RNS Number : 5313I
Strix Group PLC
27 March 2024

The Preliminary results for the twelve months ended 31 December 2023 announcement released on 27 March 2024 at 7am under RNS No. 4172I has been reformatted.

All material details remain unchanged.

The full text is shown below.

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

Strix Group Plc

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

Preliminary results for the twelve months ended 31 December 2023

Financial Summary


Adjusted results1

Reported results


FY 2023

FY 2022

Change
(23 - 22)

FY 2023

FY 2022

Change
(23 - 22)

£m

£m


£m

£m


Revenue

144.6

106.9

+35.2%

144.6

106.9

+35.2%

Gross profit

57.2

41.5

+37.7%

57.1

40.7

+40.4%

Gross margin

39.6%

38.8%

+80 bps

39.5%

38.0%

+150 bps

EBITDA margin

27.3%

30%

-270bps

25.3%

24.5%

+80bps

Operating profit

32.1

25.9

+24.3%

27.9

19.9

+40.2%

Operating margin

22.2%

24.2%

-200bps

19.3%

18.6%

+70bps

Profit before tax

21.9

22.2

-1.1%

17.7

16.1

+10.3%

Profit after tax

20.1

23.0

-12.7%

16.2

16.9

-4.1%

Net debt2

83.7

87.4

-4.3%

83.7

87.4

-4.3%

Operating cash conversion3

-

-

-

106%

94%

+1,200 bps

Basic earnings per share (pence)

9.2

10.9

-15.7%

7.4

8.0

-7.4%

Diluted earnings per share (pence)

9.1

10.8

-16.2%

7.3

7.9

-7.7%

Total dividend per share (pence)

-

-

-

0.9

6.0

-85.0%

1. Adjusted results exclude adjusting items (see note 6 of the financial statements)

2. Net debt excludes accrued interest, ROU lease liabilities and is net of loan arrangement fees, as defined in our banking facility agreement

3. Cash generated from operations as a percentage of EBITDA

Highlights

§

A rebasing of the core business is being undertaken in 2024 to build strong foundations for medium-term growth opportunities as the market continues to recover.

§

Despite the macro challenges, the fundamentals of the Group that were seen so positively by the capital markets post listing remain unchanged. Its core business is a resilient one and maintains its dominant market position, with stable market share by value.

§

Strix has demonstrated good revenue growth, largely driven by Billi, continues to be highly profitable and is strongly cash generative.

§

The Board remains focused on maximising cash generation to support debt reduction which will result in a temporary pause in the final and interim dividend payments in calendar year 2024, with a planned return to a sustainable dividend pay-out ratio of 30% of adjusted PAT in 2025.

§

This pause will enable the Company to accelerate its deleveraging profile to ensure that it will be in a stronger financial position. It will also provide the flexibility to enable the business to selectively invest in new technologies to support longer term growth initiatives.

§

Strix has been proactively working with its banking syndicate who have provided a normalisation of the net debt leverage covenant to 2.75x for the duration of the facility.

§

Senior management changes. The recent recruitment of Clare Foster (CFO) and Rachel Pallett (CCO of Kettle Controls & PFS (Billi)) who both bring extensive skills and experience to the Group.

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

"Strix is a resilient and highly cash generative business with the opportunity to expand its addressable market across all divisions.

The recent strategic acquisition of Billi has delivered double-digit revenue and profit growth on a constant currency basis over the period which is anticipated to continue, helped by a staged expansion into key European markets.

The Group plans to return to its sustainable dividend pay-out ratio policy in 2025 reflecting the Board's confidence in the medium-term prospects."

For further enquiries, please contact:


Strix Group Plc

Mark Bartlett, CEO

Mark Kirkland, Interim CFO

+44 (0) 1624 829829

Zeus (Nominated Advisor and Joint Broker)

Nick Cowles / Jordan Warburton (Investment Banking)

+44 (0) 20 3829 5000

Stifel Nicolaus Europe Limited (Joint Broker)

Matthew Blawat / Francis North

+44 (0) 20 7710 7600

IFC Advisory Limited (Financial PR and IR)
Graham Herring / Tim Metcalfe / Florence Chandler

+44 (0) 20 3934 6630

CEO's report:

Executive summary

Strix's investment proposition which was seen so positively by the equity capital markets since its IPO remains fundamentally unchanged. Its core business is a resilient one and maintains its dominant market position, with stable market share by value.

During 2024, a rebasing of the core business is being undertaken to provide a strong platform for medium-term growth opportunities as the market continues to recover.

The Board remains focused on maximising cash generation to support debt reduction which will result in a temporary pause in dividend payments in calendar year 2024. A planned return to a sustainable dividend pay-out ratio of 30% of adjusted PAT will take place in 2025.

This pause will enable the Company to accelerate its deleveraging profile and provide the financial flexibility to enable the business to make measured strategic investments into new products, technologies and manufacturing capabilities to support an accelerated growth profile in the medium-term.

Financial performance

The Group has seen strong growth with revenues increasing by 35.2% year on year to £144.6m (FY 2022 £106.9m), mainly as a result of the full year inclusion of Billi revenues of £41.3m (FY 2022, 1 month revenue of £2.7m).

The Group's adjusted EBITDA margin remains strong at 27.3% (2022: 30.0%) reflecting the robust underlying profitability of the Group despite the macro challenges.

Despite the significant increase in net finance costs, the Group's adjusted profit before tax shows only a slight year on year decrease of £0.3m to £21.9m (2022: £22.2m).

Adjusted profit after tax for the full year was £20.6m on a constant currency basis and £20.1m on a reported basis.

Cash generation was strong (operating cash conversion was 106%) and year-end net debt was reduced by £3.7m to £83.7m.

Kettle Controls division

Kettle Controls revenue increased to £70.1m (2022: £68.2m).

Whilst the macroeconomic and geopolitical environment that Strix and its peers operate in remains challenging, revenue growth in Kettle Controls outpaced the market, growing at 2.7% by value. The recovery in regulated markets started in H2 of 2023 (albeit slower than originally anticipated) recording quarter on quarter growth against the prior year.

Key initiatives going forward include:-

§

New patent protected Series Z controls range undergoing customer testing, preparations for volume manufacture underway;

§

'Technology Showcase' to demonstrate how Series Z controls enable new applications and growth opportunities beyond traditional kettles; and

§

A new range of low-cost controls tailored to the domestic China and less regulated market requirements which increases the target addressable market.

Premium Filtration Systems division ("PFS") (Billi)

The recent strategic acquisition of Billi delivered double-digit revenue and profit growth on a constant currency basis over the period. Strix anticipates that this trajectory will continue given the expanded target addressable market that Billi provides.

The new Billi UK head office in Wolverhampton, a new UK warehousing, distribution and refurbishment facility in Thurrock and the flagship Billi showroom and event space in London are now open. The right-sizing of Australian storage and distribution facilities in New South Wales, Western Australia and South Australia is now complete. First installations of the new OmniOne unit, offering boiling, chilled and sparkling water for commercial and residential applications, and introduction of the new Luxgarde UVC purification system for defense against waterborne bacteria and pathogens, are underway.

Key initiatives going forward include:-

§

Global launch of new Multi-Function Tap, compatible with the full range of Billi under-counter modules;

§

Introduction of the new Omni-One under-counter unit to export markets (commercial and residential applications);

§

New product development programme targeting the residential market via selected channel partners;

§

European expansion via strategic sales and service partners, with technical and commercial support from Billi UK; and

§

Business development in South-East Asia and the Middle East through established distribution channels.

Consumer Goods division

Overall, the Consumer Goods division reported an 8.7% decrease in revenue to £32.3m in 2023 (2022: £35.4m), driven primarily by a softening of the appliances category market, however this was partially offset by improved water category revenues.

In 2023, Aqua Optima secured a distribution agreement with a leading UK retail outlet. It was also agreed they would be a strategic brand partner for a European private label deal within the water category for distribution into France and expansion into Turkey. Aurora coffee also launched in North America.

Key initiatives going forward include:-

§

Drive OEM business; two major contracts secured which will deliver c. 40% of 2024 growth; and

§

New product development focus on bolstering core profitable categories, including launches across filtration & vacuum sealer categories.

A divisional restructuring at the start of 2024 has streamlined and re-focused the Consumer Goods division to drive ongoing profitable growth.

Senior management changes

Further to the prior announcement, Strix is also pleased to welcome the appointment of Clare Foster as Chief Financial Officer. Clare has over 25 years of experience working in international businesses and was most recently the Group Chief Financial Officer at Trifast plc making her a valuable addition to Strix's leadership team. She joined Strix on 1 February 2024 and following a handover period, will formally take office and join the Board on 2 April 2024 at which point Mark Kirkland will step down as Interim Chief Financial Officer. He will continue as a Non-Executive Director on the Strix Board.

In addition, Rachel Pallett has been appointed as CCO of Kettle Controls & PFS (Billi). Rachel has 30 years of international experience in the business of engineering. She has held senior executive positions at Spirax Sarco Engineering plc, where she was Director of Business Development for Steam Specialties - responsible for the design, development and commercialisation of steam systems, controls and thermal energy management solutions. Prior to Spirax, she held several leadership and technical positions at Renishaw plc, the precision metrology and healthcare technology group.

Barriers to entry and defence of intellectual property

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

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

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.

