urban communities are putting finite water resources under extreme stress. Xeros technology seeks to drive significant reductions in the volume of water and chemicals used in a number of highly water-intensive global scale industries.

Results achieved in tests, trials and commercial operations conducted during 2018 have reaffirmed that Xeros' technologies reduce water consumption and effluent production by up to 80%, reduce chemistry used in processes by up to 50% whilst also cutting energy consumption in cleaning applications by up to 50%.

Xeros is currently commercialising its technologies in three divisions:

-- Cleaning Technologies with applications in domestic laundry, commercial laundry (branded "Hydrofinity") and the cleaning and restoration of high-performance workwear (branded "Marken");

   --      Tanning Technologies (branded "Qualus") with applications in leather production; 

-- Textile Technologies in the field of garment colouration and finishing including denim. With the addition of applications of our technology in the field of garment manufacture, Xeros' technologies offer the opportunity to improve the sustainability, cost and the life of garments for manufacturers, brands, retailers and consumers.

Xeros' strategy remains that of licensing its technologies to market incumbents and to receive a proportion of the value created by means of royalties.

Our progress in our Cleaning and Textile Technology applications has been enabled by the completion of our new XDrum(TM) design during 2018. The design is an effective solution for applying Xeros' XOrb(TM) technology in rotating drums.

The new XDrum design allows OEMs to produce hybrid machines, at a low marginal cost, to dispense and retrieve our patented XOrb technologies into and from process cycles. The XDrum represents an important simplification for our application technology, substantially reducing the cost of incorporating our technology into existing proprietary machine designs, reducing complexity and thereby shortening the 'test' to 'production' cycle time.

In order to prove out and de-risk its technology ahead of licensing to market incumbents, Xeros has historically had to enter markets in its own right on a selective basis and has had to invest in operations and working capital to do so. With these ventures now proving out market acceptance and customer demand, Xeros is now reducing its physical presence in markets with associated costs also planned to reduce rapidly. Similarly, technology development expenditure will continue to reduce having completed the vast majority of the work needed to license our technologies.

In the future, the majority of Xeros' revenue will be derived from high margin licensing agreements. During 2018, our revenue was derived from those businesses where we currently have a physical operational presence.

Total revenue from these businesses increased 61.8% to GBP3.5m (2017: GBP2.2m) with our adjusted EBITDA loss reduced by 27.3% to GBP20.9m (2017: loss GBP28.7m). In a trend which will continue as the Group migrates to its licensing model, underlying administrative expenses, after adjusting for exceptional items and the impact of foreign exchange, reduced during the year by 9.2% to GBP25.9m (2017: GBP28.5m).

2017 and 2018 represented a period of significant investment in the development of new applications with expenditure levels now reducing having materially completed this work.

Following the invention and patenting of our new XDrum design due to be launched this year to serve our Cleaning and Textile markets, we wrote down the value of our inventory of earlier design commercial washing machines and those on operating leases to customers. This resulted in a non-cash exceptional charge of GBP7.8m. Net cash outflow from operations reduced by 18.4% to GBP22.1m (2017: GBP27.1m).

Outlook

In December 2018, Xeros raised GBP15.8m before expenses in order to continue to execute its licensing strategy and to deliver further major value inflection points through 2019.

With development completed for the majority of our applications and the net cost of our business ventures reducing, we anticipate a continued reduction in our cash burn rate with our current funding sufficient to deliver these milestones through early 2020. However, during 2019 we expect to raise further equity to finish the year with a strong balance sheet as our commercialisation gathers momentum.

Overall, the Group is trading in line with the Board's expectations.

Operational Review

Cleaning Technologies

Domestic Laundry

Following the demonstration of our proprietary XDrum domestic washing machine design at the Consumer Electronics Show in Las Vegas in January 2018 and the cleaning, fabric care and sustainability benefits created by our patented XOrb technologies, Xeros conducted a structured due diligence process with a number of global appliance brands for them to study the potential adoption and commercialisation of our technologies in their machines.

In January 2019, Xeros signed a non-exclusive Joint Development Agreement with Wuxi Little Swan Company Limited, a subsidiary of Midea Group, the Chinese manufacturer of home appliances. The scope of the agreement is to develop and design a prototype washing machine including Xeros' technologies which, if successful, allows for both parties to enter into commercial discussions under a separate agreement and timetable. In 2017 Wuxi Little Swan Company sold 12.4m washing machines in China giving it a 28% share of the retail market. It also exported 3.9 million washing machines.

In April 2019, the Group signed an exclusive 10-year Licensing, Development and Commercialisation agreement with IFB Limited, a major manufacturer, distributor and retailer of washing machines in India, which included an up-front payment for the use of Xeros' technology.

Once machine designs are completed and tested, the agreement provides for fixed royalty percentages on net sales prices, to be paid to Xeros with agreed minimum unit sales volumes. IFB is the market leader in front loading washing machine sales in India, a market currently estimated at 1 million front loading machine sales per annum and growing at between 15% and 20% per annum.

Assuming product development and testing milestones are successfully achieved, we expect first royalty revenues from this application in 2021.

During 2018, Xeros continued the development of its proprietary XFiltra(TM) filtration device which is designed to prevent micro-plastics generated by washing cycles from being released into the aqua-cycle. Plastics released from clothing during washing cycles is the single largest source of primary micro-plastic pollution.

XFiltra's unique design is capable of filtering and dewatering in excess of 99% of micro-particulate matter found in domestic washing machine effluent. Our design solution to address this global problem was featured in the BBC series 'Blue Planet UK' broadcast in March 2019. The proposed business model for the commercialisation of this technology is licensing with either domestic washing machine OEMs or the pump manufacturers who supply them.

High Performance Workwear

Xeros entered the Firefighter PPE segment of this market in July 2017 with the acquisition of Marken Inc, a US market leader in the cleaning and restoration of firefighter uniforms. The acquisition has demonstrated that our technologies decontaminate PPE from substances harmful to health, whilst simultaneously increasing the life of these expensive garments.

With the objective of creating a broadly accepted platform of evidence and creating a valuable asset in its own right, Xeros subsequently purchased the specialist cleaning business of Gloves Inc in March 2018 with sites in Miami and Atlanta and also converted a Hydrofinity facility in Corona, South California which was commissioned in July 2018.

In July and September 2018, we received independent verification of the cleaning efficacy and garment life extension capabilities of our technologies from SCS Engineers Inc and Intertek Group plc respectively. Testing demonstrated the ability of Xeros' technology to remove heavy metal contamination, remove asbestos contamination to non-detectable levels and preserve the integrity of high-tech fabrics used in the manufacture of firefighter turn-out gear - meaning ensembles last longer.

This evidence has been key to orders received and to build a strong pipeline of prospective orders for our West Coast and Atlanta sites. Xeros strategy is to develop its network of sites to the degree necessary to prove its technology and in locations with the strongest and best quality demand for Xeros' cleaning performance.

In the French transportation sector, we increased to eight the fleet of Xeros machines with a garment fleet provider for the cleaning the PPE of SNCF and Air France workwear. Our technology being selected based on its cleaning efficacy and garment life extension.

The segments of the PPE market that can be addressed with Xeros' technologies goes beyond firefighting and transportation and includes petrochemicals, mining and military markets, many of which are becoming increasingly aware of the adverse and potentially dangerous effects of incorrectly or insufficiently cleaned workwear.

In terms of market opportunity for the US firefighter PPE market, the cleaning, inspection and repair of uniforms is valued at approximately $330m p.a. With 1.1m firefighters in the US, there are 350,000 professional firefighters based in approximately 8,000 fire crews. Nearly 40% of these professional firefighters are based within 100 miles of one of the top 10 major US metropolitan areas.

We expect the Marken business to be cash generative by the end of 2019 and whilst we plan for it to be a valuable asset in its own right, it will be the learning and evidence base which Xeros will leverage to create licensing propositions for PPE garment fleet owners on a global basis.

Commercial Laundry

During 2018, Xeros' Hydrofinity business which addresses the Commercial Laundry market, made significant progress towards its objective of becoming a licensor of Xeros' technologies to industry incumbents.

In July 2018, the business signed an exclusive 10-year licensing agreement with Jiangsu SeaLion Technology Development Company, a subsidiary of one of the largest commercial laundry equipment companies in China, with sales and service offices in each of China's 30 provinces. The first royalty revenues are expected in 2019.

In April 2019, the division signed a similar agreement with IFB limited, one of the largest commercial laundry equipment companies in India with approximately 5,000 machine installations. First revenues are expected in 2020. These agreements will commercialise Xeros' technologies using the XDrum design and provide for the deployment of Xeros' telematics system, XConnect, with all data being recorded and stored by Xeros.

In aggregate, the Chinese and Indian markets comprise 38% of the world's population with both countries experiencing increasing water stress. We continue to develop relationships with OEMs to license and serve key markets outside of these two countries.

The Hydrofinity business has also taken major steps to reduce its physical presence in forward channels in countries around the world. In December 2018, it completed the transfer of all installation and service to its Channel Partners in the US, reducing costs whilst simultaneously improving the customer experience. These partners are also increasingly taking on the sales role including multi-year subscription packages for the use of XOrbs.

Sales, installation and servicing agreements were also established with fanute in South Africa and ElectroRak in Dubai with commercial machines shipped to these partners in late 2018, a number of which have now been commissioned. Local water-stress is one of the key drivers for these partners in selecting Xeros technology.

In November 2018, our commercial laundry technology was certified as an "Environmentally Preferred Product" following an independently conducted Life Cycle Analysis by SCS Global Services. The certification is the only one yet afforded to this industry and was based upon 20,000 wash cycles with testing criteria including water use, energy demand and carbon emissions among other environmental impacts.

The licensing agreements signed to date, and preparations for similar arrangements in the Americas and EMEA, have enabled a significant reduction in the operating costs of the Hydrofinity business. Once implemented, these license agreements also have the benefit of significantly reducing Xeros' working capital.

Tanning Technologies

In 2016, our strategic review to determine which applications we should pursue, identified retanning and dyeing of bovine hides as a viable opportunity. There being no identifiable, willing licensee at the time, we took the decision to enter the market directly to prove out and de-risk the technology. The business, once sufficiently developed, would present commercial options for Xeros including the potential for outside investment. This division is branded Qualus.

