# Strix Group deliver a robust performance across its three product categories

- Link: https://www.directorstalkinterviews.com/strix-group-deliver-a-robust-performance-across-its-three-product-categories/4121083189
- Published: 2022-09-21T07:07:54+01:00
- Author: Giles

**[Strix Group plc](https://www.directorstalkinterviews.com/company/strix-group-plc/ketl.l)**(
LON:KETL) have today provided its interim results for the six months ended 30 June
2022.

Adjusted results^(1)

| 
 | **H1 2022** | **H1 2021** | **H1 2020** | Change (22 – 21) | Change (22 – 20) | 
|  | **£m** | £m | £m | %^(5) | %^(5) | 
| Revenue | **50.7** | 54.7 | 34.7 | -7.3% | 46.1% | 
| Gross profit | ** 19.5** | 20.5 | 13.8 | -4.9% | 41.3% | 
| EBITDA^(2) | ** 15.9** | 17.4 | 13.6 | -8.6% | 17.6% | 
| Operating profit | ** 12.9** | 13.9 | 10.6 | -7.2% | 21.7% | 
| Profit before tax | ** 11.6** | 13.2 | 10.1 | -12.1% | 14.9% | 
| Profit after tax | ** 11.6** | 12.3 | 9.8 | -5.7% | 18.4% | 
| Profit after tax(excluding accounting estimates changes)^(3) | **10.7** | 12.3 | 9.8 | -13.0% | +9.2% | 
| Net debt^(4) | **61.3** | 46.0 | 36.9 | 33.3% | 66.1% | 
| Net cash generated from operating activities | ** 9.9** | 13.5 | 8.3 | -26.7% | 19.3% | 
| Basic earnings per share (pence) | ** 5.6** | 6.0 | 4.9 | -6.7% | 14.3% | 
| Diluted earnings per share (pence) | ** 5.5** | 5.9 | 4.9 | -6.8% | 12.2% | 
| Interim dividend per share (pence) | ** 2.75** | 2.75 | 2.6 | 0.0% | 5.8% |

_1.        Adjusted results exclude exceptional items, which include share based
payment transactions, other reorganisation and strategic project costs. Adjusted
results are non-GAAP metrics used by management and are not an IFRS disclosure. 
A table which shows both Adjusted and Reported results is included in the Chief 
Financial Officer’s review._

_2.        EBITDA, which is defined as earnings before finance costs, tax, depreciation
and amortisation, is a non-GAAP metric used by management and is not an IFRS disclosure._

_3.        Accounting estimate changes relate to the reassessment of useful lives
performed in the current period of various assets within the group, particularly
relating to production and development processes._

_4.        Net debt excludes the impact of IFRS 16 lease liabilities, pension liabilities,
deferred tax liabilities and earn-out provisions on satisfaction of performance 
conditions._

_5.       _ _Figures are calculated from the full numbers as presented in the consolidated
financial statements._

**Financial Highlights**

| ·    | The Group reported revenue of £50.7m, a decrease of 7.3% versus the same period in prior year and an increase of 15.5% versus the same period in pre-COVID 2019 as revenues were adversely impacted by the ongoing conflict in Ukraine on certain peripheral geographies. | 
| ·    | Adjusted gross profit margin was 38.5% (2021: 37.5%) driven by the Group’s ability to manage costs and to flex variable overheads in line with sales performance. | 
| ·    | Adjusted profit after tax was £11.6m (2021: £12.3m), representing a 5.7% decrease compared to the same period last year and an increase of 6.4% versus the comparable period in pre-COVID 2019. | 
| ·    | Net debt increased to £61.3m (FY 2021: £51.2m) as a result of further drawdowns to fund net working capital, capital expenditure and employment earn-out payments. This represents a net debt/adjusted EBITDA ratio (calculated on a trailing twelve month basis) of 1.6x. | 
| ·    | The Group has significant liquidity providing financial flexibility to continue to deploy capital consistent with its allocation of capital priorities and is focused on investing in compelling growth opportunities. | 
| ·    | Adjusted basic earnings per share and adjusted diluted earnings per share were 5.6p (H1 2021: 6.0p) and 5.5p (H1 2021: 5.9p) respectively. | 
| ·    | The Board is maintaining an interim dividend of 2.75p per share (2021: 2.75p). |

