REG - Strix Group PLC - Interim Results
21/09/2022 07:00
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RNS Number : 0654A Strix Group PLC 21 September 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
21 September 2022
Strix Group Plc
("Strix", the "Group" or the "Company")
Interim results for the six months ended 30 June 2022
Despite the challenging macroeconomic and geopolitical environment, the
Company has
delivered a robust performance across its three product categories and made
progress towards medium-term targets
Financial Summary
Adjusted results(1)
H1 2022 H1 2021 H1 2020 Change (22 - 21) Change (22 - 20)
£m £m £m %(5) %(5)
Revenue 50.7 54.7 34.7 -7.3% 46.1%
Gross profit 19.5 20.5 13.8 -4.9% 41.3%
EBITDA(2) 15.9 17.4 13.6 -8.6% 17.6%
Operating profit 12.9 13.9 10.6 -7.2% 21.7%
Profit before tax 11.6 13.2 10.1 -12.1% 14.9%
Profit after tax 11.6 12.3 9.8 -5.7% 18.4%
Profit after tax 10.7 12.3 9.8 -13.0% +9.2%
(excluding accounting estimates changes)(3)
Net debt(4) 61.3 46.0 36.9 33.3% 66.1%
Net cash generated from operating activities 9.9 13.5 8.3 -26.7% 19.3%
Basic earnings per share (pence) 5.6 6.0 4.9 -6.7% 14.3%
Diluted earnings per share (pence) 5.5 5.9 4.9 -6.8% 12.2%
Interim dividend per share (pence) 2.75 2.75 2.6 0.0% 5.8%
1. Adjusted results exclude exceptional items, which include
share based payment transactions, 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. Accounting estimate changes relate to the reassessment of
useful lives performed in the current period of various assets within the
group, particularly relating to production and development processes.
4. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred tax liabilities and earn-out provisions on
satisfaction of performance conditions.
5. Figures are calculated from the full numbers as presented in
the consolidated financial statements.
Financial Highlights
· The Group reported revenue of £50.7m, a decrease of 7.3% versus the same
period in prior year and an increase of 15.5% versus the same period in
pre-COVID 2019 as revenues were adversely impacted by the ongoing conflict in
Ukraine on certain peripheral geographies.
· Adjusted gross profit margin was 38.5% (2021: 37.5%) driven by the Group's
ability to manage costs and to flex variable overheads in line with sales
performance.
· Adjusted profit after tax was £11.6m (2021: £12.3m), representing a 5.7%
decrease compared to the same period last year and an increase of 6.4% versus
the comparable period in pre-COVID 2019.
· Net debt increased to £61.3m (FY 2021: £51.2m) as a result of further
drawdowns to fund net working capital, capital expenditure and employment
earn-out payments. This represents a net debt/adjusted EBITDA ratio
(calculated on a trailing twelve month basis) of 1.6x.
· The Group has significant liquidity providing financial flexibility to
continue to deploy capital consistent with its allocation of capital
priorities and is focused on investing in compelling growth opportunities.
· Adjusted basic earnings per share and adjusted diluted earnings per share were
5.6p (H1 2021: 6.0p) and 5.5p (H1 2021: 5.9p) respectively.
· The Board is maintaining an interim dividend of 2.75p per share (2021: 2.75p).
Strategic Highlights
· On track to deliver medium-term targets to double the Group's revenues
primarily through growth in its water and appliances categories.
· Successfully implemented further product price increases across the full
kettle controls range and water categories (the most recent was with effect
from 1 May 2022).
· Maintained market leading market share position of 56% of the global kettle
controls market by value.
· Strong recognition for Strix domestic appliances. Aurora achieved the Quiet
Mark award, Housewares' Sustainable Product of the Year and nominated for Best
New Product: Small Domestic Appliance at the ERT Awards. The Visione induction
kettle was awarded both the German Design Award 2022 and the Red Dot design
award.
Operational Highlights
· Production efficiency of core kettle products improved with 77% of all
assembly lines now fully automated.
· In the appliances category, there has been some promising signs of consumer
market penetration of product ranges.
· In the water category, new distribution and private label contracts have been
secured with reputable distributors, retailers and brands.
· The sustainability agenda for 2022/23 remains high on the agenda as the
Company delivers on Scope 1&2 targets, analyse Scope 3 emissions and
continue to focus on other KPIs.
· New Strix.com website launched demonstrating the Company's vision of the
future.
Mark Bartlett, Chief Executive Officer of Strix Group plc, said:
"Despite the challenging macroeconomic and geopolitical environment, Strix has
delivered a robust performance across its three product categories and remains
on track to deliver medium-term targets to double the Group's revenues
primarily through growth in its water and appliances categories.
The macro headwinds have resulted in a reduction in demand in the kettle
control category in the key export markets but offsetting this has been a
recent improvement in trading conditions within China which has already
started to come through. In the appliances category, there has been some
promising signs of consumer market penetration of product ranges and in the
water category, new distribution and private label contracts have been secured
with reputable distributors, retailers and brands.
The Group remains in a strong financial position and given strength of its
cash generation, the Board declares an interim dividend that is in line with
last year."
For further enquiries, please contact:
Strix Group Plc Tel: +44 (0) 1624 829829
Mark Bartlett, CEO
Raudres Wong, CFO
Zeus Capital Limited (NOMAD and Joint Broker) +44 (0) 20 3829 5000
Nick Cowles / Jamie Peel / Jordan Warburton (Investment Banking)
Stifel Nicolaus Europe Limited (Joint Broker) +44 (0) 20 7710 7600
Matthew Blawat / Francis North
IFC Advisory Limited (Financial PR and IR) +44 (0) 20 3934 6630
Graham Herring / Tim Metcalfe / Florence Chandler
Market Abuse Regulation (EU) NO. 596/2014
This announcement contains inside information. The person responsible for
arranging the release of this announcement on behalf of the Company is Raudres
Wong, CFO.
CEO's report:
Introduction
In the first half of 2022, despite the challenging macroeconomic and
geopolitical environment, Strix has delivered a robust trading performance
across the three product categories; kettle controls, water, and appliances.
This performance demonstrates the resilience of Strix's business model, which
benefits from geographical and product diversification and is strengthened
further by the Group's high cash generation and prudent control of its balance
sheet.
In addition, the Group has made solid progress against its medium-term target
to double Group revenues primarily through organic growth in its water and
appliances categories.
Financial performance
The Group reported revenues that decreased by 7.3% to £50.7m (H1 2021
£54.7m). As stated in the pre-close trading update released in July, revenues
have been adversely impacted by the ongoing conflict in Ukraine on certain
peripheral geographies, resulting in a decrease for the kettle controls
category.
Despite this and the challenging macroeconomic and geopolitical environment,
the water category showed an improvement against the same period last year
reflecting the success of the performance from online market place launches as
Strix continues to expand its online presence. The appliances category also
saw a slight increase compared to the prior comparative period as the Group
started to show promising signs of consumer market penetration for its Aurora
and Dual Flo product ranges.
