Notes to the consolidated financial statements

for the year ended 31 December 2023

 

 1.    GENERAL INFORMATION

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

The Company's shares were admitted to trading on AIM, a market operated by the London Stock Exchange, on 8 August 2017. The principal activities of Strix Group Plc and its subsidiaries (together "the Group") are the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management, water filtration and small household appliances for personal health and wellness.

2.     MATERIAL ACCOUNTING POLICIES

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

Basis of preparation

The consolidated financial statements have been prepared in accordance with IFRS Accounting Standards ("IFRS") and International Financial Reporting Standards Interpretation Committee ("IFRS IC") interpretations as adopted by the European Union. The financial statements have been prepared on the going concern basis.

The preparation of consolidated 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 consolidated financial statements, are disclosed in note 3.

Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following:

·      contingent consideration - measured at fair value

 

Going concern

These consolidated 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 the Directors have considered the following:

·	the resilient historic trading performance of the Group;
·	budgets and cash flow forecasts for the period to December 2025;
·	the current financial position of the Group, including its cash and cash equivalents balances of £20.1m;
·	the availability of further funding by way of access to the AIM market afforded by the Company's admission to AIM;
·	the low liquidity risk the Group is exposed to;
·	the fact that the Group operates within diverse sectors that are experiencing gradually increasing demand for its products as the world returns back to a "new normal" in the aftermath of the COVID-19 pandemic, despite some offsetting impacts of the conflicts in Ukraine and the Middle East; and
·	that there has been minimal disruption to the Group's manufacturing or supply chain.

 

Based on these considerations, the Directors have concluded that there are no material uncertainties that may cast significant doubt on its ability to continue as a going concern and the Group has adequate resources to continue in operational existence for the foreseeable future. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

Standards, amendments and interpretations adopted

The group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 January 2023:

? IFRS 17 Insurance Contracts

This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts with discretionary participation features.

This standard does not have an impact on the Group as the Group has no contracts in scope for this standard. The group has warranties provisions in relation to inventory, however, the warranties relating to manufacturing entities are excluded from the scope of IFRS 17 as they are covered by IFRS 15.

? Definition of Accounting Estimates - amendments to IAS 8

The amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, whereas changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current period.

? Deferred Tax related to Assets and Liabilities arising from a Single Transaction - amendments to IAS 12

The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences, and will require the recognition of additional deferred tax assets and liabilities.

The amendment should be applied to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, entities should recognise deferred tax assets (to the extent that it is probable that they can be utilised) and deferred tax liabilities at the beginning of the earliest comparative period for all deductible and taxable temporary differences associated with:

-	right-of-use assets and lease liabilities, and
-	decommissioning, restoration and similar liabilities, and the corresponding amounts recognised as part of the cost of the related assets.

The cumulative effect of recognising these adjustments is recognised in the opening balance of retained earnings, or another component of equity, as appropriate.

? Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

The IASB amended IAS 1 Presentation of Financial Statements to require entities to disclose their material rather than their significant accounting policies.

The amendments define what is 'material accounting policy information' (being information that, when considered together with other information included in an entity's financial statements, can reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements) and explain how to identify when accounting policy information is material.

They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information.

To support this amendment, the IASB also amended IFRS Practice Statement 2 Making Materiality Judgements to provide guidance on how to apply the concept of materiality to accounting policy disclosures.

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

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

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

 

Basis of consolidation

The consolidated 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 to direct the activities of the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Consolidation of subsidiaries ceases from the date that control also ceases.

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

Joint ventures

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

Equity method of accounting

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

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

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

Transactions eliminated on consolidation

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

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date with the assets and liabilities of subsidiaries 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. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. 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.

 

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

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

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 consolidated financial statements are presented in Pound Sterling, which is Strix Group Plc's functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in the 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, including intangible assets and goodwill arising on acquisition of those foreign operations, and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position, or at historic rates for certain line items;
·	income and expenses for each statement of comprehensive income presented 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 other comprehensive income. Such translation differences are reclassified to profit or loss only on disposal or partial disposal of the foreign operation.

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. 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.

 

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 as follows:

·      Plant and machinery	3-25 years
·      Fixtures, fittings and equipment	2-10 years
·      Motor vehicles	3-5 years
·      Production tools	1-10 years
·      Right-of-use assets	2-8 years
·      Land and buildings	50 years
·      Point-of-use dispensers	4-10 years

 

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 over the following periods:

·      Capitalised development costs	2-10 years
·      Intellectual property	Lower of useful or legal life
·      Technology and software	2-10 years
·      Customer relationships	10-15 years
·      Brands	Indefinite useful life
·      Goodwill	Indefinite useful life

 

The useful lives for customer relationships have been updated to include those relating to Billi post finalization of the fair values on acquisition. Customer relationships in the prior year were amortised over 10-13 years.

 

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

 

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

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

 

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

 

Derecognition

Intangible assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset, 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 the assets or 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.