**Strategic Highlights**

| ·    | On track to deliver medium-term targets to double the Group’s revenues primarily through growth in its water and appliances categories. | 
| ·    | Successfully implemented further product price increases across the full kettle controls range and water categories (the most recent was with effect from 1 May 2022). | 
| ·    | Maintained market leading market share position of 56% of the global kettle controls market by value. | 
| ·    | Strong recognition for Strix domestic appliances. Aurora achieved the Quiet Mark award, Housewares’ Sustainable Product of the Year and nominated for Best New Product: Small Domestic Appliance at the ERT Awards. The Visione induction kettle was awarded both the German Design Award 2022 and the Red Dot design award. |

**Operational Highlights**

| ·    | Production efficiency of core kettle products improved with 77% of all assembly lines now fully automated. | 
| ·    | In the appliances category, there has been some promising signs of consumer market penetration of product ranges. | 
| ·    | In the water category, new distribution and private label contracts have been secured with reputable distributors, retailers and brands. | 
| ·    | The [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news) agenda for 2022/23 remains high on the agenda as the Company delivers on Scope 1&2 targets, analyse Scope 3 emissions and continue to focus on other KPIs. | 
| ·    | New Strix.com website launched demonstrating the Company’s vision of the future.  |

> **Mark Bartlett, Chief Executive Officer of Strix Group plc, said:**
> “Despite the challenging macroeconomic and geopolitical environment, Strix has
> delivered a robust performance across its three product categories and remains
> on track to deliver medium-term targets to double the Group’s revenues primarily
> through growth in its water and appliances categories.
> The macro headwinds have resulted in a reduction in demand in the kettle control
> category in the key export markets but offsetting this has been a recent improvement
> in trading conditions within China which has already started to come through. 
> In the appliances category, there has been some promising signs of consumer market
> penetration of product ranges and in the water category, new distribution and 
> private label contracts have been secured with reputable distributors, retailers
> and brands.
> The Group remains in a strong financial position and given strength of its cash
> generation, the Board declares an interim dividend that is in line with last year.”

**CEO’s report:**** **

**Introduction**

In the first half of 2022, despite the challenging macroeconomic and geopolitical
environment, Strix has delivered a robust trading performance across the three product
categories; kettle controls, water, and appliances.

This performance demonstrates the resilience of Strix’s business model, which benefits
from geographical and product diversification and is strengthened further by the
Group’s high cash generation and prudent control of its balance sheet.

In addition, the Group has made solid progress against its medium-term target to
double Group revenues primarily through organic growth in its water and appliances
categories.

**Financial performance**

The Group reported revenues that decreased by 7.3% to £50.7m (H1 2021 £54.7m). As
stated in the pre-close trading update released in July, revenues have been adversely
impacted by the ongoing conflict in Ukraine on certain peripheral geographies, resulting
in a decrease for the kettle controls category.

Despite this and the challenging macroeconomic and geopolitical environment, the
water category showed an improvement against the same period last year reflecting
the success of the performance from online market place launches as Strix continues
to expand its online presence. The appliances category also saw a slight increase
compared to the prior comparative period as the Group started to show promising 
signs of consumer market penetration for its Aurora and Dual Flo product ranges.

Adjusted gross profit margin in H1 2022 was 38.5%, showing a margin improvement 
of 1.0% compared to the same period last year. This emanates from the Group’s continued
resilience to manage costs in light of decreases in revenues and our ability to 
flex variable overheads in line with sales performance. The main reasons behind 
the margin improvement were market growth in the appliance category, favourable 
foreign currency movements which had positive impacts on products priced in foreign
currencies, efficiencies realised from automation of production lines, the use of
lean production processes and in-sourcing, and price increases implemented in the
latter part of the first half of this year across the full kettle controls range
and the water category which partially covered cost increases in direct labour wage
costs, commodity and inward freight costs.

