21 September 2023

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR

 

Strix Group Plc

 

("Strix", the "Group" or the "Company")

 

Interim results for the six months ended 30 June 2023

Financial Summary¹

	H1 2023	H1 2022	Change (23 - 22)
	£m	£m	%4
Revenue	65.2	50.7	+28.6%
Gross profit	23.9	19.5	+22.6%
EBITDA2	15.6	15.9	-1.9%
Operating profit	11.8	12.9	-8.5%
Profit before tax	6.8	11.6	-41.4%
Profit after tax	5.7	11.6	-50.9%
Net debt3	93.1	61.3	+51.9%
Net cash generated from operating activities	13.1	9.9	+32.3%
Basic earnings per share (pence)	2.6	5.6	-53.6%
Diluted earnings per share (pence)	2.6	5.5	-52.7%
Interim dividend per share (pence)	0.9	2.75	-67.3%

1.        Adjusted results exclude adjusting items, which include share-based payment transactions, COVID-19 related costs, and other reorganisation and strategic project costs. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure. A table which shows both Adjusted and Reported results is included in the Chief Financial Officer's review.

2.        EBITDA, which is defined as earnings before finance costs, tax, depreciation and amortisation, is a non-GAAP metric used by management and is not an IFRS disclosure.

3.        Net debt excludes the impact of IFRS 16 lease liabilities, pension liabilities, deferred tax liabilities and earn-out provisions on satisfaction of performance conditions and providing post-combination services.

4.        Figures are calculated from the full numbers as presented in the consolidated financial statements.

Financial Highlights

 

•     •	The Group reported revenue of £65.2m, an increase of 28.6% versus the same period in prior year mainly as a result of the first time inclusion of Billi revenues of £21.5m which helped to fully offset a reduction in organic sales, particularly in kettle controls. Adjusted EBITDA was £15.6m, a decrease of 1.9% versus the same period in prior year.
•	Adjusted PAT was £5.7m, a decrease of 50.9% versus the same period in prior year (£11.9m) mainly attributable to interest and finance fee costs due to an increase in the net debt to fund the Billi acquisition and a higher interest rates environment.
•	Net debt increased to £93.1m (FY 2022: £87.4m) due to the strategic acquisition of Billi. This represents a net debt/adjusted EBITDA ratio (calculated on a trailing twelve-month basis) of 2.66x.
•     •	Basic earnings per share and adjusted diluted earnings per share were 2.6p (2022: 5.6p) and 2.6p (2021: 5.5p) respectively. Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Board continues to take precautions to balance the capital allocation priorities and as a result the Board is declaring an interim dividend of 0.9p per share (HY 2022: 2.75p).

 

Strategic Highlights

 

•     •

Transformational acquisition of Billi which has a successful history of growth, with double digit revenue CAGR over the past five years and is highly cash generative, delivering historic cash conversion of c.88%. Group Strategic Business Objectives ("SBO's") to be delivered by the end of FY 2026. New divisional reporting structure to better position the Group in delivering on its New SBO's: ·    Group revenue from £107m to £206m and Group gross profit from £42m to £80m by end of 2026. ·    Kettle controls - profitably grow Control revenue from £68m to £88m by 2026, delivering a gross profit in excess of 40% through the introduction of innovative new products focused on sustainability, safety and convenience. ·    Billi - leverage the new product development and expand the geographical distribution in both residential and commercial markets to deliver £58m of revenue with a gross profit in excess of 45% by 2026. ·    Consumer Goods - Grow consumer goods business beyond market growth through innovation, world class sourcing and commercial excellence, delivering revenue of £60m and gross profit in excess of 30%.

 

Operational Highlights

 

•    •   •   •   •     •   •

Acquisition of Billi continues to be successfully integrated in line with plan to achieve the identified operational benefits, as the business opens up new sales channels for Strix. Direct labour efficiency improved by 3.5% in H1 2023 against H1 2022 and indirect labour efficiency improved by 11% via various lean approaches. Quality performance of customer returns improved by 19% and product built on the automation lines remained at zero return. Surveillance audits to ISO 9001:2015, ISO 14001:2015, & ISO 45001:2018 have been passed with outstanding rating for all the areas. Added a new line in the Vicenza, Italy facility to deliver an anti-bacterial filter, replacing a third party sourced product and completing 100% in-sourcing of all water filter products in the range. Pipeline of new product launches through 2023 including an integrated tap in Billi, the digital water filter kettle and Aurora coffee appliance. Perfect Pour jug has been awarded the Highly Commended accolade in the Sustainability category by Housewares Magazine.

 

Mark Bartlett, Chief Executive Officer of Strix Group plc, said:

 

"The continued macro headwinds have resulted in a reduction in demand in kettle controls in the key export regulated markets of UK and Germany during H1 and a slower than anticipated recovery. Whilst recent order rates are tracking in a positive direction, we now anticipate the path to a return of normalised growth to take longer and for there to be a decrease in the short term revenues within this category. The Group's second half of the year is always stronger than the first and weighted to Q4 driven by the replenishment of stock and normal seasonal uplift, the performance required in Q4 to achieve the full year outcome is lower than in 2022 and 2021.

 

"Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Board continues to take precautions to balance the capital allocation priorities. To be prudent, the Board has decided to prioritise the reduction of debt with a clear plan to net debt / EBITDA to below 1.5x over the medium term.

 

"Despite the short term headwinds, Strix is also announcing Strategic Business Objectives which will deliver group revenue of £206m and gross profit of £80m by the end of FY 2026 reflecting the attractiveness of the underlying markets that it operates within."

 

CEO's report: 

 

Financial performance

 

The Group reported revenue of £65.2m, an increase of 28.6% versus the same period in prior year mainly as a result of the first time inclusion of Billi revenues which helped to fully offset a reduction in organic sales, particularly with the kettle controls category.

 

Adjusted gross profit increased by 22.6% to £23.9m (H1 2022: £19.5m), in line with increased revenues as described above. This increase is mainly attributable to the Billi inclusion of £10.0m, and also slightly from the water category, however partially offset by a decrease in adjusted gross profits for kettle controls of £4.3m (28.6% decrease) and marginally by appliances category.

 

Adjusted gross profit margin in H1 2023 was 36.7% (H1 2022: 38.4%), showing a margin dilution of 1.7% compared to same period last year. This dilution is mainly due to the under-absorption of fixed manufacturing overhead costs as production volume has reduced to align to the softening of sales volume.  Costs optimisation evaluation and measures are in place to ensure skilled labour is maintained for medium term recovery, while streamlining non-critical spending to adopt a balanced approach to manage this softening in the H1 period. This decline was partially offset by the addition of Billi which made a positive contribution to margins, decreases in commodity prices, and a positive impact from the LAICA sub-group consumer goods.

 

Adjusted profit before tax was £6.8m (H1 2022: £11.6m), a decrease of £4.8m (41.4% decrease) compared to the same period last year. This is attributable mainly to interest and finance fee costs which had an adverse variance in the current H1 period of £3.7m compared to the same period last year due to an increase in the net debt to fund the Billi acquisition and a higher interest rates environment.

 

Adjusted profit after tax was £5.7m (H1 2022: £11.6m), a £5.9m adverse variance compared to the same period last year. Tax expense for the current period was £1.1m, primarily relating to the tax liability from Billi of £0.8m recognised in the Group being the first year of acquisition. The balance of £0.3m relates to tax expense in the organic business.

 

As anticipated, the Group's net debt increased to £93.1m (FY 2022: £87.4m). This represents a net debt/adjusted EBITDA ratio (calculated on a trailing twelve-month basis) of 2.66x which complies with the Company's debt covenant threshold of 2.75 times.

 

Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Board continues to take precautions to balance the capital allocation priorities. To be prudent, the Board has decided to prioritise the reduction of debt for the rest of the current year with a clear plan to reduce net debt / EBITDA to below 1.5x over the medium term. The Board is therefore declaring an interim dividend in FY 2023 of 0.9p per share (HY 2022: 2.75p).

 

New divisional reporting structure

 

To better position the Group in delivering on its new Strategic Business Objectives, Strix has established a new divisional reporting structure to capitalise on attractive growth opportunities in its end markets during this next phase of growth.

 

Three divisions have been identified from a product perspective, namely: kettle controls, premium filtration systems (primarily Billi products), and consumer goods (made up of water products and appliances).

 

Kettle control category

 

The kettle controls revenue decreased by 17.2% to £28.9m (H1 2022: £34.8m).

 

In line with international government sanctions, Strix's key global brands remain exited from Russia (a significant market) and Strix also stopped trading directly with Russian brands. It is worth noting that excluding the affected regions, Strix's market share in Kettle Controls remained at c. 56%.

 

The kettle market has experienced continued macro headwinds which have resulted in a reduction in demand in the key export regulated markets of UK and Germany during H1 and a slower than anticipated recovery.

 

Whilst recent order rates are tracking in a positive direction, evident from an increase in sales in Q2, this remains in smaller quantities than expected as customers continue to manage their cash balances prudently in key regulated export markets. Strix now anticipates the path to a return of normalised growth to take longer and for there to be a decrease in the short term revenues within this category.

 

Strix has also continued to focus product development on opportunities and design improvements in a sustainable way to reduce the overall manufactured product footprint that will further strengthen Strix's position and support its market share aspirations.

