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Strix Group PLC (KETL)

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Wednesday 19 September, 2018

Strix Group PLC

Interim Results

RNS Number : 1839B
Strix Group PLC
19 September 2018
 

19 September 2018

This announcement contains inside information

Strix Group Plc

("Strix" or the "Company")

Interim results for the 6 months ended 30 June 2018

 

Strix (AIM: KETL), the AIM listed global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, is pleased to announce its unaudited interim results for the six months ended 30 June 2018.

FINANCIAL Highlights

·     A solid first half performance and trading in line with full year market expectations

·     Revenues of £42.9m (H1 2017: £42.2m), increase of 1.5%

·     Gross profit margin increased to 37.9% (H1 2017: 37.2%)

·     Adjusted EBITDA (1) of £14.8m (H1 2017: £14.2m), increase of 4.3%

·     Adjusted EBITDA (1) margin of 34.5% (H1 2017: 33.6%)

·     Adjusted PBT (1) of £11.0m (H1 2017: £11.2m), decrease of 1.9% due to net finance costs of £0.9m (H1 2017: £nil)

·     Adjusted diluted EPS (1) of 5.3p, with adjusted PAT (1) of £10.6m (H1 2017: £11.0m), decrease of 3.5% due to timing of tax accrual vs prior year

·     Decrease in net debt to £37.9m (2017: £45.9m), improvement of 17.4%

·     Net cash generated from operating activities £15.2m (H1 2017: £15.4m), decrease of 0.9% due to working capital movements

·     Interim dividend of 2.3p per share to be paid on 26 October 2018

OPERATIONAL HIGHLIGHTS

· 

Global market share maintained at c.38% by volume

·    

Successful launch of U9 with >1.1m controls produced

·    

Production efficiency increased by 6% due to continued automation and 16% increase in quality ppm

·    

Settlement of an infringement claim for 19 electronic appliances in China to defend IP

·    

Aqua Optima sales up by c.88% in H1, with record market share of c.20% achieved

1    Adjusted results exclude exceptional items, including share-based payments. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

      The comparative results are presented on the same basis as set out in the Group's 2017 Annual Report, and cover a period when a different capital structure was in place and the Company was not listed on AIM.

 

 

Mark Bartlett, Chief Executive Officer, said:

"We are pleased to report a solid six months of trading for Strix in 2018. We have made positive progress with our strategic priorities, continued to invest in the growth of our business and maintained our global market share.

The global market has remained positive with an overall volume growth of c.6%. The North American market has been particularly strong, growing at >20%. As anticipated the China domestic market also experienced a positive recovery with volume growth of c.6%.

We have continued to invest in our facilities, through innovation, additional automation and lean manufacturing processes, resulting in a further 6% increase in efficiency.

Product development remains a core focus of the Group with positive progress on the U9 series of controls. We have secured a number of collaborations with key brands within the hot water and coffee on demand categories using our mature, patented heating technology to fulfil key consumer insights identified from independent research.

Aqua Optima continued to show strong growth with revenues up c.88% versus prior year securing a record share within the UK of >20% and increased distribution with the Aqua Optima brand now available in an additional 2,500 outlets.

We continue to build on our extensive customer relationships across the value chain whilst further developing our key technologies and seek to identify further incremental opportunities, both organic and inorganic, to drive shareholder value.  

With trading in line with full year expectations, we look forward to the rest of 2018 with optimism and are delighted to announce an interim dividend of 2.3p per share." 

For further enquiries, please contact:

Strix Group Plc

Mark Bartlett (CEO)

Raudres Wong (CFO)

 

01624 829 829

Zeus Capital Limited (Nominated Advisor)

Nick Cowles / Jamie Peel / Jordan Warburton (Corporate Finance)

Dominic King (Corporate Broking)

 

020 3829 5000

IFC Advisory Limited (Financial PR & IR)

Graham Herring / Tim Metcalfe / Heather Armstrong

020 3934 6630

 

Investor and Analyst Meeting

A briefing for investors and analysts will be held at 09:30hrs on 19 September 2018 at 85 Gresham Street, London, EC2V 7NQ. Strix Group Plc's interim results for 2018 are available at www.strixplc.com.

About Strix Group Plc

Isle of Man based Strix, is a global leader in the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration.

Strix's core product range comprises a variety of safety controls for small domestic appliances, primarily kettles. Kettle safety controls require precision engineering and intricate knowledge of material properties in order to repeatedly function correctly. Strix has built up market leading capability and know-how in this field since being founded in 1982.

Strix is listed on the Alternative Investment Market of the London Stock Exchange (AIM: KETL). 

 

Cautionary Statement

 

Certain statements included or incorporated by reference within this announcement may constitute "forward-looking statements" in respect of the Group's operations, performance, prospects and/or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by Manx law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

 

 

 

Chief Executive's Review

The first 6 months of 2018 have seen a solid performance of the core business across all segments resulting in a 7.6% volume growth for the Group against prior year.

The Company's revenues were £42.9m (H1 2017: £42.2m) an increase of 1.5% on prior year and adjusted EBITDA was £14.8m (H1 2017: £14.2m) up 4.3% on prior year. Adjusted profit before tax was £11.0m, down 1.9% (H1 2017: £11.2m) due to there being no interest in H1 2017 following the Group reorganisation in August 2017 (H1 2018: £0.9m of net finance costs). Net debt was further reduced to £37.9m.

At the half year, total sales volume for the global kettle market remained strong with a consolidated growth of c.6% versus c.5% during H1 2017. As anticipated the China domestic market experienced a recovery back to c.6% volume growth with the regulated and less regulated markets posting a volume growth of c.3% and 8% respectively. Strix remained stable, maintaining its global market share of c.38%.