The Group’s net debt position, excluding earn-out provisions, as at 30 June 2022
increased to £61.3m (FY 2021: £51.2m) as a result of further drawdowns to fund net
working capital, capital expenditure and employment earn-out payments. This represents
a net debt/adjusted EBITDA ratio (calculated on a trailing twelve month basis) of
1.6x.

Strix has a highly cash generative model which incorporates a high return on capital
employed (ROCE) and a high proportion of cash in advance payment terms limits risk
of non-payment and working capital fluctuations. The Group is in a strong financial
position with significant liquidity providing flexibility to continue to deploy 
capital consistent with its allocation of capital priorities.  It is focused on 
investing in compelling growth opportunities, in particular on new product development
and attractive acquisition opportunities that support the medium-term growth ambition
of the Group.

Given the confidence in the continued strength of its cash generation of the Group,
the Board declares an interim dividend of 2.75p per share (H1 2021: 2.75p).

| ** ** |

**Kettle control category**

Overall, the kettle control category reported a decrease in revenue of 11.7% to 
£34.8m in H1 2022.

Previously, the Group has indicated it had no direct sales into Russia and any products
sold into that region are typically from a Chinese based OEM which equated to total
revenues of circa £3m in 2021. However, as outlined in its trading update in July,
certain peripheral geographies have been adversely impacted by the ongoing conflict
in the Ukraine and it is estimated that this will now represent total revenues of
circa £5m – £7m across the Group for 2022.

Whilst macroeconomic and geopolitical uncertainty looks set to continue in the near
term, historically during recessions, whilst “distress” purchasing maintains there
is a softening in “discretionary” purchases by consumers and due to the supply chain
bull whip effect, we experience an undershoot entering a recession and a overshoot
exiting a recession. 

The recessionary fears manifested during H1, with the Regulated market showing 15%
declines versus 2021 YTD with key markets of UK and Europe being closer to down 
20%, whilst Less Regulated was down over 10% as certain peripheral geographies were
significantly impacted by the conflict in Ukraine.

The Kettle Safety Controls category is a very resilient business and despite the
significant number of headwinds, it has maintained its market leading position of
56% of the global kettle controls market by value.

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

Continuous improvement initiatives in manufacturing, measurement and testing processes
also remain a key focus to enhance product performance to help customers improve
their sustainability ambitions, product quality and reduce costs. Production efficiency
of core kettle products improved with 77% of all assembly lines now fully automated.

**Appliance category**

Overall, the appliance category reported growth in revenue of 6.5% to £5.6m in H1
2022 as we started to show promising signs of consumer market penetration for our
Aurora and Dual Flo product ranges.

Strix seeks to use its technology and innovation expertise to develop adjacent products
to solve problems in tangential markets in a sustainable way. The Group looks to
develop products offering meaningful benefits to customers which can then be commercialised
through existing relationships with experienced and trusted OEM’s and consumer appliance
specialists.

Within the Appliance category, Aurora (Strix’s Instant Flow Heater technology, delivering
auto-dispensed hot, boiled, and chilled filtered water at the touch of a button)
is now starting to show signs of penetrating consumer markets across the world. 
The Aurora Hot was launched in Q4 2021 and is selling well on Amazon, while the 
Aurora Chilled was launched in Q2 2022. The Aurora has recently been awarded the
Quiet Mark award, which is a prestigious industry accreditation aimed at encouraging
companies worldwide to prioritise noise reduction within product design and it was
also awarded the honour of Housewares’ Sustainable Product of the Year. It has also
been nominated for Best New Product: Small Domestic Appliance at the upcoming distinguished
ERT Awards.