Multiple scale trials conducted with tanneries in Europe and Latin America covering the retanning and dyeing phases of the tanning process have proven that our technology works for all hide applications, including auto, fashion and shoe leather, regardless of the different drum types used in the industry. In addition, we have established that the water and chemistry savings and the resultant value created are consistent with our business case for this market.

Following the development of engineering solutions to introduce XOrbs into tannery operations, which comprise some 40 separate operations in a continuous process, Qualus entered into a 10-year contract in September 2018 with Le Farc SA de CV in Leon, Mexico. Le Farc will convert its re-tanning operations in order to use Xeros' technologies. Commissioning of the first drums to process hides with XOrbs under the agreement is expected around the middle of 2019 with conversion completed by the end of the year. Le Farc supplies major footwear and auto brands.

Trials and commercial discussions have also taken place with multiple large-scale tanners and it is our expectation that additional contracts will be signed once Xeros' technologies are demonstrated in the operational environment of Le Farc.

Future developments in this business include applying Xeros' technologies into the up-stream tanning phases of leather production which are significant in their consumption of water and bulk chemicals, including chrome.

We estimate that 300 million bovine hides are tanned globally per annum and the estimated added value created by Xeros technologies from water and chemistry savings in the retanning and dyeing process to be in the range of GBP0.80 per hide.

Xeros continues to consider opportunities to attract third party finance into the Qualus business with the ultimate objective of being a licensor of its technology into this industry rather than being itself a market incumbent.

Textile Technologies

During 2018, we successfully developed XDrum machines to apply our XOrb technology to wool, cotton and denim garment finishing. These processes are applied to almost every garment that is made in order to remove contaminants introduced during manufacture and to change the texture and colour of raw fabrics to meet the specifications required by clothing designers, brands, retailers and consumers.

The Xeros process significantly reduces the amount of water and chemistry used and effluent produced and, in the case of denim, also has the capacity to reduce process steps and capital costs.

Xeros has now successfully completed tests at its technology centre in Sheffield for three major Chinese garment manufacturers during which we have successfully matched product outcomes in multiple garment types using significantly less water and chemistry. Discussions are ongoing with a number of manufacturers, with the objective of moving to scale trials later in 2019 ahead of commercialisation.

Our solutions in these applications offer manufacturers the resource and pollution reductions that consumers and governments are demanding. One example being the plan for "Zero Discharge of Hazardous Chemicals by 2020" which has 23 global clothing brands as signatories. We have also begun a process of engaging with major retailers to create demand for Xeros' technologies in the forward supply chain.

We believe our strategic decision in 2016 to address this market has now been validated given the benefits that Xeros technology delivers and the proof points we have now achieved in tests. The opportunity is very significant, with 22.7 million tonnes of natural fibres processed annually for the clothing and textiles industries, a third of those in China.

Intellectual Property

Xeros' IP rich and asset light commercialisation model requires that we have a strong and defendable patent portfolio which provides freedom to operate for our businesses and license partners. Xeros now has in excess of 40 patent families in application or granted. The Group files its patents in countries with large potential markets and where it believes it can successfully defend its Intellectual Property.

Our core patents are filed in countries which represent 90% of global GDP. In order to have the financial capacity, should it need to defend its patent portfolio, Xeros has significant levels of patent defense and litigation insurance. We have not identified any infringements which have the capacity to materially impair the validity and enforcement of our patent and trademark portfolio.

During 2018, seven new patent families were filed to protect our inventions with the majority in the fields of the XDrum and XFiltra. Xeros does not expect historical levels of new patent filings to continue as we believe the inventions for our current portfolio are sufficient for their commercialisation. We will continue to make filings based upon their ability to secure future revenues.

Financial review

Group revenue was generated as follows:

 
                         Year         Year 
                        ended        Ended 
                  31 December  31 December 
                         2018         2017 
                      GBP'000      GBP'000 
 
Machine sales           1,058          726 
Service revenue         2,474        1,451 
Consumables                12           13 
                      ___ ___      _______ 
Total revenue           3,544        2,190 
 
 
 

Group revenue was up 61.8% to GBP3.5m in the year ended 31 December 2018 (2017: GBP2.2m). Of this growth, 42.2% represents organic growth and growth of 19.6% is attributable to the acquisition by Marken of the specialist firefighter cleaning business of Gloves Inc in March 2018.

Machine sales revenue represents revenue from the sale of commercial washing machines by Hydrofinity. Machine sales revenue grew by 45.7% reflecting both the increase in the number of machines placed with customers and the full year impact of the successful conversion of installed machines to fully commissioned revenue-earning machines during 2017. Machine sales revenue is 30% of Group revenue (2017: 33%).

As at 31 December 2018 Hydrofinity's total revenue generating estate of commercial washing machines increased by a net 16 machines to 397 machines. This net figure is the result of a significant focus on improving the quality of the customer portfolio as machines have been moved from poor to good credit quality customers. Whilst such a move does not increase the number of revenue-earning machines it does result in improved financial performance from the estate.

Service revenue increased by 70.5% to GBP2.5m. Hydrofinity's service revenue increased by 34.4% to GBP1.6m from (2017: GBP1.2m). Marken's revenue jumped by 244% to GBP0.9m (2017: GBP0.2m) reflecting the combined impact of a full year of the original Marken business, acquired in July 2017 and the contribution of the Gloves Inc business acquired in March 2018. Service revenue is 70% of Group revenue (2017: 66%).

The Group reduced its adjusted EBITDA loss by 27.3% to GBP20.9m (2017: loss GBP28.7m).

Adjusted gross profit was GBP0.1m (2017: loss GBP0.4m). Adjusted gross profit comprises a profit of GBP0.2m from Hydrofinity and a loss of GBP0.1m from Marken. The move to a gross profit for Hydrofinity reflects the reduced cost of direct sales as Hydrofinity moves sales and customer servicing activities to third party channel partners.

Adjusted gross profit/loss and adjusted EBITDA are considered the key financial performance measures of the Group as they reflect the true nature of our continuing trading activities. Adjusted gross profit is defined as gross profit before exceptional cost of sales items. Adjusted EBITDA is defined as the loss on ordinary activities before interest, tax, share-based payment expense, non-operating exceptional costs, depreciation and amortisation.

As reported last year, the Group has now completed all fundamental applications development which has resulted in core R&D spending reducing by 5.9% to GBP4.8m including staff and patent costs (2017: GBP5.1m). This includes direct R&D expense of GBP1.6m (2017: GBP1.8m), patent and intellectual property expense of GBP1.3m (2017: GBP1.2m) and GBP1.9m of salary costs (2017: GBP2.0m).

This R&D spend was all expensed as it represents Group expenditure on Textiles and Domestic laundry development, none of which yet meet the full criteria for capitalisation of these costs in accordance with IAS 38. When these business areas are deemed to have met the IAS 38 capitalisation criteria ongoing development costs will be capitalised.

Underlying administrative expenses, which include the R&D cost, decreased by 9.2% to GBP25.9m (2017: GBP28.5m), after adjusting for exceptional items and the impact of foreign exchange. Total administrative expenses reduced by 18.2% to GBP25.3m (2017: GBP30.9m).

With the announcement that Hydrofinity will be producing the next generation of machines based on the XDrum technology for sale in 2020, the existing inventory of machines has been written down to a minimal net realisable value to reflect the reduced value of the old technology machines. Therefore a non-cash exceptional charge of GBP5.4m has been recorded in cost of sales.

Exceptional administrative non-operating, non-cash expenses of GBP2.2m are included in total administrative expenses (2017: GBP0.2m). This includes a charge of GBP2.4m reflecting the impairment of Hydrofinity machines leased to customers. These machines are held as fixed assets on the Group balance sheet. In addition there is a charge of GBP0.1m related to the cost of placing new ordinary shares in 2018 and an exceptional credit of GBP0.3m from a release of a provision for potential deferred consideration for the Marken acquisition.

Administrative expenses include a foreign exchange gain of GBP2.8m resulting from movements in the US dollar rate (2017: loss GBP2.2m).

Sterling has been marginally stronger against the US dollar compared to the previous reporting period, which reduces the reported losses in 2018. However, as we continue to fund the working capital and operating costs of the US Hydrofinity and Marken businesses this stronger Sterling benefits the Group.

The Group reported an operating loss of GBP30.5m (2017: loss GBP31.3m). The loss per share was 28.24p (2017: loss 34.92p).

Xeros expects cash utilisation to reduce as the Group benefits from the impact of trading at a positive gross margin and from a reduced direct cost base resulting from the move to a full licensing business model.

Net cash outflow from operations reduced to GBP22.1m (2017: GBP27.1m) from a combination of a reduced cash used in operations, GBP24.5m (2017: GBP27.1m) and the receipt of GBP2.3m R&D tax credits from HMRC relating to the 2016 and 2017 periods. Cash utilisation was in line with the Board's expectations.

The Group had existing cash resources as at 31 December 2018 of GBP16.0m (2017: GBP25.1m) and remains debt free. The Group expects to raise further equity from investors in 2019.

The Group has tax losses of approximately GBP100.9m to offset against future taxable profits (2017: GBP72.5m).