Adjusted gross profit margin in H1 2022 was 38.5%, showing a margin
improvement of 1.0% compared to the same period last year. This emanates from
the Group's continued resilience to manage costs in light of decreases in
revenues and our ability to flex variable overheads in line with sales
performance. The main reasons behind the margin improvement were market growth
in the appliance category, favourable foreign currency movements which had
positive impacts on products priced in foreign currencies, efficiencies
realised from automation of production lines, the use of lean production
processes and in-sourcing, and price increases implemented in the latter part
of the first half of this year across the full kettle controls range and the
water category which partially covered cost increases in direct labour wage
costs, commodity and inward freight costs.
The Group's net debt position, excluding earn-out provisions, as at 30 June
2022 increased to £61.3m (FY 2021: £51.2m) as a result of further drawdowns
to fund net working capital, capital expenditure and employment earn-out
payments. This represents a net debt/adjusted EBITDA ratio (calculated on a
trailing twelve month basis) of 1.6x.
Strix has a highly cash generative model which incorporates a high return on
capital employed (ROCE) and a high proportion of cash in advance payment terms
limits risk of non-payment and working capital fluctuations. The Group is in a
strong financial position with significant liquidity providing flexibility to
continue to deploy capital consistent with its allocation of capital
priorities. It is focused on investing in compelling growth opportunities,
in particular on new product development and attractive acquisition
opportunities that support the medium-term growth ambition of the Group.
Given the confidence in the continued strength of its cash generation of the
Group, the Board declares an interim dividend of 2.75p per share (H1 2021:
2.75p).
Kettle control category
Overall, the kettle control category reported a decrease in revenue of 11.7%
to £34.8m in H1 2022.
Previously, the Group has indicated it had no direct sales into Russia and
any products sold into that region are typically from a Chinese based OEM
which equated to total revenues of circa £3m in 2021. However, as outlined
in its trading update in July, certain peripheral geographies have been
adversely impacted by the ongoing conflict in the Ukraine and it is
estimated that this will now represent total revenues of
circa £5m - £7m across the Group for 2022.
Whilst macroeconomic and geopolitical uncertainty looks set to continue in the
near term, historically during recessions, whilst "distress" purchasing
maintains there is a softening in "discretionary" purchases by consumers and
due to the supply chain bull whip effect, we experience an undershoot entering
a recession and a overshoot exiting a recession.
The recessionary fears manifested during H1, with the Regulated market showing
15% declines versus 2021 YTD with key markets of UK and Europe being closer to
down 20%, whilst Less Regulated was down over 10% as certain peripheral
geographies were significantly impacted by the conflict in Ukraine.
The Kettle Safety Controls category is a very resilient business and despite
the significant number of headwinds, it has maintained its market leading
position of 56% of the global kettle controls market by value.
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.
Continuous improvement initiatives in manufacturing, measurement and testing
processes also remain a key focus to enhance product performance to help
customers improve their sustainability ambitions, product quality and reduce
costs. Production efficiency of core kettle products improved with 77% of all
assembly lines now fully automated.
Appliance category
Overall, the appliance category reported growth in revenue of 6.5% to £5.6m
in H1 2022 as we started to show promising signs of consumer market
penetration for our Aurora and Dual Flo product ranges.
Strix seeks to use its technology and innovation expertise to develop adjacent
products to solve problems in tangential markets in a sustainable way. The
Group looks to develop products offering meaningful benefits to customers
which can then be commercialised through existing relationships with
experienced and trusted OEM's and consumer appliance specialists.
Within the Appliance category, Aurora (Strix's Instant Flow Heater
technology, delivering auto-dispensed hot, boiled, and chilled filtered water
at the touch of a button) is now starting to show signs of penetrating
consumer markets across the world. The Aurora Hot was launched in Q4 2021 and
is selling well on Amazon, while the Aurora Chilled was launched in Q2
2022. The Aurora has recently been awarded the Quiet Mark award, which is
a prestigious industry accreditation aimed at encouraging companies worldwide
to prioritise noise reduction within product design and it was also awarded
the honour of Housewares' Sustainable Product of the Year. It has also been
nominated for Best New Product: Small Domestic Appliance at the upcoming
distinguished ERT Awards.
Dual Flo (which combines Strix's technology with LAICA's classic Italian
design and is believed to be the UK's only combined kettle and one cup hot
water dispenser with an innovative, energy saving facility) was launched in
April in the UK and July in Europe and is selling well on Amazon under the
LAICA brand.
The Visione induction kettle has recently been awarded both the German
Design Award 2022 and the Red Dot design award, two prestigious awards in
the industry. Following a successful crowd funding campaign to understand
consumer feedback and enable final improvements the Visione will be fully
launched in UK and European markets in Q4 2022.
Baby Brezza launched a steriliser dryer with Strix's patented technology in
USA in August achieving strong consumer reviews with 4.5 out of 5 star reviews
in the first month of launch online. It will be rolled out in traditional
retail from October.
Water category
Overall, the water category reported a growth in revenue of 2.9% to £10.3m in
1H 2022 reflecting the success of its performance from online market place
launches as Strix continues to expand its online presence.
The water category has also made strong progress in line with the Group's
international growth aspirations and issues experienced as a result of Brexit
have also been successfully overcome by utilising LAICA as the European base,
as well as a resumption of sales through online channels such as Amazon EU in
the key markets of France, Germany, Italy and Spain.
In addition, online market place launches of the Aqua Optima and LAICA
products have been secured on platforms such as, eBay, OnBuy and B&Q and
Strix plans to have a further five prior to year end as the Group continues to
expand its online presence. This has been enabled through a partnership with
an online marketplace agency and a new logistics provider to offer direct to
consumer deliveries across the UK. This will be rolled out in Europe next
year.
In addition to key range extensions within the UK and Europe, new contracts
have been secured for key distributors
across Europe, Canada, USA and China which will support the growth
ambition during H2 and beyond. Additionally in the US, Strix has a signed up a
further three sales representative groups providing national coverage and an
infrastructure that has enabled it to obtain a major listing with Sam's Club
for LAICA products.
In H2, it is planned that Aqua Optima products will be cross-sold into a
number of LAICA's key European markets (Italy, Czech Republic, Slovakia,
Romania and Hungary) and LAICA products will be cross-sold into a number of
Aqua Optima's key markets (UK Netherlands, Poland, Ukraine and Israel).
Also Perfect Pour, a new patented design for water filtration jugs and
dispensers will be launched in H2 across the UK and Europe and is an example
of an innovative product that has been wholly designed and manufactured by
Strix. North America launch will be in Q2 2023.
Operations review
The new factory within Zengcheng district in Guangzhou, China, is now fully
operational and will double the Group's current manufacturing capacity
enabling it to grow the business and deliver its stated medium term
strategy. Efficiencies and further in-sourcing arising from the new
manufacturing facility are expected to have a positive effect on margins.
Strix's manufacturing operations have not been materially affected by
the evolving COVID-19 situation in China. The proactive approach to
minimise potential supply chain disruption by increasing levels of finished
stock means that the Group is well positioned to benefit from any improvement
in consumer demand in H2 which it is monitoring closely.
Barriers to entry and defence of intellectual property
Strix constantly assesses the risks posed by competitive threats and sees the
real benefits of market disruption 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 its 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 3
further actions initiated in H1 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 is 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 along with investment in
solar capacity, including further investment in 2022. Indeed, Strix now
expects its own renewable sources to generate around 10% of the Group's total
energy requirements. 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 2022/23 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, including elements such as modes of
transportation of goods.
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 2022/23 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.