Leases

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

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

Measurement of future lease liabilities

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

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

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

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

Measurement of right-of-use assets

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

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

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

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the consolidated statement of comprehensive income. 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.

Lease income

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

Financial assets

Classification

The Group classifies its financial assets as financial assets held at amortised cost.  Management determines the classification of its financial assets at initial recognition.

The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:

·	the asset is held within a business model whose objective is to collect the contractual cash flows; and
·	the contractual terms give rise to cash flows that are solely payments of principal and interest.

Financial assets held at amortised cost are initially recognised at fair value, and are subsequently stated at amortised cost using the effective interest method. Financial assets at amortised cost comprise cash and cash equivalents and trade and other receivables (excluding prepayments and the advance purchase of commodities). Trade receivables are amounts due from customers for products sold performed in the ordinary course of business. They are due for settlement either on a cash in advance basis, or generally within 45 days, and are therefore all classified as current. Other receivables generally arise from transactions outside the usual operating activities of the Group.

Impairment of financial assets

The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

The Group applies the expected credit loss model to financial assets at amortised cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Given the nature of the Group's receivables, expected lifetime losses are not material.

Financial liabilities

With the exception of contingent consideration, the Group initially recognises its financial liabilities at fair value net of transaction costs where applicable and subsequently they are measured at amortised cost using the effective interest method. Financial liabilities comprise trade payables, payments in advance from customers and other liabilities. They are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Contingent consideration is measured at fair value with changes in fair value recognised in profit or loss.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other liabilities include rebates.

Borrowing costs

Borrowing costs or arrangement fees, including option-type arrangements, are recognised initially at fair value. Borrowing costs including option-type borrowing arrangements are subsequently measured at amortised cost. The establishment of such option-type arrangements are recognised as a 'right to borrow' asset, and together with other borrowing costs or arrangement fees are amortised over the period of the facilities to which the fees relate, and are deducted from the carrying value of the financial liability.

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings, pending their expenditure on qualifying assets, is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are incurred.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, impairment losses are not material.

Employee benefits

The Group provides a range of benefits to employees, including annual bonus arrangements, paid holiday entitlements and defined benefit and contribution pension plans.

Short-term benefits

Short-term benefits, including holiday pay and similar non-monetary benefits, are recognised as an expense in the period in which the service is rendered. The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

Pensions

Subsidiary companies operate both defined contribution and defined benefit plans for the benefit of their employees.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service or compensation.

The liability recognised in the consolidated statement of financial position in respect of the defined benefit scheme is the present value of the defined benefit obligation at the statement of financial position date less the fair value of the scheme assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated by qualified independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

The net pension finance cost is determined by applying the discount rate, used to measure the defined benefit pension obligation at the beginning of the accounting period, to the net pension obligation at the beginning of the accounting period taking into account any changes in the net pension obligation during the period as a result of cash contributions and benefit payments.

Pension scheme expenses are charged to the consolidated statement of comprehensive income within administrative expenses. Actuarial gains and losses are recognised immediately in the consolidated statement of comprehensive income. Net defined benefit pension scheme deficits before tax relief are presented separately in the consolidated statement of financial position within non-current liabilities.

Share-based payments

The Group has issued conditional equity settled share-based options and conditional share awards under a Long-Term Incentive Plan ("LTIP") in the parent company to certain employees. Under the LTIP, the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense.

The total amount to be expensed is determined by reference to the fair value of the options granted:

·	including any market performance conditions such as the requirement for the Group's shares to be above a certain price for a pre-determined period;
·	excluding the impact of any service and non-market performance vesting conditions, including earnings per share targets, dividend targets, and remaining an employee of the Group over a specified period of time; and
·	including the impact of any non-vesting conditions, where relevant.

These awards are measured at fair value on the date of the grant using an option pricing model and expensed in the consolidated statement of comprehensive income on a straight-line basis over the vesting period, after making an allowance for the estimated number of shares that will not vest. The level of vesting is reviewed and adjusted bi-annually in the consolidated statement of comprehensive income, with a corresponding adjustment to equity.

If the terms of an equity settled award are modified, at a minimum, an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity award is cancelled by forfeiture, where the vesting conditions (other than market conditions) have not been met, any expense not yet recognised for that award as at the date of forfeiture is treated as if it had never been recognised. At the same time, any expense previously recognised on such cancelled equity awards is reversed, effective as at the date of forfeiture.

The dilutive effect, if any, of outstanding options is included in the calculation of diluted earnings per share.

Further details on the awards is included in note 23.

Inventories

Inventories consist of raw materials and finished goods which are valued at the lower of cost and net realisable value. Cost is determined using the weighted average cost formula. Cost comprises expenditure which has been incurred in the normal course of business in bringing the products to their present location and condition including applicable supplier rebates, and include all related production and engineering overheads at cost. Net realisable value is the estimated selling price in the ordinary course of business, less applicable selling expenses. At the end of each reporting period, inventories are assessed for impairment. If inventory is impaired, the identified inventory is reduced to its selling price less costs to complete and an impairment charge is recognised in the consolidated statement of comprehensive income.