 

Overview of strategic rationale of the acquisition of Billi

 

Billi has a successful history of growth, with double digit revenue CAGR over the past five years and is highly cash generative, delivering cash conversion of c.88%.

 

The acquisition materially changes the earnings profile of the Group. It adds well developed and premium products in the high growth and strategically important hot tap market and increases Strix's position and portfolio of water dispenser systems. The Board expects Strix's existing technology, resource and expertise can be used to further enhance Billi's new product development roadmap.

 

Efficiencies were identified across Billi's product lifecycle and will be enhanced utilising Strix's Chinese operation to improve procurement, insourcing of certain key parts, and consolidation of the marketing group.

 

There are also opportunities for further organic growth. These include residential sales, new product development particularly in sparkling, internationalising Billi's revenue stream through Strix's global footprint, cross selling Strix products into commercial applications and growing aftermarket sales.

 

Progress since completion of Billi

 

The acquisition of Billi continues to be successfully integrated in line with plan to achieve the identified operational benefits, as the business opened up new sales channels for Strix.

 

New flagship OmniOne product (offering boiling, chilled and sparkling water for commercial and residential applications) was successfully launched in Q2. This will be a major opportunity for all markets and an order has already been secured and fulfilled from one of Australia's largest listed companies.

 

Strong progress has been made at Billi UK to exit the Transitional Services Agreement ("TSA") on time on 31 August 2023. Australian TSA with Culligan exited on time and without incident on 31 May 2023. Good progress has also been made with new sites identified as Strix procures smaller storage locations in New South Wales, Western Australia and South Australia and the New Showroom in London (Farringdon) has been opened. The head office in Wolverhampton has already been established and Strix continues to integrate Strix and Billi employees during Q4.

 

Distributors in Singapore, Hong Kong and China have been re-signed and new distributors in the UAE and Qatar have been secured.

 

Consumer goods division

Overall, the consumer goods division reported a decline in revenue of 6.3% to £14.9m in H1 2023 (H1 2022: £15.9m), driven primarily by softening of the appliances category market, however partially offset by improved water category revenues.

 

Despite a decline in appliance sales, Strix's Aqua Optima brand showed resilience as the Group continues to explore opportunities through geographical expansion, with continued expansion across Europe and North America, Strix/LAICA cross selling, and new innovative product launches.

 

Other notable achievements included:-

·    Aqua Optima Aurora Hot and Cold Water Dispenser has been granted the Highly Commended award in the Best Smart Innovation - Small Domestic Appliances category at the prestigious Innovative Electrical Retailing (IER) Awards.

·    Perfect Pour jug has been awarded the Highly Commended accolade in the Sustainability category by Housewares Magazine. This prestigious recognition is a testament to our dedication to promoting sustainable living and reducing single-use plastic waste.

·    Successful launch of Strix innovations under the LAICA brand with the launch of the Dual Flo range. This newly launched product utilises superior, energy efficient technology and is believed to be the only combined kettle and one cup hot water dispenser. ·    On boarded three new online market place launches as the Group continues to expand its online presence which has seen the number of marketplace shipments across the Group double in H1 2023. ·    LAICA Water Filter Variable Temperature Kettle and Ultrasonic Humidifier all successfully launched.

 

Overall, the water category reported a growth in revenue of 2.3% to £10.5m in H1 2023 (H1 2022: £10.3m).

 

Both Aqua Optima & LAICA water brands have seen growth year on year due to initial geographical expansion via Amazon sales outperforming the private label business.

 

Strix now manufactures the majority of its filters in house in two locations freeing the Group from 3^rd party risk, whilst allowing a new level of flexibility to offer our customers.

  

Key growth initiatives for the category will be geographic expansion (cross selling existing LAICA & Aqua Optima products into new territories), coffee filtration expertise and using private label water supply as a way to open doors into large retailers for other categories.

 

Strategic Business Objectives (SBOs)

 

Alongside the interim results, Strix is announcing Strategic Business Objectives ("SBO's") to be delivered by the end of FY 2026.

 

In summary:-

·    Group revenue from £107m to £206m and Group gross profit from £42m to £80m by end of FY 2026.

·    Kettle controls - profitably grow Control revenue from £68m to £88m by 2026, delivering a gross profit in excess of 40% through the introduction of innovative new products focused on sustainability, safety and convenience.

·    Billi - leverage the new product development and expand the geographical distribution in both residential and commercial markets to deliver £58m of revenue with a gross profit in excess of 45% by 2026.

·    Consumer Goods - grow consumer goods business beyond market growth through innovation, world class sourcing and commercial excellence, delivering revenue of £60m and gross profit in excess of 30%.

·    Geographical Expansion - Become a true global presence with a market leading position in our chosen fields of SDA, Water Filtration and multi-functional hot tap solutions - EMEA, APAC, NAM & LATAM.

·    Talent and Skills - Right People, Right place, Right Skills, motivated and engaged to deliver strategic objectives.

·    Technology - Develop the leading, innovative technology in the fields of water heating, safety control systems and water treatment of drinking water to support the business growth.

 

The Strix management will host a capital markets day after the interim results analyst presentation to provide more context.

 

Barriers to entry and defence of intellectual property

 

Strix constantly assesses the risks posed by competitive threats which drives its determination to constantly evolve its innovative technologies in a sustainable way by investing in its portfolio of intellectual property to protect its new products.

 

The Group actively monitors the markets in which it operates for violation of its intellectual property rights. Strix has unique relationships with its brands, OEMs and retailers and provides its support across the value chain and throughout the product lifecycle, including product design and advice on specification and manufacturing solutions. These value-added services and existing strong relationships ensure brands, OEMs and retailers continue to rely on Strix's components and support.

 

Strix remains committed to consumer safety and continues to prompt regulatory enforcement authorities to remove unsafe and poor quality products from its major markets. Nine such actions were undertaken in 2021 resulting in product recalls and withdrawal of kettles from Bulgaria. Defence of intellectual property and regulatory enforcement remain core activities of its business and there have now been 66 in total since 2017 until the end of 2021, with 4 further regulatory and 3 intellectual property actions conducted in 2022.

 

Sustainability

 

Strix core products are associated with the consumption of critical resources, primarily electricity and water, hence Strix's drive for continual improvement has aligned it with a sustainability led agenda. Recent years have seen an increase in the emphasis and broadening of the scope of its sustainability agenda. This was highlighted by the adoption of a wide range of KPIs and associated targets in 2021.

 

One of the most challenging and differentiating goals was to achieve Scope 1&2 net zero by 2023. Key elements have been put in place with long term renewable power contracts for all key facilities and head office along with investment in solar capacity. Indeed, Strix now expects its own renewable sources to generate around 10% of the Group's total energy requirements. As a consequence, the Group started 2023 in-line with its net zero agenda. This is increasingly important as its customers look to assess their own emissions footprint, of which Strix forms part of their Scope 3 inventory. Strix's position as a leader in low emissions therefore offers a potential commercial advantage over its competition. Efforts are being expanded into analysing its own Scope 3 inventory in 2023 to fully embrace its extended emissions chain. This leads to additional constructive conversation with suppliers and customers including re-assessment of operational and supply chain practices. The Group's sustainability agenda is sympathetic to changing consumer trends and hence is key for driving the roadmap and pace of new product development.

 

The Group's sustainability strategy and adopted KPIs are generating greater emphasis and efforts on a broad range of aspects. Employee training has been a focus with significant increase in training hours assisted by adoption of a more structured approach, including Kallidus e-learning system and a new training management structure in China. Health & Safety continues to be a top priority with the three year average trend continuing in a positive direction. The Company values its employees and their contribution and looks to develop their wellbeing reflected in improved facilities offered by the new Chinese facility, whilst the West has seen changes in the working week, which has also increased holiday entitlement, and the introduction of two charity days a year.

 

Strix's sustainability agenda for 2023 remains high on the agenda as it delivers on its Scope 1&2 targets, analyses its Scope 3 emissions and continues to focus on its other KPIs. The pace and delivery of these goals reflects the strong employee ethos and commitment to the agenda.  

 

Dividend policy

 

Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Board continues to take precautions to balance the capital allocation priorities. To be prudent, the Board has decided to prioritise the reduction of debt for the rest of the current year.

 

Therefore, the Board is declaring an interim dividend in FY 2023 of 0.9p per share (HY 2022: 2.75p).

 

The interim dividend will be paid on 29 December 2023 to shareholders on the register on 17 November 2023 and the shares will trade ex-dividend from 16 November 2023. 

 

Going forward the Group will implement a payout ratio of 30% of adjusted profit after tax which will enable sustainable returns to be delivered to our shareholders. Over the medium term, Strix has a clear plan to reduce net debt / EBITDA to below 1.5x and will then have the ability to return excess capital to shareholders subject to their future requirements and the prevailing macro environment.

 

Financial Position

 

Strix is focused on its highly cash generative operating model and the management team will prioritise integration and unlocking anticipated revenue and cost synergies following the acquisition of Billi.

 

Over the past few years, Strix has made significant investments in acquisitions, a new factory and working capital. A primary driver of the increased adjusting items (formerly exceptional items) is due to the number of acquisitions and one-off costs relating to capital expenditures.

 

There will be no further M&A activity or investment into new factory builds, with significantly reduced capex and working capital over the medium term. Capital allocation decisions will prioritise debt reduction and free cash flow generation with a clear plan to net debt / EBITDA to below 1.5x over the medium term.

