Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss their five-year plan, performance over the last 18 months, the water division, the acquisition of LAICA, impact of the China lockdowns and new products coming to market in the next 12 months.
Q1: Mark, you set out a five-year plan for Strix Group back in autumn 2020. Could you just provide us a recap on what you said and the potential growth of the business by division in terms of both revenue and gross profit?
A1: Back in the autumn of 2020, despite the pandemic, we actually set out our commitments to double the size of revenue to make the Group a £200 million business by the end of 2025 and that was with a gross profit in excess of £67 million.
That was all through organic growth and obviously any strategic acquisitions made through that period would accelerate or be incremental to that plan.
Q2: We’re now 18 months into those ambitious targets, how has the business performed?
A2: To be honest, despite what are some quite challenging macroeconomics, the businesses performed extremely well, and I remain very, very confident on that five-year commitment.
At the end of 2021, the first year of the plan, we saw very strong growth on net sales of around 28% with a gross profit of around £47.4 million on an adjusted basis, that’s an increase of 20% on the prior year.
If you look at the divisions, the appliances performed exceptionally well and in fact, exceeded our Capital Markets Day commitment by around 8%. The kettle controls were more or less in line with expectations and the water division was slightly behind. However, both the appliances and water divisions exceeded the gross profit percentage commitments significantly given the close attention applied to cost coupled with quite a positive product mix over that period.
Q3: So, to summarise, as a Group you’re on target in terms of adjusted gross profit and on revenue, controls and appliances performed ahead or in line and revenue in the water division is the only area that looks to have little catching up to do. Were there specific issues in the year that impacted water and do you expect to catch up with target?
A3: Firstly, as you say, we are very confident we will catch up with the five-year commitment within the division and there were, as you suggest, some very specific issues that we faced in 2021.
The first was Brexit, particularly for the Aqua Optima brand, as it really wasn’t practical to sell these products from the UK into Europe with all the additional costs resulting from Brexit. In fact, we lost around nine months of sales through that period. Fortunately, the acquisition of LAICA has brought us an excellent facility in Europe and as of this year, we’re able to store and ship all of our products in Europe for the sale into Europe, effectively removing that obstacle.
We also had some issues with some of our suppliers, one in particular increasing their price by more than 70% during the year as they treated us as a competitor, following that acquisition of LAICA. As a result, we really did what we do best, we moved all of those products to our new factory in China and as of November last year, we can now manufacture and supply all of those products directly, giving us security of supply as well as improved margins over time.
Finally, there were some issues with approvals. We had planned to launch a full range of products into the USA but during the pandemic, it was almost impossible to get the approvals required, which did delay that part of the strategy by around 10 months. Once again, that’s now been resolved and we will start to see a ramp up in the second half of this year.
So, we did face some significant headwinds but I believe they’ve all now been resolved.
Q4: Now, the acquisition of LAICA appears to be underpinning your confidence in achieving the full year ’25 targets in appliances and water. Could you tell us a little about the business and the potential revenue synergies that it brings?
A4: LAICA has been an excellent acquisition for us and the business performed extremely well during 2021, supporting our growth. The LAICA business has two divisions, the home appliance division and the water filtration division, and therefore was really the perfect fit giving these were also our own growth categories. We’ve already integrated the majority of the business and we are now starting to see some cross selling of the products into the UK.
In addition, we are using the well-recognized LAICA brand to bring some of our exciting new products to market with Visione being the first induction kettle of its kind and the Dual Flo providing exceptional energy benefits by preventing the refilling of kettles. You’re going to see both of those products enter the UK market under the LAICA brand during this quarter, but there are many more benefits to come.
As we saw during a recent investor meeting at the LAICA site in Italy, we have a state of the art manufacturing facility and we will continue to expand this so we can build products in Europe for the sale in Europe, again providing improvements in speed to market but also margins over the longer term as well.
The addition of LAICA has now provided us with a really comprehensive portfolio of products, as well as an exciting roadmap of new products and that’s really now going to allow us to expand our geographical footprint significantly.
Q5: Controls remains an important part of the business, could you tell us a little about what’s going on in the market and have you seen any impact from what’s been going on in China with regards to the lockdowns?
A5: In truth, with the exception of a couple of facilities in Shanghai, we’ve experienced minimal impact from the various lockdowns in China.
Our main factory based in Guangzhou has been unaffected with no lockdowns at all in that region, however, we are far from complacent and we have taken many steps to ensure we minimise any potential issues. For instance, we’ve increased stock in our own factory to prevent against any short term supply issues and we have even held some stock offsite in a different district so that we can support our customers, even in the worst case, if there was an event where we had a lockdown of our own facility.
As with the original outbreak of the pandemic, we continue to put measures in place above and beyond the local regulations across all of our locations to ensure we can protect our employees.
Q6: Now, you touched on this earlier, you’ve a portfolio of new consumer products, could you just give us some colour on the most exciting coming to market over the next 12 months or so?
A6: We’re just 18 months into our five-year plan with lots of exciting things to come. We are very focused on sustainability and we’ll bring a range of new products and support this over the coming years.
In the short term, there are a few things to look forward to. First of all, the Aurora waters dispense system has already been launched, has been extremely successful and you’ll see a range of products being launched within this category globally. That really is a highly energy efficient product and it reduces the use of plastic bottles.
Then we have the Visione, as I mentioned previously, the first induction kettle of its kind, that has already won awards for both innovation and design across Europe.
We then we have the Dual Flo, already available in Canada and soon to launch in the UK and Europe under the LAICA brand, that’s a kettle and a one cup combined into a single device. It is in fact estimated we waste something around £300 million a year by boiling water that we never use, the Aurora and the Dual Flo effectively eliminate that waste.
So, that’s just a taster, we’re going to continue introducing innovative products and initiatives for a sustainable future, making life simpler for our consumers.
So, the outlook is bright with a lot of new products and revenue synergies to come through and the controls business to remain exceptionally resilient and the shares look good value at the moment and offer investors are very healthy yield of over 4.5%.