Supplier rebates

The Group enters into agreements with suppliers whereby volume-related allowances and various other fees and discounts are received in connection with the purchase of goods from those suppliers. Most of the income received from suppliers relates to commercially agreed rebates based on historic sales volumes.

Rebates are recognised when earned by the Group, which occurs when all obligations conditional for earning income have been discharged, and the income can be measured reliably based on the terms of the contract. The income is recognised as a credit within cost of sales.

Where the income earned relates to inventories which are held by the Group at the year end, the income is included within the cost of those inventories, and recognised in cost of sales upon sale of those inventories. Amounts due relating to supplier rebates are recognised within trade and other receivables.

Revenue

The Group primarily recognises revenue from the sale of goods and services to its customers as well as from licensing arrangements. The transaction price is based on the sales agreement with the customer. Revenue is reported net of sales taxes, discounts, rebates and after eliminating intra-group sales. Rebates are based on a certain volume of purchases by a customer within a given period and are recognised on an expected value approach.

Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and is recognised when the performance obligations have been fulfilled. The Group recognises revenue from the sale of goods and services either at a point in time or over time, based on the nature of the contract terms. The Group recognises revenue from three main categories namely kettle controls, premium filtration systems and consumer goods.

Kettle controls

The performance obligation is the delivery of the goods to customers, and revenue is recognised on dispatch, otherwise it is recognised when the products have been shipped to a specific location, or when the risks of obsolescence and loss have been transferred to the Original Equipment Manufacturer ('OEM') or wholesaler. All of the amounts recognised as revenue are based on contracts with customers. No element of financing is deemed present because the sales are made under normal credit terms, which is consistent with market price.

Payment terms for the majority of customers in this category are to pay cash in advance of the goods being delivered. The Group recognises the advance payments within trade and other payables on the consolidated statement of financial position as "Payments in advance from customers". At the point the revenue is recognised, these balances are transferred from "Payments in advance from customers" to revenue. For the majority of other customers payment is normally due within 30 to 45 days from the date of sale.

Premium Filtration Systems

The Group recognises revenue from the following major sources under premium water filtration system categories:

·	Sale of Point-of-use (POU) water and coffee machines
	Revenue from the sale of point-of-use water and coffee machines is recognised once control of the goods has been transferred to the customer.
·	Rental of Point-of-use (POU) dispensers and coffee machines
	Rental income is made up of revenue from the supply of goods where the Group is lessor in an operating lease and is recognised over time, with the transaction price allocated to this service released on a straight-line basis over the period of the lease. Included in the transaction price for the rental of dispensers, in some contracts, is the installation of those dispensers. The rental and installation elements of the contract are considered to be one deliverable, as they are highly interrelated, and therefore there is no allocation of a portion of the transaction price to the installation.
	Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease (except where immaterial) are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Commissions on new contracts are capitalised and depreciated over one and a half times the initial lease term.
	Rental agreements run for a minimum period of twelve months and typically for three to five years. Some rental agreements have no fixed end date and may be cancelled by either party subject to a minimum notice period or early termination penalty. The average useful economic life for a POU water device is approximately four to ten years whilst refurbishment can extend the life of some devices to eleven years or more. For this reason, existing rental agreements are not judged to transfer substantially all of the risks and rewards of ownership to the lessee.
·	Servicing of Point-of-use (POU) units
	Sale of services are recognised proportionally over the duration of the service period, provided a right to consideration has been established.
·	Sale of consumables
	Revenue from the sale of consumables is recognised once control of the goods has been transferred to the customer.

Combined rental and service contracts

The Group has in place some contracts that cover both the rental and servicing and maintenance of dispensers. The transaction price is allocated to each performance obligation to reflect the amount of consideration to which the Group is entitled to, in exchange for transferring the promised goods or services to the customer. The Group allocates combined rental and service income to the separate rental and service categories based on a percentage allocation method, which is calculated for each business unit. The percentage allocation, which is recalculated periodically, is based on the transaction price being allocated to each performance obligation in proportion to its stand-alone selling price.

Consumer Goods

Sales are either 'direct' to the end user customers or 'indirect' to wholesale and retail distributors. Revenue from the supply of goods is recognised once control of the goods has been transferred to the customer, being when goods have been delivered to a customer site or in the case of indirect sales, when the goods have been delivered to the wholesale distributor.

Deferred revenue

Revenue recognised in the consolidated statement of comprehensive income but not yet invoiced is held in the statement of financial position within 'Trade receivables'. Revenue invoiced but not yet recognised in the consolidated statement of comprehensive income is held on the consolidated statement of financial position within 'Payments in advance from customers'.

Licensing income

The Group holds a substantial portfolio of issued and registered intellectual property rights relating to certain aspects of its hardware devices, accessories, goods, software and services. This includes patents, designs, copyrights, trademarks and other forms of intellectual property rights registered in the U.K. and various foreign countries.

From time to time, the Group enters into term-based and exclusive licensing arrangements with some of its customers in respect of its intellectual property.