 

Outlook

 

In light of the continued macro headwinds which have resulted in a reduction in demand in kettle controls in the key export regulated markets of UK and Germany during H1 and a slower than anticipated recovery, the Group now anticipates Q3 adjusted profit after tax of £6.5m and for the full year to be in excess of £21m.

 

Whilst recent order rates are tracking in a positive direction, evident from an increase in sales in Q2 this remains in smaller quantities than expected as customers continue to manage their cash balances prudently in key regulated export markets. Strix now anticipates the path to a return of normalised growth to take longer and for there to be a decrease in the short term revenues within this category.

 

The Group's second half of the year is always stronger than the first and weighted to Q4 driven by the replenishment of stock and normal seasonal uplift, the performance required in Q4 to achieve the full year outcome is lower than in 2022 and 2021.

 

Despite the short term headwinds, Strix is also announcing Strategic Business Objectives which in summary will deliver group revenue of £206m and gross profit of £80m by the end of FY 2026 reflecting the attractiveness of the underlying markets that it operates within.

 

Alongside this, Strix continues to implement a range of strategic initiatives to minimise the impact of the headwinds it is facing, which includes an internal streamlining programme and a focus on the reduction of inventory in order to maximise cash generation for the Group.

 

Also, the successful integration of Billi will propel Strix into a new growth phase, further diversifying into these new areas whilst continuing to focus on the core Kettle Controls business with strong potential for greater top line growth and improved margins going forward.

 

Chief Financial Officer's Review

 

	Adjusted results1			Reported results
	H1 2023	H1 2022	Change (23 - 22)	H1 2023	H1 2022	Change (23 - 22)
	£m	£m	%4	£m	£m	%4
Revenue	65.2	50.7	+28.6%	65.2	50.7	+28.6%
Gross profit	23.9	19.5	+22.6%	23.9	19.0	+25.8%
EBITDA2	15.6	15.9	-1.9%	13.7	12.2	+12.3%
Operating profit	11.8	12.9	-8.5%	9.9	9.1	+8.8%
Profit before tax	6.8	11.6	-41.4%	4.9	7.9	-38.0%
Profit after tax	5.7	11.6	-50.9%	3.8	7.8	-51.3%
Net debt3	93.1	61.3	+51.9%	93.1	61.3	+51.9%
Net cash generated from operating activities	13.1	9.9	+32.3%	13.1	9.9	+32.3%
Basic earnings per share (pence)	2.6	5.6	-53.6%	1.8	3.8	-52.6%
Diluted earnings per share (pence)	2.6	5.5	-52.7%	1.7	3.7	-54.1%
Interim dividend per share (pence)	0.9	2.75	-67.3%	0.9	2.75	-67.3%

 

1.     Adjusted results exclude adjusted items, which include share-based payment transactions, COVID-19 related costs, and other reorganisation and strategic project costs. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure. A table which shows both Adjusted and Reported results is included in the Chief Financial Officer's review.

2.     EBITDA, which is defined as earnings before finance costs, tax, depreciation and amortisation, is a non-GAAP metric used by management and is not an IFRS disclosure.

3.     Net debt excludes the impact of IFRS 16 lease liabilities, pension liabilities, deferred tax liabilities and earn-out provisions on satisfaction of performance conditions and providing post-combination services.

4.     Figures are calculated from the full numbers as presented in the consolidated financial statements.

Financial performance

 

Revenues in the first half increased by 28.6% to £65.2m (H1 2022: £50.7m), mainly as a result of the first time inclusion of Billi revenues of £21.5m, which helped to fully offset a reduction in organic sales, particularly of kettle controls.

 

The kettle controls revenue decreased by 17.2% to £28.9m (H1 2022: £34.8m), with the cost of living crisis and the Russia/Ukraine conflict being the key negative drivers in regulated markets. In line with international government sanctions, our key global brands remain exited from Russia (a significant market) and Strix also stopped trading directly with Russian brands. Despite the decrease in revenues however, recent incoming order rates are tracking in a positive direction, evident from a surge in sales in Q2.

 

The Group's consumer goods division continues to show resilience particularly in the water category with noticeable growth in European and North American territories as a result of continued online market place launches.

 

Adjusted gross profit increased by 22.6% to £23.9m (H1 2022: £19.5m), mainly attributable to the Billi inclusion of £10.0m, but was partially offset by a decrease in adjusted gross profits for kettle controls of £4.3m (28.6% decrease) and slightly by appliances category. Reported gross profits increased by 25.8% to £23.9m (H1 2022: £19.0m).

 

Adjusted gross profit margin in H1 2023 was 36.7% (H1 2022: 38.4%), showing a margin dilution of 1.7% compared to same period last year. This dilution is mainly due to under absorption of fixed manufacturing costs on a per unit of volume basis, as a result of a lower kettle controls production volume.  Costs optimisation evaluation and measures are in place to ensure skilled labour are maintained for medium term recovery, while streamlining non-critical spending to adopt a balanced approach to manage this softened in the current H1 period. This decline was partially offset by addition of Billi group which made a positive contribution to margins, decreases in commodity prices, and a positive impact from the LAICA sub-group consumer goods.

 

Adjusted EBITDA is defined as profit before depreciation, amortisation, finance costs, finance income, taxation, and adjusting items including share based payments. Adjusted EBITDA was £15.6m (H1 2022: £15.9m), showing a small decrease of 1.9% compared to the same period last year. The Billi acquisition provides significant income growth in H1 2023 (£21.5m net sales, £5.2m adjusted EBITDA), however the underlying Strix organic business shows significant decrease to H1 2023 (£6.9m net sales decrease, £5.5m adjusted EBITDA decrease), with kettle controls revenues being the main driver, showing a £6.0m decrease vs H1 2022.

 

Adjusted EBITDA margin in H1 2023 was 23.9% (H1 2022: 31.4%), representing a margin dilution of 7.4%, which is largely due to lower kettle controls volume. Billi had a positive impact of £5.2m adjusted EBITDA with a strong margin of 24.0% which is in line with IM targets.  Distribution and administration costs in the organic business decreased marginally by £0.1m (circa 2.0%). These overheads are discussed in detail in the Costs section below.

 

Adjusted operating profits decreased by 8.5% to £11.8m (H1 2022: £12.9m), a decrease of £1.1m. Depreciation and amortisation costs are deducted from adjusted EBITDA to arrive at the adjusted operating profits. These have remained relatively constant for the organic business compared the same period last year. The decrease in adjusted operating profits was mainly due to Billi contributing £0.5m of depreciation and amortisation costs in the current period. The remainder of the decrease in adjusted EBITDA is mainly due to lower sales volumes in the organic business and reduction in adjusted gross profits as explained above. 

 

Adjusted profit before tax was £6.8m (H1 2022: £11.6m), a decrease of £4.8m (41.4% decrease) compared to the same period last year. This is attributable mainly to interest and finance fee costs which had an adverse variance in the current H1 period of £3.7m compared to the same period last year due to an increase in the net debt to fund the Billi acquisition and a higher interest rates environment.

 

Adjusted profit after tax was £5.7m (H1 2022: £11.6m), a £5.9m adverse variance compared to the same period last year. Tax expense for the current period was £1.1m, primarily relating to the tax liability from Billi of £0.8m recognised in the Group being first year of acquisition. The balance £0.3m relates to tax expense in the organic business.

 

Costs

 

Costs in H1 2023 increased across the board compared to the prior year, mainly due to the inclusion of Billi in the current year, however decreased marginally in the organic business.

 

Cost of sales (excluding adjusting items) increased by 32.4% to £41.3m (H1 2022: £31.2m), with Billi contributing £11.5m of cost of sales. Excluding Billi's impact the total cost of sales for the Group stands at £29.8m in H1 2023 vs £31.2m in H1 2022, falling by £1.4m (4.5% decline).

 

This fall on total cost of sales in the organic business was primarily driven by total material cost of sales going down from £20.2m in H1 2022 to £17.7m in H1 2023, down by 12.4%, largely in line with lower sales vs a comparative H1 2022 period in the organic business. The Group continues to take measures to reduce costs, increase efficiencies, while balancing the cost impact due to the short term decline in sales volume to ensure our operation capabilities is well prepared for a rebound.

 

Sales and Distributions costs increased by 11.3% to £5.0m (H1 2022: £4.5m) mainly due to the inclusion of Billi costs in the current year of £0.6m.  The Group's organic (excluding Billi) outward carriage and freight outward costs were lower by 9% or £0.1m (£1.1m in H1 2023 vs £1.2m H1 2022) in line with decrease in sales.  This decrease in carriage and freight outward costs was offset by an increase in advertising and promotion costs of 9.1% or £0.1m (£1.2m in H1 2023 vs £1.1m in H1 2022). Advertising and promotion costs are spent mainly on consumer goods products, comprising of water and appliances products. Increase in advertising and promotion can be attributable to an increase in water product sales.

 

Administration costs (excluding adjusting items) increased by £4.6m or 173.7% to £7.3m (H1 2022: £2.7m), predominantly due to the inclusion of Billi's admin costs of £4.5m. Excluding the impact of Billi, administration costs fell by 1.0% as part of the Group's restructuring programme.

