Strix Group plc (LON:KETL), the global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, has provided the following trading update for the six month period ended 30 June 2020.
· Resilient H1 performance with marked recovery and solid performance in June
· Strong order book visibility for July and August
· Continued to prudently invest in compelling growth opportunities
· On track to deliver 14 new products this year
· External construction of new manufacturing operations in China now complete
· Group expects to report full year adjusted profit after tax in line with the previous financial year (£28.9m)
Trading has held up well despite the unprecedented global macroeconomic disruption caused by the COVID-19 pandemic and the continued uncertainty. The Group has started to see signs of a bounce-back with a solid performance for June and a strong order book for July and August as lockdown conditions have begun to ease globally. First half net sales were down 21% versus last year which was in line with scenario planning.
As previously noted in the AGM Statement, Strix has successfully implemented a range of efficiency measures and strategic initiatives to manage its highly variable cost base and cash resources prudently. This will generate immediate savings to mitigate the impact of the pandemic on full year profit forecasts. Whilst the disruption arising from this situation still remains unclear, following improved demand within the export market, and assuming no significant increase in further lockdown restrictions being imposed or unforeseen macroeconomic shocks, the Group expects to report full year adjusted profit after tax in line with the previous financial year.
The business remains highly cash generative and maintains a strong balance sheet. As at 30 June 2020, net debt was £36.9 million, approximately £6 million lower than budgeted for this financial year, having successfully implemented a range of efficiency measures and strategic initiatives. Following completion of the £60 million revolving credit facility with RBS International Limited and Bank of China in May, the Group has improved financial flexibility for the medium term. This places Strix in a strong position and enables a disciplined approach to investment, so that it can emerge from this crisis well-positioned for a market recovery.
Projected full year capital expenditure will reduce by approximately £4 million against budget for this financial year and will be deferred to 2021 without any delays to key projects that would fundamentally affect the business or the new facilities in China. External construction of the factory and warehouse is now complete and remains on schedule to be fully operational by August 2021 as originally planned.
Kettle Safety Controls
The initial reaction to the COVID-19 pandemic on the kettle supply chain caused supply side disruption as factories in China, where more than 90% of kettles are manufactured, were faced with mandatory local lockdowns and an extended Chinese New Year holiday period. However, by early March the key factories were back in operation, and those focused on production for the China domestic market have experienced a sharp bounce-back in demand. Following Q1 where output was more than 27% down on 2019 levels, China’s overall performance for H1 was down circa 9% and the accelerating trend of recovery is anticipated to continue in H2.
Export markets lagged the China domestic market, in some cases by up to three months. This coupled with the earlier supply side disruption, resulted in H1 being down more than 15% on 2019 export levels. However, signs of the anticipated bounce-back are now starting to come through with a solid performance in June and a strong order book in place for July and August. The Group remains cautiously optimistic about consumption and demand for our products as the rest of the world continues to gradually exit lockdown restrictions. The global macro-economic environment has begun to show signs of improvement, particularly in China where GDP grew 3.2% year-on-year in Q2 with growth expected to continue throughout the year.
Throughout this volatile period, Strix has managed to maintain its market leading position in both the China domestic and export markets for kettle controls, continuing to grow the number of specifications using its latest U9 and Electronic platform ranges.
The Water Category has grown 6% globally during the period year-on-year. Aqua Optima remains in a strong position to capture further growth in H2 when market sentiment improves as a result of its share of the tradebrand segment and increased distribution in both Europe and China.
HaloSource, has now been successfully integrated into the Group and the trading performance of the assets acquired has been in line with the Group’s expectations. The focus now is on capturing the medium-term opportunities by entering into commercial agreements which will drive future profitability. The Astrea product has received significant interest from a number of parties and has secured further distribution with major retail listings in North America as well as a leading home shopping networks feature.
The Group also benefitted from utilising the HaloPure technology to create a disinfection facility at the Guangzhou factory to provide a safe and healthy working environment for its employees during the pandemic and new contracts have been secured for specific sterilization applications in both the farming and medical segments.
The Group has continued to work on growing its appliances category with selected brand partners. In the Hot Water on Demand category, the new Aurora Instant Flow Heater/Chiller appliance is now undergoing development trials at the OEM, and tooling for the Duality project is underway with a US Brand signed-up to launch. In the Baby Care category, incremental projects are in the design phase with a leading baby care brand in both Asia and North America providing a more global reach in this growth market segment.
H1 has seen the acceleration of Strix Global Brand partnerships on new innovative project launches. Within 2021 there are already over 10 agreements in place within the appliances and baby care categories for exciting new launches across all regions.
Operational, New Product, Corporate Progress and Management
The project to relocate Strix’s existing manufacturing operations in China has continued to make positive progress in line with the project schedule, and the Group is pleased to report that the external construction is now complete and remains on schedule to complete all internal work by the end of January 2021, and to be fully operational by August 2021 as originally planned.
Strix has continued to make significant strides in its product development roadmap and remains on target to release 14 new products this year, the majority of which will be launched during the second half of the year in line with the original schedule. Key projects include Duality, poultry drinking systems, Aurora, as well as new filters and Astrea bottles.
In addition to its investment for growth initiatives, the Board continues to invest in strengthening its management in line with its strategy and explore strategically compelling acquisition opportunities, subject to strict financial criteria and consistent with its capital allocation priorities, to further enhance the Group’s growth potential within the water and appliance categories.
Outlook and Notice of Interim Results
Despite the impact on the global economy, the Group is robust and as a market leader with an unrivalled global footprint remains confident in future prospects. Following the implementation of efficiency measures and strategic initiatives, the Group is in a strong position to continue to invest in compelling growth opportunities and is well placed to benefit from the acceleration in demand and emerge as a stronger business once COVID-19 passes as well as the second half weighted seasonality of the business.
The Company has started to see signs of a marked recovery with a solid performance in June and a strong order book for July and August which underpins its confidence for adjusted profit after tax for the full year to be in line with the previous financial year assuming no significant increase in further lockdown restrictions being imposed or unforeseen macroeconomic shocks.
The Group will be announcing its interim results for the six month period ended 30 June 2020 on 23 September 2020.
Mark Bartlett, Strix Group Chief Executive Officer, said:
“Strix has delivered a resilient performance in the first half which is testament to the robustness of the business. It has now started to see signs of a marked recovery with a solid performance in June and visibility of a strong order book for July and August as lockdown conditions have begun to ease globally. This makes us cautiously optimistic about the demand for our products in the second half and is consistent with improving global macro-economic forecast trends.
During this period, we have successfully implemented a range of efficiency measures and strategic initiatives to mitigate the impact of the pandemic on the full year profit forecast which we now expect to be in line with the previous financial year assuming no significant increase in further lockdown restrictions being imposed. This has been done whilst continuing to invest in compelling growth opportunities and we remain on track to deliver 14 new products this year, as well as the new manufacturing operations in China becoming fully operational in August 2021. This will ensure that Strix emerges from this crisis well-positioned to capitalise on a market recovery and an anticipated acceleration in demand.”