The licensing income is recognised at a point in time or over time based on the following assessment. Where the licensing arrangement is a distinct performance obligation, Management assess whether the licensing contract gives the customer either:

·	the right to access the Group's intellectual property as it exists throughout the licence period; or
·	right to use the Group's intellectual property as it exists at the point in time at which the licence is granted.

Revenue from a licencing contract which is considered to provide a right to the customer to access the Group's intellectual property as it exists throughout the licence period is recognised over time, as and when the related performance obligation is satisfied.

A licensing contract gives the customer the right to access the Group's intellectual property as it exists throughout the license period when all the following are met:

·	the contract requires, or the customer reasonably expects, that we will undertake activities that significantly affect the intellectual property to which the customer has rights; and
·	the rights granted by the licence directly expose the customer to any positive or negative effects of the entity's activities identified above; and
·	those activities do not result in the transfer of a good or a service to the customer as those activities occur.

Revenue relating to a licensing contract which does not meet the above criteria is recognised at a point in time, which is usually the point at which the licence is granted to the customer but not before the beginning of the period during which the customer is able to use and benefit from the licence.

Cost of sales

Cost of sales comprise costs arising in connection with the manufacture of thermostatic controls, cordless interfaces, and other products such as water dispensers, taps, jugs and filters. Cost is based on the cost of purchases on a first in, first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads where they are directly attributable to bringing the inventories into their present location and condition. This also includes an allocation of non-production overheads, costs of designing products for specific customers and amortisation of capitalised development costs.

Research and development

Research expenditure is written off to the consolidated statement of comprehensive income within cost of sales in the year in which it is incurred. Development expenditure is written off in the same way unless the Directors are satisfied as to the technical, commercial and financial viability of the individual projects. In this situation, the expenditure is classified on the consolidated statement of financial position as a capitalised development cost.

Finance income

Finance income comprises bank interest receivable on funds invested. Finance income is recognised using the effective interest rate method.

Finance costs

Finance costs directly attributable to the acquisition or construction of a qualifying asset are capitalised. Qualifying assets are those that necessarily take a substantial period of time to prepare for their intended use.  All other borrowing cost are recognised in the consolidated statement of income in finance costs. Finance costs comprise interest charges on lease liabilities, interest on borrowings, the unwind of discounts on the present value of liabilities, and finance charges relating to letters of credit. Finance costs are determined using the effective interest rate method.

Income tax

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date in the countries where the Company and its subsidiaries operate and generate taxable income, and any adjustment to tax payable in respect of previous years.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill.

Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Share capital and share premium

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction from the proceeds. Share premium arising on the issue of shares is distributable. Share capital and share premium have been grouped for the purposes of financial statement presentation.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Board of Directors. The Board of Directors consists of the Executive Directors and the Non-Executive Directors.

Government grants

Subsidiary companies receive grants from the Isle of Man and Chinese governments towards revenue and capital expenditure. Government grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and all attached conditions complied with.

Revenue grants are recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. The grant income is presented within other operating income in the consolidated statement of comprehensive income.

Capital grants are initially recognised as deferred income liabilities when received, and subsequently recognised as other income in profit or loss on a straight-line basis over the useful life of the related asset. The grants are dependent on the subsidiary company having fulfilled certain operating, investment and profitability criteria in the financial year, primarily relating to employment.

Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement.  If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Warranty provisions

The Group provides warranties for general repairs of defects that existed at the time of sale, as required by law. Provisions related to these warranties are recognised when the product is sold, or the service is provided to the customer. Initial recognition is based on historical experience which may vary due to the use of new materials, changes in manufacturing processes or other developments that affect product quality. The estimate of warranty-related costs is revised annually.

EBITDA and adjusted EBITDA - non-GAAP alternative performance measures

In the reporting of financial information, the Directors have adopted Earnings before Interest, Taxation, Depreciation and Amortisation ("EBITDA") and adjusted EBITDA when assessing the operating performance of the Group. Adjusting items are excluded from EBITDA to calculate adjusted EBITDA. The Directors primarily use the adjusted EBITDA measure when making decisions about the Group's activities.

EBITDA and adjusted EBITDA are non-GAAP measures and may not be calculated in the same way and hence may not be directly comparable to those reported by other entities. In determining the adjusting items, the following criteria are considered:  

·	if a certain event (defined as adjusting) had not occurred, the costs would not have been incurred or the income would not have been earned; or
·	the costs attributable to the event have been identified using a reliable methodology of splitting amounts on an ongoing basis; and economic resources have been expended or diverted in order to directly contribute towards the related activities; and
·	costs have been incurred that cannot be recovered due to the event and the related activities.

An item is treated as adjusting if it relates to certain costs or income that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group's Alternative Performance Measures (APMs) by virtue of their nature or size, in order to better reflect management's view of the underlying trends and operating performance of the Group that is more comparable over time.