 

Adjusted items included Exceptional costs and Acquisitions purchase price allocation amortization costs from LAICA and Billi (both are non-cash and are pure accounting valuations).  This will allow like-to-like comparisons of the Group's normalised results.  Exceptional costs incurred in H1 has reduced by 50% to £1.9m (H1 2022: £3.8m).  They were largely due to post Billi acquisition costs relating to legal and tax due diligence, with a small portion was due to restructuring. 

 

Cash flow

 

Cash flows from operating activities showed a modest improvement of £3.2m (32.3% improvement) from the same period last year. This is mainly due to the improvement in the changes of net working capital (£4.3m improvement), however partially offset by increase in tax-related cash outflows.

 

Movements in net working capital showed a significant decrease in cash outflows compared to the prior year.  Net working capital cash flows in the current period resulted in cash inflow of £0.1m (H1 2022: £4.2m cash outflow). Excluding the impact of Billi, net working capital cash inflows in the organic business significantly improved to £1.8m cash inflows compared to £4.2m cash outflows in the same period last year. Billi's net working capital cash outflows of £1.7m in the current period hence offset the cash inflows from the organic business, as the Group invested more in its newest subsidiary to meet forecasted customer demand in H2.

Net working capital movements are broken down as follows:

Inventory: Overall cash flows relating to inventory significantly improved to £0.1m cash outflows vs £4.2m cash outflows in the same period last year. The organic business recognised no material change in cash flows as the Group optimised inventory levels to align to H2 sales forecasts, with Billi contributing a cash outflow of £0.2m as the Group slightly increased Billi's stock levels at period-end to match our sales planning and forecasting in H2.

Debtors: The Group recognised cash outflows in current period from debtors of £0.8m (H1 2022: £2.7m cash outflows), with the organic business contributing £1.6m cash inflows compared to £2.7m outflows in the same period last year. Billi's recognised £2.4m cash outflows as the Group invests further in expanding Billi's customer base in its first year of operations post-acquisition.

Creditors: Cash flows improved significantly from creditors to £1.0m cash inflows in the currently period vs £2.7m cash outflows in the same period last year, with Billi contributing £0.9m cash inflows as their creditor books were aligned to the Group working capital improvement plans as mentioned above. The organic business's creditor cash inflows of £0.2m in the current period compared well to £2.7m cash outflows from the same period last year, again in line with the Group's working capital management reduction plans.

 

Tax-related cash outflows were at £1.3m mainly due to Billi tax payments made in Australia and New Zealand.

 

Cash outflows for investing activities increased in the current period (H1 2023: £12.9m) compared to the same period last year (H1 2022: £6.4m) mainly due to LAICA-related earn-out costs which were settled at the beginning of the current year, and an increase in capital expenditures due to the further investments in capitalised development costs. This was partially offset by cash inflows received from the vendor shareholders of Billi as consideration refunded as a result of net debt and working capital adjustments on opening balances at acquisition.

 

Cash outflows for financing activities increased by £3.4m compared to the same period prior year.  It is largely due to finance costs paid significantly increased due to an increase in the net debt to fund the Billi acquisition in a higher interest rate environment.

 

Balance Sheet

 

Property, plant and equipment decreased to £46.3m (FY 2022: £47.4m), mainly due to depreciation charges of £2.6m (H1 2022: £2.0m). This was partially offset by net additions of £1.5m towards plant and machinery and production tooling for continued improvement of automation and production efficiencies, and an increase of fixtures, fittings, equipment (including computer hardware) to support Billi operations. 

 

Intangible assets slightly increased to £74.0m (FY 2022: £73.4m) reflecting a net increase of £0.6m. Notable net additions to intangible assets were relating to capitalised development costs from new product development projects of circa £2.4m, and computer software and other intangible asset additions of circa £0.5m. The total amortisation charges were £1.2m (H1 2022: £1.1m), and foreign currency movements of £1.0m were recognised on translation of intangible assets denominated in foreign currencies.

 

Net working capital, which includes inventories, trade and other receivables, and trade and other payables (including tax liabilities, but excluding short-term portions of long-term liabilities), increased to £28.5m (FY 2022: £27.6m), an increase on £0.9m. This was mainly due to Billi's net working capital increase of £1.6m as the Group invests further in expanding Billi's  working capital in its first year of operations post-acquisition. Excluding Billi, net working capital decreased by £0.7m as the Group continues to prudently manage working capital demands as discussed in the cash flow section above.

 

Non-current liabilities (including short-term portions) decreased to £130.6m (FY 2022: £141.6m), a decrease of £11.3m, which is mainly driven by reductions of LAICA-related earn-outs paid at the beginning of the current year, and  repayments made in the current year towards the term loan of the Billi-acquisition-related revolving credit facility.

 

Net debt

 

The Group's net debt position as at 30 June 2023 increased to £93.1m (FY 2022: £87.4m). 

 

Total committed debt facilities at 30 June 2023 amounted to £115.5m (excluding loan arrangement fees which are included in borrowings), giving a liquidity pool of £21.4m. Net debt equated to 2.66 times trailing twelve months' EBITDA as at 30 June 2023, which complies with our debt covenant threshold of 2.75 times.

 

Dividend

 

Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Board continues to take precautions to balance the capital allocation priorities. To be prudent, the Board has decided to prioritise the reduction of debt for the rest of the current year.

 

Therefore, the Board is declaring an interim dividend in FY 2023 of 0.9p per share (HY 2022: 2.75p).

 

Condensed INTERIM consolidated statement of comprehensive income

for the period ended 30 June 2023 (unaudited)

			(unaudited) Period ended 30 June 2023	(unaudited) Period ended 30 June 2022
		Note	£000s	£000s
Revenue		7	65,218	50,694
Cost of sales - before adjusting items			(41,280)	(31,207)
Cost of sales - adjusting items		6	(66)	(468)
Cost of sales			(41,346)	(31,675)
Gross profit			23,872	19,019
Distribution costs			(5,017)	(4,508)
Administrative expenses - before adjusting items			(7,307)	(2,668)
Administrative expenses - adjusting items		6	(1,829)	(3,288)
Administrative expenses			(9,136)	(5,956)
Share of (losses) from joint ventures			(25)	(10)
Other operating income			207	587
Operating profit			9,901	9,132
Analysed as:
Adjusted EBITDA1			15,632	15,941
Amortisation		8	(1,231)	(1,062)
Depreciation (excluding Right-of-use asset depreciation)		9	(1,998)	(1,512)
Right-of-use asset depreciation		9	(607)	(479)
Adjusting items		6	(1,895)	(3,756)
Operating profit			9,901	9,132
Finance costs		5	(5,032)	(1,262)
Finance income			67	5
Profit before taxation			4,936	7,875
Income tax expense			(1,109)	(43)
Profit after taxation			3,827	7,832
Other comprehensive income:
Exchange differences on translation of foreign operations			(971)	678
Total comprehensive income			2,856	8,510
Profit for the period attributable to:
Equity holders of the Company			3,856	7,770
Non-controlling interests			(29)	62
			3,827	7,832
Total comprehensive income for the period attributable to:
Equity holders of the Company			2,900	8,424
Non-controlling interests			(44)	86
			2,856	8,510
Earnings per share (pence)
Basic		6	1.8	3.8
Diluted		6	1.7	3.7

 

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

 

Condensed INTERIM consolidated balance sheet

as at 30 June 2023 (unaudited)

 

	Note	(unaudited) As at 30 June 2023	(audited) As at 31 December 2022
ASSETS		£000s	£000s
Non-current assets
Intangible assets	8	74,010	73,374
Property, plant and equipment	9	46,295	47,364
Investments in joint ventures		(12)	19
Net investments in finance leases		11	16
Total non-current assets		120,304	120,773
Current assets
Inventories	10	28,534	27,702
Trade and other receivables	12	27,322	29,791
Current income tax receivable		443	497
Cash and cash equivalents		21,431	30,443
Total current assets		77,730	88,433
Total assets		198,034	209,206
EQUITY AND LIABILITIES
Equity
Share capital and share premium		23,642	23,861
Share based payment reserve		272	202
Retained earnings		15,325	12,479
Non-controlling interests		663	707
Total equity		39,902	37,249
Current liabilities
Trade and other payables	13	27,333	29,963
Borrowings	14	14,638	14,734
Future lease liabilities	17	911	1,069
Contingent consideration		-	7,532
Current income tax liabilities	13	509	444
Total current liabilities		43,391	53,742
Non-current liabilities
Future lease liabilities	17	2,814	2,819
Deferred tax liability		11,206	11,387
Borrowings	14	99,877	103,092
Post-employment benefits		844	917
Total non-current liabilities		114,741	118,215
Total liabilities		158,132	171,957
Total equity and liabilities		198,034	209,206

 

 

Condensed INTERIM consolidated statement of changes in equity

as at 30 June 2023 (unaudited)

 