An update of our KPIs are set out in the sustainability report available on
the Strix website.
Dividend policy
Given the confidence in the continued strength of its cash generation of the
Group, the Board declares an interim dividend of 2.75p per share (2021:
2.75p).
The interim dividend will be paid on 28 October 2022 to shareholders on the
register at 7 October 2022 and the shares will trade ex-dividend from 6
October 2022.
Financial Position
Strix is in a strong financial position with significant liquidity providing
flexibility to continue to deploy capital consistent with its allocation of
capital priorities and is focused on investing in compelling growth
opportunities, in particular on a new product development and
commercialisation strategy that supports the medium-term growth ambition of
the Group.
The Company also continues to seek the acquisition of technologies that will
add further strategic value across the Group and has a buoyant pipeline of
opportunities it is tracking closely. Following the successful integration of
LAICA, the Group is now actively considering a number of potential acquisition
targets.
Exceptional costs decreased to £3.8m (H1 2021: £4.8m). With the completion
of the new manufacturing plant in China last year, there were no
factory-related exceptional costs incurred in the current period as compared
to the prior comparative period. Exceptional costs incurred in the current
period mainly related to the accrual of the employment earn-out costs payable
in 2023 to vendor shareholders of LAICA per the supplemental consulting
agreement signed at acquisition. Other exceptional items include
reorganisation costs relating to internal restructuring.
Net working capital which includes inventories, trade and other receivables,
and trade and other payables (including tax liabilities, excluding short-term
portions of long-term liabilities) increased to £23.6m (FY 2021: £18.0m), an
increase on £5.6m. The main driver behind this is an increase inventory
levels by £4.2m. Stock is traditionally built up in the first half of the
year due to seasonality, with the second half of the year historically proving
to be stronger than the first half, therefore it is anticipated that stock
levels will start to clear down towards the later part of the year due to
increased demand. Other drivers for the increase in net working capital were
decreases in trade and other payables of £4.1m mainly due to payments made to
suppliers, partially offset by decreases in trade and other receivables of
£2.7m due to VAT receipts from the Chinese government relating to the
construction and completion of the new factory in China last year.
Outlook
Macroeconomic and geopolitical uncertainty looks set to continue in the near
term, presenting our markets with challenges over the next 12 months.
In light of the significant and well-publicised macro headwinds which have
resulted in a reduction in demand in the key export markets, adjusted profit
after tax consensus for the full year is anticipated to be in range of £27m
to £29m. This is based on an improvement in trading conditions within China
which has already started to come through, the second half of the year
always having been seasonally stronger than the first, the kettle safety
controls category being a very resilient business, some promising signs of
consumer market penetration of our product ranges and the recent success of
online market place launches.
Alongside this, Strix has successfully implemented further product price
increases across the full kettle controls range and water categories (the most
recent was with effect from 1 May 2022). Strix has previously benefitted from
its ability to adjust its highly variable cost base and it will be
implementing a further range of efficiency measures and strategic
initiatives to manage costs during this period in order to minimise the
impact of the challenging operating environment and ongoing cost inflation.
Disposable incomes continue to be squeezed by rising inflation and interest
rates, but crucially Strix do not yet know how policy makers will respond to
this. Strix will be in a better position to judge how next year's performance
might be influenced by the market backdrop later this year.
The Group remains on track to deliver medium-term targets to double the
Group's revenues primarily through growth in its water and appliances
categories.
Chief financial officer's review
Adjusted results(1) Reported results
H1 2022 H1 2021 H1 2020 Change (22 - 21) Change (22 - 20) H1 2022 H1 2021 H1 2020 Change (22 - 21) Change (22 - 20)
£m £m £m %(5) %(5) £m £m £m %(5) %(5)
Revenue 50.7 54.7 34.7 -7.3% +46.1% 50.7 54.7 34.7 -7.3% +46.1%
Gross profit 19.5 20.5 13.8 -4.9% +41.3% 19.0 18.2 13.8 +4.4% +37.7%
EBITDA(2) 15.9 17.4 13.6 -8.6% +16.9% 12.2 12.7 11.1 -3.9% +9.9%
Operating profit 12.9 13.9 10.6 -7.2% +21.7% 9.1 9.1 8.1 0.0% +12.3%
Profit before tax 11.6 13.2 10.1 -12.1% +14.9% 7.9 8.5 7.5 -7.1% +5.3%
Profit after tax 11.6 12.3 9.8 -5.7% +18.4% 7.8 7.6 7.3 +2.6% +6.8%
Profit after tax 10.7 12.3 9.8 -13.0% +9.2% 6.9 7.6 7.3 -9.2% -5.5%
(excluding accounting estimates changes)(3)
Net debt(4) 61.3 46.0 36.9 +33.3% +66.1% 61.3 46.0 36.9 +33.3% +66.1%
Net cash generated from operating activities 9.9 13.5 8.3 -26.7% +19.3% 9.9 13.5 8.3 -26.7% +19.3%
Basic earnings per share (pence) 5.6 6.0 4.9 -6.7% +14.3% 3.8 3.7 3.7 +2.7% +2.7%
Diluted earnings per share (pence) 5.5 5.9 4.9 -6.8% +12.2% 3.7 3.6 3.6 +2.8% +2.8%
Interim dividend per share (pence) 2.75 2.75 2.6 0.0% +5.8% 2.75 2.75 2.6 0.0% +5.8%
1. Adjusted results exclude exceptional items, which include
share-based payment transactions, other reorganisation and strategic project
costs. Adjusted results are non-GAAP metrics used by management and are not an
IFRS disclosure.
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. Accounting estimate changes relate to the reassessment of
useful lives performed in the current period of various assets within the
group, particularly relating to production and development processes. Refer to
notes 2, 8 and 9 of the consolidated financial statements.
4. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred tax liabilities and earn-out provisions on
satisfaction of performance conditions.
5. Figures are calculated from the full numbers as presented in
the consolidated financial statements.
Financial performance
Revenues decreased by 7.3% to £50.7m (H1 2021 £54.7m), mainly due to a drop
in sales within our kettle controls category. As stated previously in our
pre-close trading update released in July, revenues have been adversely
impacted by the ongoing conflict in Ukraine, resulting in a decrease of
c.£4.6m (11.7% decrease) for kettle controls. Despite the drop in overall
sales, the water category showed an improvement from same period last year
reflecting the success of our performance from online market place launches as
Strix continues to expand its online presence. The appliances category also
saw a slight increase in revenues compared to the prior comparative period as
we started to show promising signs of consumer market penetration for our
Aurora and Dual Flo product ranges. Revenue increased by 46.1% above H1 2020
levels.
Adjusted gross profit decreased by 4.9% to £19.5m (H1 2021: £20.5m), in most
part due to the impact of revenues for kettle controls falling as described
above, resulting in a 10.3% decrease from H1 2021. The decrease was slightly
offset by increases for both the water and appliances categories of £0.1m
(3.1% increase) and £0.7m (53.3% increase) respectively, reflective of the
increases in sales in these categories as described above. Reported gross
profits increased by 4.4% to £19.0m (H1 2021: £18.2m).