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December 2018

 
                                                             Year          Year 
                                                            ended         ended 
                                                      31 December   31 December 
                                                             2018         2017* 
                                              Notes       GBP'000       GBP'000 
 REVENUE                                        3           3,544         2,190 
 Cost of sales                                            (3,396)       (2,638) 
-------------------------------------------  ------  ------------  ------------ 
 ADJUSTED GROSS PROFIT/(LOSS)**                               148         (448) 
 Exceptional cost of sales                      5         (5,396)             - 
-------------------------------------------  ------  ------------  ------------ 
 GROSS LOSS                                               (5,248)         (448) 
-------------------------------------------  ------  ------------  ------------ 
 
 Administrative expenses                        7        (25,266)      (30,894) 
 
 Adjusted EBITDA***                                      (20,850)      (28,669) 
 Exceptional cost of sales                      5         (5,396)             - 
 Share based payment expense                   22         (1,090)       (1,865) 
 Exceptional administrative expenses            7         (2,186)         (195) 
 Amortisation of intangible fixed 
  assets                                       11           (194)          (39) 
 Depreciation of tangible fixed assets         12           (798)         (574) 
-------------------------------------------  ------  ------------  ------------ 
 
 OPERATING LOSS                                          (30,514)      (31,342) 
 Net finance (expense)/income                   8             134         (574) 
 LOSS BEFORE TAXATION                                    (30,380)      (31,916) 
 Taxation                                       9           1,012         1,305 
-------------------------------------------  ------  ------------  ------------ 
 LOSS AFTER TAX                                          (29,368)      (30,611) 
-------------------------------------------  ------  ------------  ------------ 
 
 OTHER COMPREHENSIVE (EXPENSE)/(INCOME): 
 Items that are or may be reclassified 
  to profit or loss: 
 Foreign currency translation differences 
  - foreign operations                                    (2,458)         1,727 
-------------------------------------------  ------  ------------  ------------ 
 TOTAL COMPREHENSIVE EXPENSE FOR THE 
  PERIOD                                                 (31,826)      (28,884) 
-------------------------------------------  ------  ------------  ------------ 
 
 LOSS PER SHARE 
 Basic and diluted on loss from continuing 
  operations                                   10        (28.24)p      (34.92)p 
-------------------------------------------  ------  ------------  ------------ 
 

* The Group has applied IFRS 15 in 2018 using the cumulative effect method. Under this method, the comparative information is not restated. See note 4 for further details.

** Adjusted gross profit/loss comprises gross profit/loss before exceptional cost of sales items

*** Adjusted EBITDA comprises loss on ordinary activities before interest, tax, share-based payment expense, other exceptional charges & credits, depreciation and amortisation.

Consolidated statement of changes in equity

For the year ended 31 December 2018

 
                                                                       Foreign 
                                                                      currency    Retained 
                                    Share      Share     Merger    translation    earnings 
                                  capital    premium    reserve        reserve     deficit      Total 
                                  GBP'000    GBP'000    GBP'000        GBP'000     GBP'000    GBP'000 
 
 At 31 December 2016                  129     66,280     15,443        (1,742)    (41,433)     38,677 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 Loss for the year                      -          -          -              -    (30,611)   (30,611) 
 Other comprehensive 
  expense                               -          -          -          1,727           -      1,727 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 Loss and total comprehensive 
  expense for the period                -          -          -          1,727    (30,611)   (28,884) 
 Transactions with 
  owners, recorded 
  directly in equity: 
   Issue of shares                     17     24,983          -              -           -     25,000 
   Exercise of share 
    options                             3        493          -              -           -        496 
   Costs of share issues                -    (1,374)          -              -           -    (1,374) 
   Share based payment 
    expense                             -          -          -              -       1,865      1,865 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 Total contributions 
  by and distributions 
  to owners                            20     24,102          -              -       1,865     25,987 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 At 31 December 2017                  149     90,382     15,443           (15)    (70,179)     35,780 
 Impact of change 
  in accounting policy*                 -          -          -              -       (111)      (111) 
 Adjusted balance 
  31 December 2017                    149     90,382     15,443           (15)    (70,290)     35,669 
 Loss for the year                      -          -          -              -    (29,368)   (29,368) 
 Other comprehensive 
  expense                               -          -          -        (2,458)           -    (2,458) 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 Loss and total comprehensive 
  expense for the 
  year                                  -          -          -        (2,458)    (29,368)   (31,826) 
 Transactions with 
  owners, 
  recorded directly 
  in equity: 
   Issue of shares following 
    placing and open 
    offer                             237     15,549          -              -           -     15,786 
   Exercise of share 
    options                             -          7          -              -           -          7 
   Costs of share issues                -      (754)          -              -           -      (754) 
   Share based payment 
    expense                             -          -          -              -       1,090      1,090 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 Total contributions 
  by and 
  distributions to 
  owners                              237     14,802          -              -       1,090     16,129 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 At 31 December 2018                  386    105,184     15,443        (2,473)    (98,568)     19,972 
------------------------------  ---------  ---------  ---------  -------------  ----------  --------- 
 

* The Group has applied IFRS 15 in 2018 using the cumulative effect method. Under this method, the comparative information is not restated. See note 4 for further details.

Consolidated statement of financial position

For the year ended 31 December 2018

 
                                                          At            At 
                                                 31 December   31 December 
                                                        2018          2017 
                                         Notes       GBP'000       GBP'000 
--------------------------------------  ------  ------------  ------------ 
 ASSETS 
 Non-current assets 
 Intangible assets                        11           1,290           654 
 Property, plant and equipment            12           1,954         3,516 
 Trade and other receivables              14           1,292         1,104 
--------------------------------------  ------  ------------  ------------ 
 TOTAL NON-CURRENT ASSETS                              4,536         5,274 
--------------------------------------  ------  ------------  ------------ 
 Current assets 
 Inventories                              13             945         6,392 
 Trade and other receivables              14           2,402         2,235 
 Current tax asset                         9               -         1,306 
 Cash and cash equivalents                15          16,001        25,149 
--------------------------------------  ------  ------------  ------------ 
 TOTAL CURRENT ASSETS                                 19,348        35,082 
--------------------------------------  ------  ------------  ------------ 
 TOTAL ASSETS                                         23,884        40,356 
--------------------------------------  ------  ------------  ------------ 
 LIABILITIES 
 Non-current liabilities 
 Deferred consideration                   17               -         (185) 
 Deferred tax                             18            (38)          (38) 
 TOTAL NON-CURRENT LIABILITIES                          (38)         (223) 
--------------------------------------  ------  ------------  ------------ 
 Current liabilities 
 Trade and other payables                 17         (3,874)       (4,353) 
 TOTAL CURRENT LIABILITIES                           (3,874)       (4,353) 
--------------------------------------  ------  ------------  ------------ 
 TOTAL LIABILITIES                                   (3,912)       (4,576) 
--------------------------------------  ------  ------------  ------------ 
 NET ASSETS                                           19,972        35,780 
--------------------------------------  ------  ------------  ------------ 
 
   EQUITY 
 Share capital                            19             386           149 
 Share premium                            19         105,184        90,382 
 Merger reserve                           19          15,443        15,443 
 Foreign currency translation reserve     20         (2,473)          (15) 
 Accumulated losses                       20        (98,568)      (70,179) 
--------------------------------------  ------  ------------  ------------ 
 TOTAL EQUITY                                         19,972        35,780 
--------------------------------------  ------  ------------  ------------ 
 

Approved by the Board of Directors and authorised for issue on 29 April 2018.

 
 David Armfield   Paul Denney 
 Chairman         Chief Financial Officer 
 

Company number: 0868447

Consolidated statement of cash flows

For the year ended 31 December 2018

 
                                                                                             Year          Year 
                                                                                            ended         ended 
                                                                                      31 December   31 December 
                                                                                             2018          2017 
                                                                              Notes       GBP'000       GBP'000 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 Operating activities 
 Loss before tax                                                                         (30,514)      (31,916) 
 Adjustment for non-cash items: 
 Amortisation of intangible assets                                             11             194            39 
 Depreciation of property, plant and equipment                                                790           574 
 Share based payment                                                           22           1,090         1,865 
 Decrease/(increase) in inventories                                                         5,783       (2,218) 
 Increase in trade and other receivables                                                      (3)          (26) 
 (Decrease)/increase in trade and other payables                                          (3,781)         3,983 
 Release of deferred consideration                                                          (398) 
 Impairment of fixed assets                                                                 2,523 
 Finance income                                                                             (135)         (131) 
 Finance expense                                                                                -           705 
 Cash used in operations                                                                 (24,451)      (27,125) 
 Tax (payments)/receipts                                                                    2,318           (2) 
 Net cash outflow from operations                                                        (22,133)      (27,127) 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 
 INVESTING ACTIVITIES 
 Finance income                                                                               134           131 
 Acquisition of subsidiary undertaking                                         24           (642)         (577) 
 Cash withdrawn from/(placed on) deposits with more than 3 months maturity                      -         9,959 
 Purchases of property, plant and equipment                                               (1,392)         (271) 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 Net cash inflow/(outflow) from investing activities                                      (1,900)         9,242 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 
 FINANCING ACTIVITIES 
 Proceeds from issue of share capital, net of costs                            19          14,916        24,122 
 Net cash inflow from financing activities                                                 14,916        24,122 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 
 (Decrease)/increase in cash and cash equivalents                                         (9,117)         6,237 
 Cash and cash equivalents at start of year/period                                         25,149        18,975 
 Effect of exchange rate fluctuations on cash held                                           (31)          (63) 
 CASH AND CASH EQUIVALENTS AT OF YEAR/PERIOD                               15          16,001        25,149 
---------------------------------------------------------------------------  ------  ------------  ------------ 
 

Notes to the consolidated financial statements

For the year ended 31 December 2018

1) BASIS OF PREPARATION

This financial information does not constitute the company's statutory accounts for the year ended 31 December 2018 or the period ended 31 December 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for the period ended 31 December 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The Financial Statements for the period ended 31 December 2018 from which the information in this announcement is derived were authorised for issue in accordance with a resolution of the Board of Directors on 29 April 2019. 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.

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).

Business combinations and basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases.

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.

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.

Going Concern

At 31 December 2018, the Group had GBP16.0m of cash and cash equivalents. At this stage in its development the Group is loss making and incurs operating cash outflows. It is therefore reliant on equity share funding to continue its development operations and may require a further capital injection to meet forecast spend (both discretionary and non discretionary) over the next 12 months to April 2020. As with all such businesses, the group is reliant on cyclical equity funding while developing technologies, with a long term view to commercialising those technologies to enable them to provide a return to the shareholders. Whilst there is no guarantee that further equity funding will be made available, the directors believe that given past history of successful share placings, and the consistent development progress across the project portfolio, the required cash can be raised in line with the above.