	Share capital and share premium	Share-based payment reserve	Retained earnings	Total equity attributable to owners	Non-controlling interests	Total equity
(unaudited)	£000s	£000s	£000s	£000s	£000s	£000s
Balance at 1 January 2022	13,139	2,039	10,146	25,324	681	26,005
Profit for the period	-	-	7,770	7,770	62	7,832
Other comprehensive income	-	-	654	654	24	678
Total comprehensive income for the period	-	-	8,424	8,424	86	8,510
Dividends paid (note 16)	-	-	(11,601)	(11,601)	-	(11,601)
Transfers between reserves	7	(1,210)	1,203	-	-	-
Share-based payment transactions	-	572	-	572	-	572
Total transactions with owners recognised directly in equity	7	(638)	(10,398)	(11,029)	-	(11,029)
Other transactions recognised directly in equity (note 11)	-	(52)	59	7	-	7
Balance at 30 June 2022	13,146	1,349	8,231	22,726	767	23,493
(unaudited)
Balance at 1 January 2023	23,861	202	12,479	36,542	707	37,249
Profit for the period	-	-	3,856	3,856	(29)	3,827
Other comprehensive income	-	-	(956)	(956)	(15)	(971)
Total comprehensive income for the period	-	-	2,900	2,900	(44)	2,856
Dividends paid (note 16)	-	-	-	-	-	-
Transfers between reserves	-	(47)	10	(37)	-	(37)
Transaction costs	(219)	-	-	(219)	-	(219)
Share-based payment transactions	-	86	-	86	-	86
Total transactions with owners recognised directly in equity	(219)	39	10	(170)	-	(170)
Other transactions recognised directly in equity (note 11)	-	31	(64)	(33)	-	(33)
Balance at 30 June 2023	23,642	272	15,325	39,239	663	39,902

 

 

 

 

 

Condensed INTERIM consolidated cash flow statement

for the PERIOD ended 30 June 2023 (unaudited)

 

		(unaudited)	(unaudited)
		Period ended	Period ended
		30 June 2023	30 June 2022
	Note	£000s	£000s
Cash flows from operating activities
Cash generated from operations	18(a)	14,443	9,759
Tax received / (paid)		(1,327)	96
Net cash generated from operating activities		13,116	9,855
Cash flows from investing activities
Purchase of property, plant and equipment	9	(1,982)	(2,954)
Capitalised development costs	8	(4,103)	(1,643)
Earnout payments regarding the acquisition of LAICA		(7,499)	(1,671)
Consideration refunded regarding the acquisition of Billi		1,046	-
Purchase of other intangibles	8	(463)	(175)
Finance income		65	5
Net cash used in investing activities		(12,936)	(6,438)
Cash flows from financing activities
(Repayments) / Drawdowns of non-current borrowings	18(b)	(3,661)	8,543
Finance costs paid		(4,358)	(1,638)
Principal elements of lease payments		(489)	(401)
Dividends paid	16	-	(11,601)
Net cash used in financing activities		(8,508)	(5,097)
Net decrease in cash and cash equivalents		(8,328)	(1,680)
Cash and cash equivalents at the beginning of the period		30,443	19,670
Effects of foreign exchange on cash and cash equivalents		(684)	147
Cash and cash equivalents at the end of the period		21,431	18,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the condensed INTERIM cONSOLIDATED financial statements

for the PERIOD ended 30 June 2023 (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 registered number 014963V. 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. The principal activities of Strix Group Plc and its subsidiaries (together "the Group") are the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management, water filtration and small household appliances for personal health and wellness.

 

These condensed interim consolidated financial statements ('interim financial statements') were approved for issue on 20 September 2023. The interim report will be available 21 September 2023 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 its financial performance compared with the comparative periods ended 31 December 2022 and 30 June 2022 respectively. These interim financial statements should be read in conjunction with the last annual consolidated financial statements as at 31 December 2022 and the comparative interim results for the period ended 30 June 2022.

 

The preparation of Group financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the interim financial statements, are disclosed in note 3.

 

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 2022, which is available at www.strixplc.com.

 

Basis of consolidation

The interim financial statements comprise the financial statements of the Company and all of its subsidiary undertakings. Subsidiaries are fully consolidated from the date on which control commences and are deconsolidated from the date that control ceases. The financial statements of all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies.

 

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to or has the 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. Consolidation of subsidiaries ceases from the date that control also ceases.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of financial position, respectively.

 

Joint ventures

 

Joint ventures are joint arrangements of which the Group has joint control, with rights to the net assets of those arrangements. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Interests in joint ventures are accounted for using the equity method of accounting (detailed below) after being recognised at cost in the consolidated statement of financial position. 

 

Equity method of accounting

 

Under the equity method of accounting, investments in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses from the joint arrangement in profit or loss, and the Group's share of movements in other comprehensive income of the joint arrangement in other comprehensive income. Dividends received from joint ventures are recognised as a reduction in the carrying amount of the investment.

 

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in these entities.

 

The carrying amount of equity-accounted investments is tested for impairment in accordance with the impairment of assets policy as described below in this note.

 

Transactions eliminated on consolidation

Intra-group balances and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the interim financial statements.

 

 

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date with the assets and liabilities of a subsidiary being measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. The Group measures goodwill at the acquisition date as:

 

	the fair value of the consideration transferred; plus
	the recognized amount of any non-controlling interests in the acquiree; plus
	if the business combination is achieved in stages, the fair value of the pre-existing interest in the acquiree; less
	the fair value of the identifiable assets acquired and liabilities assumed.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis at the non-controlling interest's proportionate share of the fair value of the acquired entity's net identifiable assets. Transaction costs that the Group incurs in connection with a business combination are expensed as incurred.

 

If the initial accounting for a business combination is preliminary by the end of the reporting period in which the business combination occurs, provisional amounts are reported.  Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities recognised retrospectively to reflect the new information obtained about facts and circumstances that existed as at the acquisition date, and if known, would have affected the measurement of assets and liabilities recognised at that date. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss

 

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

At the date of approval of the interim financial statements, there are no new standards and interpretations which are relevant to the Group which were in issue but not yet effective.

 

Going concern

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

The Directors have made 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 Group;
·	the current and past profitability of the Group;
·	budgets and cash flow forecasts for the period to December 2023;
·	the current financial position of the Group, including its cash and cash equivalents balances of £21.4m (YE 2022: £30.4m);
·	the availability of further funding should this be required (with a liquidity pool of £22.4m (YE 2022: £31.6m) on the revolving credit facility and the access to the AIM market afforded by the Company's admission to AIM);
·	the current and past ability of the Group to meet its debt covenants;
·	the low liquidity risk the Group is exposed to; and
·	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. The key entities in the Group have traded profitably for a long period of time. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial statements and there are no material uncertainties about the Group's ability to continue as a going concern.

 

EBITDA and adjusted EBITDA - non-GAAP performance measures

Earnings before interest, taxation, depreciation and amortization ('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, finance income, taxation, depreciation and amortization. Adjusting 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 2022, 42% (FY 2021: 46%) of the Group's revenue and 37% (FY 2021: 37%) of the Group's profit after tax accumulated in H1.

 

Foreign currency translation

Functional and presentational currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The interim financial statements are presented in Sterling, which is Strix Group Plc's functional and presentation currency.

 

Transactions and balances

Foreign currency balances are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the condensed interim consolidated statement of comprehensive income within cost of sales.

 

Group companies

The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·	assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, or historic rates for certain line items;
·	income and expenses for each condensed interim consolidated statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and
·	all resulting exchange differences are recognised in the condensed interim consolidated statement of comprehensive income.

 

Leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

 

The leasing activities of the Group and how these are accounted for

The Group leases office space, workshops, warehouses and factory space. Rental contracts are typically made for periods of 3 - 10 years, but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

 

Leases are recognized as a right-of-use assets and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability, finance costs and foreign exchange (where the lease is denominated in a foreign currency). The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

 

Measurement of future lease liabilities

Assets and liabilities arising from a lease are initially measured on a present value basis. Future lease liabilities include the net present value of the following lease payments:

·	fixed payments (including in-substance fixed payments), less any lease incentives receivable
·	variable lease payments that are based on an index or a rate
·	amounts expected to be payable by the lessee under residual value guarantees
·	the exercise price of a purchase option if the lessee is reasonably certain to exercise that options, and
·	the payment of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

 

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

 

 

Measurement of right-of-use assets

Right-of-use assets are measured at cost comprising the following:

·	the amount of the initial measurement of lease liability
·	any lease payments made at or before the commencement date less any lease incentives received
·	any initial direct costs, and
·	restoration costs

 

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise primarily IT equipment.

 

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. These terms are used to maximize operational flexibility in terms of managing contracts.

 

Lease income

Lease income from operating leases where the Group is a lessor, and where substantially all the risks and rewards associated with the leased asset remain with the Group, is recognised in other income on a straight-line basis over the lease term.

 

Property, plant and equipment

Initial recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and 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. When parts of an item of property, plant and equipment have different useful lives, the components are accounted for as separate items.

 

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

 

Subsequent measurement

Depreciation is calculated using the straight-line method to allocate the cost of the assets, net of any residual values, over their estimated useful lives.

 

The useful lives are shown below:

 

Asset class	Estimate
·      Plant and machinery	3-25 years
·      Point of use dispensers	4-10 years
·      Fixtures, fittings and equipment	2-10 years
·      Motor vehicles	unchanged
·      Production tools	1-10 years
·      Right-of-use assets	unchanged
·      Land and buildings	unchanged

 

The Group manufactures some of its production tools and equipment. The costs of construction are included within a separate category within property, plant and equipment ("assets under construction") until the tools and equipment are ready for use at which point the costs are transferred to the relevant asset category and depreciated. Any items that are scrapped are written off to the consolidated statement of comprehensive income.