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 a 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 and 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. This is reflected in improved facilities offered by the new Chinese facility, whilst the West has seen changes in the working week, increased holiday entitlement, and the introduction of two charity days a year.

Strix's sustainability agenda for 2024 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 updated ESG report is published today and will be available on the Strix website.

Key strategic business objectives

Strix reconfirms its commitment to the Key strategic business objectives outlined below:-

"Developing leading, innovative technology in the fields of water heating, safety control systems and drinking water treatment."

§

Kettle Controls:

§

Profitably grow revenue through the introduction of innovative new products focused on sustainability, safety and convenience - including a new range of controls to increase the addressable markets within the unregulated and the China domestic markets.

§

Leveraging the Group's global manufacturing footprint to drive cost efficiency and improve sustainability.



§

PFS (Billi):

§

Leverage new product development and expand the geographical distribution in both residential and commercial markets.

§

Priority will be placed on expansion into Europe and further product development to support the residential market opportunities.



§

Consumer Goods:

§

Following a divisional restructure, a refreshed and robust strategy will see LAICA in Italy becoming a highly profitable centre of excellence for the Group.

§

Grow market share through innovation, world class sourcing and commercial excellence.

§

Focus will be on geographical expansion and rationalisation of products to maximise profitability.




"Right People, Right Place, Right Skills, motivated and engaged to deliver our strategic objectives."

Outlook

A rebasing of the core business is being undertaken in 2024 to build strong foundations for medium-term growth opportunities as the market continues to recover.

Despite the macro challenges, the fundamentals of the Group that were seen so positively by the capital markets post listing remain unchanged. The core business is a resilient one and maintains its dominant market position, with a stable kettle controls' market share by value.

The recovery in the Kettle Controls regulated markets started in H2 of 2023 (albeit slower than originally anticipated) recording quarter on quarter growth against the prior year that has continued into Q1 of 2024.

Billi's double-digit revenue and profit growth is expected to continue, helped by a staged expansion into key European markets.

Divisional restructuring at the start of 2024 has streamlined and re-focused the Consumer Goods division to drive ongoing profitable growth.

Whilst the Board remains focused on deleveraging, prudent strategic investment continues into new products, technologies and manufacturing capabilities to support an accelerated growth profile in the medium-term.

CFO's report:

Financial performance

Revenue

The Group has seen strong growth with revenues increasing by 35.2% year on year to £144.6m (FY 2022 £106.9m), mainly as a result of the full year inclusion of Billi revenues of £41.3m (FY 2022, 1 month revenue of £2.7m). In our organic business, we have seen a small net reduction in sales driven by decreases in the Consumer Goods division.

Billi (which forms the major part of our Premium Filtration Systems (PFS) division) has performed ahead of expectations, securing over 10% growth against pre-acquisition trading levels at constant currency as the business continues to expand. In the UK market, sales have grown by c.13% year on year, reflecting a key part of our post-acquisition growth strategy for the business.

Following on from an extremely challenging 2022, we are pleased to report that revenues in our Kettle Controls division have increased by 2.7% to £70.1m (FY 2022: £68.2m) driven mainly by an 18% growth in the less regulated kettle market. The pace of recovery in the larger regulated kettle market continues to be slower than originally anticipated due to the ongoing effects of the cost of living crisis and the Russia/Ukraine conflict. Recent incoming order rates are now tracking in a positive direction, evident from higher sales in the last quarter of 2023 and a continued slow recovery into Q1 of 2024.

Consumer Goods revenue decreased by 8.7% to £32.3m (FY 2022: £35.4m) with challenging market conditions in the APAC region being the key driver for this decline. Despite this, we have continued to successfully expand our online presence with Amazon and have secured a number of new private label customers over the course of year, that are set to drive growth into 2024. Aqua Optima, our lower price point water filtration brand, has also seen strong growth in the year, providing the Group with an alternative access route into this key market.

Trading profit

Adjusted gross margin in FY 2023 was 80bps higher at 39.6% (FY 2022: 38.8%). The main driver of this is from our PFS division where gross margins have increased strongly to 45.8% (2022: 35.4%) as a result of the full year inclusion of Billi. With the addition of Billi, PFS now represents the highest gross margin division in the Group.

Partly offsetting this, product mix changes in Kettle Controls have led to a divisional gross margin reduction of 190bps to 39.0% (2022: 40.9%) due to faster recovery during 2023 in the lower margin less regulated and China domestic markets. Consumer Goods margin dilution of 250bps to 32.6% (2022: 35.1%) is largely down to reduced manufacturing volumes in 2023 impacting overhead recovery and the relative increase in lower margin online and Aqua Optima trading levels.

The Group's adjusted EBITDA margin remains strong at 27.3% (2022: 30%) reflecting the robust underlying profitability of the Group despite the macro challenges.

Adjusted operating profit margins have reduced by 200bps to 22.2% (FY 2024: 24.2%) as higher overhead costs offset the gross margin uplift noted above. This increase is predominantly due to the full year inclusion of Billi. As a business, Billi carries a higher overhead base than the rest of the Group at c. 25% of revenue (Group: c. 15%). At an operating profit level and slightly ahead of our pre-acquisition expectations, Billi generated £9.0m adjusted operating profit for the Group at an adjusted operating margin of 21.8% (Group: 22.2%).

Excluding the impact of Billi, distribution costs in the organic business decreased by £1.0m largely due to a reduction in carriage costs associated with the decrease in sales in Consumer Goods. Whilst organic administration costs increased by c. 8.0% mainly due to higher staff costs reflecting salary increases and some limited headcount investment seen across the Group to support future growth.

Net finance costs

Net finance costs have increased significantly year on year to £10.2m (2022: £3.9m), due to an increase in the average gross debt to fund the Billi acquisition and a higher interest rate environment.

Profit before and after tax

Despite the significant increase in net finance costs, the Group's adjusted profit before tax shows only a slight year on year decrease of £0.3m to £21.9m (2022: £22.2m). As the contribution to adjusted operating profit before tax from Billi has offset both finance cost increases and the small decrease in organic trading. Reported profit before tax was £17.7m (FY 2022: £16.1m).

Adjusted profit after tax was £20.1m (FY 2022: £23.0m), a decrease of £2.9m (12.7% decrease). The tax expense significantly increased in the current year mainly due to tax expense from Billi of £1.3m and Italy of £0.6m, as opposed to tax incentive credits granted in Italy and the release of tax provisions in 2022 totaling (£0.8m). Reported profit after tax was £16.2m (FY 2022: £16.9m).

Adjusting items

Adjusting items decreased by 36.4% to £3.9m (2022: £6.1m) due to no COVID-19 related costs and a reduction in restructuring and acquisition expenses (see note 6 in the financial statements for full details). Share based payments continue to be treated as an adjusting item and from 2023 we have also included amortisation charges (£1.3m) on intangible assets recognised on acquisition.

Cash flow

In line with previous years, the Group has maintained consistently high operating cash generation, with an operating cash conversion ratio of 106% in the year (2022: 94%).

This has been helped by strong working capital management, leading to further decreases in net working capital of £2.3m compared to cash outflows of £2.6m in the prior year. Reflecting our success in this area, working capital as a % of sales has reduced significantly to 16.7% (2022: 25.3%).

Cash outflows from investing activities significantly decreased in the current year to £14.3m (2022: £47.8m) and include the final earn-out payments in relation to the LAICA acquisition of £7.5m and a lower broadly maintenance level of capital expenditure (including product led capital development) of £8.0m. In 2022, cash outflows were higher as a result of the acquisition of Billi.

Excluding dividends, cash outflows from financing activities significantly increased in the year to £24.4m, largely reflecting higher interest costs and substantial repayments in line with the acquisition term loan of £3.5m per quarter. Quarterly payments of this loan will continue until the facility ends in October 2025.

Net debt and capital allocation

The Group's net debt position (excluding accrued interest, ROU lease liabilities and net of loan arrangement fees, as defined in our banking facility agreement), decreased to £83.7m (FY 2022: £87.4m). As discussed above, this decrease is mainly attributable to strong operating cash generation and working capital management delivering cash inflows of £38.9m. Partially offset by maintenance level capital investments, the final earn-out payment in relation to LAICA and higher finance costs.

Total committed debt facilities at 31 December 2023 amounted to £103.7m (2022: £117.8m) and the Group held £20.1m in cash, providing accessible liquidity. Net debt equated to 2.19 times trailing twelve months' adjusted EBITDA, in compliance with our debt covenant threshold of 2.25 times.

The Group have been proactively working with banking syndicate to enhance flexibility and security of funds within the existing agreement. As a result of that process and illustrating their ongoing confidence and support, a normalisation of the net debt leverage covenant to 2.75x for the duration of the remaining facility was agreed on 22 March 2024.

Given the increase in net debt due to the strategic acquisition of Billi, and with the high interest rates environment, the Group has reviewed its capital allocation framework to prioritise cash retention and net debt leverage reduction in the short term.

As a result of this process, a target of initially reducing net debt leverage to 1.5x has been put in place. After which, leverage appetite will remain at between 1.0x to 2.0x for the medium term.

Dividend

The Board remains focused on maximising cash generation to support debt reduction which will result in a temporary pause in the final and interim dividend payments in calendar year 2024, with a planned return to a sustainable dividend pay-out ratio of 30% of adjusted PAT in 2025.