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 April 2020. These forecasts indicate that the Group is able to settle its liabilities as they fall due in the forecast period. In these forecasts the directors have considered appropriate sensitivities such as the level of discretionary expenditure included and the ability to raise additional funds as described above. Given the funding status of the Group there is uncertainty over the long-term financing of the Group but the Directors do not believe that this uncertainty is material. Accordingly, the directors consider that this should enable the Group 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 16 to this financial information includes the Group'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. The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions as well as the main risk factors facing the Group.

2) SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied are set out below.

REVENUE RECOGNITION

The Group has applied IFRS 15 using the cumulative effect method and therefore the comparative information has not been restated and continues to be reported under IAS 18. The introduction of IFRS 15 has had no material impact on the reported results of the Group.

Revenue on machines sales is recognised once the machine has been installed at the customer site in line with the contract agreed. Service revenue is recognised in line with the profile of the delivery of the service to the customer and consumable revenue is recognised when the product is delivered to the customer.

When assessing the revenue recognition against IFRS15, the Group assess the contract against the five steps of IFRS15. This process includes the assessment of the performance obligations within the contract and the allocation of contract revenue across these performance obligations once identified. This is particularly relevant where customer contracts are agreed with multiple elements, such as those sales where a machine is sold in a bundle with an ongoing service contract, is split according to the amount of consideration expected to be received for the transfer of the relevant goods or services to the customer. This consideration is calculated using cost data and an appropriate margin.

Revenue is shown net of Value Added Tax or Sales Tax as appropriate.

In comparative periods, revenue is venue 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 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 in 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 operations 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.

EXCEPTIONAL ITEMS

One off items with a material effect on results are disclosed separately on the face of the Consolidated Statement of Profit and Loss and Other Comprehensive Income. The Directors apply judgement in assessing the particular items which, by virtue of their scale and nature, should be classified as exceptional items. The Directors consider that separate disclosure of these items is relevant to an understanding of the Group's financial performance.

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:

-- it is probable that the future economic benefits that are attributable to the asset will flow to the Group;

   --      the project is technically and commercially feasible; 
   --      the Group intends to and has sufficient resources to complete the project; 
   --      the Group has the ability to use or sell the asset; and 
   --      the cost of the asset can be measured reliably. 

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 Group 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. Assets held for rentals to customers under operating leases are recorded as fixed assets and are depreciated on a straight-line basis to their estimated residual values over their estimated useful lives. Operating lease income is recognised within revenue on a straight-line basis over the term of the rental period. Depreciation on machines leased to customers which are held in fixed assets is charged to administrative expenses as it is not directly related to sales.

The Group has assessed the impact of the introduction of IFRS16 on the Group's financial reporting and does not believe that, had the new standard been in effect for the year ended 31 December 2018, there would have been a material impact on either the reported loss for the year or on the Group's net assets as at 31 December 2018.

INTANGIBLE ASSETS AND GOODWILL

Recognition and measurement

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

Other intangible assets, including customer relationships and brands, that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Amortisation

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognised in profit or loss. Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows:

   --      Customer lists   -          5 years 
   --      Brands             -          5 years 
   --      Software          -          3 years 

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Assets considered to have indefinite useful economic lives, such as goodwill, are tested annually for impairment.

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             - over the term of the lease on a straight-line basis 
   Plant and machinery                   - 20% on cost on a straight-line basis 
   Fixtures and fittings                    - 20% on cost on a straight-line basis 
   Computer equipment                  - 33% on cost on a straight-line basis 
   Vehicles                                    - 20% 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 NON-CURRENT ASSETS

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.

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"). This policy applies to all schemes, including the Deferred Annual Bonus scheme open to certain management personnel.

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.

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.

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

   --      amortised cost 
   --      fair value through profit or loss (FVTPL) 
   --      fair value through other comprehensive income (FVOCI) 

In the periods presented the Group does not have any financial assets categorised as FVTPL or FVOCI.

After initial recognition, these are measured at amortised cost using the effective interest rate method. Discounting is omitted where the effect is immaterial. All of the Group's financial assets fall into this category.

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.

Impairment of financial assets

The Group accounts for impairment of financial assets using the expected credit loss model as required by IFRS 9. The Group considers a broad range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

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 are recognised on an accruals basis with reference to the level of certainty regarding acceptance of the claims by HMRC.

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. This package includes the transfer of equipment and an ongoing commitment to service and support. Where appropriate, the Group accounts for the sales under these packages as finance leases. As part of determining the appropriate revenue recognition policy for such packages, the Group is required to allocated the total contract revenue between the various contract elements in line with IFRS 15. 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.

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. Specifically, the Directors consider production scale evidence of commercial operation of the Group's technology. 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.

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:

 
 IFRS 16                         Leases                                           1 January 2019 
 IFRIC 23                        Uncertainty over Income Tax Treatments           1 January 2019 
 IFRS 9 (amended October 2017)   Prepayment Features with Negative Compensation   1 January 2019 
------------------------------  -----------------------------------------------  --------------- 
 

The Directors are implementing IFRS16 for the year ended 31 December 2019. Had IFRS16 been in place for the year ended 31 December 2018, the Directors do not consider that there would have been a material impact on the results reported.

3) SEGMENTAL REPORTING

The financial information by segment detailed below is frequently reviewed by the Chief Executive Officer, who has been identified as the Chief Operating Decision Maker ("CODM"). The segments are distinct due to the markets they serve. The all other activities segment contains supporting functions and activities in respect of applications that have not yet been fully commercialised.

The Hotel & Lodging segment was rebranded as Hydrofinity and the High Performance Workwear segment was rebranded as Marken during 2018

For the year ended 31 December 2018:

 
                        Hydrofinity    Marken     All Other      Total 
                                                 Activities 
                            GBP'000   GBP'000       GBP'000    GBP'000 
 Machine sales                1,058         -             -      1,058 
 Service Income               1,616       858             -      2,474 
 Consumables                     12         -             -         12 
 Total revenue                2,686       858             -      3,544 
 Adjusted gross 
  profit/(loss)                 181      (33)             -        148 
 Gross loss                 (5,215)      (33)             -    (5,248) 
 Adjusted EBITDA            (5,027)   (1,808)      (14,015)   (20,850) 
 Operating loss            (12,656)   (1,933)      (15,925)   (30,514) 
 Net finance income              93         -            41        134 
 Loss before tax           (12,563)   (1,933)      (15,884)   (30,380) 
 
   Segmental net 
   assets                     2,324     1,897        15,397     19,618 
 
   Other segmental 
   information: 
 Capital expenditure              -       473           924      1,397 
 Depreciation                   323        85           390        798 
 Amortisation                     -       194             -        194 
 

For the year ended 31 December 2017:

 
                                 Hydrofinity    Marken     All Other      Total 
                                                          Activities 
                                     GBP'000   GBP'000       GBP'000    GBP'000 
 Revenue                               1,941       249             -      2,190 
 Gross loss                            (374)      (74)             -      (448) 
 Adjusted EBITDA                    (10,854)     (453)      (17,362)   (28,669) 
 Operating loss                     (11,260)     (499)      (19,583)   (31,342) 
 
 Net finance income/(expense)             80         -         (654)      (574) 
 Loss before tax                    (11,180)     (499)      (20,237)   (31,916) 
 
   Segmental net 
   assets                              9,928        87        25,765     35,780 
 
   Other segmental 
   information: 
 Capital expenditure                       -         -           271        271 
 Depreciation                            253         7           314        574 
 Amortisation                              -        39             -         39 
 

An analysis of revenues by type is set out below:

 
                                 Year          Year 
                                ended         Ended 
                          31 December   31 December 
                                 2018          2017 
                              GBP'000       GBP'000 
-----------------------  ------------  ------------ 
 Sale of goods                    438           738 
 Rendering of services          3,106         1,452 
                                3,544         2,190 
-----------------------  ------------  ------------ 
 

During the year ended 31 December 2018 the Group had no customers who individually generated more than 10% of revenue.

During the year ended 31 December 2017 the Group had no customers who individually generated more than 10% of revenue.

An analysis of revenues by geographic location of customers is set out below:

 
                         Year          Year 
                        ended         Ended 
                  31 December   31 December 
                         2018          2017 
                      GBP'000       GBP'000 
---------------  ------------  ------------ 
 Europe                   416           361 
 North America          3,128         1,829 
                        3,544         2,190 
---------------  ------------  ------------ 
 

An analysis of non-current assets by location is set out below:

 
                  31 December   31 December 
                         2018          2017 
                      GBP'000       GBP'000 
---------------  ------------  ------------ 
 Europe                   672         1,529 
 North America          3,509         3,745 
                        4,181         5,274 
---------------  ------------  ------------ 
 

4) CHANGES IN ACCOUNTING POLICIES

Except for the changes below, the Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements.

The Group has adopted IFRS 15 Revenue from Contracts with Customers with a date of initial application of 1 January 2018. As a result, the Group has changed its accounting policy for revenue recognition as detailed below.

The Group has applied IFRS 15 using the cumulative effect method - i.e. by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 18. The details of significant changes and the quantitative impact of the changes are set out below.

Sales of machines and service as bundled packages

For bundled packages, where a machine and a service contract a sold together, the overall contract value was previously split based on the relative fair values of the elements. Under IFRS 15, revenue is split based on the amount of consideration expected to be received for the transfer of the relevant goods or services to the customer. This consideration is calculated using cost data and an appropriate margin.

Impacts on financial statements

Had the Group not applied IFRS15 in this financial period, there would have been no material difference to the reported results.

The Group has also adopted IFRS 9 in these financial statements, with effect from 1 January 2018. IFRS 9 'Financial Instruments' replaced IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for the impairment of financial assets. When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods. No differences arose on the transition to IFRS 9.