Given the Company's H1 2018 performance and the Board's confidence in the continued strength of cash generation, the Board has declared an interim dividend of 2.3p, payable on 26 October 2018 to shareholders on the register as at 28 September 2018.

Export kettle control sales

Export kettle control sales are defined as kettle controls which are ultimately sold in a market outside of China. Growth in the regulated markets remained significantly ahead of the estimated 2013 to 2017 CAGR of 1%, growing at 3% with North America performing very strongly with a growth rate >20%. Strix's share continued to perform well within this market with a share in excess of 70% and market penetration now c.15%. Turkey also posted solid sales in H1 with volume up 7% versus prior year although this is expected to slow somewhat during Q3 due to the devaluation of the Lira. Sales to Turkey make up c.5% of net sales by value, therefore any impact of this will be limited. This strong performance was slightly offset with some contraction in Western Europe following strong performance in the prior year and in the UK. Strix maintained its consolidated share of c.61% of this market segment and continues to focus on incremental opportunities for H2.

Strix continued to undertake both safety and intellectual property actions with 8 internet brands being removed from sale during H1 in UK, France, Germany and Italy. As well as a compensation payment we have a commitment from the key brand to convert their appliances to Strix controls.

The less regulated market continued to post solid growth at c.8% and was in line with the 2013 to 2017 CAGR. The Far East markets (excluding China) and Russia both experienced double digit growth and Strix maintained its share of c.19% with the U9 series beginning to gain traction in this target market segment. The implementation of approval testing in Chile has been further strengthened with an increased frequency of testing of key clauses, further strengthening the barrier to entry for inferior quality competitors.

China Domestic sales

As anticipated the China market showed a recovery over 2017 posting c.6% growth versus a 6% drop in the prior year with Strix's market share broadly static at c.48%. Strix continued to defend its intellectual property and successfully settled patent infringement cases against 19 appliances with the number one brand in multi-cooker appliances. Along with a compensation payment, this settlement secured agreement to convert the appliances within a 12 month period which will help secure volume share in this growth segment during 2019 and beyond.

 

New Product Development (NPD)

Following the successful launch of the U9 Series during 2017 we have successfully secured more than 70 specifications and produced 1.1m controls. We continue to develop this series with new variants launched to target the smaller size and split switch kettle appliances to further enhance the portfolio of "best in class" controls.

During H1 2018 the new, enhanced version of the baby prep was launched in the UK as "Perfect Prep, Day and Night". This product has been well received in the market with excellent consumer ratings.  

We continue to support key global brands and have secured a number of significant collaborations within the hot water on demand sector using our patented heater technology, including the deal with a US-based consumer product company announced in August. These products will expand our current footprint into both coffee and water dispensing systems providing increased consumer functionality, convenience and value.

We will continue to leverage on our core competencies to focus our highly skilled engineering resource on additional products for the water on demand segments, whilst further enhancing our core technology to expand our addressable market and increase our differentiation within the control sector. 

Operations

Operations have achieved positive improvement in its key performance indicators, particularly with respect to cost and quality versus prior years. The process quality ppm ('parts per million') improved by 16% and outgoing quality performance was improved by more than 20% versus prior year.

A further two automated lines were set up during H1, bringing the total number of automated lines in our Guangzhou factory to six. A further three projects are being launched this year and will be delivered by the end of 2019. Efficiency has improved as a result of the increased automation and on-going "lean" projects with an improvement of 6% during H1.

The total output of kettle controls and connector sets exceeded 33.5m during H1, a 4.8% increase on prior year with a reduction of one manual production line. Commodity prices for the key materials (silver, copper and hybrid plastics) have been secured for the full year at or below budget pricing, in line with our purchasing policy.

Aqua Optima

Aqua Optima experienced a strong performance during H1 with revenues up by c.88% on prior year. Strong sales of trade brand product to both UK and Central Europe combined with the continued growth in existing UK distribution for Aqua Optima has resulted in a record high market share of c.20% within a UK market of c.£63m, with the Aqua Optima brand now available in more than 2,500 additional outlets during 2018.

Investment in PR and social media, together with an exclusive partnership with "parkrun" has enhanced consumer engagement with targeted campaigns increasing followers to more than 2,500 individuals. The increase of incremental trade brand business has allowed Aqua Optima to create a clear "good, better, best" category hierarchy, repositioning the Evolve brand with respect to its competitors whilst retaining competitive advantage.

We continue to work with our partner in China, a major small domestic appliance ('SDA') OEM, to launch a range of Aqua Optima filter products in Q4 2018.

 

 

Dividend Policy

Following the successful IPO of Strix Group in August 2017, the Board feel it is an opportune time to provide investors with further guidance regarding the dividend policy going forward. The Company has consistently achieved strong cash conversion and remains committed to paying a total dividend of 7.0p for the current financial year and a total dividend of 7.7p for the financial year ending 31 December 2019. Following this the Company intends to implement a progressive dividend policy to increase future dividends (from a base of 7.7p in 2019) in line with future growth in underlying earnings.

This policy provides the flexibility to continue to invest in the Group's growth strategy and to take advantage of investment opportunities. The Directors may consider additional distributions in the future subject to the level of debt and the opportunities referred above.

Future Strategy

We will continue to develop a culture of achievement within Strix, with a strategy focused on driving shareholder value and employee engagement. As part of our strategy we will further broaden our senior management and engineering bench strength through strategic recruitment whilst further developing our existing resources with training and development programs aligned to our growth objectives.