 

3.     CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

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

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

Critical judgements in applying the entity's accounting policies

Functional currency

The Directors consider the factors set out in paragraphs 9, 10 and 11 of IAS 21, "The effects of changes in foreign currency" to determine the appropriate functional currency of its overseas operations. These factors include the currency that mainly influences sales prices, labour, material and other costs, the competitive market serviced, financing cash flows and the degree of autonomy granted to the subsidiaries.

The Directors have applied judgement in determining the most appropriate functional currency for all entities to be Pound Sterling, with the exception of Strix (Hong Kong) Ltd which has a Hong Kong Dollar functional currency, Strix (USA), Inc. which has a United States Dollar functional currency, HaloSource Water Purification Technology (Shanghai) Co. Ltd which has a Chinese Yuan functional currency, LAICA S.p.A and LAICA Iberia Distribution S.L. which both have a Euro functional currency, and LAICA International Corp.; Taiwan LAICA Corp. which both have a Taiwan Dollar functional currency, Billi Australia (Pty) Ltd which has an Australian Dollar functional currency and Billi New Zealand Ltd which has a New Zealand dollar functional currency. This may change as the Group's operations and markets change in the future.

Capitalisation of development costs

The Directors consider the factors set out in the paragraphs entitled 'Intangible assets - initial recognition and measurement' in note 2 with regard to the timing of the capitalisation of the development costs incurred. This requires judgement in determining when the different stages of development have been met.

Alternative performance measures (APMs) - Adjusting items

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

 

An analysis of the adjusting items included in the consolidated statement of comprehensive income is disclosed in note 6(b).

Critical estimates in applying the entity's accounting policies

There are no estimates in the financial statements where a reasonably possible change in the next year could be expected to result in a material change to amounts recognised. However, an area of estimation performed by management in the year which is relevant to the financial statements is disclosed below.

Impairment of indefinite lived intangible assets and goodwill

Determining whether goodwill and intangible assets with indefinite lives are impaired requires an estimation of the value in use or the fair value less costs to sell of the cash generating unit (CGU) to which the goodwill or intangible asset has been allocated. The value in use calculation requires management's estimation of the future cash flows expected to arise from the CGU. Refer to Note 11 for the sensitivity analysis of the assumptions used in the impairment analysis of goodwill and intangible assets with indefinite lives.

 

4.    SEGMENTAL REPORTING

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating Segments'.

The Group's activities consist of the design, manufacture and sale of thermostatic controls, cordless interfaces, and other products such as water dispensers, jugs, filters, water heating and temperature control, steam management, water filtration and small household appliances for personal health and wellness, primarily to Original Equipment Manufacturers ("OEMs"), commercial and residential customers based in China, Italy, Australia, New Zealand and the United Kingdom.

During the current year, the Board of Directors established a new divisional reporting structure to capitalise on attractive growth opportunities in its end markets. The Board of Directors has identified 3 reportable segments from a product perspective, namely: kettle controls, premium filtration systems (primarily Billi products), and consumer goods (made up of water products and appliances). The Board of Directors primarily uses a measure of gross profit to assess the performance of the operating segments, broken down into revenue and cost of sales for each respective segment which is reported to them on a monthly basis. Information about segment revenue is disclosed below, as well as in note 7.

 

Revenue	70,102	42,106	32,378	144,586
Cost of sales	(42,787)	(22,859)	(21,851)	(87,497)
Gross profit	27,315	19,247	10,527	57,089
Revenue	68,243	3,224	35,453	106,920
Cost of sales	(41,108)	(2,263)	(22,871)	(66,242)
Gross profit	27,135	961	12,582	40,678

       

 

Revenue	70,102	42,106	32,378	144,586
Cost of sales	(42,746)	(22,825)	(21,827)	(87,398)
Gross profit	27,356	19,281	10,551	57,188
Revenue	68,243	3,224	35,453	106,920
Cost of sales	(40,306)	(2,083)	(23,006)	(65,395)
Gross profit	27,937	1,141	12,447	41,525

*Adjusted gross profit excludes adjusting items as detailed in note 6(b). Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

Below is the geographical analysis of revenue from external customers.

Australia	26,985	1,814
China	67,989	70,142
Italy	14,478	14,749
UK	16,376	6,173
Others	18,758	14,042
Total	144,586	106,920

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

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

Country of domicile
Intangible assets	13,084	11,354
Property, plant and equipment	2,599	3,151
Total country of domicile non-current assets	15,683	14,505

 

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

Foreign countries
Intangible assets	60,325	62,020
Property, plant and equipment	43,616	44,213
Total foreign non-current assets	103,941	106,233
Total non-current assets	119,624	120,738

        Major customers

In 2023, there was one major customer that accounted for at least 10% of total revenues (2022: one customer). The revenue relating to this customer in 2023 was £16,938,000 (2022: £13,587,000).