The total dividend declared for 2023 is therefore 0.9p per share (2022: 6.00p per share), representing the interim dividend paid to shareholders in December 2023.



Consolidated statement of comprehensive income

for the year ended 31 December 2023

26 March 2024

Note

2023

2022

£000s

£000s

Revenue

7

144,586

106,920

Cost of sales - before adjusting items


(87,398)

(65,395)

Cost of sales - adjusting items

6

(99)

(847)

Cost of sales

(87,497)

(66,242)

Gross profit


57,089

40,678

Distribution costs


(10,896)

(10,824)

Administrative expenses - before adjusting items


(14,679)

(5,570)

Administrative expenses - adjusting items

6

(4,127)

(5,101)

Administrative expenses


(18,806)

(10,671)

Share of profits/(losses) from joint ventures


85

(18)

Other operating income


442

751

Operating profit

27,914

19,916

Analysed as:



Adjusted EBITDA1


39,585

32,128

Amortisation

11

(3,365)

(2,063)

Depreciation

12

(5,341)

(4,201)

Adjusting items

6

(2,965)

(5,948)

Operating profit

27,914

19,916

Finance costs

8

(10,386)

(3,925)

Finance income


175

59

Profit before taxation

17,703

16,050

Income tax (expense)/credit

9

(1,543)

805




Profit for the year


16,160

16,855




Other comprehensive (expense)/income


Items that may be reclassified to profit or loss:


Exchange differences on translation of foreign operations


(1,612)

1,495



Total comprehensive income for the year


14,548

18,350



Profit for the year attributable to:



Equity holders of the Company

16,203

16,790

Non-controlling interests

(43)

65


16,160

16,855

Total comprehensive income for the year attributable to:


Equity holders of the Company

14,602

18,324

Non-controlling interests

(54)

26



14,548

18,350






Earnings per share (pence)



Basic

10

7.4

8.0

Diluted

10

7.3

7.9







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



Consolidated statement of financial position

as at 31 December 2023


Note

2023

2022

ASSETS


£000s

£000s

Non-current assets



Intangible assets

11

73,409

73,374

Property, plant and equipment

12

46,215

47,364

Deferred tax asset

9

957

-

Investments in joint ventures


1

19

Net investments in finance leases


11

16

Total non-current assets


120,593

120,773

Current assets


Inventories

15

25,440

27,702

Trade and other receivables

16

27,713

29,791

Current income tax receivable

16

220

497

Cash and cash equivalents

17

20,114

30,443

Total current assets


73,487

88,433



Total assets

194,080

209,206




EQUITY AND LIABILITIES



Equity


Share capital and share premium

24

23,642

23,861

Share based payment reserve

23

572

202

Retained earnings


18,167

12,479

Non-controlling interests


653

707

Total equity


43,034

37,249



Current liabilities


Trade and other payables

18

27,165

29,963

Borrowings

19

16,062

14,734

Lease liabilities

26

1,218

1,069

Contingent consideration

14

-

7,532

Current income tax liabilities

18

2,074

444

Total current liabilities


46,519

53,742

Non-current liabilities


Lease liabilities

26

3,592

2,819

Deferred tax liability

9

10,304

11,387

Borrowings

19

89,743

103,092

Post-employment benefits

5(c)

888

917

Total non-current liabilities


104,527

118,215

Total liabilities


151,046

171,957



Total equity and liabilities

194,080

209,206


Consolidated statement of changes in equity

for the year ended 31 December 2023


Share capital and share premium

Share based payment reserve

Retained (deficit) / earnings

Total Equity attributable to owners

Non-controlling interests

Total Equity

£000s

£000s

£000s

£000s

£000s

£000s

Balance at 1 January 2022

13,139

2,039

10,146

25,324

681

26,005

Profit for the year

-

-

16,790

16,790

65

16,855

Other comprehensive income / (expenses)

-

-

1,534

1,534

(39)

1,495

Total comprehensive income for the year

-

-

18,324

18,324

26

18,350

Dividends paid (note 25)

-

-

(17,300)

(17,300)

-

(17,300)

Share-based payment transactions (note 23)

-

(491)

-

(491)

-

(491)

Transfers between reserves (note 23)

7

(1,210)

1,203

-

-

-

Issue of shares (note 24)

13,000

-

-

13,000

-

13,000

Transaction costs (note 24)

(2,285)

-

-

(2,285)

-

(2,285)

Total transactions with equity holders recognised directly in equity

10,722

(1,701)

(16,097)

(7,076)

-

(7,076)

Other transactions recognised directly in equity (note 23)

-

(136)

106

(30)

-

(30)

Balance at 1 January 2023

23,861

202

12,479

36,542

707

37,249

Profit for the year

-

-

16,203

16,203

(43)

16,160

Other comprehensive income / (expenses)

-

-

(1,601)

(1,601)

(11)

(1,612)

Total comprehensive income for the year

-

-

14,602

14,602

(54)

14,548

Dividends paid (note 25)

-

-

(9,070)

(9,070)

-

(9,070)

Share-based payment transactions (note 23)

-

380

-

380

-

380

Transfers between reserves (note 23)

-

(10)

10

-

-

-

Transaction costs (note 24)

(219)

-

-

(219)

-

(219)

Total transactions with equity holders recognised directly in equity

(219)

370

(9,060)

(8,909)

-

(8,909)

Other transactions recognised directly in equity

-

-

146

146

-

146

Balance at 31 December 2023

23,642

572

18,167

42,381

653

43,034


Consolidated statement of cash flows

for the year ended 31 December 2023



2023

2022


Note

£000s

£000s

Cash flows from operating activities



Cash generated from operations

27

38,902

24,567

Tax paid


(1,297)

(1,204)

Net cash generated from operating activities


37,605

23,363




Cash flows from investing activities


Purchase of property, plant and equipment


(3,296)

(4,749)

Cash outflows from capitalised development costs

11

(3,560)

(3,326)

Purchase of LAICA S.p.A (deferred consideration)


(7,502)

(1,671)

Consideration refund/(purchase of Billi, net of cash acquired)

14

1,046

(37,658)

Purchase of other intangibles

11

(1,169)

(484)

Finance income


180

59

Net cash used in investing activities


(14,301)

(47,829)




Cash flows from financing activities



Drawdowns under credit facility

19

-

46,487

Repayment of borrowings

19

(15,114)

-

Finance costs paid

19

(7,611)

(3,263)

Principal elements of lease payments

26

(1,426)

(833)

(Transaction costs)/net proceeds from issue of new shares

24

(219)

10,715

Dividends paid

25

(9,070)

(17,300)

Net cash (used in)/generated from financing activities


(33,440)

35,806



Net (decrease)/increase in cash and cash equivalents

(10,136)

11,340

Cash and cash equivalents at the beginning of the year


30,443

19,670

Effects of foreign exchange on cash and cash equivalents


(193)

(567)

Cash and cash equivalents at the end of the year

20,114

30,443




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.


Reported gross profit

2023

(£000s)

Kettle controls

Premium filtration systems

Consumer goods

Total

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

Reported gross profit

2022

(£000s)

Kettle controls

Premium filtration systems

Consumer goods

Total

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


Adjusted gross profit*

2023

(£000s)

Kettle controls

Premium filtration systems

Consumer goods

Total

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


Adjusted gross profit*

2022

(£000s)

Kettle controls

Premium filtration systems

Consumer goods

Total

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.


2023

2022

Country

£000s

£000s

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.


2023

2022


£000s

£000s




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


2023

2022


£000s

£000s

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.


2023

2022


£000s

£000s

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:


2023

2022


£000s

£000s

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


2023

2022


£000s

£000s

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:


2023

2022


£000s

£000s

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:


2023

2022


£000s

£000s

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:


2023

2022


£000s

£000s

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


2023

2022


£000s

£000s

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

2023

2022

Analysis of charge/(credit) in year

£000s

£000s

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:

2023

2022

£000s

£000s

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:

2023

2022

£000s

£000s

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:

2023

2022

£000s

£000s

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.


2023

2022

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:


2023

2022


£000s

£000s

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.


11. INTANGIBLE ASSETS


2023

Development costs

Software

Intellectual Property

Customer relationships

Brands

Goodwill

Intangible assets under construction

Total

£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January








Cost

19,428

4,452

1,482

18,549

19,785

20,067

103

83,866

Accumulated amortisation and impairment

(7,716)

(1,817)

(256)

(703)

-

-

-

(10,492)

Net book value

11,712

2,635

1,226

17,846

19,785

20,067

103

73,374

Period ended 31 December

Additions

3,870

448

464

-

-

242

5,024

Transfers

-

9

42

(116)

28

69

(32)

-

Purchase consideration refund

-

-

-

-

-

(1,046)

-

(1,046)

Fair value adjustments (note 14)

-

-

-

(84)

-

654

-

570

Disposals (cost)

(494)

(50)

-

-

-

-

-

(544)

Disposals (accumulated amortisation)

184

46

-

-

-

-

-

230

Amortisation charge

(1,304)

(641)

(159)

(1,261)

-

-

-

(3,365)

Exchange differences

(292)

(5)

(31)

(9)

(139)

(374)

16

(834)

Closing net book value

13,676

2,442

1,542

16,376

19,674

19,370

329

73,409

At 31 December

Cost

22,742

4,848

1,950

18,222

19,674

19,370

329

87,135

Accumulated amortisation and impairment

(9,066)

(2,406)

(408)

(1,846)

-

-

-

(13,726)

Net book value

13,676

2,442

1,542

16,376

19,674

19,370

329

73,409

Amortisation charges have been treated as an expense, and are allocated to cost of sales (£1,709,000), distribution costs (£nil) and administrative expenses (£1,656,000) in the consolidated statement of comprehensive income.