As part of our strategy we continue to increase our focus on new product development and core technologies to enhance our product portfolio within the SDA market. In particular, following external consumer research, we will develop and launch innovative products within both the hot water on demand segment to enhance functionality and value as well as additional electrical products for the global baby segment. In line with this strategy, we recently announced a collaboration with a global US-based firm to develop a new single-cup coffee appliance.

In addition to organic growth we will target appropriate acquisitions within the SDA sector, funded from our existing resources. We will focus on companies or technologies that support our core competencies with particular attention to water filtration, heating technologies and the hot water on demand / coffee categories.

Within Operations, we will continue to drive efficiency and process improvements with an ongoing commitment to lean manufacturing and further automation of appropriate production lines as volume dictates. We are in the early stages of assessing our options regarding relocation of our manufacturing operations in China, with the current lease expiring in 2021. Both the construction of a new facility and rental/purchase of an existing facility are under consideration. We anticipate the total cost of the relocation to be in the region of c.£15 million, but will provide the market with further guidance in due course. We expect any funding requirements to be sourced from existing resources.

For Aqua Optima, we will launch an initiative to enable filters to be recycled, continue to develop trade brand relationships and expand the product range to drive further growth in both the UK and China.      

Outlook

The core kettle control market remains solid, with the U9 series providing a comprehensive portfolio of controls to address our existing market opportunities. We will continue to evolve our core control segment with the launch of a new electronic control in H2 2018, targeting the growth of multi-cookers and a new range of controls to further increase our addressable market in the less regulated segment being launched in 2019.

Following the success of Aqua Optima in the UK we will launch in China during Q4 2018 with further product launches and initiatives set for the UK in Q1 2019 to further drive market share growth.

Key commodities have been secured for the full year of 2018 in line with our purchasing policy but there remains continued pressure on some of the hybrid plastics used within our legacy products which represents c.15% of material costs. Management are continuing to actively monitor and will look to mitigate any further increases as appropriate.

As the majority of transactions are conducted between our corporate office in the Isle of Man and our OEM customers in China, any potential impact from Brexit initiatives is limited. In addition, our consumer base is geographically diverse and we remain confident that our position in the global market limits any dependency on a specific territory. We also trade in a number of different currencies and as a result our exposure in any one single currency is monitored and managed.

The Board is confident with the future outlook and trading remains in line with full year market expectations.

 

 

Mark Bartlett

Chief Executive

19 September 2018

 

 

 

Financial Review

 

 

Adjusted results1

 

Reported results

 

 

H1 2018      £m

H1 2017      £m

Change

%2

 

H1 2018      £m

H1 2017      £m

Change

%2

 

 

 

Revenue

 

42.9

42.2

+1.5%

 

42.9

42.2

+1.5%

Gross profit

 

16.3

15.7

+3.3%

 

16.3

15.7

+3.5%

Distribution costs

 

(2.8)

(3.2)

+12.4%

 

(2.8)

(3.2)

+12.4%

Administrative costs

 

(1.7)

(1.5)

-15.5%

 

(4.1)

(2.4)

-69.9%

Operating profit

 

11.9

11.2

+6.3%

 

9.6

10.3

-7.1%

EBITDA

 

14.8

14.2

+4.3%

 

12.4

13.2

-6.2%

Profit before tax

 

11.0

11.2

-1.9%

 

8.6

10.3

-16.1%

Profit after tax

 

10.6

11.0

-3.5%

 

8.3

10.1

-18.1%

Net cash generated from operating activities

 

15.2

15.4

-0.9%

 

15.2

15.4

-0.9%

 

 

 

 

 

 

 

 

 

1.        Adjusted results exclude exceptional items, which include share-based payment transactions. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

2.        Figures are calculated from the full numbers as presented in the condensed interim consolidated financial statements.

Financial performance

The first six months' volumes increased by 7.6% to 36.8m units (H1 2017: 34.2m units) in comparison to the same period last year.

Revenue grew 1.5% to £42.9m (H1 2017: £42.2m) and reported gross profit increased by 3.5% to £16.3m (H1 2017: £15.7m) as a result of solid trading results across the Group's markets and products. Revenue growth is lower than volume growth due to a change in sales mix compared to H1 2017, including higher sales of Aqua Optima. In addition, foreign exchange rate movements have reduced the Sterling value of the Group's US Dollar revenue. This is partly offset by a reduction in US Dollar costs, demonstrated by the increase in gross profit margin from 37.2% in H1 2017 to 37.9% in H1 2018.

The Group generated an adjusted EBITDA of £14.8m, an increase of 4.3% (H1 2017: £14.2m) and reported EBITDA of £12.4m (H1 2017: £13.2m). Lower reported EBITDA was due to exceptional share-based payment charges of £2.4m (H1 2017: exceptional exit costs of £1.0m). The adjusted EBITDA margin has improved from prior year to 34.5% (H1 2017: 33.6%), whilst reported EBITDA margin has decreased to 28.9% (H1 2017: 31.3%).

Combined depreciation and amortisation at £2.9m (H1 2017: £2.9m) was unchanged. Excluding the impact of share-based payment charges, adjusted operating profit increased by 6.3% to £11.9m (H1 2017: £11.2m). Reported operating profit decreased by 7.1% to £9.6m (H1 2017: £10.3m).

Adjusted profit before tax was £11.0m (H1 2017: £11.2m), a decrease of 1.9% due to there being no interest in H1 2017 as a result of the reorganisation of the Group that took place in August 2017 (H1 2018: net finance costs £0.9m). Reported profit before tax was £8.6m (H1 2017: £10.3m). There was no corporation tax payable on the Group's non-China generated profits as the Isle of Man corporation tax rate was 0%.