 

The assets' residual values and useful lives are reviewed at the end of each reporting period.

 

Fixtures, fittings and other equipment includes computer hardware.

 

Derecognition

Property, plant and equipment assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of property, plant and equipment, measured as the difference between net disposal proceeds and the carrying amount of the asset, are recognised in the consolidated statement of comprehensive income on derecognition.

 

Impairment

Tangible assets that are subject to depreciation are reviewed 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 asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. 

 

Intangible assets

Initial recognition and measurement

The Group's intangible assets relate to goodwill, capitalised development costs, intellectual property, customer relationships, brands and computer software. Goodwill is the excess of the consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities in a business combination and relates to assets which are not capable of being individually identified and separately recognised. Goodwill acquired is allocated to those cash-generating units ("CGUs") expected to benefit from the business combination in which the goodwill arose. Goodwill is measured at cost less any accumulated impairment losses and is held in the functional currency of the acquired entity to which it relates and remeasured at the closing exchange rate at the end of each reporting period, with the movement taken through other comprehensive income. The CGUs represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

 

Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. Internal costs that are incurred during the development of significant and separately identifiable new products and manufacturing techniques for use in the business are capitalised when the following criteria are met:

 

•     it is technically feasible to complete the project so that it will be available for use;

•     management intends to complete the project and use or sell it;

•     it can be demonstrated how the project will develop probable future economic benefits;

•     adequate technical, financial, and other resources to complete the project and to use or sell the project output are available; and

•     expenditure attributable to the project during its development can be reliably measured.

Capitalised development costs include employee, travel and other directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Refer to note 6(a) for details.

 

Intellectual property is capitalised where it is probable that future economic benefits associated with the patent will flow to the Group, and the cost can be measured reliably. The costs of renewing and maintaining patents are expensed in the consolidated statement of comprehensive income as they are incurred.

 

Customer relationships, intellectual property and brands are recognised on acquisitions where it is probable that future economic benefits will flow to the Group.

Computer software is only capitalised when it is probable that future economic benefits associated with the software will flow to the Group, and the cost of the software can be measured reliably. Computer software that is integral to an item of property, plant and equipment is included as part of the cost of the asset recognised in property, plant and equipment.

 

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

 

Subsequent measurement

The Group amortises intangible assets with a limited useful life using the straight-line method.

 

Asset class	Estimate
·      Capitalised development costs	2-10 years
·      Intellectual property	unchanged
·      Technology and software	unchanged
·      Customer relationships	unchanged
·      Brands	unchanged
·      Goodwill	unchanged

 

Brands have an indefinite useful life because there is no foreseeable limit on the period during which the Group expects to consume the future economic benefits embodied in the asset.

 

The LAICA brand has been trading since inception and has been a well recognisable brand amongst the Group's trading partners, and the Group does not foresee a time limit by when these partnerships will cease.

 

The Billi brand is a well-established and competitive brand, being one of the top 2 brands in the Australian and New Zealand industries, and well recognised in the United Kingdom among residential and commercial clientele. The Group does not foresee a time limit by when this market presence will cease. 

 

Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives above.

 

Derecognition

Intangible assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. Where a subsidiary is sold, any goodwill arising on acquisition, net of any impairment, is included in determining the profit or loss arising on disposal. 

 

Impairment

Intangible assets that are subject to amortisation are reviewed 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 asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

 

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

 

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

 

Intangible assets with indefinite useful lives impairment assessments

 

Intangible assets with indefinite useful lives arising on business combinations are allocated to the relevant CGU and are treated as the foreign operation's assets.

 

Impairment reviews are performed at least annually, or more frequently if there are indicators that goodwill might be impaired. The Group has assessed the carrying values of goodwill and brands to determine whether any amounts have been impaired. The recoverable amount of the underlying CGU was based on a value in use model where future cashflows were discounted using a weighted average cost of capital as the discount rate with terminal values calculated applying a long-term growth rate. In determining the recoverable amount, the Group considered several sources of estimation uncertainty and made certain assumptions or judgements about the future. Future events could cause the assumptions used in the impairment review to change with an impact on the results and net position of the group.

3. Critical accounting judgements and estimates

In the application of the Group's accounting policies, which are described in Note 2, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. There is no change in applying accounting policies for critical accounting estimates and judgements from the prior year.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

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 2022.

 

Alternative performance measures (APMs) - Adjusting items

Management and the Board consider the quantitative and qualitative factors in classifying items as adjusting items and exercise judgement in determining the adjustments to apply to IFRS measures. This assessment covers the nature of the item, cause of occurrence, frequency, predictability of occurrence of the item or related event, and the scale of the impact of that item on reported performance.

 

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, dispensers, jugs and filters, primarily to Original Equipment Manufacturers ("OEMs"), commercial and residential customers based in China, Italy, Australia, New Zealand and the United Kingdom.

 

The Board of Directors has identified 3 reportable segments from a product perspective, namely: kettle controls, premium filtration systems (primarily Billi products), and consumer goods (made up of water products and appliances).

 

The Board of Directors primarily uses a measure of gross profit to assess the performance of the operating segments, broken down into revenue and cost of sales for each respective segment which is reported to them on a monthly basis. Information about segment revenue, cost of sales and gross profit is disclosed below.

 

	Reported Results
	Period ended 30 June 2023
	(£000s)
	Kettle controls	Premium filtration systems	Consumer goods	Total
Revenue	28,819	21,468	14,931	65,218
Cost of sales	(18,127)	(11,515)	(11,704)	(41,346)
Gross profit	10,692	9,953	3,227	23,872
	Period ended 30 June 2022
	(£000s)
	Kettle controls	Premium filtration systems	Consumer goods	Total
Revenue	34,802	-	15,892	50,694
Cost of sales	(20,218)	-	(11,457)	(31,675)
Gross profit	14,584	-	4,435	19,019

 

 

	Adjusted Results
	Period ended 30 June 2023
	(£000s)
	Kettle controls	Premium filtration systems	Consumer goods	Total
Revenue	28,819	21,468	14,931	65,218
Cost of sales	(18,099)	(11,518)	(11,678)	(41,295)
Gross profit	10,720	9,950	3,253	23,923
	Period ended 30 June 2022
	(£000s)
	Kettle controls	Premium filtration systems	Consumer goods	Total
Revenue	34,802	-	15,892	50,694
Cost of sales	(19,797)	-	(11,410)	(31,207)
Gross profit	15,005	-	4,482	19,487

 

Assets and liabilities

No analysis of the assets and liabilities of each operating segment is provided to the Board of Directors as part of monthly management reporting. Therefore, no analysis of segmented assets or liabilities is disclosed in this note.

 

Non-current assets (i) attributed to country of domicile and (ii) attributable to all other foreign countries

A geographical analysis of revenue from external customers has not been presented, as the OEMs and major customers to whom the majority of sales are made are primarily based in China, Italy, Australia and the United Kingdom.

 

In accordance with IFRS 8, the following table discloses the non-current assets located in both the Company's country of domicile (the Isle of Man) and foreign countries, primarily China, Italy Australia,  New Zealand, and the United Kingdom where Group's main principle operating subsidiaries are domiciled.

	30 June 2023	31 December 2022
	£000s	£000s
Country of domicile
Intangible assets	12,804	11,354
Property, plant and equipment	2,815	3,151
Total country of domicile non-current assets	15,619	14,505
Foreign countries
Intangible assets	61,205	62,020
Property, plant and equipment	43,480	44,213
Total foreign non-current assets	104,685	106,233
Total non-current assets	120,304	120,738

 

Major customers

In the first half of 2023, there was one major customer which individually accounted for at least 10% of total revenues (H1 2022: one customer). The revenues relating to this customer in 6 months ended 30 June 2023 was £6,937,000 (H1 2022: £7,204,000).

 

5. finance costs

	Period ended 30 June 2023	Period ended 30 June 2022
	£000s	£000s
Letter of credit charges	92	36
Lease liability interest	75	42
Borrowing costs	4,865	1,184
Total finance costs	5,032	1,262

 

Further information about the Group's borrowings is provided in note 14.