5) LOSS FROM OPERATIONS

 
                                                                       Year          Year 
                                                                      ended         ended 
                                                                31 December   31 December 
                                                                       2018          2017 
                                                                    GBP'000       GBP'000 
-------------------------------------------------------------  ------------  ------------ 
 Loss from operations is stated after 
  charging to cost of sales: 
 Exceptional write down of inventory                                  5,396             - 
 Loss from operations is stated after 
  (crediting): 
   Foreign exchange gains                                           (2,786)             - 
-------------------------------------------------------------  ------------  ------------ 
 Loss from operations is stated after 
  charging to 
  administrative expenses: 
   Foreign exchange losses                                                -         2,178 
 Depreciation of plant and equipment 
  (note 12)                                                             769           574 
   Amortisation of intangible assets 
    (note 11)                                                           194            39 
   Operating lease rentals - land and 
    buildings                                                           431           271 
   Staff costs (excluding share-based 
    payment charge)                                                  10,658        11,740 
   Research and development                                           1,565         1,859 
-------------------------------------------------------------  ------------  ------------ 
 
 Auditors remuneration: 
 
   *    Audit of these financial statements                              19            19 
 
   *    Audit of financial statements of subsidiaries of the 
        company                                                          25            21 
 
   *    All other services                                                -             6 
 Total auditor's remuneration                                            44            46 
-------------------------------------------------------------  ------------  ------------ 
 

The exceptional write down of inventory relates to provisions made against the value of inventory held by the Group. The value of this inventory has fallen as the technology used within the Group's products and inventory develops. The provision is made in accordance with IAS2.

Current year audit fees relate to services provided by the current auditor, Grant Thornton. Prior year audit fees relate to the previous auditor, KPMG. Other services in the prior period related to interim review work, tax advice and advice in respect of the Group's overseas subsidiary.

6) STAFF NUMBERS AND COSTS

 
                                                 Year          Year 
                                                ended         ended 
                                          31 December   31 December 
                                                 2018          2017 
                                               Number        Number 
---------------------------------------  ------------  ------------ 
 The average monthly number of persons 
  (including directors) employed by 
  the Group during the year was: 
 Directors                                          5             6 
 Operational staff                                149           140 
---------------------------------------  ------------  ------------ 
                                                  160           146 
---------------------------------------  ------------  ------------ 
 
                                              GBP'000       GBP'000 
---------------------------------------  ------------  ------------ 
 The aggregate remuneration, including 
  directors, 
  comprised: 
 Wages and salaries                             9,709        10,637 
 Social security costs                            775           987 
 Pension contributions                            174           116 
 Share based expense (note 22)                  1,090         1,865 
                                               11,748        13,605 
---------------------------------------  ------------  ------------ 
 Directors' remuneration comprised: 
 Emoluments for qualifying services               657           743 
---------------------------------------  ------------  ------------ 
 

Directors' emoluments disclosed above include GBP300,000 paid to the highest paid director (Year ended 31 December 2017: GBP334,000). There are no pension benefits for directors. Please see Directors' Remuneration Report on pages 15 to 17 for further information on directors' emoluments.

7) EXPENSES BY NATURE

The administrative expenses charge by nature is as follows:

 
                                                                  Year          Year 
                                                                 ended         ended 
                                                           31 December   31 December 
                                                                  2018          2017 
                                                               GBP'000       GBP'000 
--------------------------------------------------------  ------------  ------------ 
 Staff costs, recruitment and other HR                          11,370        12,617 
 Share-based payment expense                                     1,090         1,865 
 Premises and establishment costs                                1,025           586 
 Research and development costs                                  1,565         1,859 
 Patent and IP costs                                             1,265         1,176 
 Engineering and operational costs                                 895         1,978 
 Legal, professional and consultancy fees                        2,749         2,978 
 IT, telecoms and office costs                                   1,027           725 
 Depreciation charge                                               798           377 
 Amortisation charge                                               194            39 
 Travelling, subsistence and entertaining                        1,999         2,221 
 Advertising, conferences and exhibitions                          905         1,234 
 Bad debt expense                                                  533           412 
 Other expenses                                                    451           434 
 Foreign exchange losses/(gains)                               (2,786)         2,198 
 Less: grants receivable                                             -             - 
--------------------------------------------------------  ------------  ------------ 
 Total operating administrative expenses                        23,080        30,699 
 Non-operating administrative exceptional items: 
  Costs of placing of ordinary shares                              114           195 
   Exceptional impairment of Property Plant & Equipment          2,390             - 
   Release of deferred consideration                             (318)             - 
 Total administrative expenses                                  25,266        30,894 
--------------------------------------------------------  ------------  ------------ 
 

The exceptional to property plant and equipment relate to the write off of machines leased to customers across the Group as the technology used in the Group's products develops. These write offs are made in accordance with IAS16.

The exceptional release of deferred consideration relates to the release of deferred consideration on acquisitions which management no longer believe will become payable.

8) NET FINANCE INCOME/(EXPENSE)

 
                                                     Year          Year 
                                                    ended         ended 
                                              31 December   31 December 
                                                     2018          2017 
                                                  GBP'000       GBP'000 
-------------------------------------------  ------------  ------------ 
 Bank interest receivable                              41            51 
 (Loss)/gain from forward foreign currency 
  contracts                                             -         (705) 
 Finance income from lease receivables                 93            80 
-------------------------------------------  ------------  ------------ 
 Net finance income/(expense)                         134         (574) 
-------------------------------------------  ------------  ------------ 
 

9) TAXATION

Tax on loss on ordinary activities

 
                                                                    Year          Year 
                                                                   ended         ended 
                                                             31 December   31 December 
                                                                    2018          2017 
                                                                 GBP'000       GBP'000 
----------------------------------------------------------  ------------  ------------ 
 Current tax: 
 UK Tax credits received in respect of prior periods             (1,035)       (1,306) 
 Foreign taxes paid                                                   23             2 
----------------------------------------------------------  ------------  ------------ 
                                                                 (1,012)       (1,304) 
 Deferred tax: 
 Origination and reversal of temporary timing differences              -           (1) 
----------------------------------------------------------  ------------  ------------ 
 Tax credit on loss on ordinary activities                       (1,012)       (1,305) 
----------------------------------------------------------  ------------  ------------ 
 

The credit for the year/period can be reconciled to the loss before tax per the statement of profit or loss and other comprehensive income as follows:

Factors affecting the current tax charges

The tax assessed for the year varies from the main company rate of corporation tax as explained below:

 
                                                                                                    Year          Year 
                                                                                                   ended         ended 
                                                                                             31 December   31 December 
                                                                                                    2018          2017 
                                                                                                 GBP'000       GBP'000 
------------------------------------------------------------------------------------------  ------------  ------------ 
 The tax assessed for the period varies from the main company rate of corporation tax as 
 explained 
 below: 
 Loss on ordinary activities before tax                                                         (30,380)      (31,916) 
------------------------------------------------------------------------------------------  ------------  ------------ 
 
 Tax at the standard rate of corporation tax 19% (2017: 19.25%)                                  (5,772)       (6,144) 
 
 Effects of: 
 Expenses not deductible for tax purposes                                                            229           418 
 Research and development tax credits receivable                                                 (1,035)       (1,306) 
 Unutilised tax losses for which no deferred tax asset is 
  recognised                                                                                       5,544         6,649 
 Employee share acquisition adjustment                                                               (1)         (924) 
 Foreign taxes paid                                                                                   23             2 
 Change in tax rates                                                                                   -             - 
------------------------------------------------------------------------------------------  ------------  ------------ 
 Tax credit for the year/period                                                                  (1,012)       (1,305) 
------------------------------------------------------------------------------------------  ------------  ------------ 
 

The Group accounts for Research and Development tax credits where there is certainty regarding HMRC approval. The Group has received a tax credit in respect of the year ended 31 December 2017. There is no certainty regarding the claim for the year ended 31 December 2018 and as such no relevant credit or asset is recognised.

10) 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 period to assume conversion of all dilutive potential ordinary shares.

 
                                                                               Year          Year 
                                                                              ended         ended 
                                                                        31 December   31 December 
                                                                               2018          2017 
                                                                            GBP'000       GBP'000 
---------------------------------------------------------------------  ------------  ------------ 
 Total loss attributable to the equity holders of the parent               (29,368)      (30,611) 
---------------------------------------------------------------------  ------------  ------------ 
 
                                                                                No.           No. 
 Weighted average number of ordinary shares in issue during the year    103,990,542    87,671,769 
---------------------------------------------------------------------  ------------  ------------ 
 
 Loss per share 
 Basic and diluted on loss for the year                                    (28.24)p      (34.92)p 
---------------------------------------------------------------------  ------------  ------------ 
 

Adjusted earnings per share has been calculated so as to exclude the effect of 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       (29,722)   (30,611) 
 Exceptional costs       7,935        195 
-------------------  ---------  --------- 
 Adjusted earnings    (21,787)   (30,416) 
-------------------  ---------  --------- 
 
 
 Adjusted loss per share 
 Basic and diluted on loss for the year    (20.95)p   (34.69)p 
----------------------------------------  ---------  --------- 
 

The weighted average number of shares in issue throughout the period is as follows:

 
                                                                   Year          Year 
                                                                  ended         ended 
                                                            31 December   31 December 
                                                                   2018          2017 
---------------------------------------------------------  ------------  ------------ 
 Issued ordinary shares at 1 January 2018/1 January 2017     99,169,956    86,021,911 
 Effect of shares issued for cash                             4,820,586     1,649,858 
 Weighted average number of shares at 31 December           103,990,542    87,671,769 
---------------------------------------------------------  ------------  ------------ 
 

The Company has issued employee options over 8,120,803 (31 December 2017: 7,658,146) 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 periods concerned.

11) INTANGIBLE ASSETS AND GOODWILL

 
                                                  Customer 
                                  Goodwill   relationships     Brand   Software     Total 
                                   GBP'000         GBP'000   GBP'000    GBP'000   GBP'000 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 Cost 
 At 31 December 2016                     -               -         -          -         - 
 Acquisitions through business 
  combinations                         133             246       326          -       705 
 Foreign currency differences          (2)             (4)       (6)          -      (12) 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 As at 31 December 2017                131             242       320          -       693 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 Acquisitions through business 
  combinations                         314             404         -         18       736 
 Foreign currency differences           26              56        19          2       103 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 At 31 December 2018                   471             702       339         20     1,532 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 
 Accumulated amortisation 
  and impairment losses 
 31 December 2016                        -               -         -                    - 
 Amortisation charge for 
  the year                               -              39         -                   39 
 Foreign currency differences            -               -         -                    - 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 31 December 2017                        -              39         -                   39 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 Amortisation charge for 
  the year                               -              97        91          5       194 
 Foreign currency differences            -               6         5          -        11 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 At 31 December 2018                     -             142        96          5       243 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 
 Net book value 
 At 31 December 2018                   471             561       243         15     1,290 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 At 31 December 2017                   131             203       321          -       654 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 At 31 December 2016                     -               -         -          -         - 
-------------------------------  ---------  --------------  --------  ---------  -------- 
 

Amortisation

The amortisation of intangible assets is included within administrative expenses in the consolidated statement of profit or loss and other comprehensive income.