Adjusted profit after tax was £10.6m, a decrease of 3.5% on the prior period (H1 2017: £11.0m) as a result of a higher income tax expense in the current period. In H1 2018 taxes have been accrued evenly throughout the 6 month period, whereas in 2017 a higher proportion of the tax charge was accrued at the year end. Reported profit after tax, including a reduction of £1.4m in exceptional costs, was £8.3m (H1 2017: £10.1m).

 

Costs

Cost of sales increased by only 0.4% to £26.6m (H1 2017: £26.5m) despite the 7.6% increase in sales volume, as a result of the Group's commitment to increase automation and reduce manufacturing costs. Distribution costs decreased by 12.4% to £2.8m (H1 2017: £3.2m) as H1 2017 included higher depreciation charges relating to customer tooling assets.

Administration costs (excluding exceptional costs) were £1.7m in H1 2018 against £1.5m in H1 2017. The increase resulted from additional costs incurred in expanding certain Group support functions following Strix's admission to trading on AIM.

The Group awarded a number of one off share options as part of the admission to trading on AIM to incentivise and reward a number of employees. The total share-based payment charge incurred in H1 2018 was £2.4m (H1 2017: nil). Exceptional costs increased by £1.4m in the period compared to H1 2017, which included £1.0m of non-recurring exit related costs.

The Group has undertaken an assessment of potential options to optimise our tax position in China and have concluded that transitioning from the current Contract Processing ('CP') license to an Import Processing ('IP') license is the optimal route to adopt. The IP license model is expected to be effective as of 1 January 2019. Under the IP model, the effective corporate income tax is estimated to be c.4% of PBT in 2019.

Cash flow

The Group achieved an OCF (defined as 'Cash generated from operations' less 'Net cash used in investing activities') to EBITDA ratio of 97.0% (H1 2017: 93.8%) which continues to illustrate the Group's strong cash generation. Net cash generated from operating activities was £15.2m (H1 2017: £15.4m), due to working capital movements.

Total cash outflows on PPE and software were £2.6m (H1 2017: £2.5m), with increased emphasis on automation and investment in new manufacturing lines continuing into 2018.

Balance Sheet

Property, plant and equipment increased to £9.9m (2017: £9.4m), primarily due to further investment in automation. Net intangible assets (comprising capitalised development costs and software) decreased in line with expectations to £4.8m (2017: £5.2m).

Current assets increased slightly to £28.0m (2017: £26.5m). Inventories held at the end of the period increased to £10.1m (2017: £9.2m) due to increased holding to secure supply of raw materials at a fixed price. Trade and other receivables increased to £7.8m (2017: £7.2m).

Current liabilities increased to £19.9m (2017: £17.3m) owing to higher trading activity and increased inventory, which had not all been paid for at the period end.

Net debt

Net debt has decreased since 31 December 2017 to £37.9m (2017: £45.9m) as a result of using surplus funds to make debt repayments, in line with expectations. The Group has in place a revolving credit facility of £55.0m (2017: £70.0m) of which £48.0m (2017: £56.0m) has been drawn down on the facility as at 30 June 2018. The net debt to adjusted EBITDA ratio was 1.1x (2017: 1.3x).

Dividend

The Board is pleased to declare an interim dividend of 2.3p per ordinary share. This interim dividend will be paid on 26 October to shareholders on the Register at the close of business on 28 September. The ordinary shares will become ex-dividend on 27 September. We remain committed to paying a total dividend which will equate to 7.0p per share for the full year. Whilst the consolidated accounts show a retained deficit, significant reserves exist on the balance sheet of the dividend paying entity, Strix Group Plc.

 

 

Raudres Wong

Chief Financial Officer

19 September 2018

 

 

Condensed INTERIM consolidated statement of comprehensive income

for the period ended 30 June 2018 (unaudited)

 

 

Note

(unaudited)

Period

ended

30 June

 2018

£000s

(unaudited)

Period

ended

30 June

 2017

£000s

Revenue

7

42,868

42,216

Cost of sales - before exceptional items

 

(26,600)

(26,475)

Cost of sales - exceptional items

 

-

(23)

Cost of sales

 

(26,600)

(26,498)

Gross profit

 

16,268

15,718

Distribution costs

 

(2,775)

(3,168)

Administrative expenses - before exceptional items

 

(1,721)

(1,490)

Administrative expenses - exceptional items

6

(2,393)

(931)

Administrative expenses

 

(4,114)

(2,421)

Other operating income

 

175

158

Operating profit

 

9,554

10,287

Analysed as:

 

 

 

Adjusted EBITDA1

 

14,802

14,189

Amortisation

8

(1,220)

(1,437)

Depreciation

9

(1,635)

(1,511)

Exceptional items

6

(2,393)

(954)

Operating profit

 

9,554

10,287

Net finance costs

5

(923)

(1)

Profit before taxation

 

8,631

10,286

Income tax expense

 

(378)

(207)

Profit and total comprehensive income for the period

 

8,253

10,079

 

 

 

 

Earnings per share (pence)

 

 

 

Basic

6

4.3

n/a

Diluted

6

4.1

n/a

 

1.     Adjusted EBITDA, which is defined as profit before finance costs, tax, royalty charges, depreciation, amortisation and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.