The Group's goodwill, customer relationships and brands predominantly relate to those arising on the acquisition of LAICA which was completed in 2020, and also on the acquisition of the Billi entities, which were acquired in 2022 (note 14).

Laica S.p.A and subsidiaries intangible assets impairment review

The carrying values of goodwill and brands of £8.6m (2022: £8.8m) and £6.4m (2022: £6.5m) respectively have been subject to an annual impairment test, and the recoverable amounts assessed at each cash generating unit (CGU) level determined on the basis of value-in-use calculations over a five-year forecast period for goodwill and a twenty-year period for brands. The key assumptions applied in the value-in-use calculations for LAICA are a discount rate of 11.8%, (2022: 12%) variable trading margins, variable revenue growth rates as well as the terminal growth rate of 2% (2022: 2%). Based on these calculations, there is sufficient headroom over the carrying values of goodwill and brands hence no impairment has been recognised in the current year and there were no reversals of prior year impairments during the year (2022: same).

The results of the Group impairment tests are dependent upon estimates and judgements, particularly in relation to the key assumptions described above. Sensitivity analysis to a reasonable and possible change in the most sensitive assumptions, being the discount and growth rates, was undertaken. An increase of 1% in the discount rate or a decrease of 1% in the growth rate would decrease the headroom of £20.2m by circa £2.4m for goodwill and would extinguish the headroom of £0.4m for brands.

Billi entities intangible assets impairment review

For impairment testing, the goodwill and brands acquired in the acquisition of Billi are allocated to three cash generating units (CGUs).

Carrying amount of goodwill and brands allocated to each of the CGUs:


Goodwill

Brands

Total

CGU

2023

2022


2023

2022


2023

2022

£000s

£000s


£000s

£000s


£000s

£000s

Billi Australia

7,944

8,241


9,555

9,555


17,499

17,796

Billi New Zealand

260

270


1,165

1,165


1,425

1,435

Billi UK

2,289

2,374


2,548

2,548


4,837

4,922

Total

10,493

10,885


13,268

13,268


23,761

24,153

Billi Australia CGU

The carrying values of existing goodwill and brands of £7.9m (2022: £8.2m) and £9.5m (2022: £9.5m) for the Billi Australia CGU were subject to an annual impairment test for the first time, and the recoverable amounts determined on the basis of value-in-use calculations over a five-year and ten-year forecast period respectively. The key assumptions applied in the value-in-use calculations are a discount rate of 14.91%, variable trading margins and variable revenue growth rates. Based on these calculations, there is sufficient headroom over the carrying values of goodwill and brands hence no impairment has been recognised in the current year.

The results of the Group impairment tests are dependent upon estimates and judgements, particularly in relation to the key assumptions described above. Sensitivity analysis to a reasonable and possible change in the most sensitive assumption, being the discount rate, was undertaken. An increase of 1% would decrease the headroom of £46.6m by circa £1.8m for goodwill and would decrease the headroom of £0.6m by circa £0.4m for brands.

Billi New Zealand CGU

The carrying values of existing goodwill and brands of £0.26m (2022: £0.27m) and £1.1m (2022: £1.1m) for the Billi New Zealand CGU were subject to an annual impairment test for the first time, and the recoverable amounts determined on the basis of value-in-use calculations over a five-year and ten year forecast period respectively. The key assumptions applied in the value-in-use calculations are a discount rate of 16.24%, variable trading margins and variable revenue growth rates. Based on these calculations, there is sufficient headroom over the carrying values of goodwill and brands hence no impairment has been recognised in the current year.

The results of the Group impairment tests are dependent upon estimates and judgements, particularly in relation to the key assumptions described above. Sensitivity analysis to a reasonable and possible change in the most sensitive assumption, being the discount rate, was undertaken. An increase of 1% would decrease the headroom of £5.5m by circa £0.3m for goodwill and would decrease the headroom of £0.07m by circa £0.05m for brands.

Billi UK CGU

The carrying values of existing goodwill and brands of £2.2m (2022: £2.3m) and £2.5m (2022: £2.5m) for the Billi UK CGU were subject to an annual impairment test for the first time, and the recoverable amounts determined on the basis of value-in-use calculations over a five-year and ten-year forecast period respectively. The key assumptions applied in the value-in-use calculations are a discount rate of 15.36%, variable trading margins and variable revenue growth rates. Based on these calculations, there is sufficient headroom over the carrying values of goodwill and brands hence no impairment has been recognised in the current year.

The results of the Group impairment tests are dependent upon estimates and judgements, particularly in relation to the key assumptions described above. Sensitivity analysis to a reasonable and possible change in the most sensitive assumption, being the discount rate, was undertaken. An increase of 1% would decrease the headroom of £12.9m by circa £1.0m for goodwill and would decrease the headroom of £0.15m by circa £0.11m for brands.




2022


Development costs

Software

Intellectual Property

Customer relationships

Brands

Goodwill

Intangible assets under construction

Total


£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January









Cost

15,971

4,186

1,128

2,232

6,174

8,736

66

38,493

Accumulated amortisation and impairment

(6,565)

(1,153)

(111)

(196)

-

-

-

(8,025)

Net book value

9,406

3,033

1,017

2,036

6,174

8,736

66

30,468










Period ended 31 December









Additions

3,326

178

272

-

-

-

34

3,810

Acquisitions of subsidiaries (note 14)

3

4

-

15,912

13,283

10,885

-

40,087

Disposals (cost)

(20)

-

-

-

-

-

-

(20)

Disposals (accumulated amortisation)

1

-

-

-

-

-

-

1

Amortisation charge

(1,103)

(605)

(145)

(210)

-

-

-

(2,063)

Exchange differences

99

25

82

108

328

446

3

1,091

Closing net book value

11,712

2,635

1,226

17,846

19,785

20,067

103

73,374










At 31 December









Cost

19,428

4,452

1,482

18,549

19,785

20,067

103

83,866

Accumulated amortisation and impairment

(7,716)

(1,817)

(256)

(703)

-

-

-

(10,492)

Net book value

11,712

2,635

1,226

17,846

19,785

20,067

103

73,374

Amortisation charges have been treated as an expense, and are allocated to cost of sales (£1,707,000), distribution costs £nil and administrative expenses (£356,000) in the consolidated statement of comprehensive income.


12. PROPERTY, PLANT AND EQUIPMENT


2023

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Production tools

Land & Buildings

Right-of-use assets
(note 26)

Point of use dispensers

Assets under construction

Total

£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January









Cost

29,988

8,124

375

13,693

20,690

8,678

1,430

2,247

85,225

Accumulated depreciation

(15,775)

(4,604)

(331)

(11,049)

(978)

(5,053)

(71)

-

(37,861)

Net book value

14,213

3,520

44

2,644

19,712

3,625

1,359

2,247

47,364

Period ended 31 December

Additions

79

705

67

101

332

2,321

297

807

4,709

Transfers

742

-

-

492

-

-

-

(1,234)

-

Fair value adjustments (note 14)

-

-

-

-

-

-

(136)

-

(136)

Disposals (cost)

(183)

(378)

(67)

(11)

-

(1,143)

(36)

(18)

(1,836)

Disposals (accumulated depreciation)

164

240

65

6

-

1,127

30

-

1,632

Depreciation charge

(1,553)

(1,010)

(24)

(601)

(452)

(1,321)

(380)

-

(5,341)

Exchange differences

(38)

(27)

(1)

1

(2)

(99)

-

(11)

(177)

Closing net book value

13,424

3,050

84

2,632

19,590

4,510

1,134

1,791

46,215


At 31 December

Cost

30,530

8,315

289

14,272

21,012

9,573

1,553

1,791

87,335

Accumulated depreciation

(17,106)

(5,265)

(205)

(11,640)

(1,422)

(5,063)

(419)

-

(41,120)

Net book value

13,424

3,050

84

2,632

19,590

4,510

1,134

1,791

46,215

Depreciation charges are allocated to cost of sales (£4,021,000), distribution costs (£190,000) and administrative expenses (£1,130,000) in the consolidated statement of comprehensive income.


2022

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Production tools

Land & Buildings

Right-of-use assets
(note 26)

Point of use dispensers

Assets under construction

Total

£000s

£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 31 December










Additions

2,904

1,503

23

864

125

505

-

(78)

5,846

Acquisition of Billi (note 14)

419

211

17

-

-

1,237

1,386

144

3,414

Disposals (cost)

(90)

(237)

(1)

-

-

(698)

-

-

(1,026)

Disposals (accumulated depreciation)

53

157

1

-

-

125

-

-

336

Depreciation charge

(1,402)

(883)

(23)

(484)

(426)

(920)

(63)

-

(4,201)

Exchange differences

48

20

(6)

(1)

1

129

36

5

232

Closing net book value

14,213

3,520

44

2,644

19,712

3,625

1,359

2,247

47,364











At 31 December










Cost

29,988

8,124

375

13,693

20,690

8,678

1,430

2,247

85,225

Accumulated depreciation

(15,775)

(4,604)

(331)

(11,049)

(978)

(5,053)

(71)

-

(37,861)

Net book value

14,213

3,520

44

2,644

19,712

3,625

1,359

2,247

47,364

Depreciation charges in the prior year were allocated to cost of sales (£3,149,000), distribution costs (£184,000), and administrative expenses (£868,000) in the consolidated statement of comprehensive income.