Impairment testing for CGUs containing goodwill

For the purposes of impairment testing, goodwill has been allocated to the Group's CGUs (operating divisions) as follows:

 
                                  2018      2017 
                               GBP'000   GBP'000 
---------------------------   --------  -------- 
 Hydrofinity                         -         - 
 High Performance Workwear         471       131 
                                   471       131 
 ---------------------------  --------  -------- 
 
 

High Performance Workwear

The recoverable amount of this CGU is based on fair value less costs of disposal, estimated using discounted cash flows.

The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

 
                                        2018   2017 
                                           %      % 
------------------------------------   -----  ----- 
 Discount rate                           15%    15% 
 Terminal value growth rate               1%     1% 
 Budget EBITDA growth rate (average 
  of next five years)                      -     5% 
 
 

All goodwill relates to the purchase of the trade and assets of MarKen PPE and of Gloves Inc. Goodwill arising on acquisition represents excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. The goodwill arising from the acquisition consists largely of the synergies expected from combining the MarKen PPE and Gloves Inc businesses with the proprietary Xeros technology and the workforce acquired.

The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. This impairment test compares the net assets of the business against the future cashflows from the division.

The forecast used in impairment testing is approved by management and the Board of Directors and is based on a bottom up assessment of costs and uses the known and estimated sales pipeline.

12) PROPERTY, PLANT AND EQUIPMENT

 
                           Leasehold            Plant     Computer        Fixtures       Motor 
                        improvements    and equipment    equipment    and fittings    vehicles     Total 
                             GBP'000          GBP'000      GBP'000         GBP'000     GBP'000   GBP'000 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 Cost 
 At 31 December 
  2016                           842              962          277             149           -     2,230 
 Arising on 
  acquisitions                     -               12           11              11           3        37 
 Additions                        71               81           69              34           -       255 
 Transfers 
  from/to inventory                -            2,270            -               -           -     2,270 
 Foreign currency 
  differences                   (20)             (64)         (12)             (5)           -     (101) 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 At 31 December 
  2017                           893            3,261          345             189           3     4,691 
 Arising on 
  acquisitions                     -               16            1               1          11        29 
 Additions                       806              407          142              21          21     1,397 
 Transfers 
  from/to inventory                -               64            -               -           -        64 
 Foreign currency 
  differences                     56              225           16               7           2       306 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 At 31 December 
  2018                         1,755            3,973          504             218          37     6,487 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 
 Depreciation 
 At 31 December 
  2016                           306              152          111              73           -       642 
 Charge for 
  the period                     206              259           75              23           -       574 
 Transfers 
  from/to inventory                -              (5)            -               -           -       (5) 
 Foreign currency 
  differences                   (15)             (14)          (6)             (1)           -      (36) 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 At 31 December 
  2017                           497              392          191              95           -     1,175 
 Charge for 
  the year                       200              404          123              32          10       769 
 Impairment 
  recognised 
  in the year                      -            2,390            -               -           -     2,390 
 Transfers 
  from/to inventory                -                -            -               -           -         - 
 Foreign currency 
  differences                     19              168           10               2           -       199 
 At 31 December 
  2018                           716            3,354          324             129          10     4,533 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 
 Net book 
  value 
 At 31 December 
  2018                         1,039              619          180              89          27     1,954 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 At 31 December 
  2017                           396            2,869          154              94           3     3,516 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 At 31 December 
  2016                           536              810          166              76           -     1,588 
--------------------  --------------  ---------------  -----------  --------------  ----------  -------- 
 

During the year an impairment has been made in respect of assets with a prior book value of GBP2,528,000 which were previously included within plant and equipment which the Group leases (as lessor) to customers under a number of operating lease agreements. Following the impairment these assets are now held at nil value. In the prior year assets leased to customers had a value of GBP2,582,000 and were reported within plant and equipment.

When an operating lease is agreed with a customer, the assets to which the operating lease relates are, if necessary, transferred from inventory into property, plant and equipment for the duration of the lease. Depreciation is charged on these assets in line with their useful economic lives.

13) INVENTORIES

 
                    31 December   31 December 
                           2018          2017 
                        GBP'000       GBP'000 
-----------------  ------------  ------------ 
  Finished goods            945         6,392 
-----------------  ------------  ------------ 
 

In the year ended 31 December 2018, changes in finished goods recognised as cost of sales amounted to GBP1,408,000 (year ended 31 December 2017: GBP742,000).

14) TRADE AND OTHER RECEIVABLES

 
                                   31 December   31 December 
                                          2018          2017 
                                       GBP'000       GBP'000 
--------------------------------  ------------  ------------ 
 Due within 12 months 
 Trade debtors                             458           345 
 Other receivables                       1,354           856 
 Prepayments and accrued income            590         1,034 
                                         2,402         2,235 
--------------------------------  ------------  ------------ 
 
 Due after more than 12 months 
 Other receivables                       1,292         1,104 
--------------------------------  ------------  ------------ 
 

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 IAS 17.

The minimum lease payment is receivable as follows:

 
                                                  31 December   31 December 
                                                         2018          2017 
                                                      GBP'000       GBP'000 
-----------------------------------------------  ------------  ------------ 
 Not later than one year                                  317           252 
 Later than one year not later than five years          1,088           917 
 Later than five years                                    234           187 
                                                        1,639         1,356 
-----------------------------------------------  ------------  ------------ 
 

Contractual payment terms with the Group's customers are typically 30 to 60 days. The Directors considered the carrying value of trade receivables at 31 December 2018 and made a provision of GBP639,000 (31 December 2017: GBP270,000) for potential impairment losses arising from balances 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 Directors consider 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 16.

Other receivables of GBP1,292,000 (31 December 2017: GBP1,104,000) due after more than one year comprise the long-term portion of finance leases where the Group acts as lessor.

15) CASH AND CASH EQUIVALENTS

 
                                      31 December   31 December 
                                             2018          2017 
                                          GBP'000       GBP'000 
-----------------------------------  ------------  ------------ 
 A+                                        15,851            11 
 A                                             41             - 
 BBB+                                         107        25,138 
 Held outside banking institutions              2             - 
 Cash and cash equivalents                 16,001        25,149 
-----------------------------------  ------------  ------------ 
 

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 December 2018 are at floating interest rates. Balances are denominated in UK Sterling (GBP), US Dollars ($) and Euros (EUR) as follows:

 
                                  31 December   31 December 
                                         2018          2017 
                                      GBP'000       GBP'000 
-------------------------------  ------------  ------------ 
 Denominated in Pound Sterling         15,597        24,095 
 Denominated in US Dollars                127           752 
 Denominated in Euros                     277           302 
 Cash and cash equivalents             16,001        25,149 
-------------------------------  ------------  ------------ 
 

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 16.

16) FINANCIAL INSTRUMENTS

The Group's principal financial instruments comprise short-term receivables and payables and cash and cash equivalents. The Group does not trade in financial instruments but uses derivative financial instruments in the form of forward foreign currency contracts to help manage its foreign currency exposure and to enable the Group to manage its working capital requirements.

(a) Fair Values of Financial Assets and Financial Liabilities

Derivative Financial Instruments - Fair Value Hierarchy

The following hierarchy classifies each class of financial asset or liability depending on the valuation technique applied in determining its fair value:

Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities.

Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).

In these financial statements, all of the forward foreign exchange contracts are considered to be Level 2 in the fair value hierarchy. There have been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have been determined based on available market information at the balance sheet date.

   (b)                                                                      Credit risk 

Financial Risk Management

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 exposed to credit risk in respect of trade and lease receivable 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 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 different banks and through ongoing monitoring of the credit ratings of those banks. Further details are set out in note 15. At 31 December 2018, the Directors were not aware of any factors affecting the recoverability of the Group's bank balances.

Exposure to Credit Risk

At 31 December 2018, the Group had net trade receivables outstanding of GBP458,000 (2017: GBP345,000). The Directors have considered the recoverability of outstanding balances at 31 December 2018 and have made provisions for bad and doubtful debts amounting to GBP639,000 (2017: GBP270,000). The Group had lease receivable balances outstanding of GBP1,639,000 (2017: GBP1,356,000) after the deduction of provisions amounting to GBP145,000 (2017: GBP108,000).

The concentration of credit risk for trade and other receivables and lease receivables at the balance sheet date by geographic region was:

 
                             31 December   31 December 
                                    2018          2017 
                                 GBP'000       GBP'000 
--------------------------  ------------  ------------ 
 United Kingdom                    1,527         1,029 
 United States of America          2,167         2,310 
                                   3,694         3,339 
--------------------------  ------------  ------------ 
 

(c) Liquidity Risk

Financial Risk Management

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.

The following are the contractual maturities of financial liabilities:

 
 Non-derivative financial liabilities    31 December   31 December 
                                                2018          2017 
                                             GBP'000       GBP'000 
--------------------------------------  ------------  ------------ 
 Due within one year 
 Trade and other payables                      1,812         1,661 
--------------------------------------  ------------  ------------ 
 

(d) Market Risk

Financial Risk Management

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 note 15). 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.

Foreign Currency Risk

The Group is exposed to currency risk on sales and purchases and cash held in bank 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). The Group's policy is to reduce currency exposure on sales and purchasing through forward foreign currency contracts where appropriate.

The Group had no forward currency contracts in place as at either 31 December 2018 or 31 December 2017.

The Group's overall exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments.