 

 

Condensed INTERIM consolidated balance sheet

as at 30 June 2018 (unaudited)

 

 

 

 

Note

(unaudited)

30 June

2018

£000s

(audited)

31 December

2017

£000s

Non-current assets

 

 

 

Intangible assets

8

4,823

5,179

Property, plant and equipment

9

9,925

9,378

Total non-current assets

 

14,748

14,557

Current assets

 

 

 

Inventories

10

10,078

9,165

Trade and other receivables

11

7,799

7,195

Cash and cash equivalents

 

10,089

10,111

Total current assets

 

27,966

26,471

Total assets

 

42,714

41,028

Equity and liabilities

 

 

 

Equity

 

 

 

Share capital

 

1,900

1,900

Share-based payment reserve

 

4,435

2,042

Retained (deficit)/earnings

 

(31,763)

(36,406)

Total (deficit)/equity

 

(25,428)

(32,464)

Current liabilities

 

 

 

Trade and other payables

12

18,707

16,164

Current income tax liabilities

12

1,229

1,103

Total current liabilities

 

19,936

17,267

Non-current liabilities

 

 

 

Borrowings

13

48,000

56,000

Post-employment benefits

 

206

225

Total non-current liabilities

 

48,206

56,225

Total liabilities

 

68,142

73,492

Total equity and liabilities

 

42,714

41,028

 

 

 

 

Condensed INTERIM consolidated statement of changes in equity

as at 30 June 2018 (unaudited)

 

(unaudited)

Share

capital

£000s

Share-based payment reserve £000s

Other reserves £000s

Retained earnings/(deficit) £000s

Total

equity/(deficit)

£000s

Balance at 1 January 2017

2

-

1,793

248,499

250,294

Profit and total comprehensive income for the period

-

-

-

10,079

10,079

Balance at 30 June 2017

2

-

1,793

258,578

260,373

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

Balance at 1 January 2018

1,900

2,042

-

(36,406)

(32,464)

Profit for the period

-

-

-

8,253

8,253

Total comprehensive income for the period

-

-

-

8,253

8,253

Transactions with owners recognised directly in equity:

 

 

 

 

 

Dividends paid (note 15)

-

-

-

(3,610)

(3,610)

Share-based payment transactions

-

2,393

-

-

2,393

Total transactions with owners recognised directly in equity

-

2,393

-

(3,610)

(1,217)

Balance at 30 June 2018

1,900

4,435

-

(31,763)

(25,428)

 

 

 

 

 

 

 

 

 

 

Condensed INTERIM consolidated cash flow statement

for the half year ended 30 June 2018 (unaudited)

 

Note

(unaudited)

Half year

ended

30 June

 2018

£000s

(unaudited)

Half year

ended

30 June

2017

£000s

Cash flows from operating activities

 

 

Cash generated from operations                                                                      16

15,490

15,714

Tax paid

(253)

(337)

Net cash generated from operating activities

15,237

15,377

 

 

 

Cash flows from investing activities

 

 

Purchase of property, plant and equipment                                                   9

(2,588)

(2,312)

Capitalised development costs                                                                         8

(852)

(810)

Purchase of software                                                                                           8

(12)

(178)

Proceeds on sale of property, plant and equipment

1

1

Net cash used in investing activities

(3,451)

(3,299)

 

 

 

Cash flows from financing activities

 

 

Payments to former group company related parties

-

(9,342)

Repayment of borrowings                                                                                   13

(8,000)

-

Finance costs paid                                                                                               5

(299)

-

Finance income                                                                                                    5

7

1

Dividends paid                                                                                                     15

(3,610)

-

Net cash used in financing activities

(11,902)

(9,341)

 

 

 

Net (decrease)/increase in cash and cash equivalents

(116)

2,737

Cash and cash equivalents at the beginning of the period

10,111

10,959

Effects of foreign exchange on cash and cash equivalents

94

(149)

Cash and cash equivalents at the end of the period

10,089

13,547

 

 

 

 

 

Notes to the condensed INTERIM cONSOLIDATED financial statements

for the half year ended 30 June 2018 (unaudited)

 

1. General information

Strix Group Plc ("the Company") was incorporated and registered in the Isle of Man on 12 July 2017 as a company limited by shares under the Isle of Man Companies Act 2006 with the name Steam Plc and with the registered number 014963V. The Company changed its name to Strix Group Plc on 24 July 2017. The address of its registered office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG.

The Company's shares were admitted to trading on AIM, a market operated by the London Stock Exchange on 8 August 2017.

These condensed interim consolidated financial statements ('interim financial statements') were approved for issue on 19 September 2018. The interim report will be available 19 September on the Group's website www.strixplc.com and from the registered office. These interim financial statements are unaudited.

2. Principle accounting policies

The Group's principle accounting policies, all of which have been applied consistently to all of the periods presented, are set out below.

Basis of preparation

The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Standards Interpretation Committee ('IFRS IC') as adopted by the European Union. These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. However, explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2017. These interim financial statements should be read in conjunction with the last annual consolidated financial statements as at and for the year ended 31 December 2017.

The Group interim financial statements for the comparative period were prepared under the capital reorganisation accounting principles because the transaction under which the Company became the holding company of Sula Limited ('Sula' and the 'Sula Group') was a group reorganisation with no change in the ultimate ownership of the Sula Group. All the shareholdings in Sula were exchanged via a share-for-share transfer on 8 August 2017. The Company did not actively trade at that time.

The result of the application of the group reorganisation was to present the comparative interim period as though the Company had always owned the Sula Group.

Accounting policies

The interim financial statements have been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts for the year ended 31 December 2017, which is available at www.strixplc.com.

The Group has adopted IFRS 15 in the period to 30 June 2018, as described in further detail below. The Group has not adopted any other accounting policies in the period to 30 June 2018. Other amendments to IFRSs effective for the financial period ended 30 June 2018 have not had a material impact on the Group.

    IFRS 9 'Financial instruments'

IFRS 9 was effective for Strix Group plc from 1 January 2018. It is applicable to financial assets and financial liabilities and covers the classification, measurement, impairment and de-recognition of financial assets and liabilities together with a new hedge accounting model. Given the nature of the Group's operations, IFRS 9 has not had a material impact.