 

5.     EMPLOYEES AND DIRECTORS

(a) Employee benefit expenses

Wages and salaries	36,976	27,500
Defined contribution pension cost (note 5(c)(i))	1,352	782
Employee benefit expenses	38,328	28,282
Share based payment transactions (note 23)	380	(491)
Total employee benefit expenses	38,708	27,791

 

 (b) Key management compensation

The following table details the aggregate compensation paid in respect of the key management, which includes the Directors and the members of the Operational Board, representing members of the senior management team from all key departments of the Group.

 

Salaries and other short-term employee benefits	2,179	2,069
Post-employment benefits	175	181
Termination benefits	146	74
Share based payment transactions	57	(348)
	2,557	1,976

 

-There are no defined benefit schemes for key management. Pension costs under defined contribution schemes are included in the post-employment benefits disclosed above.

 

 (c) Retirement benefits

(i) The Strix Limited Retirement Fund

The Strix Limited Retirement Fund is a defined contribution scheme under which the assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge represents costs payable by the Group to the fund and amounted to £1,352,000 (2022: £782,000).

(ii) LAICA S.p.A. Termination Indemnity

LAICA S.p.A. operates a defined benefit plan for its employees in accordance with the Italian Termination Indemnity (named "Trattamento di Fine Rapporto" or "TFR") provisions defined by the National Civil Code (Article 2120). In accordance with IAS 19, the TFR provision is a defined benefit plan, which is based on the principle to allocate the final cost of benefits over the periods of service which give rise to an accrual of deferred rights under each particular benefit plan.

The calculation of the liability is based on both the length of service and on the remuneration received by the employee during that period of service. Article 2120 states that severance pay is due to the employee by the companies in any case of termination of the employment contract. For each year of service, severance pay accruals are based on total annual compensation divided by 13.05. Although the benefit is paid in full by the employer, part (0.5% of pay) of the annual accrual is paid to INPS by the employer, and is subtracted from the severance pay accruals for the contribution reference period. As of 31st December of every year, the severance pay accrued as of 31st December of the preceding year is revalued by an index stipulated by law as follows: 1.5% plus 75% of the increase over the last 12 months in the consumer price index, as determined by the Italian Statistical Institute.

In accordance with IAS 19, the determination of the present value of the liability is carried out by an independent actuary under the projected unit method. This method considers each period of service provided by workers at the company as a unit of additional right. The actuarial liability must therefore be quantified based on seniority reached at the valuation date and re-proportioned based on the ratio between the years of service accrued at the reference date of the assessment and the overall seniority reached at the time scheduled for the payment of the benefit. Furthermore, this method provides to consider future salary increases, due to any cause (inflation, career, contract renewals, etc.), up to the time of termination of the employment relationship.

The below chart summarises the defined benefit pension liability of LAICA S.p.A. at 31 December 2023:

Liability as at 1 January	832	897
Current service cost for the period	(16)	(113)
Exchange differences on translation of foreign operations	(14)	48
Liability as at 31 December	802	832

The key actuarial assumptions used in arriving at these figures include:

?	annual discount rate of 3.17% (2022: 3.77%)
?	annual price inflation of 2.0% (2022: 2.3%)
?	annual TFR increase of 3.0% (2022: 3.2%)
?	demographic assumptions based on INPS published data

 

The remainder of the post-employment benefit liability of £86,000 (2022: £85,000) as at 31 December 2023 is made up of contractual post-employment liabilities within LAICA S.p.A. that do not meet the definition of a defined benefit plan in accordance with IAS 19.

 

6.     EXPENSES

(a) Expenses by nature

Employee benefit expense (note 5(a))	38,328	28,282
Depreciation charges	5,341	4,201
Amortisation and impairment charges	2,104	2,063
Adjusting items (see below)	4,226	5,948
Foreign exchange losses	530	188

 

Research and development expenditure totalled £4,485,000 (2022: £4,888,000), and £3,870,000 (2022: £3,326,000) of development costs have been capitalised during the year.

(b) Adjusting items

Adjusting items are excluded from our adjusted results by virtue of their nature, cause and predictability of occurrence, frequency, and scale of impact on underlying performance in order to better reflect management's view of the underlying trends and operating performance of the Group that is more comparable over time. Total adjusting items charged against reported profit after tax in the current year are £3,897,000 (2022: £6,128,000).

The main categories of adjusting items in the current year relate to major adjusting events or projects impacting the Group's underlying operations, namely strategic projects relating to mergers and acquisitions with particular reference to the acquisition of Billi in 2022 and its continued integration into the Group in the current year. Other adjusting items relate to reorganisation and restructuring projects, the Group's share incentive initiatives for conditional share options and awards issued to certain employees of the Group (refer to note 23 for further details), amortisation charges on intangibles assets recognised in accordance with IFRS 3: Business Combinations on any acquisitions as defined therein, and the related deferred tax implications on these aforementioned intangible assets which were charged or recognised in reported profit after tax.