Point-of-use dispensers were acquired as part of the acquisition of Billi. Refer to Note 14.


13. SUBSIDIARY UNDERTAKINGS AND JOINT ARRANGEMENTS OF THE GROUP

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

Name of entity

Nature of business

Country of incorporation

% of ordinary shares held by the Group

Nature of shareholding




%

Sula Limited

Holding company

IOM

100

Subsidiary

Strix Limited

Manufacture and sale of products

IOM

100

Subsidiary

Strix Guangzhou Limited

Dormant company

China

100

Subsidiary

Strix (U.K.) Limited

Holding company and group's sale and distribution centre

United Kingdom

100

Subsidiary

Strix Hong Kong Limited

Sale and distribution of products

Hong Kong

100

Subsidiary

Strix (China) Limited

Manufacture and sale of products

China

100

Subsidiary

HaloSource Water Purification Technology (Shanghai) Co. Limited

Manufacture and sales of products

China

100

Subsidiary

Strix (USA), Inc.

Research and development, sales, and distribution of products

USA

100

Subsidiary

LAICA S.p.A.

Manufacture and sales of products

Italy

100

Subsidiary

LAICA Iberia Distribution S.L.

Sale and distribution of products

Spain

100

Subsidiary

LAICA International Corp.

Sale and distribution of products

Taiwan

67

Subsidiary

Taiwan LAICA Corp.

Sale and distribution of products

Taiwan

67

Subsidiary

LAICA Brand House Limited

Holding and licensing of trademarks

Hong Kong

45

Joint venture

Strix Australia Pty Limited

Holding company

Australia

100

Subsidiary

Billi UK Limited

Manufacture and sale of products

United Kingdom

100

Subsidiary

Billi Australia Pty Limited

Manufacture and sale of products

Australia

100

Subsidiary

Billi New Zealand Limited

Manufacture and sale of products

New Zealand

100

Subsidiary

Billi R&D Limited

Research and development

Australia

100

Subsidiary

Billi Financial Services Limited

Financial Services

Australia

100

On 31 December 2023, LAICA S.pA. entered in a share transfer agreement to sell the shares of Foshan Yilai Life Electric Co.Ltd, a Chinese joint venture of which LAICA S.pA. held 45% of the shares. The agreement provides LAICA S.pA. to sell its shares for a total price of 900.000 Yuan to the company Guangdong Xinbao Electric Co., LTD. (transferee). This transaction was in the interest of LAICA S.pA. as the company Foshan Yilai Life Electric Co., Ltd was loss-making. The Group recognised a gain of £85,000 in its consolidated statement of comprehensive income with respect to this disposal.

Group restrictions

Cash and cash equivalents held in China are subject to local exchange control regulations. These regulations provide for restrictions on exporting capital from those countries, other than through normal dividends. The carrying amount of the cash and cash equivalents included within the consolidated financial statements to which these restrictions apply is £2,673,000 (2022: £3,568,000). There are no other restrictions on the Group's ability to access or use the assets and settle the liabilities of the Group's subsidiaries.

14. ACQUISITIONS

Acquisitions made in the year ended 31 December 2023:

During the current year, there were no acquisitions of new subsidiaries or interests in joint ventures or associates.

Acquisitions made in the year ended 31 December 2022:

On 30 November 2022 (in the prior year), the Group, through its subsidiaries, Strix (U.K.) Limited and newly incorporated Strix Australia Pty Limited, acquired 100% of the share capital of Billi Australia Pty Ltd, Billi New Zealand Ltd, and certain assets and liabilities through a newly acquired company, Billi UK Ltd, (all together referred to as "Billi"). The initial consideration for the acquisition was £38,912,000 paid in cash. Following finalisation of the completion accounts for the Billi acquisition, an amount of £1,046,000 of the consideration was adjusted and repaid in the current year bringing the final consideration paid to £37,866,000.

In the prior year financial statements, the accounting for the acquisition of Billi included preliminary amounts of fair values of assets and liabilities acquired. Initially, these were measured on a provisional basis to allow for any potential adjustments resulting from any new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition. As at the end of the current financial year ended 31 December 2023, one year has passed after the acquisition, and it was confirmed that new information came to light that prompted a revision to the fair value amounts recognised for intangible assets, property, plant and equipment, inventories, trade and other receivables, trade and other payables and deferred tax liability at acquisition date. Consequently, the amounts recognised at acquisition date have been updated to reflect the increase in the fair value of trade and other payables in the amount of £291,000 and the decrease in the fair values of intangible assets of £84,000, property, plant and equipment of £136,000, inventories of £140,000, trade and other receivables of £32,000 and deferred tax liability of £29,000.

The consideration refund and the adjustments in fair values resulted in a decrease in the amount of goodwill recognised of £392,000. The final fair values at acquisition date of the assets and liabilities acquired were as follows:


Book values

FV Adjustments

Fair values as previously reported

Final Adjustments

Fair values


£'000

£'000

£'000

£'000

£'000

Non-current assets





Intangible assets

5,993

23,209

29,202

(84)

29,118

Property, plant and equipment

3,609

(195)

3,414

(136)

3,278

Other non-current assets

130

-

130

-

130

Total non-current assets

9,732

23,014

32,746

(220)

32,526

Current assets





Inventories

6,461

(376)

6,085

(140)

5,945

Trade and other receivables

9,152

-

9,152

(32)

9,120

Cash and cash equivalents

1,254

-

1,254

-

1,254

Total current assets

16,867

(376)

16,491

(172)

16,319

Total assets

26,599

22,638

49,237

(392)

48,845

Non-current liabilities





Lease liabilities more than 1 year

900

-

900

-

900

Deferred tax liability

654

8,357

9,011

(29)

8,982

Total non-current liabilities

1,554

8,357

9,911

(29)

9,882

Current liabilities





Trade and other payables

10,919

-

10,919

291

11,210

Lease liabilities more than 1 year

380

-

380

-

380

Total current liabilities

11,299

-

11,299

291

11,590

Total liabilities

12,853

8,357

21,210

262

21,472

Net assets acquired

13,746

14,281

28,027

(654)

27,373

Values have been translated at the closing exchange rates as at the acquisition date.

The fair values of the intangible assets were calculated using an income approach (multi-period excess earnings method for customer related assets and the royalty relief method for brands) based on a discounted cash flow model that reflects the expected future income they will generate. The discount rates applied to customer related assets were based on the assessed Weighted Average Cost of Capital for each territory of operations ranging from 14.9% to 16.2%, with a 1% premium applied to brands, and a growth rate based on forecasted revenues. The economic life of brands and customer relationships applied within the model range from 11 years to 15 years. A deferred tax liability of £8,328,000 has been recognised on the fair value adjustments to intangible assets at the applicable corporate tax rates.

The fair value of acquired receivables shown in the table above and gross contractual amounts differed by a loss allowance of £178,000.

Acquisition costs included within 'Administration expenses - adjusting items' in the consolidated statement of comprehensive income amounted to £2.6m. These were designated as a 'separate transaction' per IFRS 3 and therefore not included as part of the purchase consideration.

Net cash flow on acquisition of the business was £37,658,000 made up of purchase consideration of £38,912000 less net cash acquired with the business of £1,254,000.

Billi contributed revenues of £41,300,000 (2022: £2,700,000) and an adjusted profit after tax of £5,600,000 (2022: £600,000) to the Group. If Billi had been acquired at the beginning of 2022, its contribution to revenues and adjusted profits after tax for that year would have been £38,800,000 and £5,600,000 respectively.

The revised goodwill at acquisition of £10,493,000 was calculated as the revised purchase consideration of £37,866,000, less the fair value of the net assets acquired of £27,373,000. The goodwill was attributable to new growth opportunities, workforce and synergies of the combined business operations and it is not expected to be deductible for tax purposes.

Acquisition of LAICA

The Group acquired 100% of the issued share capital of LAICA S.p.A. in October 2020. The total consideration transferred for the acquisition was £24.4m (?26.9m), made up of £11.7m (?13.0m) paid in cash, the issue of 3,192,236 Strix Group plc ordinary shares of £0.01 each with a total fair value of £7.3m (?8.0m), and a further contingent consideration with a fair value of £5.4m (?5.9m) representing an amount payable in cash subject to certain conditions being met, including threshold financial targets for the financial years ending 31 December 2021 and 2022. Based on an arbitration process which was finalised in February 2023 and the financial results of LAICA S.p.A. for the year ended 31 December 2022, the actual fair value of the estimated contingent consideration payable to the vendor shareholders was recorded at £4.9m (?5.6m) in 2022.

In addition, a supplemental consulting arrangement was entered into with the vendor shareholders of LAICA under which total costs amounting to £4.4m (?4.9m) were payable in the financial years ending 31 December 2021 and 2022, relating to compensation for post-combination services contingent on the vendors remaining in service. These costs were accrued as the services are rendered to LAICA. As at 31 December 2022, £2.6m (?2.9m) was accrued for services rendered to date.