 

 

IFRS 15 'Revenue'

IFRS 15 was effective for Strix Group Plc from 1 January 2018. IFRS 15 sets out the requirements for recognising revenue and costs from contracts with customers and includes extensive disclosure requirements. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relatively stand-alone selling price basis, based on a five-step model.

Having completed a review of our contracts, a small portion of contracts, making up less than 1% of Group revenue, were re-documented and re-issued in order to continue to apply our historic accounting treatment under IFRS 15. There were no other material impacts of applying IFRS 15.

Going concern

These interim financial statements have been prepared on the going concern basis.

The Directors acknowledge that the Group is in a net liability position, as a consequence of the group reorganisation and admission to AIM which occurred during 2017, and the distribution made to the former shareholders. As a consequence, the Directors have made additional enquiries to assess the appropriateness of continuing to adopt the going concern basis. In making this assessment they have considered:

·      the strong historic trading performance of the Company and the Group;

·      budgets and cash flow forecasts for the period to December 2019;

·      the current financial position of the Group, including its cash and cash equivalents balances of £10.1m;

·      the availability of further funding should this be required (including the headroom on the revolving credit facility and the access to the AIM market afforded by the admission to AIM);

·      the low liquidity risk the Group is exposed to; and

·      the fact the Group operates within a sector that is experiencing relatively stable demand for its products.

Based on these considerations, the Directors have concluded that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial statements.

Standards, amendments and interpretations which are not effective or early adopted:

At the date of approval of the interim financial statements, the following new standards and interpretations which are relevant to the Group but have not been applied were in issue but not yet effective:

§ IFRS 16 - Leases (effective 1 January 2019)

     IFRS 16 'Leases'

IFRS 16 was published in January 2016 and will be effective for Strix Group Plc from 1 January 2019, replacing IAS 17 'Leases'. The Group does not expect to early-adopt the standard and so transition to IFRS 16 will take place on 1 January 2019. Results in the 2019 financial year will be IFRS 16 compliant, with the first Annual report published in accordance with IFRS 16 being the 31 December 2019 report.

The standard requires lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less, or the underlying asset is of low value. The Group has performed an analysis of the expected impact of IFRS 16 during the period and is in the process of determining which transition method to apply. The Group expects the following indicative impacts in FY2019 based on the current lease agreements in place (which may be subject to change):

·      Tangible assets will increase by c.£1.9m, representing the future right to use leased assets, primarily relating to land and buildings in Ronaldsway (Isle of Man) and Ramsey (Isle of Man).

·      Borrowings will increase by c.£2.1m, representing the obligation to make future lease payments - this will also have an impact on the Group's gearing ratios.

·      Depreciation will increase by c.£0.4m and net finance costs will increase by c.£0.1m, representing depreciation on the right-of-use assets and interest charges on the lease liabilities. These charges will replace existing IAS 17 lease costs, which are projected to have totalled c.£0.5m in FY2019.

Applying IFRS 16 will require the Group to make key accounting judgements, in particular around the likelihood of lease renewals. Details of existing operating lease commitments are set out in note 14.

EBITDA and adjusted EBITDA - non-GAAP performance measures

Earnings before Interest, Taxation, Depreciation and Amortisation ('EBITDA') and adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, taxation, depreciation and amortisation. Exceptional items are excluded from EBITDA to calculate adjusted EBITDA.

The Directors primarily use the adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

Seasonality of operations

The Group's revenue and profit after tax is subject to a degree of seasonality due primarily to the occurrence of the Chinese New Year public holiday during the first half of the year ('H1'), when the Group's major customers and suppliers based in China cease operations for a period. In the financial year ended 31 December 2017, 46.3% of the Group's revenue and 40.9% of the Group's profit after tax accumulated in H1.

3. Critical accounting judgements and estimates

The preparation of these interim financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. 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.

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those that applied to the Group's Annual Report and Accounts for the year ended 31 December 2017.

4. Segmental reporting

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'. The Group's activities consist of the design, manufacture and sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters, primarily to OEMs based in China. It is managed as one entity and management have consequently determined that there is only one operating segment.

Products and services

Revenue is generated by the Group on the sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters. The information used to prepare the interim financial statements is not disaggregated into distinct products and services.

Geographical

A geographical analysis of revenue from external customers has not been presented, as the OEMs to whom sales are made are primarily based in China.

 

 

5. Net finance costs

 

Half year

ended

30 June

 2018

£000s

Half year

ended

30 June

2017

£000s

Letter of credit charges

31

-

Pension scheme interest

1

3

Borrowing costs

898

-

Finance expense

930

3

Interest income

(7)

(2)

Net finance costs

923

1

Further information about the Group's borrowings is provided in note 13.

6. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data. No earnings per share figure can be calculated for the 6 months to 30 June 2017, when a different capital structure was in place.

 

Half year

ended

30 June

2018

Earnings (£000s)

 

Earnings for the purpose of basic and diluted earnings per share

8,253

Number of shares (000s)

 

Weighted average number of shares for the purposes of basic earnings per share

190,000

Weighted average dilutive effect of conditional share awards

9,170

Weighted average number of shares for the purposes of diluted earnings per share

199,170

Earnings per ordinary share (pence)

 

Basic earnings per ordinary share

4.3

Diluted earnings per ordinary share

4.1

Adjusted earnings per ordinary share (pence) 1

 

Basic adjusted earnings per ordinary share

5.6

Diluted adjusted earnings per ordinary share

5.3

 

The calculation of basic and diluted adjusted earnings per share is based on the following data:

 

Half year

ended

30 June

2018

£000s

Profit for the year

8,253

Add back:

 

Share-based payment transactions

2,393

Adjusted earnings 1

10,646

 

1. Adjusted results exclude exceptional items, including share-based payments. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted earnings per share.