(b) Adjusting items (continued)

Adjusting items have been broken down as follows:

Adjusting items in cost of sales:
COVID-19 related costs	-	485
Reorganisation and restructuring costs	99	362
	99	847
Adjusting items in administrative expenses:
Share-based payments	380	(491)
Mergers and acquisitions related costs	2,073	3,992
COVID-19 related costs	14	673
Disaster recovery	-	377
Reorganisation and restructuring costs	399	550
Amortisation charges on acquired intangible assets	1,261	-
	4,127	5,101
Total adjusting items before depreciation, finance cost and taxes	2,965	5,948
Amortisation charges on acquired intangible assets	1,261	-
Total adjusting items (before finance costs and taxation charges/(credits))	4,226	5,948
Adjusting items in finance costs:
Unwinding discount on Laica contingent consideration (performance earn-out)	-	180
	-	180
Adjusting items in taxation charges/(credits) :
Deferred taxation credits relating to acquired intangible assets	(329)	-
	(329)	-
Total adjusting items	3,897	6,128

Included within adjusting items in administrative expenses are amortisation charges on intangible assets recognised on acquisitions as defined in IFRS 3: Business Combinations. These amount to £1,261,000 in the current year (2022: £nil). These amortisation charges have been included in note 11 relating to Intangibles Assets.  In the current year, management reassessed the impact of amortisation charges on acquired intangible assets and concluded that these relates to historical inorganic business combinations and do not reflect the Group's ongoing underlying trading performance.  Therefore, these will be prospectively excluded when assessing the underlying performance of the Group, and will be included as adjusting items. The 2022 amounts of £210,000 have not been restated.

Also included within adjusting items in taxation charges/(credits) are deferred tax movements on temporary differences relating to acquired intangible assets as defined in IFRS 3: Business Combinations. These amount to credits of £329,000 in the current year (2022: £nil). These deferred tax credits have been included in note 9 relating to Taxation. In the current year, management reassessed the impact of deferred tax credits on acquired intangible assets and concluded that these relates to historical inorganic business combinations and do not reflect the Group's ongoing underlying trading performance.  Therefore, these will be prospectively excluded when assessing the underlying performance of the Group, and will be included as adjusting items. 2022 amounts have not been restated.

Also included as an adjusting item are finance costs of £nil in the current year (2022: £180,000). Costs incurred in the prior year related to the discount unwinding of the present values of contingent liabilities recognised on acquisition of Laica S.p.A in 2020. The contingent liabilities were fully matured at the beginning of the current year and were paid in the first quarter of 2023. No finance charges were incurred in the current year. These costs have been included in the prior year within finance costs in note 8.

Mergers and acquisitions adjusting items relate mainly to legal and consultancy fees, and other acquisition-related costs incurred on transition from previous shareholders and integration of the Billi entities into the Group.

COVID-19 related adjusting items are those items that are incremental and directly attributable to COVID-19. These are costs that would not have been incurred if the COVID-19 pandemic had not occurred (and the consequent minor preventative measures and projects after the effects have largely receded). In the current year, these mainly consisted of immaterial consumables relating to additional cleaning and sanitation costs incurred as part of infection control or prevention.

Reorganisation and restructuring adjusting items in the current year mainly related to the Group internal divisional restructuring programmes particularly of our operating segments and divisions in order to re-align our business and focus on our core competencies of technology, innovation, manufacturing excellence, quality and safety, so as to steer our valuable resources more towards profitable growth opportunities.

Disaster recovery costs related to staff and non-staff costs incurred in response to a cyber incident which occurred in February 2022. The Group engaged external specialists, took precautionary measures with its IT infrastructure and implemented its business continuity plan. The systems were successfully restored and are fully operational. The Group continues to monitor its exposure.

(c) Auditor's remuneration

During the year the Group (including its subsidiaries) obtained the following services from the Company's auditor, PricewaterhouseCoopers (PwC) LLC and other firms in the PwC network, as detailed below:

Fees payable to Company's auditor and its associates for the audit of the consolidated financial statements	283	245
Fees payable to Company's auditor and its associates for other services:
- the audit of Company's subsidiaries	13	8
- other assurance services	4	3
- tax compliance and other	191	5
	491	261

Included within 'other' are fees of £184,000 paid to PricewaterhouseCoopers LLP, UK in relation to integration costs of the Billi UK acquisition.

Audit fees of £70,000 (2022: £68,000) were paid to non-PwC firms in connection with the audit of the Company's subsidiaries.

 

7.     REVENUE

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

Kettle controls	70,102	68,243
Premium filtration systems	42,106	3,224
Consumer goods	32,378	35,453
Total revenue	144,586	106,920

Included within the revenue from the kettle controls is licensing fee income relating to intellectual property amounting to £852,000 (2022: £nil). Included within the revenue from the consumer goods is licensing fee income relating to intellectual property amounting to £318,000 (2022: £1,442,000).

 

8.     FINANCE COSTS

Letter of credit charges	176	94
Right-of-use lease interest	198	92
Discount unwinding of present value of contingent consideration	-	180
Borrowing costs	10,012	3,559
Total finance costs	10,386	3,925

The discount unwinding of present value of contingent consideration in the prior year related to the contingent consideration on a performance earn-out recognised on acquisition of LAICA S.p.A. The amount has been included in finance costs as an adjusting item (refer to note 6).