Adjusted gross profit margin in H1 2022 was 38.5% (H1 2021: 37.5%), showing a
margin improvement of 1.0% compared to the same period last year. This
improvement in margins emanates from the Group's continued resilience to
manage costs in light of decreases in revenues and our ability to flex
variable overheads in line with sales performance. The main reasons behind the
margin improvement were market growth in the appliance category, favourable
foreign currency movements, efficiencies realised from automation of
production lines, the use of lean production processes and in-sourcing, and
prices increases implemented in the later part of the first half of this year
across our full kettle controls range and the water category which partially
covered off any cost increases in direct labour wage costs, commodity and
inward freight costs.
Adjusted EBITDA was £15.9m (H1 2021: £17.4m), showing a decrease of 8.6%
compared to the same period last year. The decrease is directly attributable
to the decrease in revenues as described above. Adjusted EBITDA is defined as
profit before depreciation, amortisation, finance costs, finance income,
taxation, and exceptional items including share based payments. Reported
EBITDA decreased by 3.9% to £12.2m (H1 2021: £12.7m).
Adjusted EBITDA margin in H1 2022 was 31.4% (H1 2021: 31.8%), representing a
small dilution of 0.4%.
Offsetting the improvement in adjusted gross profit margins described above
were various factors which then contributed to the dilution of adjusted EBITDA
margins. These include, amongst others, investment in resources bench
strength in the commercial area to meet medium-term targets, higher
advertising and promotional costs as the Group continued to further promote
water and appliances products in the market, and the optimisation of our
supply chains in order to improve on commercial performance and deliver on
customer value.
Adjusted operating profits decreased by 7.2% to £12.9m (H1 2021: £13.9m),
showing a decrease of £1.0m, attributable mainly to the drop in revenues.
Reported operating profits remained static at £9.1m (H1 2021: £9.1m) after
deducting exceptional costs of £3.8m (H1 2021: £4.8m) which decreased mainly
due to reasons described in the "Costs" section further below. Excluding the
impact of the change in accounting estimates described in the paragraph below,
adjusted operating profits in H1 2022 were £12.0m (H1 2021: £13.9m).
Adjusted operating profit margins remained unchanged comparing to the same
period last year, sitting at 25.4% (H1 2021: 25.4%). Partial reasoning for a
static adjusted operating profit margin position is due to accounting
estimates changes made during the period relating to the reassessment of the
useful lives of certain production and other assets which resulted in lower
depreciation charges of £0.9m being recognised in the current period compared
to the same period last year. Refer to notes 2, 8 and 9 of the consolidated
financial statements below for full disclosures of the change in accounting
estimates.
Adjusted profit before tax was £11.6m (H1 2021: £13.2m), a decrease of
£1.6m (12.1% decrease) from the same period last year. Incremental finance
costs of £0.6m were recognised due to an increase in the net debt (H1 2022:
£1.3m; H1 2021: £0.7m). Reported profit before tax was £7.9m (H1 2021:
£8.5m).
Adjusted profit after tax was £11.6m (H1 2021: £12.3m), a decrease of £0.7m
(5.7% decrease). The tax expense decreased in the current year mainly due to
certain tax incentive credits granted in Italy during the current period, and
continued adoption of certain tax measures in China with the move of
operations to the new factory last year. Reported profit after tax was £7.8m
(H1 2021: £7.6m). The effective tax rate on adjusted profit before tax in FY
2021 was 0.04% (H1 2021: 6.8%%). Excluding the impact of the change in
accounting estimates described above, adjusted profit after tax in H1 2022 was
£10.7m (H1 2021: £12.3m).
Costs
Costs in the current period decreased overall compared to the same period last
year period in line with the decrease in revenues.
Cost of sales (excluding exceptional costs) decreased to £31.2m (H1 2021:
£34.2m), directly attributable to the decrease in revenues, however with an
incremental (positive) effect on gross margins mainly due to the impact of
foreign currency exchange movements, price increases implemented on our
products in the current period, market share gains in our appliances category,
and efficiencies realised from use of automation, lean production processes
and in-sourcing.
Distributions costs increased to £4.5m (H1 2020: £3.9m) mainly due to higher
outward carriage and freight costs, higher payroll costs for sales and
marketing staff, and increased advertising and promotional costs as we
continue our drive to expand our reach in the market for our water and
appliance products.
Administration costs (excluding exceptional costs) were £2.7m (H1 2021:
£3.0m). Savings were realised as management implemented various cost saving
and restructuring initiatives.
Exceptional costs decreased to £3.8m (H1 2021: £4.8m). With the completion
of the new manufacturing plant in China last year, there were no material
factory-related exceptional costs incurred in the current period. Exceptional
costs incurred in the current period mainly related to the accrual of the
employment earn-out costs payable in 2023 to vendor shareholders of LAICA per
the supplemental consulting agreement signed at acquisition. Other exceptional
items include reorganisation costs relating to internal restructuring.
Cash flow
Net cash generated from operating activities decreased to £9.9m (H1 2021:
£13.5m) mainly due to movements in net working capital, which showed an
outflow of £4.2m in H1 2022 compared to an outflow of £0.4m in H1 2021. The
decrease in cash flows from net working capital were mainly due to increases
in stocks held at period-end as a result of increased finished stocks holding
to minimize potential supply chain disruption along with slower demand than
anticipated in the first half, however diligent measures were put in place to
optimise our supply chains, manufacturing and in-sourcing in the second half
of the year to match our sales planning and forecasting. Concerted efforts
were exercised to collect c.£4.0m VAT outstanding from the FY 2021 year-end
to help to counter the adverse effects from stocks holdings.
Cash outflows for investing activities have decreased by £3.8m from the same
period last year as capital expenditure incurred in H1 2021 associated with
the construction and completion of the new factory did not recur.
Cash flows for financing activities increased compared to the prior
comparative period, mainly driven by higher finance costs of £1.7m (H1 2021:
£0.3m) paid in line with an increase in the net debt.
Balance Sheet
Property, plant and equipment decreased slightly to £42.4m (FY 2021:
£42.8m), a net decrease of £0.4m. This net decrease was as a result of
additions of £2.1m mainly of plant and machinery and production tooling as
the Group further enhances its production lines to gain efficiencies and
in-sourcing capabilities, partially offset by depreciation charges of £2.0m
and write-off of assets (mainly right of use assets) of circa £0.5m due to
streamlining of offices overseas.
Intangible assets increased to £31.9m (FY 2021: £30.5m) reflecting a net
increase of £1.4m. The net increase is due to additions of circa £1.9m, the
majority of which are capitalised development costs from new product
development projects of circa £1.6m. The total amortisation charge was £1.1m
(H1 2021: £1.0m), and foreign currency movements of £0.6m were recognised on
translation of intangible assets recognised on acquisition of LAICA which are
dominated in Euro.
Net working capital which includes inventories, trade and other receivables,
and trade and other payables (including tax liabilities, excluding short-term
portions of long-term liabilities) increased to £23.6m (FY 2021: £18.0m), an
increase on £5.6m. The main driver behind this is an increase in inventory
levels by £4.2m as a result of increased holding to minimize potential supply
chain disruption in China and slower demand than planned. Other drivers for
the increase in net working capital were decreases in trade and other payables
of £4.1m mainly due to payments made to suppliers, partially offset by
decreases in trade and other receivables of £2.7m due to VAT receipts from
the Chinese government relating to the construction and completion of the new
factory in China last year.