The accruals relating to both the contingent consideration and the compensation for the supplemental consulting agreement were reflected as current liabilities as at 31 December 2022. These amounts totalling £7.5m were paid in the current year.

15. INVENTORIES


2023

2022


£000s

£000s

Raw materials and consumables

9,444

11,242

Finished goods and goods in transit

15,996

16,460


25,440

27,702

The cost of inventories recognised as an expense and included in cost of sales amounted to £59,181,000 (2022: £44,241,000). There were no inventory write-downs in 2023 (2022: £nil).

16. TRADE AND OTHER RECEIVABLES AND CURRENT INCOME TAX RECEIVABLES


2023

2022


£000s

£000s

Amounts falling due within one year:



Trade receivables - current


11,495

15,967

Trade receivables - past due


8,419

3,580

Trade receivables - gross

19,914

19,547

Loss allowance


(222)

(158)

Trade receivables - net

19,692

19,389

Prepayments


1,448

2,335

Advance purchase of commodities


1,477

2,344

VAT receivable


1,399

1,279

Tax receivable


220

497

Other receivables


3,697

4,444



27,933

30,288

Trade and other receivables carrying values are considered to be equivalent to their fair values. The amount of trade receivables impaired at 31 December 2023 is equal to the loss allowance provision (2022: same).

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

Other receivables include receivables from licencing income of £992,000 (2022: £1,191,000) and £1,966,000 (2022: £2,184,000) rebates receivable from suppliers from procurements made in prior years. Settlement of the rebates receivable from suppliers will be via net cash settlement of future purchases.

Government grants due amounted to £73,000 (2022: £nil). There were no unfulfilled conditions in relation to these grants at the year end, although if the Group ceases to operate or leaves the Isle of Man within 10 years from the date of the last grant payment, funds may be reclaimed.

The prior year other receivables include deferred tax assets of £313,000. In the current year, deferred tax assets have been presented separately under non-current assets. Refer to note 9.

The Group's trade and other receivables are denominated in the following currencies:


2023

2022


£000s

£000s

Pound Sterling


8,176

7,773

Chinese Yuan


3,068

2,520

US Dollar


5,740

3,993

Euro


6,788

8,401

Hong Kong Dollar


84

120

Australian Dollar


3,539

6,839

New Zealand Dollar


469

512

Taiwan Dollar


69

130



27,933

30,288

Movements 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. The provision at 31 December 2023 was £222,000 (2022: £158,000).

17. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are denominated in the following currencies:


2023

2022

£000s

£000s

Pound Sterling

3,402

15,155

Chinese Yuan

2,654

2,506

US Dollar

2,869

6,959

Euro

7,132

4,471

Hong Kong Dollar

78

211

Australian Dollar

3,028

616

New Zealand Dollar

352

159

Taiwan Dollar

599

366


20,114

30,443

18. TRADE AND OTHER PAYABLES AND CURRENT INCOME TAX LIABILITIES


2023

2022


£000s

£000s

Trade payables

13,847

10,010

Current income tax liabilities

2,074

444

Social security and other taxes

410

368

Customer rebates provisions

179

745

Capital creditors

756

2,848

VAT liabilities

721

546

Other liabilities

3,618

7,308

Payments in advance from customers

2,483

2,270

Accrued expenses

5,151

5,868


29,239

30,407

The fair value of financial liabilities approximates their carrying value due to short maturities. Other liabilities include goods received not invoiced amounts of £1,436,000 (2022: £1,189,000) and an accrual of costs incurred as part of the Billi acquisition of £nil (2022: £3,356,000).

Movement in payments in advance from customers were all driven by normal trading, with the full amounts due at beginning of the year released to revenues in the current year.

Trade and other payables and current income tax liabilities are denominated in the following currencies:


2023

2022


£000s

£000s

Pound Sterling

6,582

10,069

Chinese Yuan

11,353

7,228

US Dollar

2,412

1,051

Euro

3,342

4,461

Hong Kong Dollar

135

198

Australian Dollar

5,116

6,408

New Zealand Dollar

191

881

Taiwan Dollar

108

111


29,239

30,407

19. BORROWINGS


2023

2022


£000s

£000s

Total current borrowings (1)

16,062

14,734

Total non-current borrowings

89,743

103,092


105,805

117,826

(1) The current year borrowings include the interest accrued portion of £2,031,000 in contrast to prior year where interest accrued of £555,000 was included in accrued expenses within Trade and other payables.

Current bank borrowings include 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 its acquisition by the Group in 2020.

Current and non-current borrowings are shown net of loan arrangement fees of £1,023,000 (2022: £956,000) and £888,000 (2022: £1,770,000), respectively.

Total cash outflows relating to loan repayments and interest payments were £15,114,000 (2022: net drawdown of £46,487,000) and £7,611,000 (2022: £3,263,000) respectively.

Term and debt repayment schedule for long term borrowings


Currency

Interest rate

Maturity date

31 December 2023 Commitments

31 December 2022 Commitments

Revolving credit facility B

GBP

SONIA + 2.15% to 4%

25-Oct-25

80,120

77,274

Term loan (facility A)

GBP

SONIA + 2.15% to 4%

30-Nov-25

24,818

39,000

Unicredit facility

EUR

EURIBOR 6M + 1,2%

28-Jun-24

43

133

Banco BPM

EUR

1.45%

30-Nov-23

-

167

BNP Paribas

EUR

4.07%

31-Jan-24

379

436

Credito Emiliano

EUR

4.75%

05-Jan-24

433

221

Banco BPM

EUR

1.69%

03-Jan-23

-

112

Banco BPM

EUR

0.01692

03-Jan-23

-

54

Banco BPM

EUR

1.00%

28-Feb-23

-

432

Other

EUR



12

(3)

105,805

117,826

The existing revolving credit facility ('RCF') agreement was refinanced and amended on 25 October 2022 as follows:

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

Term loan (facility A) - The Company has a three-year term loan of £39,000,000 payable by eleven fixed repayments with the first quarterly repayment of £3,545,000 on 31 March 2023. The purpose of the term loan was to part finance the acquisition of Billi. As at 31 December 2023, the outstanding balance on the term loan is £24,818,000 (2022: £39,000,000).

Revolving credit facility (RCF) - The Group has a RCF of £80,000,000. In 2022, the termination date was amended to four years being 25 October 2025, with an option to extend the term for a further twelve months thereafter. The RCF was utilised to finance the acquisition of LAICA as well as other significant capital projects including the new factory in China and the ongoing working capital needs of the Group.

Under the amended agreement, the purpose of the RCF remains the same. As at 31 December 2023, the total facility available is £80,000,000 (2022: £80,000,000).

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 borrower under the agreement.

Transactions costs amounting to £200,000 (2022: £2,324,000) incurred as part of refinancing and amending the RCF agreement were capitalised and are being amortised over the period of three years.

The various agreements contain representations and warranties which are usual for an agreement of this nature. The agreements also provide for the payment of commitment fees, agency fees and arrangement fees, contain certain undertakings, guarantees and covenants (including financial covenants) and provide for certain events of default. During 2023, the Group has not breached any of the financial covenants contained within the agreements - see note 22(d) for further details (2022: same).

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

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

Leverage

Facility A Margin % p.a.

Facility B Margin % p.a.

Greater than or equal to 3.0:1

4.00

4.00

Less than 3.0:1 but greater than or equal to 2.5:1

3.50

3.50

Less than 2.5:1 but greater than or equal to 2.0:1

2.85

2.85

Less than 2.0:1 but greater than or equal to 1.5:1

2.35

2.35

Less than 1.5:1 but greater than or equal to 1.0:1

2.15

2.15

Less than 1.0:1

2.00

2.00

At 31 December 2023, the margin applied was 2.85% (2022: 3.5%). The fair values of the borrowings are not materially different from their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature.

20. CAPITAL COMMITMENTS


2023

2022


£000s

£000s

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

245

695

The above commitments include capital expenditure of £148,000 (2022: £547,000) relating to plant and machinery and production equipment for the factory in China.

21. CONTINGENT ASSETS AND CONTINGENT LIABILITIES

There continues a number of ongoing intellectual property infringement cases initiated by the Group, as well as patent validation challenges brought by the defendants. All of these cases are still subject to due legal process in the countries in which the matters have been raised. As a result, no contingent assets have been recognised at 31 December 2023 (2022: same), as any receipts are dependent on the final outcome of each case. There are also no corresponding contingent liabilities at 31 December 2023 (2022: same).

22. FINANCIAL RISK MANAGEMENT

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and commodity price risk), credit risk, liquidity risk and capital management risk.

Risk management is carried out by the Directors. The Group uses financial instruments where required to provide flexibility regarding its working capital requirements and to enable it to manage specific financial risks to which it is exposed. Transactions are only undertaken if they relate to actual underlying exposures and hence cannot be viewed as speculative.

(a) Market risk

(i) Foreign exchange risk

The Group operates in the IOM, UK, EU, US, Australia, New Zealand and China and is therefore exposed to foreign exchange risk. Foreign exchange risk arises on sales and purchases made in foreign currencies and on recognised assets and liabilities and net investments in foreign operations.