Dual Flo (which combines Strix’s technology with LAICA’s classic Italian design 
and is believed to be the UK’s only combined kettle and one cup hot water dispenser
with an innovative, energy saving facility) was launched in April in the UK and 
July in Europe and is selling well on Amazon under the LAICA brand. 

The Visione induction kettle has recently been awarded both the German Design Award
2022 and the Red Dot design award, two prestigious awards in the industry. Following
a successful crowd funding campaign to understand consumer feedback and enable final
improvements the Visione will be fully launched in UK and European markets in Q4
2022.

Baby Brezza launched a steriliser dryer with Strix’s patented technology in USA 
in August achieving strong consumer reviews with 4.5 out of 5 star reviews in the
first month of launch online. It will be rolled out in traditional retail from October.

**Water category**

Overall, the water category reported a growth in revenue of 2.9% to £10.3m in 1H
2022 reflecting the success of its performance from online market place launches
as Strix continues to expand its online presence.

The water category has also made strong progress in line with the Group’s international
growth aspirations and issues experienced as a result of Brexit have also been successfully
overcome by utilising LAICA as the European base, as well as a resumption of sales
through online channels such as Amazon EU in the key markets of France, Germany,
Italy and Spain. 

In addition, online market place launches of the Aqua Optima and LAICA products 
have been secured on platforms such as, eBay, OnBuy and B&Q and Strix plans to have
a further five prior to year end as the Group continues to expand its online presence.
This has been enabled through a partnership with an online marketplace agency and
a new logistics provider to offer direct to consumer deliveries across the UK. This
will be rolled out in Europe next year.

In addition to key range extensions within the UK and Europe, new contracts have
been secured for key distributors across Europe, Canada, USA and China which will
support the growth ambition during H2 and beyond. Additionally in the US, Strix 
has a signed up a further three sales representative groups providing national coverage
and an infrastructure that has enabled it to obtain a major listing with Sam’s Club
for LAICA products.

In H2, it is planned that Aqua Optima products will be cross-sold into a number 
of LAICA’s key European markets (Italy, Czech Republic, Slovakia, Romania and Hungary)
and LAICA products will be cross-sold into a number of Aqua Optima’s key markets(
UK Netherlands, Poland, Ukraine and Israel). 

Also Perfect Pour, a new patented design for water filtration jugs and dispensers
will be launched in H2 across the UK and Europe and is an example of an innovative
product that has been wholly designed and manufactured by Strix. North America launch
will be in Q2 2023.

**Operations review**

The new factory within Zengcheng district in Guangzhou, China, is now fully operational
and will double the Group’s current manufacturing capacity enabling it to grow the
business and deliver its stated medium term strategy. Efficiencies and further in-
sourcing arising from the new manufacturing facility are expected to have a positive
effect on margins.  

Strix’s manufacturing operations have not been materially affected by the evolving
COVID-19 situation in China. The proactive approach to minimise potential supply
chain disruption by increasing levels of finished stock means that the Group is 
well positioned to benefit from any improvement in consumer demand in H2 which it
is monitoring closely.

**Barriers to entry and d****efence of intellectual property**

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

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

Strix remains committed to consumer safety and continues to prompt regulatory enforcement
authorities to remove unsafe and poor quality products from its major markets. Nine
such actions were undertaken in 2021 resulting in product recalls and withdrawal
of kettles from Bulgaria. Defence of intellectual property and regulatory enforcement
remain core activities of its business and there have now been 66 in total since
2017 until the end of 2021, with 3 further actions initiated in H1 2022.

**Sustainability**

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

One of the most challenging and differentiating goals is to achieve Scope 1&2 net
zero by 2023. Key elements have been put in place with long term renewable power
contracts for all key facilities along with investment in solar capacity, including
further investment in 2022. Indeed, Strix now expects its own renewable sources 
to generate around 10% of the Group’s total energy requirements. This is increasingly
important as its customers look to assess their own emissions footprint, of which
Strix forms part of their Scope 3 inventory. Strix’s position as a leader in low
emissions therefore offers a potential commercial advantage over its competition.
Efforts are being expanded into analysing its own Scope 3 inventory in 2022/23 to
fully embrace its extended emissions chain. This leads to additional constructive
conversation with suppliers and customers including re-assessment of operational
and supply chain practices, including elements such as modes of transportation of
goods.