At 31 December 2018

 
                                Sterling   US Dollar      Euro     Total 
                                 GBP'000     GBP'000   GBP'000   GBP'000 
-----------------------------  ---------  ----------  --------  -------- 
 Cash and cash equivalents        15,596         128       277    16,001 
 Trade and other receivables       1,527       2,167         -     3,694 
 Trade and other payables        (1,013)       (244)         -   (1,257) 
-----------------------------  ---------  ----------  --------  -------- 
 Balance sheet exposure           16,110       2,051       277    18,438 
-----------------------------  ---------  ----------  --------  -------- 
 
 
 Net exposure     -   2,051   277   2,437 
--------------  ---  ------  ----  ------ 
 

At 31 December 2017

 
                                Sterling   US Dollar      Euro     Total 
                                 GBP'000     GBP'000   GBP'000   GBP'000 
-----------------------------  ---------  ----------  --------  -------- 
 Cash and cash equivalents        24,095         752       302    25,149 
 Income tax receivable             1,306           -         -     1,306 
 Trade and other receivables       1,029       2,309         -     3,338 
 Trade and other payables          (774)       (873)      (14)   (1,661) 
 Balance sheet exposure           25,656       2,188       288    28,132 
-----------------------------  ---------  ----------  --------  -------- 
 
 
 Net exposure          -   2,188   288   28,132 
--------------  --------  ------  ----  ------- 
 

Sensitivity Analysis

A 10% weakening of the following currencies against the GBP sterling at 31 December 2018 would have increased equity and profit or loss by the amounts shown below. The calculation assumes that the change occurred at the balance sheet date and had been applied to the risk exposure existing at that date.

This analysis assumes that all other variables, in particular, other exchange rates and interest rates remain constant. The analysis is performed on the same basis for the period ended 31 December 2017.

 
                        Equity                  Profit or Loss 
              --------------------------  -------------------------- 
               31 December   31 December   31 December   31 December 
                      2018          2017          2018          2017 
                   GBP'000       GBP'000       GBP'000       GBP'000 
------------  ------------  ------------  ------------  ------------ 
 US Dollars          (205)         (219)         (205)         (219) 
 Euros                (28)          (29)          (28)          (29) 
 

A 10% strengthening of the above currencies against the Pound Sterling at 31 December 2018 would have had the equal but opposite effect on the above currencies to the amounts shown above on the basis that all other variables remain constant.

Interest Rate Risk

At the balance sheet date the interest rate profile of the Group's interest-bearing financial instruments was:

 
                              31 December   31 December 
                                     2018          2017 
                                  GBP'000       GBP'000 
---------------------------  ------------  ------------ 
 Fixed rate instruments 
 Financial assets                       -             - 
 Financial liabilities                  -             - 
---------------------------  ------------  ------------ 
                                        -             - 
---------------------------  ------------  ------------ 
 
 Variable rate instruments 
 Financial assets                  16,001        25,149 
 Financial liabilities                  -             - 
---------------------------  ------------  ------------ 
                                   16,001        25,149 
---------------------------  ------------  ------------ 
 

Based on the Group's above balances at 31 December 2018, 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 period of approximately GBP800,000 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 period would be an increase in the loss for the year of GBP41,000 with a corresponding decrease in the Group's net assets.

(e) Capital Management

The Group's capital is made up of share capital, share premium and retained losses, totalling GBP6,648,000 at 31 December 2018 (31 December 2017: GBP20,352,000).

The Group's objectives when managing capital are:

-- 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.

17) TRADE AND OTHER PAYABLES

 
                                 31 December   31 December 
                                        2018          2017 
                                     GBP'000       GBP'000 
------------------------------  ------------  ------------ 
 Trade payables                        1,257         1,223 
 Taxes and social security               164           126 
 Other creditors                         555           438 
 Accruals and deferred income          1,897         2,566 
 Contingent consideration                  -           185 
------------------------------  ------------  ------------ 
                                       3,874         4,538 
------------------------------  ------------  ------------ 
 
 Current                               3,874         4,353 
 Non-current                               -           185 
------------------------------  ------------  ------------ 
                                       3,874         4,538 
------------------------------  ------------  ------------ 
 

Trade payables, split by the currency they will be settled are shown below:

 
                   31 December   31 December 
                          2018          2017 
                       GBP'000       GBP'000 
----------------  ------------  ------------ 
 Sterling                1,013           639 
 US Dollars                244           570 
 Euros                       -            14 
 Trade payables          1,257         1,223 
----------------  ------------  ------------ 
 

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 period.

18) DEFERRED TAX

 
                                                 31 December   31 December 
                                                        2018          2017 
                                                     GBP'000       GBP'000 
----------------------------------------------  ------------  ------------ 
 Accelerated depreciation for tax purposes                38            38 
 Deferred tax credit/(expense) for the period              -           (1) 
----------------------------------------------  ------------  ------------ 
 
 
                                Year          Year 
                               ended         ended 
                         31 December   31 December 
                                2018          2017 
                             GBP'000       GBP'000 
----------------------  ------------  ------------ 
 At beginning of year             38            39 
 Tax expense                       -           (1) 
 At end of year                   38            38 
----------------------  ------------  ------------ 
 

As at 31 December 2018, the Group had unrecognised deferred tax assets totalling approximately GBP17,981,000 (31 December 2017: GBP12,968,000), 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.

19) SHARE CAPITAL

 
                                               Share      Share     Merger 
                                             capital    premium    reserve     Total 
                                   Number    GBP'000    GBP'000    GBP'000   GBP'000 
---------------------------  ------------  ---------  ---------  ---------  -------- 
 Total Ordinary shares 
  of 0.15p each as at 
  31 December 2016             86,021,911        129     66,280     15,443    81,852 
---------------------------  ------------  ---------  ---------  ---------  -------- 
 Issue of ordinary 
  shares following placing     11,111,112         17     24,983          -    25,000 
 Issue of ordinary 
  shares on exercise 
  of share options              2,036,933          3        493          -       496 
 Costs of share issues                  -          -    (1,374)          -   (1,374) 
 Total Ordinary shares 
  of 0.15p each as at 
  31 December 2017             99,169,956        149     90,382     15,443   105,974 
---------------------------  ------------  ---------  ---------  ---------  -------- 
 Issue of ordinary 
  shares following placing 
  and open offer              157,861,209        237     15,549          -    15,786 
 Issue of ordinary 
  shares on exercise 
  of share options                  4,554          -          7          -         7 
 Costs of share issues                  -          -      (754)          -     (754) 
---------------------------  ------------  ---------  ---------  ---------  -------- 
 Total Ordinary shares 
  of 0.15p each as at 
  31 December 2018            257,035,719        386    105,184     15,443   121,013 
---------------------------  ------------  ---------  ---------  ---------  -------- 
 

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 period ended 31 December 2018:

(a) 451 Ordinary Shares were allotted at a price of 160.05 pence per share, for total cash consideration of GBP724, upon the exercise of share options granted in the Company's share option schemes.

(b) 434 Ordinary Shares were allotted at a price of 182.5 pence per share, for total cash consideration of GBP792, upon the exercise of share options granted in the Company's share option schemes.

(c) 795 Ordinary Shares were allotted at a price of 210 pence per share, for total cash consideration of GBP1,670, upon the exercise of share options granted in the Company's share option schemes.

(d) 4,103 Ordinary Shares were allotted at a price of 160.5 pence per share, for total cash consideration of GBP6,585, upon the exercise of share options granted in the Company's share option schemes.

(e) 448 Ordinary Shares were allotted at a price of 182.5 pence per share, for total cash consideration of GBP818, upon the exercise of share options granted in the Company's share option schemes.

(f) 1,755 Ordinary Shares were allotted at a price of 210 pence per share, for total cash consideration of GBP3,686, upon the exercise of share options granted in the Company's share option schemes.

(g) 157,861,209 Ordinary Shares were allotted at a price of 10 pence per share, for total cash consideration of GBP15,786,121, upon the placing and open offer of the Company's shares in December 2018.

At 31 December 2018, the Company had only one class of share, being Ordinary Shares of 0.15p each.

The Group's Share Capital reserve represents the nominal value of the shares in issue. The Group's Share Premium Reserve represents the premium the Group received on issue if its shares. The Merger Reserve arose on the combination of companies within the Group prior to the flotation on AIM.

20) MOVEMENT IN ACCUMULATED LOSSES AND FOREIGN CURRENCY TRANSLATION RESERVE

 
                                                   Accumulated losses   Foreign currency translation reserve 
                                                              GBP'000                                GBP'000 
------------------------------------------------  -------------------  ------------------------------------- 
 At 31 December 2016                                         (41,433)                                (1,742) 
------------------------------------------------  -------------------  ------------------------------------- 
 Loss for the period                                         (30,611)                                      - 
 Other comprehensive expense - Foreign currency 
  translation differences - foreign operation                       -                                  1,727 
 Shared based payment charge                                    1,865                                      - 
------------------------------------------------  -------------------  ------------------------------------- 
 At 31 December 2017                                         (70,179)                                   (15) 
 Impact of change in accounting policies                        (111)                                      - 
 Adjusted balance 31 December 2018                           (70,290)                                   (15) 
 Loss for the year                                           (26,979)                                      - 
 Other comprehensive income - Foreign currency 
  translation differences - foreign operation                       -                                (2,319) 
 Shared based payment charge                                    1,090                                      - 
------------------------------------------------  -------------------  ------------------------------------- 
 At 31 December 2018                                         (96,179)                                (2,334) 
------------------------------------------------  -------------------  ------------------------------------- 
 

The Group's accumulated losses reserve represents the accumulation of losses of the Group since inception. The foreign currency translation reserve represents the cumulative differences recognised on the translation of the net assets of the Group's overseas subsidiaries.

21) 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:

 
                                           31 December   31 December 
                                                  2018          2017 
                                                GBP000        GBP000 
----------------------------------------  ------------  ------------ 
 Land and buildings: 
 Amounts due within one year                       471           377 
 Amounts due between one and five years            562           686 
----------------------------------------  ------------  ------------ 
                                                 1,033         1,063 
----------------------------------------  ------------  ------------ 
 

On 19 October 2014, the Group entered into a five-year lease arrangement in respect of a property. The Group has an annual rent commitment of GBP17,185 on this lease. This lease expires on 18 October 2019. On the same date the Group entered into a five-year lease arrangement in respect of another property. The Group has an annual rent commitment of GBP25,487 on this lease. This lease also expires on 18 October 2019.