The Group monitors its exposure to currency fluctuations on an ongoing basis. The Group uses foreign currency bank accounts to reduce its exposure to foreign currency translation risk, and the Group is naturally hedged against foreign exchange risk as it both generates revenues and incurs costs in the major currencies with which it deals. The major currencies the Group transacts in are:

·

British Pounds (GBP)

·

Chinese Yuan (CNY)

·

United States Dollar (USD)

·

Euro (EUR)

·

Hong Kong Dollar (HKD)

·

Australian Dollar (AUD)

·

New Zealand Dollar (NZD)

·

Taiwan Dollar (TWD)

In December 2022, the Group entered into USD/GBP and USD/EUR forward exchange rate contracts to sell the notional amount of US$8,500,000 and hence mitigate the risk and impact of volatile exchange rate movements seen during the year on group profits. The fair value of these contracts at the prior year-end was considered not material.

Exposure by currency is analysed in notes 16, 17 and 18.

(ii) Interest rate risk

The Group is exposed to interest rate risk on its long-term borrowings, being the revolving credit facility, term loan and other borrowings disclosed in note 19. The interest rates on the revolving credit facility are variable, based on SONIA and certain other conditions dependent on the financial condition of the Group, which exposes the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. Other borrowings are made up of both fixed rate loans and variable loans based on EURIBOR.

(iii) Price risk

The Group is exposed to price risk, principally in relation to commodity prices of raw materials. The Group enters into forward commodity contracts or makes payments in advance in order to mitigate the impact of price movements on its gross margin. The Group has not designated any of these contracts as hedging instruments in either 2023 or 2022 as they relate to physical commodities being purchased for the Group's own use. At 31 December 2023 and 2022, payments were made in advance to buy certain commodities at fixed prices, as disclosed in note 16.

(iv) Sensitivity analysis

Foreign exchange risk: The Group is primarily exposed to exchange rate fluctuations between GBP and USD, CNY, HKD, EUR, TWD, AUD and NZD. Assuming a reasonably possible change in FX rates of +10% (2022: +10%), the impact on profit would be a decrease of £2,460,000 (2022: a decrease of £319,000), and the impact on equity would be a decrease of £1,487,000 (2022: decrease of £738,000). A -10% change (2022: -10%) in FX rates would cause an increase in profit of £3,010,000 (2022: an increase in profit of £390,000) and a £1,822,000 increase in equity (2022: £902,000 decrease in equity). This has been calculated by taking the profit generated by each currency and recalculating a comparable figure on a constant currency basis, and by retranslating the amounts in the consolidated balance sheet to calculate the effect on equity.

Interest rate risk: The Group is exposed to interest rate fluctuations on its non-current borrowings, as disclosed in note 19. Assuming a reasonably possible change in the SONIA/EURIBOR rate of ±0.5% (2022: ±0.5%), the impact on profit would be an increase/decrease of £560,000 (2022: £476,000), and the impact on equity would be an increase/decrease of £560,000 (2022: £72,000). This has been calculated by recalculating the loan interest using the revised rate to calculate the impact on profit, and recalculating the year end loan interest balance payable using the same rate.

Commodity price risk: The Group is exposed to commodity price fluctuations, primarily in relation to copper and silver. Assuming a reasonably possible change in commodity prices of ±13% for silver (2022: ±13%) and ±15% for copper (2022: ±15%) based on volatility analysis for the past year, the impact on profit would be an increase/decrease of £1,835,704 (2022: £1,346,000). The Group does not hold significant quantities of copper and silver inventory, therefore the impact on equity would be the same as the profit or loss impact disclosed (2022: same). This has been calculated by taking the average purchase price of these commodities during the year in purchase currency and recalculating the cost of the purchases with the price sensitivity applied.

(b) Credit risk

The Group has policies in place to ensure that sales of goods are made to clients with an appropriate credit history. The Group uses letters of credit and advance payments to minimise credit risk. Management believe there is no further credit risk provision required in excess of the normal provision for doubtful receivables, as disclosed in note 16. The amount of trade and other receivables written off during the year amounted to 0% of revenue (2022: less than 0.07% of revenue).

Cash and cash equivalents are held with reputable institutions. All material cash amounts are deposited with financial institutions whose credit rating is at least B based on credit ratings according to Standard & Poor's. At year-end, £4,732,000 (2022: £19,456,000) was held with one financial institution with a credit rating of BBB and £4,462,000 (2022: £Nil) was held with one financial institution with a credit rating of BBB+.

The following table shows the external credit ratings of the institutions with whom the Group has cash deposits:

Credit risk


2023

2022


£000s

£000s

AA

2,635

797

A+

1,037

-

A

3,280

4132

BBB+

4,462

-

BBB

8,213

25,450

B

32

27

n/a

455

37


20,114

30,443

(c) Liquidity risk

The Group maintained significant cash balances throughout the period and hence suffers minimal liquidity risk. Cash flow forecasting is performed for the Group by the finance function, which monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs and so that the Group minimises the risk of breaching borrowing limits or covenants on any of its borrowing facilities. The Group has revolving credit facilities to provide access to cash for various purposes. The facilities were fully utilised as at 31 December 2023 (2022: fully utilized).

The table below analyses the group's financial liabilities as at 31 December 2023 into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. There are no derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.


Less than
6 months

6 - 12
months

2
Year

3-5
Year

Over
5 Years

Total contractual cash flows

Carrying
amount
(assets) /liabilities


£000s

£000s

£000s

£000s

£000s

£000s

£000s

Trade and other payables

26,034

-

-

-

-

26,034

26,034

Borrowings

12,007

10,530

95,700

-

-

118,237

105,805

Lease liabilities

852

852

1,406

1,694

746

5,550

4,810

Total financial liabilities

38,893

11,382

97,106

1,694

746

149,821

136,649

The table below analyses the respective financial liabilities as at 31 December 2022 (the prior year):


Less than
6 months

6 - 12
months

2
Year

3-5
Year

Over
5 Years

Total contractual cash flows

Carrying
amount
(assets) /liabilities


£000s

£000s

£000s

£000s

£000s

£000s

£000s

Trade and other payables

30,407

-

-

-

-

30,407

30,407

Borrowings

8,478

7,212

14,226

90,636

-

120,552

117,826

Lease liabilities

535

534

1,247

1,645

-

3,961

3,888

Contingent consideration payable

7,532

-

-

-

-

7,532

7,532

Total financial liabilities

46,952

7,746

15,473

92,281

-

162,452

159,653

(d) Capital risk management

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The aim of the Group is to maintain sufficient funds to enable it to make suitable capital investments whilst minimising recourse to bankers and/or shareholders. In order to maintain or adjust capital, the Group may adjust the amount of cash distributed to shareholders, return capital to shareholders, issue new shares or raise debt through its access to the AIM market.

Capital is monitored by the Group on a monthly basis by the finance function. This includes the monitoring of the Group's gearing ratios and monitoring the terms of the financial covenants related to the revolving credit facilities as disclosed in note 19. These ratios are formally reported on a quarterly basis. The financial covenants were complied with throughout the period. At 31 December 2023 these ratios were as follows:

Debt Service Cover ratio (DSCR): c1.18x (2022: c.7.00x) - minimum per facility terms is 1.10x; and

Leverage ratio: 2.19x (2022: 2.24x) - maximum per facility terms is 2.25x.

As of the 22 March 2024, the net debt leverage ratio maximum was reset to 2.75x (from 2.25x) for the remainder of the facility term

(e) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

There have been no movements into or out of any levels during the year. There were no financial instruments held at fair value at the end of the current year (2022: same).

The carrying amounts reflected in these financial statements for cash and cash equivalents, current trade and other receivables/payables and the fixed and floating rate bank borrowings approximate their fair values.

23. SHARE BASED PAYMENTS

Long term incentive plan terms

As part of the admission to trading on AIM in August 2017, the Group granted a number of share options to employees of the Group. All of the shares granted were subject to service conditions, being continued employment with the Group until the end of the vesting period. The shares granted to the executive Directors and senior staff also included certain performance conditions which must be met, based on predetermined earnings per share, dividend pay-out, or share price targets for the three financial years from grant date. Further awards have been made since August 2017 under the same scheme on similar terms, with additional ESG-related performance conditions added on for certain senior members of management.

During 2020, the Group amended the terms of the Isle of Man share options to conditional share awards.

Participation in the plan is at the discretion of the Board and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Where the employee is entitled to share options, these remain exercisable until the ten-year anniversary of the award date. Where the employee is entitled to conditional share awards, these are exercised on the vesting date.

The dividends that would be paid on a share in the period between grant and vesting reduce the fair value of the award if, in not owning the underlying shares, a participant does not receive the dividend income on these shares during the vesting period.

All of the options and conditional share awards are granted under the plan for nil consideration and carry no voting rights. A summary of the options and conditional share awards is shown in the table below:

2023

2022

Number of Shares

Number of Shares

At 1 January


1,654,667

3,054,161

Granted during the year


2,821,338

600,131

Exercised during the year


(3,448)

(734,608)

Forfeited during the year


(251,037)

(1,265,017)

As at 31 December


4,221,520

1,654,667

The Group has recognised a total expense of £380,000 (2022: gain of £491,000) in respect of equity-settled share-based payment transactions in the year ended 31 December 2023.