 

6. Earnings per share

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

 

	Period ended 30 June 2023	Period ended 30 June 2022
Earnings (£000s)
Earnings for the purpose of basic and diluted earnings per share	3,856	7,770
Number of shares (000s)
Weighted average number of shares for the purposes of basic earnings per share	218,712	206,960
Weighted average dilutive effect of conditional share awards	2,578	2,796
Weighted average number of shares for the purposes of diluted earnings per share (000s)	221,290	209,756
Earnings per ordinary share (pence)
Basic earnings per ordinary share	1.8	3.8
Diluted earnings per ordinary share	1.7	3.7
Adjusted earnings per ordinary share (pence) 1
Basic adjusted earnings per ordinary share	2.6	5.6
Diluted adjusted earnings per ordinary share	2.6	5.5

 

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

 

	Period ended 30 June 2023	Period ended 30 June 2022
	£000s	£000s
Profit for the period	3,856	7,770
Add back adjusting items in cost of sales:
COVID-19 net adjusting items²	-	172
Land and factory	-	30
Restructuring	66	266
	66	468
Add back adjusting items in administrative expenses:
COVID-19 net adjusting items²	-	356
Restructuring	39	260
Mergers and acquisitions	1,704	1,937
Disaster recovery	-	163
Share based payments	86	572
	1,829	3,288
Total adjusting items	1,895	3,756
Adjusted earnings 1	5,751	11,526

 

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

^{2. COVID-19 net adjusting items included consumables, certain employment costs and Government support grants in the comparative period.}

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 division:

	Period ended 30 June 2023	Period ended 30 June 2022
	£000s	£000s
Kettle controls	28,819	34,802
Premium filtration systems	21,468	-
Consumer goods	14,931	15,892
Total revenue	65,218	50,694

8. Intangible assetS

 

			For the period ended 30 June 2023
			Development Costs		Software	Intellectual Property		Customer relationships		Brands	Goodwill		Intangible assets under construction		Total
			£000s		£000s	£000s		£000s		£000s	£000s		£000s		£000s
At 1 January
Cost			19,428		4,452	1,482		18,549		19,785	20,067		103		83,866
Accumulated amortization/impairment			(7,716)		(1,817)	(256)		(703)		-	-		-		(10,492)
Net book value			11,712		2,635	1,226		17,846		19,785	20,067		103		73,374
Period ended 30 June
Additions			4,103		114	207		-		-	-		142		4,566
Transfers			(1,356)		5	37		70		-	-		(26)		(1,269)
Disposals			(314)		(4)	-		-		-	-		-		(318)
Amortisation charges			(748)		(318)	(60)		(104)		-	-		-		(1,231)
Exchange differences			(208)		84	(8)		72		(556)	(488)		(9)		(1,112)
Closing net book value			13,189		2,516	1,403		17,884		19,229	19,579		210		74,010
At 30 June
Cost			21,713		4,574	4,930		18,399		19,229	20,011		210		89,065
Accumulated amortisation/impairment			(8,523)		(2,059)	(3,527)		(515)		-	(431)		-		(15,055)
Net book value			13,189		2,516	1,403		17,884		19,229	19,579		210		74,010

 

All amortisation charges have been treated as an expense, and allocated to cost of sales £1,036,000 (H1 2022: £884,000) and administrative expenses £194,000 (H1 2022: £178,000) in the condensed interim consolidated statement of comprehensive income.  There were no reversals of prior year impairments during the period (H1 2022: none).

 

	For the period ended 30 June 2022
	Development costs	Software	Intellectual Property	Intangible assets under construction	Customer relationships	Brand name	Goodwill	Total
	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	15,971	4,186	1,128	66	2,232	6,174	8,736	38,493
Accumulated amortization/impairment	(6,565)	(1,153)	(111)	-	(196)	-	-	(8,025)
Net book value	9,406	3,033	1,017	66	2,036	6,174	8,736	30,468
Period ended 30 June
Additions	1,645	-	187	4	-	-	-	1,836
Transfers	-	73	(17)	(70)	-	-	-	(14)
Amortisation charges	(600)	(305)	(56)	-	(101)	-	-	(1,062)
Exchange differences	136	3	41	-	49	154	208	591
Closing net book value	10,587	2,804	1,172	-	1,984	6,328	8,944	31,819
At 30 June
Cost	17,769	4,263	1,623	-	2,292	6,328	8,944	41,219
Accumulated amortisation/impairment	(7,182)	(1,459)	(451)	-	(308)	-	-	(9,400)
Net book value	10,587	2,804	1,172	-	1,984	6,328	8,944	31,819

 

All amortisation charges have been treated as an expense, and allocated to cost of sales £884,000 (H1 2021: £826,000) and administrative expenses £178,000 (H1 2021: £126,000) in the condensed interim consolidated statement of comprehensive income.  There were no reversals of prior year impairments during the period (H1 2021: none).

9. Property, plant and equipment

 

	For the period ended 30 June 2023
	Plant & machinery	Fixtures, fittings & equipment	Motor vehicles	Production tools	Land & Buildings	Right-of-use assets	*Point of use dispensers	Assets under construction	Total
	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	29,988	8,124	375	13,693	20,690	8,678	1,430	2,247	85,225
Accumulated depreciation	(15,775)	(4,604)	(331)	(11,049)	(978)	(5,053)	(71)	-	(37,861)
Net book value	14,213	3,520	44	2,644	19,712	3,625	1,359	2247	47,364
Period ended 30 June
Additions	485	366	6	509	81	611	66	1,036	3,160
Transfers	108	47	10	-	39	-	-	(1,549)	(1,345)
Disposals	(26)	(139)	(17)	(7)	-	(19)	-	(12)	(220)
Depreciation charge for the period	(820)	(483)	4	(312)	(225)	(607)	(162)	-	(2,605)
Exchange differences	39	66	1	16	(5)	(169)	125	(132)	(59)
Closing net book value	13,999	3,377	48	2,850	19,602	3,441	1,388	1,590	46,295
At 30 June
Cost	30,274	8,035	320	14,308	20,360	8,934	1,617	1,647	85,495
Accumulated depreciation	(16,275)	(4,658)	(271)	(11,458)	(758)	(5,493)	(229)	(57)	(39,200)
Net book value	13,999	3,377	48	2,850	19,602	3,441	1,388	1,590	46,295

 

Depreciation charges are allocated to cost of sales £1,973,000 (H1 2022: £1,575,000), distribution costs £95,000 (H1 2022: £44,000), and administrative expenses £538,000 (H1 2022: £373,000) in the condensed interim consolidated statement of comprehensive income.

 

	For the period ended 30 June 2022
	Plant & machinery	Fixtures, fittings & equipment	Motor vehicles	Production tools	Land & Buildings	Right-of-use assets	Assets under construction	Total
	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	22,750	4,367	137	14,013	3,737	6,533	16,751	68,288
Accumulated depreciation	(12,686)	(3,428)	(95)	(12,140)	(129)	(2,605)	-	(31,083)
Net book value	10,064	939	42	1,873	3,608	3,928	16,751	37,205
Period ended 30 June
Additions	2,533	379	1	260	-	1,443	5,111	9,727
Disposals	(1,331)	(110)	(1)	(68)	(1,882)	(319)	(39)	(3,750)
Depreciation charge	(998)	(342)	(14)	(368)	(50)	(808)	-	(2,580)
Exchange differences	(39)	(6)	(1)	1	(30)	(77)	(3)	(155)
Closing net book value	10,229	860	27	1,698	1,646	4,167	21,820	40,447
At 30 June
Cost	18,193	3,750	108	13,373	1,514	6,872	21,820	65,630
Accumulated depreciation	(7,964)	(2,890)	(81)	(11,675)	132	(2,705)	-	(25,183)
Net book value	10,229	860	27	1,698	1,646	4,167	21,820	40,447

 

Depreciation charges are allocated to cost of sales £1,575,000 (H1 2021: (£2,196,000)), distribution costs £44,000 (H1 2021: (£46,000)), and administrative expenses £373,000 (H1 2021: (£338,000)) in the condensed interim consolidated statement of comprehensive income.

 

10. Inventories

	30 June 2023	31 December 2022
	£000s	£000s
Raw materials and consumables	13,214	11,242
Finished goods and goods in transit	15,320	16,460
	28,534	27,702

 

The cost of inventories recognised as an expense and included in cost of sales amounted to £24,639,000 (H1 2022: £22,446,000). The charge for impaired inventories was £NIL (H1 2022: £NIL). There were no reversals of previous write-downs.

 

11. PRINCIPAL SUBSIDIARY UNDERTAKINGS OF THE GROUP

A list of all subsidiary undertakings controlled by the Group, and existing joint arrangements the Group is currently part of, which are all included in the consolidated financial statements, is set out below

 

Name of entity	Nature of business	Country of incorporation	% of ordinary shares held by the Group	Nature of shareholding
Sula Limited	Holding company	IOM	100	Subsidiary
Strix Limited	Manufacture and sale of products	IOM	100	Subsidiary
Strix Guangzhou Limited	Dormant company	China	100	Subsidiary
Strix (U.K.) Limited	Holding company and group's sale and distribution center	United Kingdom	100	Subsidiary
Strix Hong Kong Limited	Sale and distribution of products	Hong Kong	100	Subsidiary
Strix (China) Limited	Manufacture and sale of products	China	100	Subsidiary
HaloSource Water Purification Technology (Shanghai) Co. Limited	Manufacture and sales of products	China	100	Subsidiary
Strix (USA), Inc.	Research and development, sales, and distribution of products	USA	100	Subsidiary
LAICA S.p.A.	Manufacture and sales of products	Italy	100	Subsidiary
LAICA Iberia Distribution S.L.	Sale and distribution of products	Spain	100	Subsidiary
LAICA International Corp.	Sale and distribution of products	Taiwan	67	Subsidiary
Taiwan LAICA Corp.	Sale and distribution of products	Taiwan	67	Subsidiary
Foshan Yilai Life Electric Appliances Co. Limited.	Sale and distribution of products	China	45	Joint venture
LAICA Brand House Limited	Holding and licensing of trademarks	Hong Kong	45	Joint venture
Strix Australia Pty Limited	Holding company	Australia	100	Subsidiary
Billi UK Limited	Manufacture and sale of products	United Kingdom	100	Subsidiary
Billi Australia Pty Limited	Manufacture and sale of products	Australia	100	Subsidiary
Billi New Zealand Limited	Manufacture and sale of products	New Zealand	100	Subsidiary
Billi R&D Limited	Research and development	Australia	100	Subsidiary
Billi Financial Services Limited	Financial Services	Australia	100	Subsidiary

 

Group restrictions

 

Cash and cash equivalents held in China are subject to local exchange control regulations. These regulations provide for restrictions on exporting capital from those countries, other than through normal dividends. The carrying amount of the cash and cash equivalents included within the interim financial statements to which these restrictions apply is £1,430,000 (FY 2022: £3,568,000). There are no other restrictions on the Group's ability to access or use the assets and settle the liabilities of the Group's subsidiaries.