Non-current liabilities (including short-term portions) increased to £92.5m
(FY 2021: £85.0m), an increase of £7.6m, which is mainly driven by the
further drawdowns in the period from the revolving credit facility to fund net
working capital, capital expenditure and the employment earn-out payments made
at the beginning of the year to the vendor shareholders of LAICA.
Net debt
The Group's net debt position, excluding earn-out provisions, as at 30 June
2022 increased to £61.3m (FY 2021: £51.2m).
Total committed debt facilities at 30 June 2022 amounted to £79.5m, giving a
liquidity pool of £18.7m. Net debt equated to 1.6 times trailing twelve
months' EBITDA, which compares favourably to our debt covenant of 2.50 times.
This continues to underpin the Group's strong cash generation ability.
Dividend
The Board declares an interim dividend to 2.75p per share (H1 2021: 2.75p) to
reiterate our intention to continue with a progressive dividend policy linked
to underlying earnings, highlighting our confidence in the continued strength
of cash generation.
The interim dividend will be paid on 28 October 2022 to shareholders on the
register at 7 October 2022 and the shares will trade ex-dividend from 6
October 2022.
Condensed INTERIM consolidated statement of comprehensive income
for the period ended 30 June 2022 (unaudited)
(unaudited) (unaudited)
Period ended
Period ended
30 June 2022
30 June 2021
Note £000s £000s
Revenue 7 50,694 54,666
Cost of sales - before exceptional items (31,207) (34,206)
Cost of sales - exceptional items 6 (468) (2,280)
Cost of sales (31,675) (36,486)
Gross profit 19,019 18,180
Distribution costs (4,508) (3,949)
Administrative expenses - before exceptional items (2,668) (2,950)
Administrative expenses - exceptional items 6 (3,288) (2,476)
Administrative expenses (5,956) (5,426)
Share of (losses) from joint ventures (10) (10)
Other operating income 587 355
Operating profit 9,132 9,150
Analysed as:
Adjusted EBITDA(1) 15,941 17,438
Amortisation 8 (1,062) (952)
Depreciation (excluding Right-of-use asset depreciation) 9 (1,512) (1,772)
Right-of-use asset depreciation 9 (479) (808)
Exceptional items 6 (3,756) (4,756)
Operating profit 9,132 9,150
Finance costs 5 (1,262) (686)
Finance income 5 6
Profit before taxation 7,875 8,470
Income tax expense (43) (893)
Profit after taxation 7,832 7,577
Other comprehensive income:
Exchange differences on translation of foreign operations 678 (388)
Total comprehensive income 8,510 7,189
Profit for the period attributable to:
Equity holders of the Company 7,770 7,526
Non-controlling interests 62 51
7,832 7,577
Total comprehensive income for the period attributable to:
Equity holders of the Company 8,424 6,993
Non-controlling interests 86 196
8,510 7,189
Earnings per share (pence)
Basic 6 3.8 3.7
Diluted 6 3.7 3.6
1. Adjusted EBITDA, which is defined as profit before finance costs,
tax, royalty charges, depreciation, amortisation and exceptional items, is a
non-GAAP metric used by management and is not an IFRS disclosure.
Condensed INTERIM consolidated balance sheet
as at 30 June 2022 (unaudited)
Note (unaudited) (unaudited)
As at
As at
30 June 2022 31 December 2021
ASSETS £000s £000s
Non-current assets
Intangible assets 8 31,819 30,468
Property, plant and equipment 9 42,379 42,763
Investments in joint ventures 33 28
Net investments in finance leases 17 15
Total non-current assets 74,248 73,274
Current assets
Inventories 10 24,245 20,022
Trade and other receivables 12 22,786 25,511
Cash and cash equivalents 18,137 19,670
Total current assets 65,168 65,203
Total assets 139,416 138,477
EQUITY AND LIABILITIES
Equity
Share capital and share premium 13,146 13,139
Share based payment reserve 1,349 2,039
Retained earnings 8,231 10,146
Non-controlling interests 767 681
Total equity 23,493 26,005
Current liabilities
Trade and other payables 13 21,604 25,886
Borrowings 14 1,747 1,064
Future lease liabilities 17 563 773
Contingent consideration 5,760 6,082
Current income tax liabilities 13 1,805 1,631
Total current liabilities 31,479 35,436
Non-current liabilities
Future lease liabilities 17 1,864 2,598
Deferred tax liability 2,334 2,303
Borrowings 14 77,738 69,782
Contingent consideration 1,507 1,382
Post-employment benefits 1,001 971
Total non-current liabilities 84,444 77,036
Total liabilities 115,923 112,472
Total equity and liabilities 139,416 138,477
Condensed INTERIM consolidated statement of changes in equity
as at 30 June 2022 (unaudited)
Share capital and share premium Share-based payment reserve Retained (deficit)/ earnings Total equity attributable to owners Non-controlling interests Total equity
(unaudited) £000s £000s £000s £000s £000s £000s
Balance at 1 January 2021 13,130 1,913 6,290 21,333 716 22,049
Profit for the period - - 7,526 7,526 51 7,577
Other comprehensive loss - - (533) (533) 145 (388)
Total comprehensive income for the period - - 6,993 6,993 196 7,189
Dividends paid (note 16) - - (10,831) (10,831) - (10,831)
Transfers between reserves 8 (975) 967 - - -
Share-based payment transactions - 487 - 487 - 487
Total transactions with owners recognised directly in equity 8 (488) (9,864) (10,344) - (10,344)
Other transactions recognised directly in equity - - 1,016 1,016 - 1,016
Balance at 30 June 2021 13,138 1,425 4,435 18,998 912 19,910
(unaudited)
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
Condensed INTERIM consolidated cash flow statement
for the PERIOD ended 30 June 2022 (unaudited)
(unaudited) (unaudited)
Period ended
Period ended
30 June 2022
30 June 2021
Note £000s £000s
Cash flows from operating activities
Cash generated from operations 18(a) 9,759 14,620
Tax received / (paid) 96 (1,109)
Net cash generated from operating activities 9,855 13,511
Cash flows from investing activities
Purchase of property, plant and equipment (2,954) (8,137)
Capitalised development costs 8 (1,643) (1,529)
Consideration paid in relation to the purchase of LAICA S.p.A (1,671) (1,605)
Purchase of intangibles 8 (175) (627)
Proceeds on sale of property, plant and equipment 9 - 1,750
Finance income 5 6
Net cash used in investing activities (6,438) (10,142)
Cash flows from financing activities
Drawdowns and new loans of non-current borrowings 18(b) 8,543 8,697
Finance costs paid (1,638) (271)
Principal elements of lease payments (401) (855)
Dividends paid 16 (11,601) (10,831)
Net cash used in financing activities (5,097) (3,260)
Net (decrease) / increase in cash and cash equivalents (1,680) 109
Cash and cash equivalents at the beginning of the period 19,670 15,446
Effects of foreign exchange on cash and cash equivalents 147 (146)
Cash and cash equivalents at the end of the period 18,137 15,409
Notes to the condensed INTERIM cONSOLIDATED financial statements
for the PERIOD ended 30 June 2022 (unaudited)
1. General information
Strix Group Plc ('the Company') is incorporated and registered in the Isle of
Man as a company limited by shares under the Isle of Man Companies Act 2006
with the registered number 014963V. The address of the Company's registered
office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG.