For each of the tranches, the first day of the exercise period is the vesting date and the last day of the exercise period is the expiry date, as listed in the valuation model input table below. The weighted average contractual life of options and conditional share awards outstanding at 31 December 2023 was 8.8 years (2022: 8.7 years).

Valuation model inputs

The key inputs to the Black-Scholes-Merton model for the purposes of estimating the fair values of the share options outstanding at the end of the year are as follows:

Grant date

Share price on grant date
(p)

Expiry date

Weighted average probability of meeting performance criteria

Share options outstanding at
31 December 2023

Share options outstanding at
31 December 2022

21 April 2021

290.00

21 April 2031

26.3%

747,493

803,919

01 January 2022

303.50

01 January 2032

0.0%

9,164

9,164

21 April 2022

208.50

21 April 2031

6.8%

382,359

382,359

20 April 2023

96.90

20 April 2033

9.3%

1,340,208

-

01 November 2023

59.60

01 November 2033

0.0%

229,216

-

Total Share Options




2,708,440

1,195,442

The key inputs to the Black-Scholes-Merton model for the purposes of estimating the fair values of the conditional share awards outstanding at the end of the year are as follows:

Grant date

Share price on grant date (p)

Vesting date

Weighted average probability of meeting performance criteria

Conditional share awards outstanding at
31 December 2023

Conditional share awards outstanding at
31 December 2022

21 April 2021

290.00

31 December 2023

0.0%

210,253

225,204

06 December 2021

296.50

31 December 2023

0.0%

-

16,090

06 December 2021

296.50

31 December 2024

0.0%

6,364

9,323

21 April 2022

208.50

31 December 2024

0.0%

160,571

208,608

20 April 2023

96.90

31 December 2025

0.0%

1,135,892

-

Total conditional share awards


1,513,080

459,225

Total share options and conditional share awards

4,221,520

1,654,667

The reduction in the fair value of the awards as a consequence of not being entitled to dividends reduced the charge for the options granted during the year by £20,000 (2022: £nil) and the expected charge over the life of the options by a total of £20,000 (2022: £nil).

The other factors in the Black-Scholes-Merton model do not affect the calculation and have not been disclosed, as the share options were issued for nil consideration and do not have an exercise price. The weighted average fair value of the options outstanding at the period end was £1.5147 (2022: £2.5719).

The movement within the share-based payments reserve during the period is as follows:

2023
£000s

2022
£000s

Shared based payments reserves as at 1 January

202

2,039

Share based payments transactions (note 5(a))

380

(491)

Other share based payments

-

(136)

Share based payments transferred to other reserves upon exercise/vesting

(10)

(1,210)

Shared based payments reserve as at 31 December

572

202

Other movements

Other transactions recognised directly in equity in 2022 include the settlement of dividend entitlements previously accrued as part of the LTIP programme and employer contributions to national insurance for vested LTIPs.

24. SHARE CAPITAL AND SHARE PREMIUM

Number of shares

Par value

Share premium

Total

(000s)

£000s

£000s

£000s

Allotted and fully paid: ordinary shares of 1p each





Balance at 1 January 2023

218,711

2,186

21,675

23,861

Transaction costs

-

-

(219)

(219)

Share options exercised during the year (note 23)

3

-

-

-

Balance at 31 December 2023

218,714

2,186

21,456

23,642

Under the Isle of Man Companies Act 2006, the Company is not required to have an authorised share capital.

Transaction costs of £219,000 recognised directly in share premium relate to costs associated with the raise of equity for the acquisition of Billi.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank pari passu in all respects including voting rights and dividend entitlement.

See note 23 for further information regarding share-based payments which may impact the share capital in future periods.

25. DIVIDENDS

The following amounts were recognised as distributions in the year:

2023

2022

£000s

£000s

Interim 2023 dividend of 0.9p per share (2022: 2.75p)


1,967

5,699

Final 2022 dividend of 3.25p per share (2021: 5.6p)


7,103

11,601

Total dividends recognised in the year

9,070

17,300

No final dividend is proposed for financial year 2023 (2022: 3.25p).

2023

2022

£000s

£000s

No final dividend proposed for FY23 (2022: 3.25p)


-

7,108

Total dividends proposed but not recognised in the year, and estimated to be recognised in the following year.

-

7,108

26. LEASES

a) Amounts recognised in the consolidated statement of financial position

The consolidated statement of financial position shows the following amounts relating to leases:

2023

2022

£000s

£000s

Right-of-use assets



Land and buildings


4,511

3,625

Total right-of-use assets

4,511

3,625

Current future lease liabilities (due within 12 months)


1,218

1,069

Non-current future lease liabilities (due in more than 12 months)


3,592

2,819

Total future lease liabilities


4,810

3,888

Additions to the right-of-use liabilities during the 2023 financial year were £2,321,000 (2022: £505,000). Disposals of right-of-use liabilities during the current year were £16,000 (2022: £586,000)

Short-term leases and leases of low values were recognised directly in the consolidated statement of comprehensive income, amounting to £317,000 (2022: £106,000). Total cash outflows relating to all lease payments, including short-term leases and leases of low values were £1,743,000 (2022: £939,000).

The movement in lease liabilities is as follows:

2023

2022

£000s

£000s

Balance as at 1 January

3,888

3,371

Additions


2,321

505

Disposals


(16)

(586)

Adjustments to leases


(49)

-

Acquisition of Billi entities (note 14)


-

1,284

Repayments


(1,426)

(833)

Interest expense (included in finance cost)


198

92

Foreign exchange differences


(106)

55

Balance as at 31 December


4,810

3,888

b) Amounts recognised in the consolidated statement of comprehensive income

The statement of consolidated comprehensive income shows the following amounts relating to leases:

2023

2022

£000s

£000s

Depreciation of right-of-use assets


(1,321)

(920)

Short-term and low value leases


(317)

(106)

Interest expense (included in finance cost)


(198)

(92)

Total cost relating to leases


(1,836)

(1,118)

c) Group as a lessor

Rental income recognised by the Group during the year is £4,750,000 (2022: £383,000) which is included in the Premium Filtration Systems segment (see note 7). Future minimum rentals receivable under non-cancellable operating leases are £2,209,000 (2022: £1,348,000). These amounts are expected to be received within a year.

27. STATEMENT OF CASH FLOWS NOTES

a) Cash generated from operations


2023

2022

Note

£000s

£000s

Cash flows from operating activities



Operating profit


27,914

19,916

Adjustments for:


Depreciation of property, plant and equipment

12

4,020

3,281

Depreciation of right-of-use assets

12

1,321

920

Amortisation of intangible assets

11

3,365

2,063

Share of (profits)/losses from joint ventures


(85)

18

Other non-cash flow items


73

1,275

Share based payment transactions

23

380

(491)

Net exchange differences


(435)

188



36,553

27,170

Changes in working capital:


Decrease/(increase) in inventories


1,639

(1,213)

(Increase)/decrease in trade and other receivables


(2,422)

3,159

Increase/(decrease) in trade and other payables

3,132

(4,549)

Cash generated from operations

38,902

24,567

Other non-cash flow items include accrual of amounts relating to compensation for post-combination services, which were accrued part of the acquisition of LAICA as the services were rendered (see note 14).

Share-based payment transactions include other transactions recognised directly in equity included in the statement of changes of equity.

b) Movement in net debt




Non-cash movements


At

01 January 2023

Cash flows

Currency movements

Other movements

At

31 December 2023

£000s

£000s

£000s

£000s

£000s

Borrowings, net of loan arrangement fees

(117,826)

15,114

39

(3,132)

(105,805)

Lease liabilities

(3,888)

1,426

106

(2,454)

(4,810)

Total liabilities from financing activities

(121,714)

16,540

145

(5,586)

(110,615)

30,443

(10,136)

(193)

-

20,114

(91,271)

6,404

(48)

(5,586)

(90,501)

28. ULTIMATE BENEFICIAL OWNER

There is not considered to be any ultimate beneficial owner, as the Company is listed on AIM. No single shareholder beneficially owns more than 25% of the Company's share capital.

29. RELATED PARTY TRANSACTIONS

(a) Identity of related parties

Related parties include all of the companies within the Group, however, these transactions and balances are eliminated on consolidation within the consolidated financial statements and are not disclosed, except for related party balances held with Joint Ventures which are not eliminated.

The Group also operates a defined contribution pension scheme which is considered a related party.

(b) Related party balances

Trading balances

Balance due from

Balance due to

2023

2022


2023

2022


£000s

£000s


£000s

£000s

Related party





LAICA Brand House Limited

26

26

-

-

(c) Related party transactions

The following transactions with related parties occurred during the year:

2023

2022

Name of related party

£000s

£000s

Transactions with related parties


Revenue earned from LAICA Brand House Limited

3

3

Contributions paid to The Strix Limited Retirement Fund (note 5(c)(i))

(1,352)

(782)

Further information is given on the related party balances and transactions below:

· Key management compensation is disclosed in note 5(b).

· Information about the pension schemes operated by the Group is disclosed in note 5(c), and transactions with the pension schemes operated by the Group relate to contributions made to those schemes on behalf of Group employees.

· Information on dividends paid to shareholders is given in note 25.

30. POST BALANCE SHEET EVENTS

As discussed in note 22(d), the net debt leverage ratio maximum was reset to 2.75x (from 2.25x) for the remainder of the facility term as of the 22 March 2024.

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


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