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

Strix’s sustainability agenda for 2022/23 remains high on the agenda as it delivers
on its Scope 1&2 targets, analyses its Scope 3 emissions and continues to focus 
on its other KPIs. The pace and delivery of these goals reflects the strong employee
ethos and commitment to the agenda.

An update of our KPIs are set out in the sustainability report available on the 
Strix website.

**Dividend policy**

Given the confidence in the continued strength of its cash generation of the Group,
the Board declares an interim dividend of 2.75p per share (2021: 2.75p).

The interim dividend will be paid on 28 October 2022 to shareholders on the register
at 7 October 2022 and the shares will trade ex-dividend from 6 October 2022. 

**Financial Position**

Strix is in a strong financial position with significant liquidity providing flexibility
to continue to deploy capital consistent with its allocation of capital priorities
and is focused on investing in compelling growth opportunities, in particular on
a new product development and commercialisation strategy that supports the medium-
term growth ambition of the Group. 

The Company also continues to seek the acquisition of technologies that will add
further strategic value across the Group and has a buoyant pipeline of opportunities
it is tracking closely. Following the successful integration of LAICA, the Group
is now actively considering a number of potential acquisition targets.

Exceptional costs decreased to £3.8m (H1 2021: £4.8m). With the completion of the
new manufacturing plant in China last year, there were no factory-related exceptional
costs incurred in the current period as compared to the prior comparative period.
Exceptional costs incurred in the current period mainly related to the accrual of
the employment earn-out costs payable in 2023 to vendor shareholders of LAICA per
the supplemental consulting agreement signed at acquisition. Other exceptional items
include reorganisation costs relating to internal restructuring.

Net working capital which includes inventories, trade and other receivables, and
trade and other payables (including tax liabilities, excluding short-term portions
of long-term liabilities) increased to £23.6m (FY 2021: £18.0m), an increase on 
£5.6m. The main driver behind this is an increase inventory levels by £4.2m. Stock
is traditionally built up in the first half of the year due to seasonality, with
the second half of the year historically proving to be stronger than the first half,
therefore it is anticipated that stock levels will start to clear down towards the
later part of the year due to increased demand. Other drivers for the increase in
net working capital were decreases in trade and other payables of £4.1m mainly due
to payments made to suppliers, partially offset by decreases in trade and other 
receivables of £2.7m due to VAT receipts from the Chinese government relating to
the construction and completion of the new factory in China last year.

**Outlook**

Macroeconomic and geopolitical uncertainty looks set to continue in the near term,
presenting our markets with challenges over the next 12 months.

In light of the significant and well-publicised macro headwinds which have resulted
in a reduction in demand in the key export markets, adjusted profit after tax consensus
for the full year is anticipated to be in range of £27m to £29m. This is based on
an improvement in trading conditions within China which has already started to come
through, the second half of the year always having been seasonally stronger than
the first, the kettle safety controls category being a very resilient business, 
some promising signs of consumer market penetration of our product ranges and the
recent success of online market place launches.

Alongside this, Strix has successfully implemented further product price increases
across the full kettle controls range and water categories (the most recent was 
with effect from 1 May 2022). Strix has previously benefitted from its ability to
adjust its highly variable cost base and it will be implementing a further range
of efficiency measures and strategic initiatives to manage costs during this period
in order to minimise the impact of the challenging operating environment and ongoing
cost inflation.

Disposable incomes continue to be squeezed by rising inflation and interest rates,
but crucially Strix do not yet know how policy makers will respond to this. Strix
will be in a better position to judge how next year’s performance might be influenced
by the market backdrop later this year.

The Group remains on track to deliver medium-term targets to double the Group’s 
revenues primarily through growth in its water and appliances categories.

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