The Company's shares trade on AIM, a market operated by the London Stock
Exchange.
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 and water filtration.
These condensed interim consolidated financial statements ('interim financial
statements') were approved for issue on 20 September 2022. The interim report
will be available 21 September 2022 on the Group's website www.strixplc.com
(http://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 2021 and 30 June 2021 respectively.
These interim financial statements should be read in conjunction with the last
annual consolidated financial statements as at 31 December 2021 and the
comparative interim results for the period ended 30 June 2021.
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 2021, which is available at www.strixplc.com
(http://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.
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 recognised as goodwill.
The Group measures goodwill at the acquisition date as:
the fair value of the consideration transferred; plus
the recognised 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.
Transaction costs that the Group incurs in connection with a business
combination are expensed as incurred.
The Group recognises any non-controlling interest in the acquired entity on an
acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired entity's net
identifiable assets.
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 £18.1m (YE 2021: £19.7m);
· the availability of further funding should this be required (with a liquidity
pool of £19.0m (YE 2021: £29.0m) 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.
As a Company, the dividend-paying entity, Strix Group Plc, has sufficient
reserves from which to make distributions to shareholders.
EBITDA and adjusted EBITDA - non-GAAP performance measures
Earnings before interest, taxation, depreciation and amortisation ('EBITDA')
and adjusted EBITDA are non-GAAP measures used by management to assess the
operating performance of the Group. EBITDA is defined as profit before finance
costs, finance income, taxation, depreciation and amortisation. Exceptional
items are excluded from EBITDA to calculate adjusted EBITDA.
The Directors primarily use the adjusted EBITDA measure when making decisions
about the Group's activities. As these are non-GAAP measures, EBITDA and
adjusted EBITDA measures used by other entities may not be calculated in the
same way and hence are not directly comparable.
Seasonality of operations
The Group's revenue and profit after tax is subject to a degree of seasonality
due primarily to the occurrence of the Chinese New Year public holiday during
the first half of the year ('H1'), when the Group's major customers and
suppliers based in China cease operations for a period. In the financial year
ended 31 December 2021, 46% (FY 2020: 36%) of the Group's revenue and 37% (FY
2020: 30%) 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 recognised 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 recognised 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 determined, the lessee's incremental borrowing
rate is used, being the rate that the lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value in a similar economic
environment with similar terms and conditions.
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
Payments associated with short-term leases and leases of low-value assets are
recognised 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 maximise operational flexibility in
terms of managing contracts.
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 recognised 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.
At the beginning of the year, Management reassessed the accounting estimate in
relation to the economic useful lives of certain property, plant and
equipment. The reassessment was performed in light of the Group's historical
usage of the assets, condition of the assets at the time of the assessment,
technical and or commercial factors as well as legal and contractual terms
where applicable. Based on the reassessment, the assets' useful lives were
extended to appropriately reflect Management's expected use of the assets. The
revision to the accounting estimate has been effected prospectively as from
the beginning of the current year. Note 9 details the financial impact of the
change in the useful lives of these assets.
The revised useful lives are shown below:
Asset class Previous estimate Revised estimate
· Plant and machinery 3-10 years 3-25 years
· Fixtures, fittings and equipment 2-5 years 2-10 years
· Motor vehicles 3-5 years unchanged
· Production tools 1-5 years 1-10 years
· Right-of-use assets 2-8 years (based on the lease term) unchanged
· Land and buildings 50 years 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.
At the beginning of the year, Management reassessed the accounting estimate in
relation to the economic useful lives of certain intangible assets. The
reassessment was performed in light of the Group's historical realisation of
the economic benefits from the intangible assets, technical and or commercial
factors as well as legal and contractual terms where applicable. Based on the
reassessment, the assets' useful lives were extended to appropriately reflect
Management's expected realisation of the economic benefits from the intangible
assets. The revision to the accounting estimate has been effected
prospectively as from the beginning of the current year. Note 8 details the
financial impact of the change in the useful lives of these assets.
The revised useful lives are shown below:
Asset class Previous estimate Revised estimate
· Capitalised development costs 2-5 years 2-10 years
· Intellectual property Lower of useful or legal life unchanged
· Technology and software 2-10 years unchanged
· Customer relationships 10-13 years unchanged
· Brands Indefinite useful life unchanged
· Goodwill Indefinite useful life 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.
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
The preparation of these interim financial statements under IFRS requires the
Directors to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities. Estimates and judgements are continually evaluated and are based
on historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances.
In preparing these interim financial statements, the significant judgements
made by management in applying the Group's accounting policies and the key
sources of estimation uncertainty are the same as those that applied to the
Group's Annual Report and Accounts for the year ended 31 December 2021.
4. Segmental reporting
Management has determined the operating segments based on the operating
reports reviewed by the Board of Directors that are used to assess both
performance and strategic decisions. Management has identified that the Board
of Directors is the chief operating decision maker in accordance with the
requirements of IFRS 8 'Operating segments'. The Group's activities consist of
the design, manufacture and sale of thermostatic controls, cordless
interfaces, and other products such as water jugs and filters, primarily to
Original Equipment Manufacturers ("OEMs") based in China.
The Board of Directors has identified 3 reportable segments from a product
perspective, namely: kettle controls, water category 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 2022
(£000s)
Kettle controls Water Category Appliances Total
Revenue 34,802 10,265 5,627 50,694
Cost of sales (20,218) (7,734) (3,723) (31,675)
Gross profit 14,584 2,531 1,904 19,019
Period ended 30 June 2021
(£000s)
Kettle controls Water Category Appliances Total
Revenue 39,407 9,978 5,281 54,666
Cost of sales (24,679) (7,747) (4,060) (36,486)
Gross profit 14,728 2,231 1,221 18,180
Adjusted Results
Periodended30June2022
(£000s)
Kettle controls Water Category Appliances Total
Revenue 34,802 10,265 5,627 50,694
Cost of sales (19,797) (7,710) (3,700) (31,207)
Adjusted gross profit 15,005 2,555 1,927 19,487
Periodended30June2021
(£000s)
Kettle controls Water Category Appliances Total
Revenue 39,407 9,978 5,281 54,666
Cost of sales (22,628) (7,555) (4,023) (34,206)
Adjusted gross profit 16,779 2,243 1,604 20,460
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 to whom the majority of sales are made are primarily
based in China.
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 and Italy, where two of the Group's
principle subsidiaries are domiciled.
30 June 31 December 2021
2022
£000s £000s
Country of domicile
Intangible assets 10,503 9,756
Property, plant and equipment 3,122 2,742
Total country of domicile non-current assets 13,625 12,498
Foreign countries
Intangible assets 21,316 20,712
Property, plant and equipment 39,257 40,021
Total foreign non-current assets 60,573 60,733
Total non-current assets 74,198 73,231
Major customers
In the first half of 2022, there was one major customer which individually
accounted for at least 10% of total revenues (2021: two customers). The
revenues relating to this customer in 6 months ended 30 June 2022 was
£7,204,000 (2021: £6,624,000 and £4,598,000).