 

9.     TAXATION

Current tax (overseas) and deferred tax
Current tax on overseas profits for the year	2,521	491
Adjustments to prior years' overseas tax provisions	-	(1,323)
Movement in deferred tax assets and liabilities	(978)	27
Total tax charge/(credit)	1,543	(805)

Included in the movement of deferred tax liabilities are the deferred tax impact of temporary differences relating to intangible assets recognised on acquisitions as defined in IFRS 3: Business Combinations. These amount to credits of £329,000 in the current year (2022: £nil). These deferred tax credits have been included in note 6(b) relating to Adjusting Items.

Overseas tax relates primarily to tax payable by the Group's subsidiaries in China, Australia, New Zealand, Italy and the UK.

In relation to the prior year's tax provision adjustments, these related to tax provision releases in the Group's Chinese subsidiary based on independent recommendations taken to convert from a contract processing model to an import processing model in 2019, which is a more acceptable tax model by Chinese tax authorities and largely in use by the majority of the OEMs in China. All potential tax provisions that had been made from 2015 to 2019 were deemed overly conservative, and were therefore released in the prior year as they were no longer needed after a tax certificate from the in-charge tax bureau in China was obtained which confirmed that all tax matters in the subsidiary had been settled. In addition, tax provision releases were also made in the prior year of withholdings taxes accrued for anticipated dividends payable by the Chinese subsidiary to its immediate holding company in the Isle of Man, after the Group's management decided in the prior year to invest more towards the Chinese manufacturing facility in terms of capital expenditure, thereby keeping profits within the Chinese subsidiaries.

There were no tax provision releases in the current year.

Movement in the deferred tax assets and liabilities mainly related to the impact of taxable and deductible temporary differences with the Italian, Australian and New Zealand subsidiaries.

Reconciliation of the movement in deferred tax liabilities and assets has been presented below:

Deferred tax liabilities:

Deferred tax liability on 1 January		11,387	2,303
Deferred tax liabilities recognised on acquisition of Billi (note 14)		-	9,011
Prior year adjustments		(180)	-
Reversal of deferred tax on utilisation of temporary differences		(903)	73
Deferred tax liability as at 31 December		10,304	11,387

The balance comprises temporary differences attributable to intangible assets recognised on acquisition of LAICA in 2020 and Billi in 2022.

Deferred tax assets:

Deferred tax assets on 1 January		313	258
Deferred tax assets recognised on acquisition of Billi		-	8
Reclassifications		153	-
Prior year adjustments		416	-
Deferred tax asset on utilisation of deductible temporary differences		75	47
Deferred tax asset as at 31 December		957	313

The balance comprises temporary differences mainly attributable to provisions.

In the prior year, the deferred tax asset of £313,000 was included in trade and other receivables.

As the most significant subsidiary in the Group is based on the Isle of Man, this is considered to represent the most relevant standard rate for the Group. The tax assessed for the year is different to the standard rate of income tax in the Isle of Man of 0% (2022: 0%). The differences are explained below:

Profit on ordinary activities before tax	17,703	16,050
Profit on ordinary activities multiplied by the rate of income tax in the Isle of Man of 0% (2022: 0%)	-	-
Impact of higher overseas tax rate	1,543	518
Adjustments in relation to prior years' overseas tax provisions	-	(1,323)
Total taxation (credit)/charge	1,543	(805)

The Group is subject to Isle of Man income tax on profits at the rate of 0% (2022: 0%), UK corporation tax on profits at a rate of 25% (2022:19%), Chinese corporate income tax on profits at the rate of 25% (2022: 25%), Italian corporate income tax on profits at a rate of 27.9% (2022: 27.9%), Australian income tax on profits at the rate of 30% (2022: 30%) and New Zealand corporate income tax on profits at the rate of 28% (2022:28%).

 

10.  EARNINGS PER SHARE

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

Earnings (£000s)
Earnings for the purposes of basic and diluted earnings per share	16,203	16,790
Number of shares (000s)
Weighted average number of shares for the purposes of basic earnings per share	218,713	209,911
Weighted average dilutive effect of share awards	3,422	2,585
Weighted average number of shares for the purposes of diluted earnings per share	222,135	212,496
Earnings per ordinary share (pence)
Basic earnings per ordinary share	7.4	8.0
Diluted earnings per ordinary share	7.3	7.9
Adjusted earnings per ordinary share (pence) (1)
Basic adjusted earnings per ordinary share (1)	9.2	10.9
Diluted adjusted earnings per ordinary share (1)	9.0	10.8

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

Profit for the year	16,203	16,790
Add back adjusting items included in (note 6(b)):
Cost of sales	99	847
Administrative expenses	4,127	5,101
Finance costs	-	180
Taxation credits	(329)	-
Adjusted earnings (1)	20,100	22,918

^{1. Adjusted earnings and adjusted earnings per share exclude adjusting items as explained in note 6. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.}

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