On 13 February 2015, the Group entered into an arrangement assigning to it a 10-year lease in respect of a property. The lease commenced on 2 April 2012 and expires on 1 April 2022. The Group has an annual rent commitment of GBP75,250 on this lease.

On 30 November 2017, the Group entered into a three-year lease arrangement in respect of a property. The Group has an annual rent commitment of $246,668 on the lease. The lease expires on 31 December 2020. The lease contains an option which allows the Group to extend the lease term by five years.

In addition, the Group has operating lease commitments in respect of its premises in the USA for its subsidiary, Xeros High Performance Workwear Inc. These are short term rentals with an annual rent charge of approximately GBP170,000.

The new accounting standard IFRS 16 'Leases', is effective for years commencing on or after 1 January 2019. A disclosure of the potential impact of IFRS 16 is shown below. The actual figures will be impacted by the discount rates used, as well as decisions on the use of expedients and exemptions, along with any additional lease information that comes to light in the year. A notional discount rates of 5% has been used to show the users of the financial statements the potential impact of IFRS 16. The actual rates used may differ. The modified retrospective approach has been used and the right of use asset has been valued retrospectively using the assumed transition discount rates.

Operating leases that were active at 1 January 2019 have been incorporated into the potential impact analysis below. Changes that occur in the year will impact the actual figures that will appear in the 2019 accounts following transition to IFRS 16.

Additionally, the assumption has been made that, wherever possible, the low value item exemption for leases assets with a value of less that GBP4,000 and the short remaining term expedient for those with less that 12 months left will be utilised.

The potential impact of the transition to IFRS 16 is:

-- At 1 January 2019: Assets of GBP1,587,000, Liabilities of GBP1,702,000 and estimated impact on reserves of GBP115,000

-- At 31 December 2019: Assets of GBP1,296,000, Liabilities of GBP1,443,000 and estimated impact on EBITDA of GBP414,000

22) 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:

 
                                                                                          Weighted 
                                                                                  average exercise 
                                                                                         price per 
                                             Number of share interests                 share (GBP) 
                                                                                ------------------ 
                                                        Deferred 
                                      Unapproved    Annual Bonus 
                       EMI options       options            plan         Total 
                    --------------  ------------  --------------  ------------  ------------------ 
 At 31 December 
  2016                   2,086,357     4,423,584         177,822     6,687,763               1.032 
 Granted in the 
  period                         -     3,167,832          74,907     3,242,739               2.223 
 Exercised in 
  the year             (1,105,716)     (950,139)        (15,384)   (2,071,239)             (0.273) 
 Forfeited/lapsed 
  in the year              (4,220)    (1,96,897)               -     (201,117)             (1.956) 
 At 31 December 
  2017                     976,421     6,444,380         237,345     7,658,146               1.719 
------------------  --------------  ------------  --------------  ------------  ------------------ 
 Granted in the 
  period                         -     2,436,832          25,900     2,462,732               2.166 
 Exercised in 
  the period                 (451)       (7,535)               -       (7,986)             (1.787) 
 Forfeited/lapsed 
  in the period           (17,518)   (1,868,320)       (106,971)   (1,992,809)             (1.752) 
 At 31 December 
  2018                     958,452     7,005,357         156,274     8,120,083               1.839 
------------------  --------------  ------------  --------------  ------------  ------------------ 
 
 

There were 5,339,849 share options outstanding at 31 December 2018 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 December 2018. Options have a range of exercise prices from 0.15 pence per share to 310.0 pence per share and have a weighted average contractual life of 8.07 years (31 December 2017: 7.91 years).

 
                           Unapproved 
                              options   DAB options     Options 
                              granted       granted     granted 
 Options granted                   in            in          in 
 in the period                January       January   September 
                                 2018          2018        2018 
 Dividend yield                    0%            0%          0% 
 Expected volatility*          40.00%        40.00%      40.00% 
 Risk free interest 
  rate (%)                      1.50%         1.50%       1.50% 
 Expected vesting 
  life of options 
  (years)                          10            10          10 
 Weighted average 
  share price (pence)           225.0         222.0        76.5 
 Fair value of an 
  option (pence per 
  share)                        115.2         221.9        39.2 
------------------------  -----------  ------------  ---------- 
 

* 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 period as follows:

 
                   31 December   31 December 
                          2018          2017 
                        GBP000        GBP000 
---------------   ------------  ------------ 
 Share options           1,090         1,865 
----------------  ------------  ------------ 
 

23) 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 each period end with other related parties, are as follows:

 
                                             Purchases   Amounts owed                       Amounts 
                                          from related     to related       Purchases       owed to 
                                                 party          party    from related       related 
                                                                                party         party 
                                           31 December    31 December     31 December   31 December 
                                                  2018           2018            2017          2017 
 Related party          Relationship            GBP000         GBP000          GBP000        GBP000 
---------------------  ---------------  --------------  -------------  --------------  ------------ 
 
                        Fund manager 
                         for certain 
 Enterprise Ventures     shareholders 
  Limited                (note 1)                   12              -              30             - 
                        Corporate 
                         finance 
                         advisor 
                         for certain 
 Top Technology          shareholders 
  Ventures Limited       (note 2)                    -              -             260           260 
---------------------  ---------------  --------------  -------------  --------------  ------------ 
 
 

Note 1: Enterprise Ventures Limited provided the services of Julian Viggars, who was a director of the Company until 23 May 2018 and invoiced the Group for associated director's fees.

Note 2: Top Technology Ventures Limited provided corporate finance services on behalf of the IP Group shareholders for the new equity issue in December 2017.

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 period, 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:

 
                                           Year          Year 
                                          ended         Ended 
                                    31 December   31 December 
                                           2018          2017 
                                         GBP000        GBP000 
---------------------------------  ------------  ------------ 
 Short-term employment benefits*            657           743 
---------------------------------  ------------  ------------ 
 

*In addition, certain directors hold share options in the Company for which a fair value share based charge of GBP658,601 has been recognised in the consolidated statement of profit or loss and other comprehensive income (Year ended 31 December 2017: GBP321,639).

The highest paid Director in the year received total remuneration of GBP300,000 (Year ended 31 December 2017: GBP334,000). During the year ended 31 December 2018, the Company entered into numerous transactions with its subsidiary companies which net off on consolidation - these have not been shown above.

24) ACQUISITION OF SUBSIDIARY

On 22 March 2018, Xeros High Performance Workwear Inc., a subsidiary of the Group, acquired 100% of the trade and net assets of the High Performance Workwear division of Gloves Inc., a company incorporated in the USA. The trade and assets acquired are those of a provider of cleaning, inspection and repair services for firefighter personal protective equipment with facilities in Atlanta and Miami, USA.

During the year ended 31 December 2018, the trade and assets purchased from Gloves Inc. contributed revenue of GBP430,000 and a loss of GBP87,000 to the consolidated results of the Group. If the acquisition had taken place on 1 January 2017, management estimates that consolidated revenue would have been GBP4,117,000 and consolidated loss before taxation would have been GBP(30,850,000). In determining those amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same as if the acquisition had occurred on 1 January 2018.

Consideration transferred

The following table summarises the acquisition date fair value of each major class of consideration transferred.

 
                                     GBP000 
---------------------------------   ------- 
 Cash                                   569 
 Deferred consideration                  73 
 Contingent consideration               213 
 
 Total consideration transferred        855 
----------------------------------  ------- 
 

Deferred consideration

The Group agreed to pay the sellers and additional GBP73,000 based on an adjustment to the purchase price as a result of working capital targets defined in the acquisition agreement.

Contingent consideration

The Group has agreed to pay the sellers additional consideration up to a maximum of $300,000 (GBP213,000 at the date of acquisition) during a one-year period following acquisition. This is based on an earn-out calculation which requires the company to achieve sales revenue targets in the twelve months following acquisition. The Group has released this creditor at year end as management no longer believe that the revenue targets will be met.

Acquisition-related costs

The Group incurred acquisition-related costs of GBP80,000 on legal fees and due diligence expenses. These costs have been included in administrative expenses in the consolidated statement of profit and loss and other comprehensive income

Identifiable assets acquired and liabilities assumed

The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.

 
                                            GBP000 
----------------------------------------   ------- 
 Property, plant and equipment                  28 
 Intangible assets                             422 
 Trade and other receivables                    93 
 Trade and other payables                      (2) 
 
 Total identifiable net assets acquired        541 
-----------------------------------------  ------- 
 

Measurement of fair values

All assets and liabilities acquired are recognised at fair value. For trade and other receivables and trade and other payables, fair value was deemed to be equivalent to book value. Estimates were made in respect of property, plant and equipment and intangible assets based upon management's assessment of the value in use of the assets to the Xeros Group.

The intangible assets acquired with the trade and assets comprise GBP404,000 in relation to non-contractual customer relationships and GBP18,000 in relation to bespoke computer software acquired.

Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 
                                           GBP000 
---------------------------------------   ------- 
 Consideration transferred                    855 
 Fair value of identifiable net assets      (541) 
 
 Goodwill                                     314 
----------------------------------------  ------- 
 

The goodwill arising from the acquisition consists largely of the synergies expected from combining the Gloves Inc. business with the proprietary Xeros technology and the workforce acquired.

25) ANNUAL REPORT AND ACCOUNTS

The Group's annual report and accounts for the period ended 31 December 2018 have been published today and will be posted to shareholders shortly. The annual report and accounts will also be available in electronic form on www.xerostech.com

Forward-looking statements

This announcement may include certain forward-looking statements, beliefs or opinions, including statements with respect to Xeros' business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Xeros Directors in good faith based on the information available to them at the date of this announcement and reflect the Xeros Directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in government policies, spending and procurement methodologies, and failure in health, safety or environmental policies.

No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and Xeros and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. No statement in the announcement is intended to be, or intended to be construed as, a profit forecast or to be interpreted to mean that earnings per Xeros share for the current or future financial years will necessarily match or exceed the historical earnings. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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