 

7. REVENUE

The following table shows a disaggregation of revenue into categories by product line:

 

Half year

ended

30 June

 2018

£000s

Half year

ended

30 June

2017

£000s

Kettle controls

37,525

38,236

Aqua Optima

3,723

1,984

Other

1,620

1,996

Total revenue

42,868

42,216

 

8. Intangible assets

 

30 June 2018

30 June 2017

 

 

Development costs

Software

Total

Development costs

Software

Total

 

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January

 

 

 

 

 

 

Cost

12,716

511

13,227

13,254

220

13,474

Accumulated amortisation and impairment

(7,877)

(171)

(8,048)

(7,030)

(64)

(7,094)

Net book value

4,839

340

5,179

6,224

156

6,380

 

 

 

 

 

 

 

Half year ended 30 June

 

 

 

 

 

 

Additions

852

12

864

810

178

988

Amortisation charges

(1,142)

(78)

(1,220)

(1,398)

(39)

(1,437)

4,549

274

4,823

5,636

295

5,931

 

 

 

 

 

 

 

At 30 June

 

 

 

 

 

 

Cost

13,568

523

14,091

14,063

399

14,462

Accumulated amortisation and impairment

(9,019)

(249)

(9,268)

(8,427)

(104)

(8,531)

Net book value

4,549

274

4,823

5,636

295

5,931

               

All amortisation charges have been treated as an expense, and charged to cost of sales in the condensed interim consolidated statement of comprehensive income. There were no reversals of prior year impairments during the year (H1 2017: same).

9. Property, plant and equipment

 

30 June 2018

 

 

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Production tools

Assets under construction

Total

 

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January

 

 

 

 

 

 

Cost

19,440

5,037

104

13,678

1,668

39,927

Accumulated depreciation

(14,552)

(4,078)

(35)

(11,884)

-

(30,549)

Net book value

4,888

959

69

1,794

1,668

9,378

 

 

 

 

 

 

 

Half year ended 30 June

 

 

 

 

 

 

Additions

-

394

-

-

1,788

2,182

Transfers

1,184

10

-

427

(1,621)

-

Depreciation charge

(743)

(252)

(8)

(632)

-

(1,635)

Closing net book value

5,329

1,111

61

1,589

1,835

9,925

 

 

 

 

 

 

 

At 30 June

 

 

 

 

 

 

Cost

20,625

5,440

104

14,105

1,835

42,109

Accumulated depreciation

(15,296)

(4,329)

(43)

(12,516)

-

(32,184)

Net book value

5,329

1,111

61

1,589

1,835

9,925

                 

Depreciation charges are allocated to cost of sales (£1,197,000), distribution costs (£361,000), and administrative expenses (£77,000) in the condensed interim consolidated statement of comprehensive income.

 

 

9. Property, plant and equipment (CONTINUED)

 

30 June 2017

 

 

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Production tools

Assets under construction

Total

 

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January

 

 

 

 

 

 

Cost

18,056

4,209

60

14,333

1,074

37,732

Accumulated depreciation

(14,023)

(3,802)

(45)

(11,943)

-

(29,813)

Net book value

4,033

407

15

2,390

1,074

7,919

 

 

 

 

 

 

 

Half year ended 30 June

 

 

 

 

 

 

Additions

-

417

50

-

1,742

2,209

Transfers

951

35

(6)

373

(1,353)

-

Depreciation charge

(478)

(186)

(3)

(844)

-

(1,511)

Closing net book value

4,506

673

56

1,919

1,463

8,617

 

 

 

 

 

 

 

At 30 June

 

 

 

 

 

 

Cost

19,007

4,661

104

14,706

1,463

39,941

Accumulated depreciation

(14,501)

(3,988)

(48)

(12,787)

-

(31,324)

Net book value

4,506

673

56

1,919

1,463

8,617

                 

Depreciation charges are allocated to cost of sales (£805,000), distribution costs (£653,000), and administrative expenses (£53,000) in the condensed interim consolidated statement of comprehensive income.

10. Inventories

 

30 June

 2018

£000s

31 December

2017

£000s

Raw materials and consumables

6,225

4,791

Finished goods and goods in transit

3,853

4,374

 

10,078

9,165

The cost of inventories recognised as an expense and included in cost of sales amounted to £15,780,976 (H1 2017: £15,705,974). The charge for impaired inventories was £119,000 (H1 2017: £394,000). There were no reversals of previous write-downs.

 

 

11. Trade and other receivables

 

30 June

2018

£000s

31 December 2017

£000s

Amounts falling due within one year:

 

 

Trade receivables not past due

4,741

3,774

Trade receivables past due

-

84

Trade receivables past due and impaired

-

-

Trade receivables - net

4,741

3,858

Prepayments

1,028

1,192

Advance purchase of commodities

1,044

1,340

Other receivables

986

805

 

7,799

7,195

Trade and other receivables are all current and any fair value difference is not material.

The advance purchase of commodities relates to a payment in advance to secure the purchase of certain key commodities at an agreed price to mitigate the commodity price risk.

Other receivables includes government grants due of £174,000 (2017: £338,000). There were no unfulfilled conditions in relation to these grants at the period end, although if the Group ceases to operate or leaves the Isle of Man within 10 years from the date of the last grant payment, funds may be reclaimed.

12. Trade and other payables

 

30 June

2018

£000s

31 December 2017

£000s

Trade payables

6,779

5,026

Current income tax liabilities

1,229

1,103

Social security and other taxes

60

191

Other liabilities

7,022

6,717

Accrued expenses

4,846

4,230

 

19,936

17,267

 

The fair value of financial liabilities approximates their carrying value due to short maturities.

