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 results1 | ||||
| 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% |
EBITDA2 | 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 (excluding accounting estimates changes)3 | 10.7 | 12.3 | 9.8 | -13.0% | +9.2% |
Net debt4 | 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.
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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: |
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Strix Group Plc | Tel: +44 (0) 1624 829829 |
Mark Bartlett, CEO | |
Raudres Wong, CFO | |
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Zeus Capital Limited (NOMAD and Joint Broker) | +44 (0) 20 3829 5000 |
Nick Cowles / Jamie Peel / Jordan Warburton (Investment Banking) | |
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Stifel Nicolaus Europe Limited (Joint Broker) | +44 (0) 20 7710 7600 |
Matthew Blawat / Francis North | |
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IFC Advisory Limited (Financial PR and IR) | +44 (0) 20 3934 6630 |
Graham Herring / Tim Metcalfe / Florence Chandler | |
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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).
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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 results1 | 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) |
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| £m | £m | £m | %5 | %5 | £m | £m | £m | %5 | %5 |
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Revenue | 50.7 | 54.7 | 34.7 | -7.3% | +46.1% | 50.7 | 54.7 | 34.7 | -7.3% | +46.1% |
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Gross profit | 19.5 | 20.5 | 13.8 | -4.9% | +41.3% | 19.0 | 18.2 | 13.8 | +4.4% | +37.7% |
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EBITDA2 | 15.9 | 17.4 | 13.6 | -8.6% | +16.9% | 12.2 | 12.7 | 11.1 | -3.9% | +9.9% |
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Operating profit | 12.9 | 13.9 | 10.6 | -7.2% | +21.7% | 9.1 | 9.1 | 8.1 | 0.0% | +12.3% |
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Profit before tax | 11.6 | 13.2 | 10.1 | -12.1% | +14.9% | 7.9 | 8.5 | 7.5 | -7.1% | +5.3% |
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Profit after tax | 11.6 | 12.3 | 9.8 | -5.7% | +18.4% | 7.8 | 7.6 | 7.3 | +2.6% | +6.8% |
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Profit after tax (excluding accounting estimates changes)3 | 10.7 | 12.3 | 9.8 | -13.0% | +9.2% | 6.9 | 7.6 | 7.3 | -9.2% | -5.5% |
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Net debt4 | 61.3 | 46.0 | 36.9 | +33.3% | +66.1% | 61.3 | 46.0 | 36.9 | +33.3% | +66.1% |
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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% |
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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% |
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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% |
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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% |
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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) |
| | 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 EBITDA1 | | | 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) 30 June 2022 | (unaudited) 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) |
| 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 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.
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 2022 | 31 December 2021 |
| £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 |
| £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 |
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 share (000s) | 209,756 | 209,528 |
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 |
| £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 |
| £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 2022 | 31 December 2021 |
| £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 2022 | 31 December 2021 |
| £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 2022 | 31 December 2021 |
| £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 2022 | 31 December 2021 |
| £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 2022 | 31 December 2021 |
| £000s | £000s |
Contracted for but not provided in the interim financial statements: Property, plant and equipment | 2,592 | 2,001 |
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 |
| £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 2022 | 31 December 2021 |
| £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 |
|
| £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 |
| £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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