5. finance costs
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Letter of credit charges 36 43
Lease liability interest 42 51
Borrowing costs 1,184 592
Total finance costs 1,262 686
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 Period ended
30 June 2022
30 June 2021
Earnings (£000s)
Earnings for the purpose of basic and diluted earnings per share 7,770 7,526
Number of shares (000s)
Weighted average number of shares for the purposes of basic earnings per share 206,960 206,041
Weighted average dilutive effect of conditional share awards 2,796 3,487
Weighted average number of shares for the purposes of diluted earnings per 209,756 209,528
share (000s)
Earnings per ordinary share (pence)
Basic earnings per ordinary share 3.8 3.7
Diluted earnings per ordinary share 3.7 3.6
Adjusted earnings per ordinary share (pence) (1)
Basic adjusted earnings per ordinary share 5.6 6.0
Diluted adjusted earnings per ordinary share 5.5 5.9
The calculation of basic and diluted adjusted earnings per share is based
on the following data:
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Profit for the period 7,770 7,526
Add back exceptional items in cost of sales:
COVID-19 net exceptional costs² 172 115
Land and factory 30 2,158
Restructuring 266 7
468 2,280
Add back exceptional items in administrative expenses:
COVID-19 net exceptional costs² 356 216
Land and factory costs - 257
Restructuring 260 59
Mergers and acquisitions 1,937 1,295
Disaster recovery 163 -
Share based payments 572 649
3,288 2,476
Total exceptional items 3,756 4,756
Adjusted earnings (1) 11,526 12,282
( )
(1. Adjusted results exclude exceptional items, including share-based
payments. Adjusted results are non-GAAP metrics used by management and are not
an IFRS disclosure.)
(2. COVID-19 net exceptional costs include consumables, certain employment
costs and Government support grants.)
The denominators used to calculate both basic and adjusted earnings per share
are the same as those shown above for both basic and diluted earnings per
share.
7. REVENUE
The following table shows a disaggregation of revenue into categories by
product line:
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Kettle controls 34,802 39,407
Water Category 10,265 9,978
Appliances 5,627 5,281
Total revenue 50,694 54,666
8. Intangible assetS
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 38,943
Accumulated amortisation/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).
Effect of change in accounting estimate
As highlighted in Note 2, Management revised the useful lives of certain
assets at the beginning of the year. As part of this assessment, the useful
lives of capitalised development costs were reassessed and extended with the
resulting impact being a decrease of £395,000 in the amortisation charged to
the condensed interim consolidated statement of comprehensive income for the
current H1 period and an expected decrease of £694,000 for the full year
2022. Going forward, the amortisation charges will be in line with the revised
useful life.
For the period ended 30 June 2021
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 12,346 3,286 834 - 2,406 6,643 9,906 35,421
Accumulated amortisation/impairment (4,999) (710) (64) - - - - (5,773)
Net book value 7,347 2,576 770 - 2,406 6,643 9,906 29,648
Period ended 30 June
Additions 1,529 286 119 222 - - - 2,156
Downstream merger of Strix Italy S.R.L. into LAICA S.p.A. (below and note 11) - - - - - - 997 997
Disposals (cost) - (44) (19) - - - - (63)
Disposals (accumulated depreciation) - 44 28 - - - - 72
Amortisation charges (610) (226) (13) - (103) - - (952)
Exchange differences (19) - (17) - (114) (329) 162 (317)
Closing net book value 8,247 2,636 868 222 2,189 6,314 11,065 31,541
At 30 June
Cost 13,856 3,528 917 222 2,292 6,314 11,065 38,194
Accumulated amortisation/impairment (5,609) (892) (49) - (103) - - (6,653)
Net book value 8,247 2,636 868 222 2,189 6,314 11,065 31,541
All amortisation charges have been treated as an expense, and allocated to
cost of sales £826,000 (H1 2020: £696,000) and administrative expenses
£126,000 (H1 2020: £52,000) in the condensed interim consolidated statement
of comprehensive income. There were no reversals of prior year impairments
during the period (H1 2020: none).
As a result of the downstream merger detailed in note 11, goodwill has been
revalued resulting in an increase of £997,000 reclassified from pre-merger
retained profits impacted by foreign exchange differences from the
depreciation of the EUR currency.
9. Property, plant and equipment
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 26,093 5,833 218 12,829 20,541 6,450 2,176 74,140
Accumulated depreciation (13,812) (3,084) (185) (10,564) (529) (3,203) - (31,377)
Net book value 12,281 2,749 33 2,265 20,012 3,247 2,176 42,763
Period ended 30 June
Additions - - 23 - - - 2,099 2,122
Transfers 1,129 534 - 727 3 - (2,381) 12
Disposals (cost) (69) (135) - - - (666) - (870)
Disposals (accumulated depreciation) 33 82 - - - 119 - 234
Depreciation charge (679) (393) (12) (217) (211) (479) - (1,991)
Exchange differences 20 10 1 - - 76 2 109
Closing net book value 12,715 2,847 45 2,775 19,804 2,297 1,896 42,379
At 30 June
Cost 27,279 6,298 243 13,558 20,555 5,982 1,896 75,811
Accumulated depreciation (14,564) (3,451) (198) (10,783) (751) (3,685) - (33,432)
Net book value 12,715 2,847 45 2,775 19,804 2,297 1,896 42,379
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.
Effect of change in accounting estimate
As highlighted in Note 2, Management revised the useful lives of certain
assets at the beginning of the year. As part of this assessment, the useful
lives of fixtures and fittings, plant and machinery and production tools were
reassessed and extended with the resulting impact being a decrease of
£546,000 in the depreciation charged to the condensed interim consolidated
statement of comprehensive income for the current H1 period and an expected
decrease of £1,098,000 for the full year 2022. Going forward, the
depreciation charges will be in line with the revised useful lives.
For the period ended 30 June 2021
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 (cost) (7,051) (990) (29) (901) (2,193) (1,027) (39) (12,230)
Disposals (accumulated depreciation) 5,720 880 28 833 311 708 - 8,480
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 £2,196,000 (H1 2020:
(£1,757,000)), distribution costs £46,000 (H1 2020: (£61,000)), and
administrative expenses £338,000 (H1 2020: (£394,000)) in the condensed
interim consolidated statement of comprehensive income.
Included in disposals during the period were assets with a net book value of
£1,678,000 that were scrapped for £NIL due to the move from the old to the
new manufacturing plant in China, and land and buildings with a net book value
of £1,882,000 in the Group's subsidiary LAICA International Corp. disposed of
in a sale and leaseback arrangement in line with the acquisition agreement for
£1,750,000.
10. Inventories
30 June 31 December 2021
2022
£000s £000s
Raw materials and consumables 12,901 12,139
Finished goods and goods in transit 11,344 7,883
24,245 20,022
The cost of inventories recognised as an expense and included in cost of sales
amounted to £22,446,000 (H1 2021: £23,816,000). The charge for impaired
inventories was £NIL (H1 2021: £157,000). 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, which are all
included in the interim 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 Manufacture and sale of products China 100 Subsidiary
Strix (U.K.) Limited Group's sale and distribution centre UK 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
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 assets included within the interim financial statements to which these
restrictions apply is £4,247,000 (FY 2021: £3,681,000). 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 31 December 2021
2022
£000s £000s
Amounts falling due within one year:
Trade receivables 16,270 13,451
Loss allowance (47) (104)
Trade receivables - net 16,223 13,347
Prepayments 508 496
Advance purchases of commodities 3,025 5,389
VAT receivables 1,722 5,261
Other receivables 1,308 1,018
22,786 25,511
Trade and other receivables are all current and any fair value difference is
not material.