 12. Trade and other receivables

	30 June 2023	31 December 2022
	£000s	£000s
Amounts falling due within one year:
Trade receivables	18,960	19,547
Loss allowance	(198)	(158)
Trade receivables - net	18,762	19,389
Prepayments	1,654	2,335
Advance purchases of commodities	2,629	2,344
VAT receivables	2,222	1,279
Tax receivables	443	497
Other receivables	2,055	4,444
	27,765	30,288

 

Trade and other receivables carrying values are considered to be equivalent to their fair values.  

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.

13. Trade and other payables

 

	30 June 2023	31 December 2022
	£000s	£000s
Trade payables	12,541	10,010
Current income tax liabilities	509	444
Social security and other taxes	290	368
Other liabilities	7,979	11,447
Payments in advance from customers	2,448	2,270
Accrued expenses	4,075	5,868
	27,842	30,407

 

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

14. Borrowings

	30 June 2023	31 December 2022
	£000s	£000s
Current bank loans	14,638	14,734
Non-current bank loans	99,877	103,092

 

The current bank loans comprise of current portion of term loan explained in detail below and small individual short-term arrangements for financing purchases and optimizing cash flows within the Italian subsidiary and were entered into by LAICA S.p.A. prior to acquisition by the Group.

 

Current and non-current borrowings are shown net of loan arrangement fees of £1,023,000 (2022: £956,000) and £1,399,000 (2022: £422,000) respectively.

Term and debt repayment schedule for long-term borrowings

	Currency	Interest rate	Maturity Date	30 June 2023 carrying value (£000s)	31 December 2022 carrying value (£000s)
Revolving Credit Facility	GBP	SONIA + 2.15% to 4%	25-Oct-25	77,578	80,000
Term loan	GBP	SONIA + 2.15% to 4%	30-Nov-25	35,455	39,000
Unicredit facility	EUR	EURIBOR 6M + 1,2%	28-Jun-24	86	133
Banco BPM	EUR	1.45%	30-Nov-23	75	167
Banca Monte dei Paschi di Siena	EUR	2.95%	30-Jul-23	414	-
Intesa San Paolo	EUR	3.73%	30-Jul-23	120	-
Intesa San Paolo	EUR	4.22%	31-Aug-23	297	-
Banco BPM	EUR	3.83%	31-Oct-23	488	-
IRS on bank loans	EUR			3	(4)
Credito Emiliano	EUR	1.10%	04-Jan-23	-	221
Banco BPM	EUR	1.69%	03-Jan-23	-	112
Banco BPM	EUR	1.69%	03-Jan-23	-	54
Banco BPM	EUR	1.00%	28-Feb-23	-	432
BNP Paribas	EUR	0.79%	03-Feb-23	-	436
				114,516	120,552

 

Towards the end of the prior year, the existing revolving credit facility ('RCF') agreement was further refinanced and amended on 25 October 2022 as follows:

New lenders - Barclays Bank Plc and HSBC Bank Plc came on board as new lenders under the restated agreement.

Revolving credit facility (Facility B) - This relates to the RCF of £80,000,000. The termination date has been revised to three years after the fourth restatement date, 25 October 2025, with an option to extend the term initially by twelve months and a further twelve months thereafter. The purpose of the extended facility was to finance the acquisition of LAICA as well as other significant capital projects including the new factory in China and ongoing working capital needs of the Group. Under the amended agreement, the purpose of the RCF remains the same. As at 30 June 2023, the total facility available is £80,000,000 (31 December 2022: £80,000,000).

Term loan (Facility A) - The Company obtained further funding on 30 November 2022 in the form of a three-year term loan of £49,000,000 payable initially by a lump sum of £10,000,000 followed by eleven fixed repayments thereafter with the first quarterly repayment of £3,545,000 which was paid on 31 March 2023. The purpose of the term loan was to finance the acquisition of Billi. The £10m repayment was made towards the term loan on 30 November 2022. As at 30 June 2023, the outstanding balance on the term loan is £35,454,000 (31 December 2022: £39,000,000).

Interest applied to the revolving credit facility and term loan is calculated as the sum of the margin and SONIA. The margin under the amended agreement was 3.5% until 31 March 2023, and then 2.85% from 1 April 2023 to 30 June 2023, and thereafter margin will be dependent on the net leverage of the Group based on the following table:

Leverage	Facility A Margin % p.a.	Facility B Margin % p.a.
Greater than or equal to 3.0:1	4.00	4.00
Less than 3.0:1 but greater than or equal to 2.5:1	3.50	3.50
Less than 2.5:1 but greater than or equal to 2.0:1	2.85	2.85
Less than 2.0:1 but greater than or equal to 1.5:1	2.35	2.35
Less than 1.5:1 but greater than or equal to 1.0:1	2.15	2.15
Less than 1.0:1	2.00	2.00

 

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 material subsidiaries have entered into the agreement as guarantors, guaranteeing the obligations of the borrowers under the agreement (2022: same).

Transactions costs amounting to £135,000 in H1 2023 (FY 2022: £2,324,000) were incurred as part of refinancing and amending the RCF agreement, and were capitalised and are being amortised over the period of three years.

The various agreements contain representations and warranties which are usual for an agreement of this nature. The agreement also provided 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 2023, the Group has not breached any of the financial covenants contained within the agreements (2022: same)

The fair values of the borrowings are not materially different from their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature.

 15. CAPITAL Commitments

	30 June 2023	31 December 2022
	£000s	£000s
Contracted for but not provided in the interim financial statements: Property, plant and equipment	677	695

 

The above commitments include capital expenditure of £527,000 (2022: £256,000) relating to plant and machinery and production equipment for the factory in China.

16. Dividends

The following amounts were recognized as distributions in the period:

	Period ended 30 June 2023	Period ended 30 June 2022
	£000s	£000s
Final 2022 dividend of 3.25p per share (H1 2022: 5.60p)	-	11,601
Total dividends recognized in the period	-	11,601

 

The aggregate amount of £7.1m for the proposed final dividend for year ended 31 December 2022 was paid on 11 August 2023 out of retained earnings at 31 December 2022. The payment of this dividend had no tax consequences for the Group.

In addition to the above dividend, since the end of the period the Directors have approved the payment of an interim dividend of 0.9p per share. The aggregate amount of the interim dividend expected to be paid on 29th December 2023 out of retained earnings at 30 June 2023, but not recognised as a liability at the period end, is £1,968,398.10. The payment of this dividend will not have any tax consequences for the Group.

17. FUTURE LEASE LIABILITIES

The table below shows the split of future leases payable between current and non-current in the condensed interim consolidated balance sheet:

	30 June 2023	31 December 2021
	£000s	£000s
Current future lease liabilities (due within 12 months)	911	1,069
Non-current future lease liabilities (due in more than 12 months)	2,814	2,819
Total future lease liabilities payable	3,725	3,888

 

18. Cash flow statement notes

a) Cash generated from operations

		Period ended 30 June 2023	Period ended 30 June 2022
		£000s	£000s
Cash flows from operating activities
Operating profit		9,900	9,132
Adjustments for:
Depreciation of property, plant and equipment  (note 9)		1,998	1,512
Depreciation of right-of-use assets  (note 9)		607	479
Amortisation of intangible assets (note 8)		1,231	1,062
Share of losses from joint ventures		25	10
(Profit)/loss on disposal of property, plant and equipment		(6)	40
Other non-cash flow items		(14)	1,243
Share based payment transactions		86	572
Net exchange differences		488	(128)
		14,315	13,922
Changes in working capital:
Increase in inventories		(147)	(4,223)
(Increase) / Decrease in trade and other receivables		(769)	2,722
Decrease / (Increase) in trade and other payables		1,044	(2,662)
Cash generated from operations		14,443	9,759

 

 

 

b) Movement in net debt 

 

			Non-cash movements
	At 1 January 2023	Cash flows	Currency movements	Other movements	At 30 June 2023
	£000s	£000s	£000s	£000s	£000s
Borrowings, net of loan arrangement fees	(117,826)	3,661	-	(350)	(114,515)
Lease liabilities	(3,888)	489	-	(326)	(3,725)
Total liabilities from financing activities	(121,714)	4,150	-	(676)	(118,240)
Cash and cash equivalents	30,443	(8,327)	(684)	-	21,432
Net debt	(91,271)	(4,177)	(684)	(676)	(96,808)

 

 

 

 

 

19. 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 Operational Board, representing members of the senior management team from all key departments of the Group.

	Period ended 30 June 2023	Period ended 30 June 2022
	£000s	£000s
Salaries and other short-term employment benefits	1,045	1,003
Post-employment benefits	88	93
Termination	-	74
Share-based payment transactions	-	450
	1,133	1,620

There are no defined benefit schemes for key management.

20. Post balance sheet events

The Group does not have any material events after the reporting period to disclose.