 

 

13. Borrowings

 

30 June

2018

£000s

31 December 2017

£000s

Non-current bank loans

48,000

56,000

Term and debt repayment schedule

 

Currency

Interest rate

Maturity date

30 June 2018 carrying value (£000s)

Revolving credit facility

GBP

LIBOR +

1.50% - 2.50%

27 July 2022

48,000

On 27 July 2017, the Company entered into an agreement with The Royal Bank of Scotland Plc (as agent), and the Royal Bank of Scotland International Limited and HSBC Bank Plc (as original lenders) in respect of a revolving credit facility of £70,000,000.

The proceeds of the first drawdown of £60,774,000 were used to (among other things) repay previously existing banking facilities prior to the group reorganisation and admission to trading on AIM, to pay fees, costs and expenses in relation to the process and to fund the distribution paid to former group company related parties. Additional amounts may be drawn under the agreement for financing working capital and for general corporate purposes of the Group.

All amounts become immediately repayable and undrawn amounts cease to be available for drawdown in the event of a third party gaining control of the Company. The Company and its subsidiaries, Strix Limited and Sula Limited, have entered into the agreement as guarantors, guaranteeing the obligations of the borrowers under the agreement.

The agreement contains representations and warranties which are usual for an agreement of this nature. The agreement also provides for the payment of a commitment fee, agency fee and arrangement fee, contains certain undertakings, guarantees and covenants (including financial covenants) and provides for certain events of default. During the half year to 30 June 2018, the Group has not breached any of the financial covenants contained within the agreement.

On 30 June 2018, the total facility available reduced by £5,000,000, and will continue to reduce by a further £2,000,000 every 6 months thereafter. The Group voluntarily cancelled £10,000,000 of the facility on 19 June 2018.

Interest applied to the loan is calculated as the sum of the margin and LIBOR (or EURIBOR for any loan denominated in Euros). The margin is a calculated based on the Group's leverage as follows:

Leverage

Annualised margin %

Greater than or equal to 2.0x

2.5%

Less than 2.0x but greater than or equal to 1.5x

2.2%

Less than 1.5x but greater than or equal to 1.0x

2.0%

Less than 1.0x

1.5%

The Group's only other interest-bearing borrowing is a finance lease liability which is not considered material for separate disclosure.

 

 

14. Commitments

(a) Capital commitments

 

30 June

2018

£000s

31 December

2017

£000s

Contracted for but not provided in the interim financial statements - Property, plant and equipment

2,161

1,010

(b) Operating lease commitments

The Group leases various offices, warehouses and factories under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years and have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are generally renegotiated at the prevailing market rate.

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

 

30 June

2018

£000s

31 December

2017

£000s

Within 1 year

832

1,037

Later than 1 year and less than 5 years

1,651

1,870

After 5 years

922

1,031

                                                

3,405

3,938

15. Dividends

The following amounts were recognised as distributions in the period:

 

Half year ended

30 June 2018

£000s

Half year ended

30 June 2017

£000s

Final 2017 dividend of 1.9p per share (H1 2017: nil)

3,610

-

Total dividends recognised in the half year

3,610

-

In addition to the above dividend, since the end of the period the Directors have approved the payment of an interim dividend of 2.3p per share. The aggregate amount of the interim dividend expected to be paid on 26 October 2018 out of retained earnings at 30 June 2018, but not recognised as a liability at the period end, is £4,370,000. The payment of this dividend will not have any tax consequences for the Group.

 

 

16. Cash flow statement notes

a) Cash generated from operations

 

Note

Half year ended

30 June

 2018

£000s

Half year

ended

30 June

 2017

£000s

Cash flows from operating activities

 

 

Operating profit

9,554

10,287

Adjustments for:

 

 

Depreciation of property, plant and equipment                                          9

1,635

1,511

Amortisation of intangible assets                                                                  8

1,220

1,437

Profit on disposal of property, plant and equipment

(1)

(2)

Pension contributions made

(19)

(19)

Movement in derivative financial instruments

-

(42)

Share based payment transactions                                                                

2,393

-

Net exchange differences

109

99

 

14,891

13,271

Changes in working capital:

 

 

Increase in inventories

(981)

(607)

(Increase)/decrease in trade and other receivables

(753)

338

Increase in trade and other payables

2,333

2,712

Cash generated from operations

15,490

15,714

 

b) Movement in net debt

 

 

 

 

Non-cash movements

 

 

At 1 January 2018

Cash flows

Currency movements

At 30 June 2018

 

£000s

£000s

£000s

£000s

Non-current borrowings

(56,000)

8,000

-

(48,000)

Total liabilities from financing activities

(56,000)

8,000

-

(48,000)

Cash and cash equivalents

10,111

(116)

94

10,089

Net debt

(45,889)

7,884

94

(37,911)

                 
 

 

17. RELATED PARTY TRANSACTIONS

Key management compensation

The following table details the aggregate compensation paid in respect of key management, which includes the Directors and the members of the Trading Board, representing members of the senior management team from all key departments of the Group, from the date of admission to trading on AIM. Prior to admission to trading on AIM, key management was considered to be the Executive Committee, including the Directors.

 

Half year ended

30 June

 2018

£000s

Half year

ended

30 June

 2017

£000s

Salaries and other short-term employment benefits

1,105

903

Post-employment benefits

162

73

Share-based payment transactions

1,988

-

 

3,255

976

There are no defined benefit schemes for key management.

18. Post balance sheet events

Liquidation of Strix Far East Limited

On 21 August 2018, Strix Far East Limited was liquidated. This transaction had no material impact on the interim financial 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 [email protected] or visit www.rns.com.
 
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