The amount of trade receivables past due is not material, therefore an aging
analysis has not been presented (2020: same).
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.
Movement on the Group's provision for impairment of trade receivables and the
inputs and estimation technique used to calculate expected credit losses have
not been disclosed on the basis the amounts are not material.
13. Trade and other payables
30 June 31 December 2021
2022
£000s £000s
Trade payables 9,783 11,060
Current income tax liabilities 1,805 1,631
Social security and other taxes 337 352
Other liabilities 5,211 7,742
Payments in advance from customers 3,099 1,936
Accrued expenses 3,174 4,796
23,409 27,517
The fair value of financial liabilities approximates their carrying value due
to short maturities.
14. Borrowings
30 June 31 December 2021
2022
£000s £000s
Current bank loans 1,747 1,064
Non-current bank loans 77,738 69,782
All of the current bank loans comprise of small individual short-term
arrangements for financing purchases and optimising 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
£181,000 (2021: £181,000) and £422,000 (2021: £513,000), respectively.
Term and debt repayment schedule for long-term borrowings
Currency Interest rate Maturity date 30 June 2022 carrying value (£000s) 31 December 2021 carrying value (£000s)
Revolving credit facility GBP SONIA +1.50% to + 2.85% 27-May-25 77,397 69,306
UniCredit facility EUR EURIBOR +1.10% to + 3.60% 28-Jun-24 172 210
Banco BPM EUR EURIBOR +1.10% to + 3.60% 30-Nov-23 251 329
BNP Paribas EUR 0.15% 01-Jul-22 322 -
Banca Monte dei Paschi di Siena EUR 0.25% 31-Aug-22 341 -
Banca Monte dei Paschi di Siena EUR 0.35% 31-Oct-22 305 -
Banco BPM EUR 0.18% 30-Sep-22 318 -
Credito Emiliano EUR 0.18% 31-Jul-22 379 -
BNP Paribas EUR 0.18% 30-Apr-22 - 172
Banca Monte dei Paschi di Siena EUR 0.18% 31-Jan-22 - 425
Banco BPM EUR 0.18% 31-Mar-22 - 404
79,485 70,846
On 27 July 2017, the Company entered into an agreement with The Royal Bank of
Scotland Plc (as agent), and the Royal Bank of Scotland International Limited
and HSBC Bank Plc (as original lenders) in respect of a revolving credit
facility of £70,000,000. During 2020, the Company refinanced this by entering
into an agreement with The Royal Bank of Scotland Plc (as agent), along with
the Bank of China (UK) Limited and the Bank of Ireland in respect of a
revolving credit facility of £80,000,000, with materially the same terms and
covenants as the existing facility. As at 30 June 2022, the total facilities
available are £80,000,000 (30 June 2021: £80,000,000).
Under the amended agreement, the initial drawdowns totalling £50,000,000
allowed for the refinancing of the original revolving credit facility as well
as to fund the acquisition of LAICA. Further drawdowns were made during 2021
and 2022 for financing working capital, capital expenditure, and additional
consideration transferred and employment earn-out paid to the vendor
shareholders of LAICA.
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 (2021: same).
Transactions costs amounting to £875,000 incurred as part of the new debt
financing facility were capitalised in 2020 and are being amortised over the
period of the 5-year facility.
The various agreements contain representations and warranties which are usual
for an agreement of this nature. The agreement also provides for the payment
of a commitment fee, agency fee and arrangement fee, contains certain
undertakings, guarantees and covenants (including financial covenants) and
provides for certain events of default. During 2022, the Group has not
breached any of the financial covenants contained within the agreements (2021:
same).
Interest applied to the revolving credit facility is calculated as the sum of
the margin and LIBOR, and after 31 December 2021 LIBOR has been replaced by
SONIA. An amendment to the facility agreement was signed during the 2021 year
for the transition from LIBOR to SONIA. The margin is a calculated based on
the Group's leverage as follows:
Leverage Annualised margin
Greater than or equal to 2.5x 2.85%
Less than 2.5x but greater than or equal to 2.0x 2.50%
Less than 2.0x but greater than or equal to 1.5x 2.20%
Less than 1.5x but greater than or equal to 1.0x 2.00%
Less than 1.0x 1.50%
At 30 June 2022, the margin applied was 2.20% (31 Dec 2021: 2.00%).
15. CAPITAL Commitments
30 June 31 December 2021
2022
£000s £000s
Contracted for but not provided in the interim financial statements: Property, 2,592 2,001
plant and equipment
Construction of new factory
The above commitments include capital expenditure of £56,000 (2021:
£1,639,000) relating to the construction of a new factory in Zengcheng
district, China, with other commitments relating to capital expenditure of
production assets.
16. Dividends
The following amounts were recognised as distributions in the period:
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Final 2021 dividend of 5.60p per share (H1 2020: 5.25p) 11,601 10,831
Total dividends recognised in the period 11,601 10,831
In addition to the above dividend, since the end of the period the Directors
have approved the payment of an interim dividend of 2.75p per share. The
aggregate amount of the interim dividend expected to be paid on 28th October
2022 out of retained earnings at 30 June 2022, but not recognised as a
liability at the period end, is £5,704,000. 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 31 December 2021
2022
£000s £000s
Current future lease liabilities (due within 12 months) 563 773
Non-current future lease liabilities (due in more than 12 months) 1,864 2,598
Total Future Lease Liabilities payable 2,427 3,371
18. Cash flow statement notes
a) Cash generated from operations
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Cash flows from operating activities
Operating profit 9,132 9,150
Adjustments for:
Depreciation of property, plant and equipment (note 9) 1,512 1,772
Depreciation of right-of-use assets (note 9) 479 808
Amortisation of intangible assets (note 8) 1,062 952
Share of losses from joint ventures 10 10
Loss/(profit) on disposal of property, plant and equipment 40 1,678
Other non-cash flow items 1,243 420
Share based payment transactions 572 649
Net exchange differences (128) (411)
13,922 15,028
Changes in working capital:
(Increase) in inventories (4,223) (4,222)
Decrease / (increase) in trade and other receivables 2,722 (718)
(Increase) / decrease in trade and other payables (2,662) 4,532
Cash generated from operations 9,759 14,620
b) Movement in net debt
Non-cash movements
At 1 January 2022 Cash flows Currency movements Other movements At 30 June 2022
£000s £000s £000s £000s £000s
Borrowings, net of loan arrangement fees (70,846) (8,543) - (96) (79,485)
Lease Liabilities (3,371) 401 - 543 (2,427)
Total liabilities from financing activities (74,217) (8,142) - 447 (81,912)
Cash and cash equivalents 19,670 (1,680) 147 - 18,137
Net debt (54,547) (9,822) 147 447 (63,775)
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 Trading Board,
representing members of the senior management team from all key departments of
the Group.
Period ended Period ended
30 June 2022
30 June 2021
£000s £000s
Salaries and other short-term employment benefits 1,003 1,208
Post-employment benefits 93 84
Termination 74 -
Share-based payment transactions 450 440
1,620 1,732
There are no defined benefit schemes for key management.
20. Post balance sheet events
The Group has no post balance sheet events to disclose.
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